Record year for JN

Jamaica National Building Society recorded one of its best financial years for period ending March 2008, helped substantially by its cashing in on shares held in Lascelles de Mercado and Company.

Indeed, the group's $3.9 billion gain from the disposal of investments accounted for most of its $4.9 billion profit, which tripled that of the previous year.

But as the mutual declared itself sound to deal with the challenges thrown up by the global financial crisis, its bosses told members last week that it has also begun to fix concerns raised by regulators - including writing off $1.9 billion of debts by subsidiaries.

JN's general manager Earl Jarrett explained that formally, buildings societies are allowed to lend up to 40 per cent of capital to subsidiaries, or twice the level of commercial banks.

JN was close to the formal legal limit, but the regulator, the Bank of Jamaica, during a long-term trend analysis of the building society called for a roll-back of the intra-group exposure.

"What the BOJ has suggested is that we bring that down to 20 per cent," Jarrett told the Financial Gleaner.

Business activity

Jamaica National was now close to that benchmark at "a little over 20 per cent", he said.

At the organisation's annual general meeting last week, Jarrett said that among the other issues regulators had raised in their trend analysis was the sharp rise in the group's overhead costs, a slippage in gross revenues and a loss on the building society's core business activity.

While he did not give specifics, Jarrett said that JN had begun to address the issues by revising its governance structure, including re-establishing a risk-management unit, sharpening its internal auditing efforts and ramping up training on regulatory and compliance issues.

Internal projects

"We are engaged in several internal projects which are aimed at improving our internal processes and to meet external regulatory requirements as well as internal operating structures," he said.

But the demand for some re-engineering notwithstanding, JN broadly, remained a healthy operation, with its book value at the end of review period, jumping 26 per cent, to $17.7 billion.

During the review period, the building society approved 1,767 new loans, valued at $7.7 billion lifting its loan balance by 28 per cent, to $31.3 billion.

Last year's writing of new loanswas 10 per cent below JN's target. While it retained its position as the island's biggest mortgage lender with 45 per cent, the figure represented a slippage from the previous year.

Central bank figures indicate that a year ago, March 2007, the building society had a 47 per cent share of the mortgage loan market.

Net savings income or NSI also fell well below the JN's aggressive target of $15 billion, but the $5.7 billion booked was 71 per cent above the NSI flows at year end March 2007.

The group - whose holdings range across mortgage and real estate, insurance, small business financing, information technology, money transfer/remittances and fund management - reported revenues of $11.5 billion, a 19 per cent improvement on the $9.6 billion, on the previous year.

Loan portfolio

Within the 2007/08 year, the company grew assets by 22 per cent to $90 billion, ramped up its loan portfolio to $31.3 billion from $24.4 billion, and added $10 billion to its now $53 billion savings fund.

JN was successful at ramping up business, not by trying new strategies, but, as Jarrett told the society's annual general meeting on Thursday at JN's corporate offices in Kingston, just by being better at delivering good old-fashioned customer service. "JNBS continues to offer value for membership by providing benefits for members not given by other financial institutions," he said.

The company has a 97 per cent customer satisfaction rating, and was fourth of 12 corporations in customer satisfaction in a poll done in December 2007 by pollster Bill Johnson.

Surplus

JN's pretax earnings grew almost threefold, from $2 billion to $5.4 billion, while net surplus, after a near half a billion of taxes, was $4.9 billion, compared to $1.68 billion made in 2007.

Still, the group's bottom line looked that fat only because of the $3.9 billion gain from the liquidated investment in Lascelles. In 2007, it reported a similar gain from disposal of investments, but only $867 million.

Additionally, the society - which is the main subsidiary within the group representing 90 per cent of the business - had a $1.9 billion bill for restructuring.

The notes to the accounts, however, said briefly that the restructuring costs "relate to advances in subsidiaries written off to meet regulatory requirements."

The only operation within the group known to have ceased operation is JN Real Estate Company Limited.

Merging depositors

JN group also advises it is in the process of merging the depositors in its 100 per cent owned Jamaican subsidiary, First Metropolitan Building Society, into the operations of the society, but says the merger is subject to the approval of the Ministry of Finance.

JN's mid-line income in the period just ended gives a clearer indication of how well the group performed.

At $1.35 billion, operating surplus was up by 34.5 per cent on the $1 billion made a year ago.

The company's report to shareholders comes two months into the turbulence that has rocked Jamaica and the world market, but Jarrett has given his assurance that JN would "continue to offer its members security and stability."

business@gleanerjm.com

US expands record bailout of insurance giant AIG

WASHINGTON (AFP) — The US government announced Monday an expanded bailout for insurance giant AIG of more than 150 billion dollars, as the Treasury tapped into emergency funds originally set for banks.

The latest bailout plan, the largest in US history, came as AIG burned through billions of dollars of cash and reported a third-quarter loss of 24.47 billion dollars.

The original Federal Reserve rescue of 85 billion dollars in mid-September, at the time the largest in corporate history, was expanded by 37.8 billion dollars just a few weeks later, and involved the government acquisition of a 79.9 percent stake in the troubled insurer.

But AIG, the world's largest insurer before the global credit crisis, has continued to suffer from soured bets on credit default swaps (CDS) and other complex financial instruments amid a financial crisis that accelerated in October.

Under the revised program for AIG announced Monday, the Treasury will replace the entire previous package with a larger, longer-term 152.5 billion dollar program, including a 60 billion dollar five-year loan and 52.5 billion dollars to buy up distressed securities.

The Treasury will tap its Troubled Asset Relief Program (TARP) for 40 billion dollars to buy preferential shares in the company.

"This action was necessary to maintain the stability of our financial system," said Neel Kashkari, the head of the US Treasury's 700 billion dollar rescue operation for the financial industry established in October.

"We recognize that the financial system remains fragile and we continue to stand ready to prevent systemic failures," he said.

The White House emphasized the huge risk of an AIG failure and defended the Treasury's extension of the financial lifeline to the insurer.

Treasury Secretary Henry Paulson and Fed chairman Ben Bernanke "have determined that a failure by the firm would cause damage to our financial system, the US economy and the global economy," White House spokeswoman Dana Perino told reporters.

"Today's announcement is new proof that the TARP will be used more and more to bail out distressed companies -- and not only banks -- instead of its initial goal of buying toxic assets," Marie-Pierre Ripert, analyst at Natixis.

The rescue came as AIG reported its balance sheet deteriorated quickly over the third quarter.

The company said it took 15 billion dollars in provisions, reporting that in addition to losses in its credit default swaps portfolio and securities lending business, its general insurance division was in the red to the tune of 899 million dollars, compared with a profit of 2.51 billion dollars a year ago.

AIG chief executive Edward Liddy defended the expanded aid from Treasury, saying it puts AIG "in a much better position" to address its problems and set it toward recovery.

The extra money gives AIG "more flexibility and more time" to sell assets.

"It is a smart, disciplined process," he said in a conference call with reporters.

"AIG is, in fact, on the road of recovery."

The Treasury rescue, however, suggests that AIG's recovery period could be much longer than anticipated just a few months ago.

In the new program, the previous 85 billion dollar loan is cut to 60 billion, and a lower interest rate is set, but its duration is extended to five years from two.

Another 52.5 billion dollars is provided to purchase distressed assets from the company, including 30 billion for collateralized debt obligations and 22.5 billion for residential mortgage-backed securities.

Thirdly, the government will use 40 billion dollars in TARP funds to buy AIG preferential shares, which will carry a high interest rate of 10 percent.

Defending the deal, Kashkari said the government was setting "stringent" limitations on executive compensation for AIG's senior executives, corporate expenses, and lobbying.

AIG shares were up 8.53 percent at 2.29 dollars in afternoon trading.

The expanded bailout for AIG from a fund originally set aside for banks was likely to raise eyebrows in the US Congress. According to a Treasury official, President-elect Barack Obama, who is already crafting strategies for the economy ahead of his inauguration on January 20, was briefed Sunday on the Treasury's new AIG plan.

The Treasury insisted Monday its exposure to AIG would have a limited lifespan.

"The US government intends to exit its support of AIG over time in a disciplined manner consistent with maximizing the value of its investments and promoting financial stability," it said in a statement.

Washed-away home shows danger of living on edge in OBX

By Catherine Kozak
The Virginian-Pilot
© November 1, 2008
Jeff Akins and his wife picked up the key to their vacation rental in Rodanthe, looking forward to a glorious week in July relaxing at the beachfront home they had so enjoyed the summer before.

After the long trip from their Highland, N.Y., home, they were the first to arrive at the six-bedroom house they were to share with friends. They parked under the house, the view of the ocean obstructed by slats. But something didn't seem right this time.

"We pulled in and watched the surf explode through the boards," Akins said. "We said 'Wow! There must've been a lot of erosion.' "

That same house, he said, had 50 to 75 feet of beach in front of it the summer before.

When their friends arrived from Raleigh, they were nervous about the safety of the house. Akins, a civil engineer, made a cursory check of the house's structure and didn't see anything awry. He did note that the sand fence that had been back behind the dunes last year was now at the high-tide line.

The next day, with the surf crashing up the beach right under the deck, the four friends lined their beach chairs up on a little hill of sand at the tide line by the house. Then one of them happened to glance over at the piling under the deck and exclaimed, "Oh (expletive)! " Akins recounted.

"Tide was splashing against the post, " he said, "then it slid under the post. We said 'noooooo...' Then we realized that there's three of them hanging in the air."

Akins said they immediately called the rental company, which helped them pack up and move to another house. Before they left, Akins saw one of the pilings swinging in the air like a pendulum.

The 5-year-old house, named Caramore, collapsed into the ocean two weekends ago during a coastal storm.

According to Dare County records, the 3,958-square-foot house was valued at $488,800; the oceanfront parcel is valued at $453,600.

Caramore was demolished by an excavator this week. Contractor Carroll Midgett said there were probably 10 to 12 tractor-trailer loads of rubble to haul away, as well as a dozen small truck loads of other debris.

Owners Daniel and Lindora Sargent, from Whitehouse Station, N.J., can hardly believe that, within 24 hours, Caramore was gone.

"Shock is not the word," Daniel Sargent said in a telephone interview Friday. "We had a tremendous amount of sweat equity in that house. This is a disaster for us."

Nothing, he said, was able to be salvaged from the house.

Sargent, 61, said he had an insurance policy with a face-value of $600,000, and he was told he was insured adequately. But recently he has learned that he has only $250,000 of coverage from his federally subsidized flood insurance policy, and maybe minimal coverage from his private insurance for the contents.

"If you're a mortgage broker or a banker, you'd think they would know," he said. "Why the heck would they give me that mortgage? You ask all the questions, then you hire professionals to answer them."

Sargent, a retired police officer who does construction work part time, said he put a big kitchen upstairs, a small kitchen on the ground floor and did all the tile work. His wife, a teacher, delighted in buying upscale decor for the house. Every fall, they would come and reinforce the sand fence with Christmas trees and push the dune back up.

The property, which rented for $5,495 a week at the height of the season, was booked from April to November.

"It was a tremendous investment," Sargent said. "It paid for itself."

Caramore, Gaelic for "friend," was "a dream" to the couple, who have been regularly visiting the Outer Banks for 30 years, Sargent said.

"When we looked at this piece of property, it was absolutely beautiful," he said. "It was 200 feet from the dune to the water. Anybody would have bought it. It had a very spectacular view, both to the north and south."

Buddy Shelton, the chief building inspector for Dare County, said the Sargents met all the conditions that were required before building their house. When it was built, the house was 70 feet back from the first stable line of vegetation - 10 feet more than required by state Coastal Area Management Act regulation.

Since the deed was platted and recorded before the CAMA regulations were implemented in 1979, the setback requirements were grandfathered. Currently, CAMA rules mandate that oceanfront structures must be set back from the first line of vegetation to a distance equal to 30 times the annual erosion rate, or a minimum of 60 feet.

The annual erosion rate of the beach in front of Caramore is an average of 9.5 feet, said Jim Meads, county flood plain manager. The highest rate of erosion on Hatteras is about one mile north at Mirlo Beach, which has an average 14 feet a year. The lowest is 2 feet a year.

Before building, Meads said, oceanfront property owners are required by CAMA to sign a hazard notice that informs them of the erosion rate, the possible number of feet the shoreline could move in a storm and the predicted number of feet of floodwaters during a major storm.

Meads said Caramore is the first house on Hatteras Island to fall into the ocean since Hurricane Isabel in 2003. But oceanfront houses in Kitty Hawk and South Nags Head, also plagued by severe shoreline erosion during nor'easters and hurricanes, have been damaged or destroyed by the ocean over the years. And in every significant storm, houses must be condemned, usually temporarily, because of damage to steps, decks, roofs, septic systems, power supplies or water systems.

Parcels adjacent to Caramore had washed out, but Meads said even that is not necessarily predictive of future disaster. With the way the shoreline erodes and accretes with the seasons, he said, sometimes a parcel comes and goes.

"It sounds crazy, but down the road, that lot could come back," he said. "It's unlikely, but it has happened."

When people see the photographs of the practically brand-new Caramore collapsed pitifully in the ocean, Sargent said, he knows that "everybody thinks he's an idiot" for building a house there without checking into the risk.

"Well, we did check. We asked people," he said. "Perhaps I wouldn't have built if I knew I couldn't insure the structure for the cost it took to build it.

"We're not bitter with anybody we've dealt with professionally. It's just that we would like other people to be aware that your life savings could be out the window in a blink of an eye."

Catherine Kozak, (252) 441-1711, cate.kozak@pilotonline.com