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INTERVENTION & REHABILITATION - BANKING

The Intervention and Rehabilitation – Banking department is responsible for the re–structuring, monitoring and rehabilitation of the FINSAC–intervened banks, which are primarily the Union Bank of Jamaica Limited, and the National Commercial Bank Limited, along with its holding company, NCB Group Limited. 

The department also oversees FINSAC’s Prosecutorial and Forensic Unit, which co–ordinates and assists in the conducting of prosecutorial and forensic investigations into any questionable activities that may have taken place in the FINSAC–intervened entities prior to intervention.

One further intervention took place during fiscal 1999/2000. An additional investment in Billy Craig Merchant Bank (now DB&G Merchant Bank) of $63.6 million was made through FINSAC’s purchase of ordinary shares and 12.5% preference shares. This followed the 1998 joint investment with Dehring, Bunting & Golding.

UNION BANK
Union Bank of Jamaica Limited (Union Bank) was formed from the merger of the assets and businesses of Island Victoria Bank (IVB), Citizens Bank Limited, Citizens Merchant Bank, Eagle Commercial Bank (Eagle), Corporate Merchant Bank and parts of the business and selected assets of Workers Bank. The legal process consisted of first merging the relevant assets and businesses into a single entity – Citizens Bank Limited was chosen for this – and then changing the name of that entity to Union Bank of Jamaica Limited through a vote of the bank’s shareholders. These events took place in April 1999 with the new name becoming legally effective on June 30, 1999.In addition, an increase in authorised share capital of the bank was approved. This increase in share capital was achieved through the creation of 1.485 billion ordinary shares of $0.50 each, ranking in all aspects pari passu with the existing ordinary shares in the capital of the company. Deloitte & Touche, Chartered Accountants were appointed as the Auditors, and Directors were elected. 

The Articles of Association were altered to reflect new stipulations regarding the transfer of shares.

Thereafter FINSAC took action to put the bank on a sound financial footing by:

• Injecting a total of $2.8 billion in new capital, which took the form of FINSAC Notes that qualify as liquid assets. This was achieved through the creation of 1,485,000,000 ordinary shares at 50 cents each ranking pari passu with the existing ordinary shares of the bank. The shares were issued to FINSAC at $1.90 each, representing a premium of $1.40 per share;

• Eliminating $4.6 billion in Bank of Jamaica overdraft as at November 19, 1999. This was done through a loan of that amount to Union

• Bank at 4.5% for the first six months, to re-pricethereafter at a rate to be determined by FINSAC. 

• Purchasing $1.03 billion in non–performing loans from Union Bank, in order to repair the bank’s balance sheet, at the same time working with representatives of Trans America Financial Services (TFS), the consulting firm retained by FINSAC to manage Union Bank on an interim basis, to determine how best to maintain and improve the quality of the bank’s loan portfolio as part of the long–term rehabilitation process;

• Monitoring the bank’s overall progress through weekly meetings with TFS to measure the bank’s performance against targets established by FINSAC in conjunction with international consultants, McKinsey and Company; and

• Implementing a Turnaround Initiative at the bank aimed at improving its overall cash flow and steering it towards profitability. Target areas are Credit, Banking Services, Systems and Operations, Finance and Treasury, and Human Resources.

An initial branch and staff rationalisation was also completed at Union Bank in fiscal 1999/2000. The goal was to achieve optimum operational efficiency and eliminate duplication. As part of this plan, the number of branches has been reduced from 42 to 24, and total staff was reduced from 1,450 to circa 800. Salaries and benefits of all employees have been successfully harmonised.Integration of Information Technology systems was also targeted, and all Union Bank branches and the Head Office now operate a single system called FINWARE. Achieving this integration was a major exercise, which was achieved with minimal technical difficulties. It involved the conversion of over 400,000 accounts.

NATIONAL COMMERCIAL BANK
During fiscal 1999/2000, FINSAC continued to work closely with the National Commercial Bank Limited (NCB) under the terms and conditions of the governing 1998 Financial Assistance Agreement, with the primary objective being value creation through the on–going implementation of turnaround initiatives and improved performance measures.

The bank’s financial year, which ended in September 1999, was a challenging period. Despite a tight liquidity working environment and on–going staff rationalisation, NCB was able to show a profit before tax of $205.75 million compared with a loss of $807 million in the preceding period. FINSAC Notes, which form 61% of NCB’s earning assets, contributed to 57% of income from loans and securities. They played an integral part in the bank’s return to profitability.

The bank re–organised its Non–performing Collections Division surpassing its target by collecting $763 million of non–performing loans, and the Credit Division was substantially strengthened in the areas of Loan Origination, Renewals and Monitoring. 

There is now increased focus in the area of Risk Management with a view to reduce the bank’s exposure to third party risk. NCB’s Y2K renovation and preparedness programme was a success with no major hitches – a commendable feat given the myriad number of systems at the bank since their mergers with Mutual Security Bank and others.

The first quarter of fiscal 1999/2000 saw NCB reporting an operating profit of $29.9 million compared with $11.2 million in the first quarter of 1998/1999. It is expected that this profitable trend will continue through its financial year, despite the high loan loss provisioning of approximately 

$1.5 billion required to comply with the proposed new Bank of Jamaica regulations, which come into effect in June 2000.

PROSECUTORIAL AND FORENSIC
The Prosecutorial and Forensic Unit within FINSAC was formally established near the end of fiscal 1998/1999, with reporting lines through the Managing Director to a sub–committee of the Board in recognition of the highly sensitive nature of some of its activities.

On potential criminal matters, the Unit initiates its own investigations with the assistance of forensic auditors. Based on its findings, it then makes reports as necessary to the Police Fraud Squad. Thereafter, members of the Unit work closely with the office of the Director of Public Prosecutions and the Fraud Squad to identify further evidence and to assist the authorities generally in trial preparation. In civil matters, the Unit works closely with FINSAC’s external attorneys to prepare matters for suit, and thereafter for trial, against persons identified as being responsible for losses in FINSAC–intervened institutions, where such losses are due to the acts and/or omissions of these persons.

During the year, the Unit continued to oversee civil proceedings in relation to its investigations of several major FINSAC–intervened institutions including the Blaise financial entities, Ciboney Group Ltd., the Eagle financial entities and Workers Bank and its affiliated entities.

Suits have been filed against a number of individuals and the matters are now in the early stages of trial. Arising out of the Unit’s investigations, a number of criminal matters have been referred to the authorities as above.

Highlights of achievements during the year April 1, 1999 to March 31, 2000 include:

• Successful judgement in the Century civil case, in which Donovan Crawford and other executives of Century financial entities were ordered to pay over $2 billion to Financial Institution Services, the successor to the Century financial entities;

• Suit was filed and orders for speedy trial were obtained in a case brought against former Eagle principals to recover approximately $450 million;

• Litigation was initiated against former principals of Workers Bank et al arising from initial public offering of shares in Friends Group Limited in 1993. The claims filed by FINSAC – intervened entities total approximately $24 million; 

• Litigation continued against former directors of the Blaise financial entities for mismanagement, breach of fiduciary duty and fraud. Civil suits were consolidated and claims updated and re–filed for recovery of over $1 billion; and

• Litigation continued against principals of Ciboney Group Limited for breach of fiduciary duty, fraud and for recovery of over $630 million.

In fiscal 2000/2001 the following tasks will proceed:

• Recovery of judgement of $1 billion and US$35 million in the Century civil case depending on the outcome of the appeal against judgement by Donovan Crawford. This matter is on appeal to be heard in July 2000.

• Reports on criminal matters arising out of other investigations will be finalised.

• Consultations will continue with professional bodies regarding standard setting and sanctions against professionals involved in fraudulent activity.

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