Capital Markets

I

EXECUTIVE SUMMARY

NCB Capital Markets Limited is one of the major players in the investment

banking sector in Jamaica. The current economic climate threatens the viability of this

industry and only the most efficient and strategic will survive as the region in general and

the nation in particular rides out this economic storm. There are however, numerous

opportunities that are presented within the pangs of the crisis. The leadership of NCB

Capital Markets Ltd. ought to be aware of this and position for full advantage.

This research paper provides insights into the NCB Capital Markets Ltd. as it

relates to its strategies, strengths and weaknesses. The paper continues through an

examination of the effectiveness of the company’s current strategies and whether these

strategies, if unchanged can ensure the company’s continuity. Our findings have

highlighted the absence of a properly defined, articulated and executed strategy to guide

the organizations progress. This creates numerous challenges such as performance

measurement. As the saying goes, if you aim at nothing you will hit with amazing

accuracy.

The paper concludes with our recommendations of strategies and tactics to be

implemented by NCB Capital Markets Ltd. to gain and maintain a competitive advantage

in the wealth management industry. These recommendations are based on best industry

trends and engage four major categories, people, processes, products and Marketing

which revolves around a customer focused philosophy linked together through a vastly

improved technological infrastructure. The proud tradition and heritage of the group must

be fused with the dynamism of today’s business paradigm.

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Capital Markets

II

ACKNOWLEDGEMENT

Our sincerest of thanks to the Management and members of staff at NCB Capital Markets

Limited for accommodating our inquiries and providing us with interviews and access to

important data about the company. We also thank our project supervisor who worked

tirelessly with us to complete this paper.

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Capital Markets

III

INTRODUCTION

Historically, Capital Markets have been fundamental to a country’s economy and

development and are defined as “the mechanism that allows the exchange of money

between companies and investors, companies and banks, and investors and banks, where

each party seeks to raise capital or put capital to work” (p.1). Hayes (n.d.). Many

companies and governments use this medium to raise long-term funds through the

primary market and secondary markets for their viability.

There would be no benefit to be had from a futuristic exercise that ignores the

lessons of the past. As we consider the future development of capital markets a key

question that needs to be answered is how to prepare for the challenges and events that

the financial industry will face to remain competitive. In the past decade with the advent

of globalization, the future and potential for success in the financial markets must have

seemed immeasurable, but with the benefit of hindsight, we now know the exorbitant

problems and the enormous impact that it has had on governments globally.

Capital Markets in Jamaica are no different and they too have not been spared the

negative impacts that have plagued the industry, however, there may be some prospects

that exist for companies to improve their brand or reputation. This can be achieved by

taking a practical approach in responding to the risks and opportunities which can have

significant financial implications that affects the performance of their investment

portfolios.

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Capital Markets

Nature and Purpose of Study

This research was undertaken to examine and assess the current situation of NCB

Capital Markets Ltd. and make recommendations for its likely future success if changes

are not made to its current strategy, based on current economic conditions. It is hoped

that the recommendations coming out of this study can be used by management to assist

with the enhancement of the organization’s performance.

Problem Definition

NCB Capital Markets Ltd. is the third largest securities company operating in Jamaica,

measured in terms of total assets. The industry is faced with a global economic crisis and

its survival is dependent on well structured and executed strategies. The research seeks

to firstly (a) answer the question as it relates to the likelihood of ongoing success for the

company given its current strategies, (b) determine whether the firm should change its

strategies; and if so, in what general directions.

Problem Statements

1. The ability of NCB Capital Markets to grow revenue based on its current

strategies.

2. The likelihood of the company remaining afloat given current market conditions.

Thesis Statement

A study of NCB Capital Markets strategies for sustained competitive advantage, in the

Jamaican economy.

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Capital Markets

LITERATURE REVIEW

Introduction

An enormous amount of written works exist on wealth management and its

importance to the financial industry. Based on an examination of this literature, it can be

seen that firms within this industry need to be properly managed, hence the relevance of

corporate governance. This chapter looks at Capital Markets and its importance then

moves on to examine strategy development with a view to obtaining sustainable

competitive advantage.

Capital Markets

The Jamaican economy has not been spared the effects of the global crisis rocking

the financial industry and the global economy in general. Capital Markets have played an

important role in the development of many countries economy for many years. Professor

Hayes (n.d.) of Harvard Business School defined capital markets as “the mechanism that

allows the exchange of money between companies and investors, companies and banks,

and investors and banks as each party seeks to raise capital or put capital to work” (p.1).

Hayes (n.d.) further stated that, the capital market is where companies and governments

can raise long term funds for periods longer than a year, letting companies offer

ownership or promise repayment to investors in exchange for capital. They can take a

loan from a bank that lends its depositors’ money to borrowers in exchange for the

promise of future repayment and interest. The capital markets consist of the primary

market where new stocks and bonds issues are sold to investors and the secondary market

where existing securities are sold and bought from one investor to another.

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Capital Markets

Financial markets around the world have been sent into a tailspin with the

collapse of banks, investment market giants and the overall deterioration of most

economies globally. The big question on most persons mind is whether or not things will

change for the better any time soon or will it continue to deteriorate in 2009. In a recent

article highlighting a panel discussion on the future shape of investment banking, one of

the panelists, D'Estais (2009), stated that the dramatic turmoil of the last 18 months has

left global capital markets effectively broken.

Rationality is irrelevant and markets are trading on fear, preparing every day for

the next crisis. With a global recession, the biggest concern for 2009 is how companies

will finance themselves in the capital markets. Of importance also is an analysis of the

organization’s resources. This requires an exploration of the skills and resources available

within the organization which, when properly utilized, can create a competitive

advantage for the organization.

When analysts weigh in on the current crisis facing the global economy, it is clear

that they maintain a bleak outlook of the financial market, at least for the short term. The

Stock Market in particular is taking a beating globally and this is not expected to change

in the near future. For now, investors are stuck in an uncertain environment, where

everything they scrutinize to make decisions, from earnings to economic measures to

technical indicators, is deteriorating before their eyes. Stocks at these price levels could

represent long-term bargains, but at a time like this, few investors are bold enough to

challenge the bear (Steverman, 2009).

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Capital Markets

Competitive Advantage and Strategy Development

According to Lynch (2006), a sustainable strategy is more likely if the strategy

delivers sustainable competitive advantages over actual or potential competitors. If a

company is to succeed then there must be a fit in strategy among the various departments

within the company. Each department’s strategy should feed into the overall corporate

strategy of the company. Lynch (2006) defined strategy as the pattern or plan that

integrates an organization’s major goals or policies and action sequences into a cohesive

whole.

Within the context of the global financial crisis, gaining a competitive advantage

and being able to sustain it poses a drastic challenge for many companies in the

investment banking industry. Competitive advantage can be described as the significant

advantages that an organization has over its competitors. Such advantages allow the

organization to add more value than its competitors in the same market (Lynch, 2006). In

developing strategies it is necessary to set objectives in the context of the environment

and competitive resources of the organization (Lynch, 2006).

An analysis of the environment as it relates to what is taking place or likely to

happen outside the organization and how this will affect the organization is essential.

Competitive Advantage according to Dessler (2008) is defined as “any factors that allow

a company to differentiate its product or service from its competitors to increase market

share” (p. 82).

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Capital Markets

Companies use several generic competitive strategies to achieve competitive advantage

and as noted by Dessler (2008), these strategies include:

1. Cost leadership where the company aims to become the low-cost leader in the

industry.

2. Differentiation where the company seeks to be unique in its industry along

dimensions that are widely valued by clients/customers/buyers.

3. Focus where the company carves out a market niche and compete by providing a

product or service customers can get in no other way.

A brilliant strategy, blockbuster product, or breakthrough technology can put you

on the competitive map, but only solid execution can keep you there (Neilson, Martin &

Powers, 2008). Neilson et.al (2008) further stated that research shows that enterprises fail

at execution because they go straight to structural reorganization and neglect the most

powerful drivers of effectiveness; decision rights and information flow. Of equal

importance is having a fit in strategy among the various departments within the company.

Each department’s strategy should feed into the overall corporate strategy of the

company.

Although it may seem unlikely, there are executives who cannot articulate the

objectives, scope and advantage of their business in a simple statement (Collis &

Rukstad, 2008). Collis & Rukstad (2008) further revealed that in their experience, very

few executives could answer honestly in the affirmative to the questions: “Can you

summarize your company’s strategy in 35 words or less? If so, would your colleagues put

it the same way?”(p. 1).

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Capital Markets

Companies that don’t have a simple and clear statement of strategy are likely to fall into

the unfortunate category of those that have failed to execute their strategy.

The Importance of Corporate Governance

Corporate Governance refers to the influence and power of the stakeholders to

control the strategic direction of the organization in general and more specifically, the

chief executive and other senior officers of the organization (Lynch, 2006). Handley-

Schachler, Juleff & Paton (2007) noted that the distinctive characteristics of financial

services companies imply the need for distinctive corporate governance arrangements for

the financial services sector.

Recent corporate collapses and malpractices within the sector suggest that there

have been sufficient system weaknesses to enable episodes of financial company

malfeasance (Handley-Schachler et. al, 2007). These events point to the need to sharpen

both risk management and internal control procedures and external oversight.

Throughout the world various legal and regulatory changes have been proposed or

implemented in an attempt to improve corporate governance (Durden and Pech, 2006).

Legal commentators in particular have advocated a greater role for legislation and

government sanctioned regulatory bodies in the operation of corporate governance

(Durden, et al, 2006). According to Guasch and Hahn, (1999), as stated by Durden, et al,

(2006), the overall goal of business and economic regulation, including corporate

governance, is to improve market efficiency. Therefore some level of corporate

governance regulation is a necessary component of a well functioning economy.

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Capital Markets

The review of literature while confirming the global crisis, confirms the

interrelationship to capital markets, strategy development and corporate governance if a

sustainable advantage is to be created.

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Capital Markets

IV

METHODOLOGY

Data Collection

The leadership of the organization was quite enthusiastic about participating in

this research as they were interested in reviewing the findings of the study. A series of

methods were used to collect the data used in compiling this research paper. Interviews

were conducted with various members of staff ranging from General Manager to Client

Relationship Officers. The company’s historic data contained in Annual Reports and

other strategic documents were reviewed and analysed. This was complimented by the

review and analysis of competitors Annual Reports as well.

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Capital Markets

V

INDUSTRY ANALYSIS

Introduction

In making an assessment of the macro external environment in which NCB

Capital Markets operates, a Political, Economic, Socio-cultural and Technological

(PEST) analysis was conducted to ascertain the importance and the general influences

that the environment, has on the organisation.

Political Stability/Political Parties and System of Government

The Jamaican political environment is stable with a democratic system of

government comprising of two well-established political parties, the ruling party Jamaica

Labour Party (JLP) and the opposition People’s National Party (PNP). Both parties are

generally supportive of business and foreign investments. The present administration

under Prime Minister Bruce Golding of the JLP has reversed some economic policies of

the previous administration like entering into borrowing arrangements with multilateral

agencies. This is with the view of refinancing higher cost debt instruments. This could

have consequences on businesses ability to raise funds on the international market as the

country may be seen as being more risky (Grinfeld, 2009).

On the other hand, with the government able to access cheaper funds and possibly

refinancing higher cost debt, the interest rates locally will decline. Another change in

economic policy is the fixing of the exchange rate which could possibly lead to the

development of currency black market. The present administration also welcomes foreign

investments and emphasizes the need to attract more foreign investment to help boost the

country’s economy.

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Capital Markets

The Prime Minister in December 2008 also announced a $1 billion stimulus

package including low-interest rates and tax cuts to support Small and Medium

Enterprises (SMEs) and the tourism sector during this present global economic crisis. The

high cost of borrowing has led local businesses to claim that foreign investors have an

unfair advantage in bidding for privatized state assets; it is unlikely to translate into

discrimination against foreign interest rates and as the government sees the need for

foreign partners, especially for infrastructure and tourism-related projects (Grinfeld,

2009).

Government Legislation and Regulation

The new government has been placed under a lot pressure by the working population

and the general public to review certain laws as regards the labour force and financial

sector of the economy. The following are some important areas of legislation that the

population expects the government to focus on.

1. Wage legislation - Increase in minimum wage could result in individuals at the lower

scale of the income ladder being able to afford banking/investment products and

services.

2. Industrial safety regulations - Increasing emphasis on workers safety.

3. Regulation - The financial sector have also been put under the eyes of the

government and its regulatory agencies because of the proliferation and increase of

banks and alternate financial and investment houses in the country.

The regulators, in particular the Financial Services Commission have been on an

education drive to inform the general public about the dangers involved in placing their

funds in unregulated institutions.

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Capital Markets

ECONOMIC ANALYSIS

The global economic crisis which started in the last quarter of 2008 has had

significant effects on financial markets around the world. This has led to failed banks,

freezing of the credit market and a sub-prime mortgage crisis/financial crisis. Since the

beginning of this disaster, global economic conditions have deteriorated rapidly. The

local macro economy which had already been weakened by high inflation, slowed

further. Global bond prices also fell sharply and the local currency depreciated at the

fastest rate since 2003 (Economic Intelligence Unit, 2009).

High hopes are placed on the policymakers of the major world economies, to successfully

end the crisis in the global financial system and avoid a protracted recession. Given the

conditions prevalent in the global economy, the local economy continues to face

numerous challenges from the external environment such as weakening of the local

currency, increased risks of fiscal slippage in financial year of 2009/2010, a contraction

in output, rising unemployment and continued weakness in the stocks and bonds markets

(Economic Intelligence Unit, 2009).

In examining the macro economic factors, the following observations were made

in relation to output, foreign exchange, inflation rate and investment:

Output

Global growth has slowed considerably as the financial crisis continues to affect

consumer spending, employment and output. With the major trading partners already in

recession, economic activity has begun to decline. This has had a negative impact on the

mining sector as prices of bauxite and alumina exports have declined on the international

markets.

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Capital Markets

Despite ongoing supply cuts and production delays, the pricing environment is

expected to remain weak as demand is projected to continue falling. Tourism and

remittance flows have reduced, thereby further affecting local consumer spending. The

manufacturing sector remains weak in light of the slowdown as well as construction

activity and agriculture. Of importance also, are the ongoing cuts in government capital

expenditure which will further weaken the real GDP. As a result economic growth will be

flat with declines in the first half of the year, but there is the potential for improvements

as the year runs out and the global economy expects to begin a slow recovery (Economic

Intelligence Unit, 2009).

Foreign Exchange Market

The foreign exchange market experienced extreme turbulence in the last quarter

of 2008. With the heightening of the global credit crunch, local financial institutions lost

international credit lines and local brokerage houses were forced to meet margins calls

from overseas brokers. There was subsequent increase in demand for US dollar which in

return placed significant pressure on the Jamaican dollar.

As a result, the Jamaican dollar lost 14% against the US dollar in 2008 with most of the

depreciation taking place in the September to December period (11.66%). The rapid

depreciation in 2008 is similar to what occurred in 2003 when the local dollar lost 19% of

its value relative to the US dollar. This time around, however, domestic as well as

international factors were the main catalysts behind the sharp depreciation (PSOJ, 2008).

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Capital Markets

Inflation Rate

In 2008, consumers saw their real incomes decreasing as commodity prices and

oil prices skyrocketed and inflation hit a record high. The inflation rate peaked at 26.6%

for the twelve months to August 2008. However, as oil prices declined, inflation

moderated to 19.7% in November 2008. Inflation rate should improve this year well

below last year’s levels with the recent fall in energy prices and weak consumer demand

as a result of the global economy crisis (PSOJ, 2008).

Investment

Increased risk aversion on the international markets stemming from the ongoing

financial crisis prompted investors to shift funds from emerging market debt securities

towards safer instruments such as US Treasury Bills. All Government of Jamaica Bond

issues experienced steep declines in 2008 (PSOJ, 2008).

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Capital Markets

TECHNOLOGICAL ANALYSIS

Technology Developments

Recently, technological expansions have changed the face of the industry and

consequently, an increase in electronic financial solutions. Technology's innovation

impact on product offering has caused several changes to the face of products offered in

addition to the means of making these offers to customers.

Cost Structure Impact

Technology can support various advantages and disadvantages in terms of costing

such as reducing human productivity and process costs. These benefits contrast against

the significant acquisition and maintenance costs.

Companies willing to undertake this investment must realise that technology must

also be assigned imperatives within the overall strategy framework to engender any

advantage not easily replicable.

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Capital Markets

SOCIO-CULTURAL ANALYSIS

Ethical/Moral Issues

The crime rate has been at consistently pandemic levels in recent years and has

impacted negatively, the levels of foreign direct investments flowing into the Island. This

has been a reason for capital flight as many Jamaicans migrate to countries like Canada

where the crime rate explicitly murder, is much lower.

The current global crisis threatens to exacerbate this situation against the

background of job losses which has climbed significantly since the start of the year.

Gareth Manning (2008), Jamaica Gleaner staff reporter, wrote in an article that

“approximately 2,077 jobs have been cut since January 2008, according to the labour

ministry records and seven thousand more are at the knife's edge.”

A recent article Myers (2009) stated that Milton Samuda, president of the Jamaica

Chamber of Commerce cited figures showing an alarming growth in crime in Jamaica in

recent years, while also noting that criminals were increasingly widening their activities

geographically. For economic growth to take place in Jamaica, crime and violence

containment as well as reduction will have to be an imperative, Myers (2009) continued.

Seasonality and Weather Issues

The official hurricane season runs from June to November annually and Jamaica

being a tropical island, experiences quite frequently severe disruptions and losses to

businesses due to the effects of disasters. As a result, business has had to make the

necessary provisions to mitigate against the negative effects that could arise from these

events over which they have no control.

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Capital Markets

Lifestyle Trends

The recent global economic crisis has severely affected consumer behaviour in

relation to spending patterns. Many people both globally and regionally, have been forced

to cutback significantly on spending and tend to save more, no doubt as a result of the

uncertainties that lie ahead. This has been borne out by an article published in The

Economist, (April, 2009).

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Capital Markets

THE FINANCIAL INDUSTRY ANALYSIS

The Jamaican financial system is monitored by the Central Bank, Bank of

Jamaica (BOJ) that promotes and maintains the financial systems stability. The BOJ is

charged with the responsibility of supervising Deposit Taking Institutions (DTIs) like

commercial banks, money services businesses such as, remittance companies and foreign

exchange traders.

Non-deposit taking financial institutions such as insurance companies, securities dealer,

unit trust, private pension funds and mutual funds fall under the purview of the Financial

Services Commission (FSC).

The financial system in Jamaica though not as sophisticated as the United States

or the Euro zone consists of a spectrum of institutions that provide the financial

intermediation between excess spending units and deficit spending units; the distinction

between commercial banks, investment banks and corporate brokerage houses has

become blurred whereas traditional Commercial Banks have created various divisions

allowing them to delve into securities dealing, insurance, mortgages and investment

banking.

Despite deteriorating conditions in the global financial market and fears of local

contagion from “toxic” international investment products, the local financial market

remains relatively stable. Around the world stock markets have fallen, several large

financial institutions such as Bear Sterns and Lehman Brothers have collapsed, and

governments such as the United States have had to come up with rescue packages for

their financial institutions (MSNBC, 2008).

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Capital Markets

One such incident is the US$85 billion given to the American International Group (AIG)

to prevent it from filing chapter 11 (corporate bankruptcy) as reported in September 2008

on MSNBC, uncertainty and instability in the international financial market, coupled with

doubts in these rescue packages and its long-term effect on stability of the local financial

market raises some cause for concern.

The Financial Services Industry is an important aspect of the Jamaican economy.

The 2008, third quarter economic activity results, published by the Statistical Institute of

Jamaica, reflected growth of 1.7 per cent in the Financial Services Sector relative to the

similar period in 2007 and having a strong regulatory body provide necessary oversight

to protect the interest of investors thereby raising investor confidence.

Inflation

The second half of 2008 saw headline inflation trending downwards as demand

fell with the exception of July which had 2.84% inflation. This was due mainly to the

lagging effect of the increases in international commodities prices; however the

downward trend in oil prices elicited a pass through effect on inflation resulting in a less

than 1% rate of inflation since September 2008 continuing to February 2009 as seen in

Figure 1. Business and consumer confidence decreased in the fourth quarter of 2008

whereas spending plans were shelved and negative expectations hindered economic

activity (PSOJ, 2008).

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Capital Markets

Changes in inflation affected short-term interest rates of the money market as

adjustments were made for higher domestic inflation rates.

Figure 1: Inflation Trends 2008/2009

In February 2009, inflation was on the rise to the tune of 0.81%, with the root

causes attributed to a 4% increase in the price of housing, water, electricity, gas and other

fuel items. The next major factor was maintenance and repair of dwelling with a 5.7%

hike.

The 2009 inflation calendar year to date (YTD) is 0.5% when compared to 4% for

the corresponding period in 2008. Inflation 2008/9 trailing twelve months (TTM) is

12.8% versus 14.43% for 2007/8, in addition the fiscal 2008/9 inflation YTD February

was 11.5% in contrast to the corresponding fiscal period in 2007/8 of 18.2%.

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Capital Markets

Foreign Exchange

The US dollar remained stable throughout the first three quarters of 2008 only

changing by + .02% daily from January to September 2008. In October 2008 the US

dollar jumped to a 1 percentage daily change; a similar change ensued in November and

December which saw a 1.2 percentage change in the US denominated spot rate.

The local currency in December depreciated by J$2.71 or 3.5%, and was sold at $80.47.

The Jamaican dollar depreciated by J$9.85 or 14 percentage points Year to date (YTD)

January to December 2008 (see figure 2). This was triggered initially by margin calls by

US investment banks on local brokerage houses who had used the declining Jamaican

government bonds to back loans. The persistent slide was fuelled by speculation from

market players that the Government would be unable to defend the dollar.

The Pound Sterling and the Canadian Dollar also began to deviate from a fairly

stable movement of + 1% change and + 1.5% daily change respectively by the end of the

third quarter. Unlike the benchmark “Green Back”, the pound’s year to date performance

for January to December 2008 was depreciated by J$23.49 or -16.7% and the Canadian

dollar by J$5.85 or -8.2% during the same period as shown in Figure 2 of Appendices.

23

Exchange Rate Trend

0

10

20

30

40

50

60

70

80

90

100

Jan. Feb Mar Apr May June Jul Aug Sept Oct Nov Dec

Month

J$:1

US

D

2008 2009

Capital Markets

Figure 3. Exchange Rate Trend

The escalating demand for the US dollar caused the BOJ to raise interest rates on

Certificate of Deposits (CD), the scarce US dollar evoked a major depreciation in the

local currency. BOJ in an attempt to mop up liquidity by limiting the amount of cash

institutions have to lend has increased the liquid asset ratio from 23% to 25% and the

cash reserve requirement increased by 2% to 11%. Other contractionary monetary policy

initiatives were:

1. A special loan facility in foreign currency for securities dealers and DTIs to repay

overseas margin calls.

2. Increasing interest rates across all tenors’ open market operations instruments.

3. Offering a special 15-day Certificate of Deposit (CD) to Primary Dealers and

Commercial Banks.

4. Intervention sales of US$432.1 million in the foreign exchange market.

24

Domestic Interest Rate Movement

0

5

10

15

20

25

30

Jan.0

8Feb08

Mar08Apr08

May08

June

08Ju

l08Aug0

8Sep0

8Oct0

8Nov0

8Dec0

8Ja

n.09Feb09

Mar09

End of Period

%

T-Bill Weighted AverageDiscount Rate

Average Saving Rates

Average Lending Rates

Capital Markets

The six month T-Bill as at December 31, 2008 had an average yield of 24.45%

which is 519 basis points or 5.19% increase over November’s 23.24%.The six month T-

Bill YTD grew by 10.93% of which over 90% of this change was realized in the fourth

quarter of 2008 as evidenced by Figure 3. This huge movement in T-Bill rates was caused

by the high interest policy measure implemented by BOJ which may result in a

“crowding out effect”.

The average lending rate has made marginal changes throughout the calendar year

ending November 2008 at a 23.17% lending rate which is .59% higher than the previous

month; December made no change with the lending rate remaining at 23.17% as

illustrated in Table 1 in Appendices. The average savings rate has been constant at 5.5%

for the five month period July to November 2008, with December’s rate moving

downward by 21 basis points to 5.33%. Figure 4 gives a graphical view of the domestic

interest rate movement for the period January 2008 to March 2009.

Figure 4. Domestic Interest Rates

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Capital Markets

Analysis of the Assets and Liabilities of Deposit Taking Institutions (DTIs)

The DTIs within the financial sector comprising of Commercial Banks, FIA

Licensees (Merchant Banks) and Building Societies submitted to the BOJ their assets and

liabilities for the fourth quarter of 2008, as a result the central bank published the annual

unaudited prudential indicators for the sector on March 13, 2009 referred to Table 2 of

Appendices.

Pan Caribbean Merchant bank was the second largest FIA behind Capital and

Credit Merchant Bank; it was awarded a commercial bank license on June 23, 2008 and

is now Pan Caribbean Bank (PCB) consequently their merchant bank license was

surrendered and the FIA players are now three which has contracted their combined

assets by 22.5%.

Rate of Asset Growth

Total assets including contingent accounts (customer liabilities for acceptances,

guarantees and letters of credit) was $729 billion for the period ending December 2008;

the entire financial sector grew by 8.1% even though the FIA licensees (Merchant Banks)

suffered a massive decrease in growth of -28.2 % due to the exit of Pan Caribbean.

Commercial Banks and Building Societies assets on the other hand grew at a declining

rate compared to the last two corresponding periods, there growth was 10.4% and 12.9%

respectively.

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Capital Markets

Rate of Deposit Growth

Total growth of deposits in the sector plummeted to 4.5% when compared to the

last two periods of December 2007 and 2006 that had growth of 14% and 14.9%

respectively. The FIA licensees spearheaded the lethargic growth of deposits with a

negative growth of 15.4%. Deposits were $441 Billion in 2008, $422 billion in 2007 and

$370 billion in 2006.

Rate of Loans Growth (Gross)

The adverse effect on FIA growth by the departure of Pan Caribbean looms as

their rate of loan grown is negative 23.9% which has sprinted away from a 27.5 growth

rate in the prior year ending December 2007. The financial sector’s rate of loans grew by

24.2% to $328 billion; this represents a 450 basis points slip from 2007’s loan rate

growth. Therefore the sector loans grew at a declining rate with commercial banks and

building societies contributing 26.2% and 29.1% respectively.

Rate of Capital Base Growth

Capital base growth rate for the sector grew at an increasing rate to 13.3% over

the corresponding period in 2007 moving from $61 billion to $70 billion despite the FIA

licensees’ negative growth of 23.1%. The number of commercial banks increased to

seven with the inclusion of Pan Caribbean Bank which may have caused the capital base

of commercial banks to grow at an increasing rate of 18.5% moving from 12% in 2007.

Building societies capital base grew by 11.4%.

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Capital Markets

Non-performing Loans (NPL)

Non-performing Loans (NPLs) grew by 57.6% moving from a 14.2% growth rate

in the corresponding period in 2007. Commercial Banks and Building Societies were the

major contributors to this massive growth with 65.1% and 55.5% respectively. FIA

licensees’ contribution was a much smaller 9.8% but the aggregate growth of NPL for the

sector may have been the result of the impact of the alternative investment schemes and

the pass through effect of the global financial crisis on businesses and consumer in the

last quarter of 2008.

Capital Adequacy Ratio (CAR)

A measure of a financial institution’s capital expressed as a percentage of a bank's

risk weighted credit exposures. The Web site of Investopedia (2009) stated that there are

“two types of capital, tier one capital which can absorb losses without a bank being

required to cease trading, while tier two capital, absorb losses in the event of a winding-

up and so provides a lesser degree of protection to depositors.

The industry standard for CAR is 10%, all three types of DTIs have exceeded this

standard with commercial Banks having 13.9%, FIAs with 20% and Building Societies at

19.8%. The aggregate CAR of 15.2% for the industry grew at a declining rate compared

to the prior year’s 16%, however the financial system’s CAR shows some level of

financial soundness as their capital can absorb losses, liabilities or risky exposures.

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Capital Markets

Credit Unions

The BOJ commenced its supervision of credit unions in 2006 with total

membership of 874,471 spread across 48 credit unions. The credit union movement

financial performance as at December 2008 reported membership experiencing a year on

year growth of 4.70% to increase to 953,783 despite declining to 46 credit unions, two

less than the prior year (Jamaica Co-operative Credit Union League, 2009).

Approximately 60% of the adult population are members of a Credit Union; the

last five years saw membership increasing on average by 5% per annum. Total assets

were $50.614 billion increasing by 14.45% accompanied by a 19.61% increase in

deposits and a 14.89% growth in savings valued at $19.231 billion and $39.505 billion

respectively. Credit unions had a loan to savings ratio of 81.7% in 2008 comparing to

90.1% in 2007 (Jamaica Co-operative Credit Union League, 2009). Figure 5 in the

Appendices shows a graphical view of Credit Union membership.

Analysis of the Assets and Liabilities of Non-Deposit Taking Institutions

During an interview with Palmer of the FSC (personal communication, April 2,

2009) the following key indicators for non deposit taking institutions as at December 31,

2008 were identified.

Funds Under Management (FUM)

The 30 securities firm accounted for $635.31 billion which is 80.91% of the

$785.2 billion managed fund for the securities industry. The other sectors accounted for

the remaining 19.09% with insurance companies receiving the lion’s share of the

remaining FUM with 13.68% (see Figure 6). It is important to note that managed funds

include pension funds.

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Capital Markets

Figure 6. Funds Under Management by Sector

The industry FUM rose at an increasing rate from the last quarter 2007 and

continued until September 2008 (see Figure 8); in the midst of the global financial fallout

and the ripple effect of the toxic asset, the final quarter of 2008 saw FUM on the decline.

Nonetheless, the FSC set a benchmark of 50% or less for intermediation ratio that

assesses the efficient use of managed funds to deficit units.

A third of the securities firms failed this early warning test, all the other sectors

supervised were at or below the FSC benchmark. The entire industry had a ratio of 22.9%

for the last quarter of 2008; the corresponding period last year was 24.6%.

Capital Adequacy and Total Assets

Capital remained constant at approximately $100 billion for the industry the last

quarter of 2008 declined slightly to $95.5 billion (see figure 8). The CAR for the industry

was 40.5% which is way above the benchmark of 14% set by the FSC. Seven securities

firms however, did not have a CAR greater than the benchmark.

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Capital Markets

Total Assets saw all quarters increasing but the last two quarters increased at a

declining rate whereas the first quarter of 2008 total assets grew by 4.48% and the final

two quarters grew by 2.67% and 1.25% respectively. The capital to assets ratio for the

industry was 12.4% that doubled the benchmark that was set by the regulator, 10

securities firms did not have ratios greater than 6%.

Key Indicators Trends for the Securities Industry

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

Dec-07Apr-08Aug-08Dec-08 Quarters

$' Millions

TOTAL ASSETS

CAPITAL

FUM

TOTAL REPO LIABILITIES

REPO LIABILITIES WITHNON-FINANCIALCLIENTS ONLY

Figure 7. Key Indicators Trends for the Securities Industry

The Stock Market

The main Jamaica Stock Exchange (JSE) stock index experienced a -28.41% or

27,816 points decline during the calendar year 2008. The year 2008 commenced with

107,514.98 points and bounced between 105,000 and 115,000 points until the end of the

third quarter. This movement within the first three quarters of 2008 only yielded a -4.86%

change in the JSE main index.

31

Main JSE Index Jan. 08 -Apr. 09

700007500080000850009000095000

100000105000110000115000120000125000130000

Date

Inde

x P

oint

s

JSE Main Index

Capital Markets

The index began to plummet in late September which continued into December

ending with 80,152.03 points and a market capitalization of $597.28 billion; in the last

quarter the index suffered a -23.55% reduction reflecting the effect of the global financial

crisis on the domestic capital markets. The index however rallied in January by 7,054.87

points or 8.8%.The increase in January moved the index to 87,206.90 points which may

be attributable to the “January Effect”, the index continued to trend downwards in

February and March 2009 (Jamaica Stock Exchange, 2009).

Figure 8. Main JSE Index

Despite Jamaica’s fairly sound financial sector that has passed both regulators

early warning stress tests, the sector still remains susceptible to economic shocks in the

exchange rate, unfavourable prevailing conditions in the global economy and the ripple

effect of the fiscal policies highlighted in the recently concluded budget 2009/2010.

According to the International Monetary Fund high levels of scepticism among

banks pertaining to which financial institutions will be affected by the build up of bad

debts have resulted in reduced levels of credit made available through these institutions

32

Capital Markets

(PSOJ, 2009). This has propagated less financial intermediation and reduced business and

consumer confidence.

The Business Monitor International monthly regional report published for May

2009 has indicated that Jamaica is not prepared to face the current economic headwinds

due to the heavy reliance on tourism and remittances for foreign exchange, the

internationally exposed domestic banking sector and the huge debt burden (Latin

America Monitor, May 2009).

33

Capital Markets

VI

COMPETITOR ANALYSIS

Introduction

The major securities firm that operates in the wealth management industry are

NCB Capital Markets Ltd, Scotia DBG, Capital and Credit Financial Group, JMMB Ltd,

Pan Caribbean and Mayberry Investments Limited. The competitor analysis seeks to

outline and compare the objectives, resources, performance, products and services as well

as present strategies of competitors, see Table 2 in Appendices for a more detailed

analysis.

NCB Capital Markets Ltd.

Their objectives are to remain stable and sure, with performance that reflects high

ethical standards, dependability and commitment to understanding and satisfying client

needs. One of the major achievements in performance has been that they are the most

cost effective firm in wealth management industry. They also have the largest distribution

network and are the second most profitable wealth management firm for the last financial

quarter ending December, 2008.

The current strategies employed by the company outlined in the 2008 Annual

Report, (2009) are:

1. Through operational efficiency by distributing its products and services through the

bank, one of its subsidiaries.

2. To increase its funds under management.

34

Capital Markets

3. Through competitive positioning.

Scotia DBG

The main objectives of Scotia DBG, is to make offerings more accessible to

customers through increased awareness of investment products and services; further

expand its network of financial advisors. They also aim to explore regulatory initiatives

to migrate customers away from traditional Repurchased Agreements products into

mutual fund type instruments in order to attain significant additional growth for already

established funds. Scotia DBG is considered to be a financially sound wealth

management firm with a very strong asset base. They products and services offered by

them are:

1. Money Market Investment Products

2. Unit Trust and Mutual Funds

3. Stockbrokerage and Equity Trading Services

4. Pension and Asset Management

5. Cambio Services

6. Deposit, Loans and Lease Financing

Scotia DBG’s current strategies are to strive for excellence in providing

outstanding sales and service. This is done by refining the client service model,

strengthening sales management training and coaching. On the operational platform they

replaced the Information Technology platform and improve policies and procedures

while leveraging core operational platforms. As it relates to products, they streamlined

35

Capital Markets

existing product offering to meet the needs of their targeted client by leveraging existing

offerings and eliminating those that were redundant.

In the area of marketing and communication, they have developed strategies that

support a high level of communication between Scotia DBG and the wider Scotia Bank

Group, and support aggressive growth in the local markets. On the human resource front,

their approach is to recruit top talent and develop people and teams by providing robust

employee development, reward and recognition and competitive programs (Scotia DBG

2008 Annual Report, 2009).

Jamaica Money Market Brokers Limited (JMMB)

JMMB’s strategies are committed to ensuring that they offer very attractive

products to clients in an efficient way while maintaining exceptional client care

standards. This strategy pivots around their “Vision of Love” corporate philosophy

engendered by the late founder, Joan Duncan. Their performance and achievements have

been strong growth in assets and funds under management. They are a sturdy and

profitable firm with a strong client base and market share which places deep emphasis on

corporate governance. In addition to the products offered by Scotia DBG they offer

Savings/Deposit taking accounts Global Investments. The company’s present strategies

and future prospects are to actively explore tactics that results in continued income

growth, and in particular fee income. Another tactic is to continuing building on the

pillars of growth by increasing corporate and consumer markets products, strengthening

their new line of business in credit services and effecting plans for Greenfield expansion.

JMMB intends to increase its focus in areas that offer more opportunities in the current

environment in cost management and consequently, increased efficiency as well as

36

Capital Markets

offering attractive rates of return to clients thereby maximizing opportunities (JMMB

2008 Annual Reports, 2009).

Capital and Credit Financial Group

The main objectives of Capital and Credit Financial Group are cost containment

in addition to the expansion of its products and services not only in Jamaica but also in

the Caribbean. Their performance and achievements are predicated on its strong capital

base and ratios, as well as prudent risk management initiatives. The range of services

offered are similar to those offered by NCB Capital Markets, Scotia DBG and JMMB.

Current strategies and initiatives engaged in are an aggressive expansion of loan

portfolio through introduction resulting in greater revenue and new high-yield, value-

added products. As stated in its Annual Report, (2008) on its Web site, there is also an

international treasury strategy to include other sovereign and high-yield treasuries and the

expansion of its retail credit units by way of alliances with a number of product

providers.

Pan Caribbean Financial Services

Pan Caribbean Financial Services objectives are to grow its business through

added mergers and acquisitions, new products and expansion throughout the Caribbean.

Their performance and achievements are based on their strong growth in assets and funds

under management which has contributed to a strong stable and profitable firm. There are

no unique products and services that are offered by the company when compared to

others already mentioned. Present strategies and initiatives are to grow the business and

increase income by increasing its client base, (Pan Caribbean Financial Services Ltd,

2007).

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Capital Markets

Mayberry Investment Limited

Mayberry Investment’s objective is to provide the public with a wide variety of

investment products that yield good returns. Their performance and achievements are

financial stability from a reputable institution. They are prudent in delivering good

investment options for clients and have strong funds under management portfolio. In

addition to products offered by competitors discussed, offshore US Funds Management is

also offered. The present strategies and initiatives are to grow business and income

(Mayberry Investment Ltd., 2007).

38

Capital Markets

FINANCIAL PERFORMANCE OF SECURITIES FIRMS

NCB Capital Market is currently the third largest securities company operating in

Jamaica, measured in terms of total assets. For the quarter ended December 31, 2008, the

company’s total asset stood at $65,637 million, reflecting an increase of 15.18% over the

corresponding period ended December 31, 2007. However, the company’s asset base

declined by 0.8% when compared to the financial period ending September 30, 2008. The

reduction in the company’s asset base over this three months period was mainly due to a

24.9% decrease in Reverse Repurchase Agreements.

The first, third and fourth quarter reports ending December 31, 2008/January

2009 as outlined in Figure 9 below, indicated that JMMB was the largest securities

company operating in Jamaica, measured in terms of total assets, followed by Scotia

DBG and NCB Capital Markets. A significant percentage of the asset base of NCB

Capital Markets and its competitors comprised of investment securities and repurchase

agreements. The total of all investment securities and repurchase agreements of NCB

Capital Markets as a percentage of total assets was 96%. This is a higher percentage than

all the other five competitors which range between 63 and 89 percent.

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Capital Markets

Figure 9. Total Assets of Securities FirmsNCB Capital Market was the second most profitable securities company for the

three months period ended December 31, 2008. The company’s net profit of $483.2

million was $66.5 million or 16% more when compared to the three months period ended

December 31, 2007. JMMB was the most profitable securities company with reported

profit of $635.6 million which was $152.4 million more than NCB Capital markets.

Despite this gap in profit performance between NCB Capital Markets and JMMB, NCB

Capital Markets return on total assets was 0.14% more than JMMB. Figure 10

highlighted the profit performances of the six largest Securities Firms for the quarter

ended December 31, 2008.

40

Capital Markets

Figure 10. Net Profit of Securities Companies

The return on total asset of NCB Capital Market was 0.74% or 0.01% less than

Pan Caribbean Financial Services Limited who reported the highest return of 0.75%.

This means that NCB Capital Markets was able to earned more income on each dollar of

assets owned than its main competitors.

Despite earning the second highest profit during the quarter ending December 31,

2008, NCB Capital Markets earnings per share was lower than some of its major

competitors. Scotia DBG reported the highest earnings per share, during the quarter, of

$0.91 which was $0.51 more than NCB Capital Markets with earnings per share of $0.40.

The other competitors with earnings per share greater than NCB Capital Markets were

Jamaica Money Markets Brokers Limited and Pan Caribbean Financial Services Limited

as depicted in Figure 12 in Appendices.

NCB Capital Markets is the most cost effective securities company during the

quarter ended December 31, 2008. The company’s efficiency ratio was 23.9%. The

41

Capital Markets

efficiency ratios of the other competitors range between 36.2% and 89.1% as outlined in

Table 3 and Figure 11 in Appendices.

This would suggest that NCB Capital Markets has better control over its operating costs.

The company’s aggressive cost control measures were evidence in its published profit

and loss account for the quarter ended December 31, 2008 where operating expenses

were reduced to $131.2 million or $44.3 million when compared to the previous year of

$175.5 million.

Based on the comparative financial analysis done among the six largest Securities

Firms, NCB Capital Markets has reported competitive financial results over the years

when compared to its competitors. Areas of notable competitive financial performances

are profits margins, asset base, return on equity and earnings growth. The products

within the securities industry are homogeneous; therefore the Company’s financial

performances are commendable. NCB Capital Markets is expected to continue its

competitive financial performance well into the future based on historic trends.

The current global financial crisis, however, will challenge the creative minds of the

company’s management to create and adopt new strategies in order to achieve sustained

competitive advantage.

42

Capital Markets

VII

COMPANY ANALYSIS

Background

NCB Capital Markets Limited is the wealth and asset management arm of the

National Commercial Bank Jamaica Ltd (The Bank), offering investment options and

advice for institutions and individuals for the last (39) years. The company which is one

of largest stock brokerage firms in Jamaica is a Stock Broker & Primary Dealer and a

member of the Jamaica Stock Exchange.

Born out of a merger in 2002 with Edward Gayle and Company and NCB

Investments Ltd., the company became a wholly owned subsidiary of the NCB Group,

43

Capital Markets

which was later re-branded as NCB Capital Markets Limited in December 2003. The

company offers a range of equity, money market, bond and mutual fund products, as well

as Corporate Finance and Portfolio Management services for individual and institutional

investors as outlined in Table 4 below.

Table 4. Investment Solutions Offered by NCB Capital Markets

INVESTMENT SOLUTIONS

Individual Investors Corporate & Institutional Investors

Bonds Equity Capital Markets

Money Market Securities Debt Capital Markets

Mutual Funds Mergers & Acquisitions

Stocks

Wealth Protector

As at March 31, 2009, the Senior Management Team comprised of the persons

stated in Table 5 below:

Table 5. Senior Management Team

SENIOR MANAGEMENT TEAM

Managing Director

Vice President, Finance & Risk

Vice President, Investments

Vice President, Corporate Client Services

Assistant Vice President, Private & Retail Client Services

The vision of NCB Capital Markets is stated as “We envision ourselves as an

industry leader renowned in the Caribbean for its wealth management services,

44

Capital Markets

innovation and financial success, attained through well-trained and committed

employees, outstanding service delivery and corporate citizenship,” The company’s

values are quite simple but effective and is stated in its value statement as “We value:

integrity, excellence, accountability.” Lynch, (2006) defines vision as a challenging and

imaginative picture of the future role and objectives of an organisation, significantly

going beyond its current environment and competitive position. Vision is therefore a

backdrop for the development of the purpose and strategy of the organisation. Lynch

(2006) went on to state that vision has little meaning unless it can be successfully

communicated to those working in the organisation, since these are the people that will

have to realise it.

Regulation and Risk Exposures

NCB Capital Market is regulated by the Financial Services Commission (FSC)

and is governed by the Securities Act 2001. The act is accompanied by five regulations

that the organization is required to adhere to, namely:

1. Licensing & Registration

2. Disclosure of Interest

3. Conduct of Business

4. Take over & Mergers

5. Mutual Funds

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Capital Markets

The company faces major exposures such as regulatory, liquidity, counterparty

credit, interest rate, market and operational risks. These risks are clearly defined in Table

6 in Appendices. These are also guidelines and monitoring tools used to monitor

institutions to examine ratios that must be maintained as set by the Financial Services

Commission on a monthly and quarterly basis. Institutions maintaining ratios inline with

the benchmark set is extremely vital as failure to do so could result in the licence being

revoked.

This is a highly leveraged business as clients’ funds are invested in Repurchased

Agreements where the institution take a percentage of the spread from what is offered to

clients and what is received from government bonds they invest in. They rely mainly on

rollovers to maintain liquidity of 25% that must be maintained. Funds are usually

invested in short-term 30 days, 60 days, 90 days, 180 days and 365 days products (A.

Palmer, personal communication, March 3, 2009).

This is done on the assumption that clients will invest for the long-term and will not all

need their investments at once. In the event that the company needs to introduce a

product to the market other that the generic ones that are now regulated by the FSC, the

company must first acquire the regulator’s permission.

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Capital Markets

CORPORATE GOVERNANCE AND LEADERSHIP

Corporate Governance plays a very important role in the survival of any business.

Adhering to ethical behaviour, abiding by the rules and practices governing the industry

in which the business operates should be high on the priority list of the company’s

Directors and Executives at all times (NCB Capital Markets, 2009). Having the

confidence and trust of your stakeholders is paramount as without this the company may

as well close its doors.

NCB Capital Markets, a subsidiary of one of the most respected financial services

providers in Jamaica, is hard pressed to conduct its business in a manner that is fit and

proper. Not only is it evident that they are ‘Serious About Wealth’ but also about

47

Capital Markets

Corporate Governance. NCB Capital Markets (2009) stated on its Web site that a

Corporate Governance and Conduct Review Committee charged with the responsibilities

and purposes stated in its Charter are currently in place (Lennon-Cole, 2008). The

Committee monitors the make-up and configuration of the Board and also has the duty of

seeking, screening and recommending qualified candidates to be nominated for election

to the Board of Directors annually as appropriate.

The Committee evaluates the Board’s structure and practices then propose new

policies to the entire Board. The functionality of the Board, its committees and members

as well as the company’s management is periodically deliberated.

The succession planning in relation to the Managing Director and other key management

officers are re-evaluated and recommendations regarding corporate governance matters

and practices are made to the Board by the Committee.

The Committee also provides oversight in the area of compliance and ethical

business practices and legal requirements; review the adequacy of the Charter at a

minimum, annually and make the pertinent recommendations for improvements.

Transactions relating to conflict of interest required by statute are reviewed.

The main aim of the Corporate Governance Committee as stated on NCB Capital

Market’s (2009) Web site is to:

1. Lay a solid foundation for management oversight.

2. Structure the Board to add value, promote ethical and responsible decision-making.

3. Safeguard integrity in financial reporting and make timely and balanced disclosure.

4. Respect the rights of shareholders

5. Recognise and manage risk and encourage enhanced performance.

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Capital Markets

6. Remunerate fairly and responsibly

7. Recognise the legitimate interests of stakeholders

8. Ensure the quality and independence of the external and internal audit processes.

Leadership

According to Lynch (2006), “leadership is the art or process influencing people so

that they will strive willing and enthusiastically towards the achievement of the

organization’s purpose and therefore will have a significant influence on the company’s

performance and success in the long-run” (p. 355).

The leadership of the company is considered to be run by an able and competent

management team and has proven to be quite effective based on the fact that the

performance objectives of the company has been consistently achieved over a sustained

period of time.

Management practices a directive leadership style which according to Howell and

Costley (2006), “directive leadership involves defining roles and clarifying to followers

what expectations are required to achieve specific performance goals” (p. 96). Our

examination revealed that management constantly advises the line staff of the current

strategies that the company employs and involve them in the tactics that are implemented

to achieve the desired outcome. What is significant however, that based on out

observation, it appears that these developments flow only one way and customer facing

staff has very little input in developing these strategies.

The CEO himself wears a tie and business suit only on very formal occasions like Board

and Annual General Meetings. The overall tone of the organization is very relaxed and

dialogue between senior managers and subordinates is on a first name basis such as

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Capital Markets

“Chris Willie” referring to the CEO. He sends out monthly messages to his employees

called ‘Willie’s Views’ which is an intended combination of humour, financial advice,

personal insights and motivational diatribe. This creates a level of communication that is

unusual in the context of the Jamaican workplace. The lines of responsibility and

authority seem very well demarcated without the usual egotistical boosts such as

obsession with titles or corner office mentalities.

The staff complement is a little over 100 staff members with the majority being in the

main office at the “Atrium” which possibly explains the informal atmosphere.

CORPORATE CULTURE

As an organization cultural nuances play an important part in respect attitude

towards change, management and rules. A proper cultural analysis therefore must be

offered prominent role in any attempt to truly understand how a particular organization

functions. Organizational culture is described as “A set of common understandings

around which action is organized and finding expression in language whose nuances are

peculiar to the group” (Becker and Geer, 1960 p.1). Corporate culture serves as a social

and behavioural anchor for employees through which they can feel a sense of identity,

understand the organization and reinforce its values.

This definition allows us to frame NCB Capital Markets culture within the larger

construct of the NCB Group of which it is a subsidiary.

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Capital Markets

In assessing the corporate culture of the organization we will look at a number of

elements including:

1. Corporate structure - whether it is flat, tall or complex.

2. Management and leadership style - what is the vision, mission and goals and are they

clearly articulated? Are they congruent with actual practices, are policies and

procedures excessive.

3. Hiring practices - how do compensation and benefits compared to the rest of

organization’s age of workforce and physically challenged employees.

4. Company environment - What is the office layout, décor and lighting like and

whether or not there are any risks of occupational health hazards.

In visiting NCB Capital Markets offices, we were able to discern an obvious

departure from the typical banking overtones of being stiff, stuffy and bureaucratic. The

first thing that hit the visual senses was the slogan emblazoned on the walls “Yes we

Can” which also hanging from the ceiling in small droplets. We were informed that this

was their internal slogan developed for the 2008/2009 calendar year moving from the

previous one “Raising the Bar’. The slogan is developed annually by the company’s

Chief Executive Officer, Christopher Williams as a motivational lever for the staff

personal and professional objectives.

Staffers are paid regular monthly salary and a percentage of profit is shared

amongst them every quarter once profits are made. However, if none is made, obviously

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Capital Markets

none is paid as was the case for the past two quarters, ended December 2008 and March

2009. There are a number of benefits that staff members receive monthly as well.

The layout of the main office in Kingston is very much in keeping with their slogan

“Serious about Wealth” with the floor composed of fine Italian tiles. The lighting is

extremely generous, owing to the glass façade of the Atrium building. The colour scheme

is contemporary yet corporate with vibrant pastel tones underlying artistic murals on the

east wall.

The Customer Relationship Officers are positioned in a two by two rectangular

formation in the middle of the office and are separated by half cubicles, which allows for

privacy when dealing with clients and minimal clutter. The Wealth Advisors’ offices are

located along the north wall of the building with a view of the corporate centre of

Kingston.

The general layout allows for ease of movement and the glass used in separating divisions

seems to be the preferred means evident even in the back office where foreign exchange

trading takes place. No doubt, considerable thought went into every aspect of the layout

utilizing the latest theories in ergonomic design.

NCB Capital Markets staff members do not wear a standard uniform unlike the

usual tradition of rest of the banking industry and the dress code for the organization

ranges between business casual to business formal and appears to be set by personal

preferences as opposed to strict guidelines.

Corporate Structure

The organizational structure itself is very flat and reporting relationships clear.

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Capital Markets

This speaks to a greater culture of efficiency and cost management passed on from the

parent company. The organization’s management is quite youthful on average below 42

years and is led by a charismatic young CEO who is quite affable, knowledgeable and

highly regarded by his peers. The company has a reputation for recruiting the best and

brightest talents in the financial industry and this is evident in their acquisition over the

past three years of talent from their main rivals Scotia DBG ranging from Vice Presidents

to Managers. This serves a perpetual continuum as the NCB Capital Markets employees

themselves are constantly recruited externally having the reputation of possessing higher

levels of competency within the industry.

Motivation and Cultural Symbols

Motivation is exceedingly important in a high pressure organization such as NCB

Capital Markets and there are obvious symbols that seem to cement the overall corporate

culture. “Symbols integral to organizational life and are not simply by-products of

organization but instead are elements that structure members’ active construction of self-

knowledge and behaviour” (Rafaeli, A. & Worline, M, 1999).

A unique feature on NCB Capital Markets that separates it from the Group is the

lack of representation of an employee union, a situation which the employees had voted

for when presented with the option. In interviews many employees view the decision as

an error in judgement and believe that they have “lived to regret” such a decision.

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Capital Markets

There are unique perks and symbols used to motivate NCB Capital Markets

employees such as:

1. Each employee receives branded bottled water daily emblazoned with the “yes we

can slogan”.

2. There is a complimentary coffee and tea pantry for the use of each employee.

3. Once a year there is the “Capolympics” retreat held at a different hotel each year

where teams of employees are formed to compete in different teambuilding exercises

such as “biggest loser”- weight loss competition, sports costume and cheerleading

competitions.

4. Regular karaoke treats and concerts.

5. Gifts including like branded umbrellas and key rings.

The organizational commitment to maintaining and stimulating its unique cultural

proclivities is enshrined in the office of the “Cultural Officer”. This person’s job

description is centred on creating and executing novel ways of motivating employees

through bonding and group exercises. Arguably the most important cultural feature of the

organization is that all levels of management participates in all activities; it is seemingly

natural for senior managers to participate in the “worst dressed fashion competition” with

the office bearer/ messenger as her partner. These exercises help to mitigate

communication barriers that may arise between subordinates and those in leadership, the

result of which is an environment that on the surface promotes the free flow of ideas and

opinions.

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Capital Markets

Information gleaned from interviews with staff members we have deduced that

there is a common thread running beneath the façade of a well oiled and youthful

organisation. That is, most employees have a cynical outlook of their tenure at NCB

Capital Markets Ltd. and an almost fatalistic sub-culture resonates through the

organization in that job termination, like the sword of Damocles perpetually hangs over

their heads. Despite the presence and efforts of the Cultural Officer, job security is the

single most important lever of motivation to today’s employee. We believe therefore that

over the long term, these sub-cultural undercurrents present an untenable situation having

identified the human resource as one of the last bastions of sustainable competitive

advantage. This was evident in the case of Edward Jones, a fortune five hundred

investment company that is consistently ranked no 1 or two as the best place to work in

all its markets including the United Kingdom, United States and Canada as stated on

Fortune’s Website (2009).

CURRENT STRATEGIES

The current strategy of the NCB Capital Markets Limited has two dimensions, the

general and overarching one of cost containment through prudent operational practices

and the other, continually increasing funds under management. We opine that this

strategy is a general one because all organizations particularly fund managers must have

this strategic imperative. So what then is the strategy of NCB Capital Markets that will

offer competitive advantage?

We began our quest by reviewing the vision statement which although is concise,

and well articulated is a misrepresented statement of the organisation’s objectives and the

business definition. So how then will they achieve this? We asked senior members of the

55

Capital Markets

management leadership to articulate the strategy of the company. Everyone we spoke

with either fumbled or laughed embarrassingly, but no two responses were the same.

NCB Capital Market’s strategy, according to the Managing Director, is employing

operational efficiency, cost containment and balance sheet strength”. Cost containment is

achieved through economies of scope gained through group resources (Williams,

personal communication, 2009).

We have determined therefore that if there is a strategy beyond that mentioned

earlier, it is not known among the small collective leaders of the organisation, much less

the subordinates. The NCB Group has a very detailed 30 pages strategy document with

two themes/elements, a balanced scorecard with four unique perspectives which are then

drilled down into 22 objectives being; three being financial, three customer, eight internal

and eight people.

Whereas there is not a separate strategic plan for the institution, there are guidelines for

NCB Capital Markets Limited in the 30 pages dissertation for the NCB Group. However,

it lacks simplicity and therefore this paper offers some recommendations geared towards

improving the strategic ambitions of the organization.

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Capital Markets

FINANCIAL ANALYSIS OF NCB CAPITAL MARKETS

NCB Capital Markets Ltd. is a publicly listed company on the Jamaica Stock

Exchange. The company’s stock is traded under the Symbol "NCBCM11.75". NCB

Capital Markets became a public company on September 22, 2006 by offering to the

public 100 million preference shares at a price of $3.00 per units. The offer was

oversubscribed by 16%. The terms of the offer included cumulative dividend of 11.75%

per annum with a potential bonus of 0.15%, should the Company achieve a Return on

Equity of 20% per annum or greater.

The listing of NCB Capital Markets preference stock units on the Jamaica Stock

Exchange allows stockholder the benefit of earning tax-free dividends and the

opportunity to freely trade the stocks. The listing also increases NCB Capital Markets Ltd

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Capital Markets

capital base and presents investors with an alternative investment instrument with a

predictable yield and the option to trade the stock with the potential of stock appreciation.

In addition to the initial offer of 100 million units of preference stock offered to the

public in 2006, NCB Capital Markets offered an additional 250,768,080 units in 2007.

The total number of preference stock outstanding as at September 30, 2008 was

350,768,081 units. Over a one year period (May 2008 to April 2009), NCB Capital

Markets stock price traded at a high of $2.99 to a low of $2.51.

The graph below illustrates the price movement of NCB Capital Markets preference share

on the Jamaica Stock Exchange over the period May 1, 2008 to April 24, 2009 (Jamaica

Stock Exchange, 2009).

Figure 13. Annual Stock Price Movement

As indicated in Figure 13 above, NCB Capital Markets preference stock closed

trading on May 1, 2008 at a high of $2.99 and closed trading on April 24, 2009 at a low

of $2.51. The stock price was affected by numerous events during this period that might

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Capital Markets

have affected the price of the stock. Events that could affect NCB Capital Markets

preference stock range from disappointing profits, loss of confidence by investors

resulting from the world financial crisis, the loss provision of 1.2 billion dollars by the

Company for securities held with Lehman Brothers and the hike in interest rates by the

BOJ which provided investors with higher returns on investment instruments.

National Commercial Bank Jamaica Limited (NCB) is the parent company of

NCB Capital Markets with a 100% stake, owning ordinary stock units of 1,207,614,899

as at September 30, 2008. This suggests that the NCB relies on the performance of NCB

Capital Markets for the Group positive results. The ten largest stockholders of NCB

Capital Markets preference stock units are institutional investors.

The number of preference stock units control by these institutions was 140,245,252 as at

September 30, 2008. NCB Capital Markets preference stocks traded at $2.85 on

September 30, 2008 (Jamaica Stock Exchange, 2009).

For the financial year ending September 30, 2008, NCB Capital Markets reported

$2,669 million in operating income, operating expenses of $1,985 million and net profit

of $775 million. The Company had a $1.2 billion dollar loss provision which negatively

impacted the net profit reported for the period. This loss provision was for securities

pledged with the Lehman Brothers Group; a US based financial institution that files for

bankruptcy in September 2008. This impairment loss provision was a one-off item and

will not affect future results unless the amount is recovered from Lehman Brothers. NCB

Capital Markets is poise to earn improve profits in 2009 over reported profits in 2008.

The Company improved its position in the first quarter period ended December 31, 2008,

having reported net profit of $483 million which was $66 million more than what was

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Capital Markets

reported for the corresponding period ended December 31, 2007. This positive trend in

net profit resulted from the implementation of tighter cost control measures which saw

the company’s operating cost reduced from $175 million for the quarter end December

31, 2007 to $131 million for the corresponding period ended December 31, 2008.

The Company’s net profit for the quarter ended December 31, 2008 was boosted by a

taxation credit of $64 million. The graphs (Figure 14 and 15) below illustrate the yearly

and quarterly earnings of NCB Capital Markets from the year 2006 to 2008 (NCB Annual

Report, 2008).

Figure 14. Annual Net Profit

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Capital Markets

Figure 15. Net Profit Per Quarter

NCB Capital Markets has consistently been providing value to its shareholders as

one can infer from the published financial reports for the period ended September 2007,

2008 and the first quarter period ended December 31, 2008. NCB Capital Markets

earnings per share for the financial year ended September 30, 2007 was $1.30. The

Company’s earnings per share for the financial year ended September 30, 2008 was

$0.60.

The impairment loss provision of $1.2 billion dollars for securities held with the

Lehman Brother Group negatively affected net earnings for the financial year ended

September 30, 2008 which contributed significantly to the Company’s earnings per share

been reduced from $1.30 in 2007 to $0.64 in 2008. NCB Capital Markets earnings per

share for the first quarter ended December 31, 2008 was $0.40, an increase of $0.05 over

the corresponding period ended December 31, 2007.

Analysis of Assets

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Capital Markets

NCB Capital Markets total assets as at September 30, 2008 were $66.1 billion.

Approximately 98% of the company assets comprised of investment securities and

Reverse Repurchase Agreements. The investment securities instruments included

corporate and Government of Jamaica debts as well as quoted and unquoted equities.

The fact that NCB Capital Markets is primarily a customer driven organization, the assets

are dominated by the income received from the company’s services. Unlike other

financial Companies, NCB Capital Markets income is predominately driven from

investments rather than mortgage bankers.

Analysis of Liabilities and Capital Risk Management

NCB Capital Markets total liabilities as at September 30, 2008 were $58.7 billion.

Liabilities are mainly dominated by payables to customers, investors (redeemable

preference share holders) and creditors (funds borrowed from overseas brokers - margin

accounts). Approximately 93% of the Company’s liabilities are dominated by repurchase

agreements which are funds invested on behalf of clients. All amounts payable to

customers are subject to the request for withdrawal by the individual customer.

The other major liabilities are redeemable preference shares and loans from overseas

brokers contributed to the company achieving the capital ratios requirements set by the

FSC. The company’s capital to total assets and capital base to risk-weighted assets as at

September 30, 2008 were 11.17% and 77.88% respectively whereas, the FSC bench mark

were 6% and 10% respectively.

As a major player in the local financial industry, NCB Capital Markets remains

financially strong. The Company brings to the industry an assurance of a strong capital

base backed by the financial strength and implicit support of the NCB Group, evidence of

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Capital Markets

which is illustrated in Notes 26e of the published Annual Report of 2008. This

highlighted the company’s strong capital adequacy ratios when compared to the

benchmark set by the FSC and 100 percent holdings of the company’s ordinary shares by

the National Commercial Bank.

NCB Capital Markets’ long-term growth and profitability opportunities are

extremely positive given its average track record and strong brand recognition. The

company’s Return on Average Equity (ROAE) has averaged 20.2% (excluding the

Lehman Brothers Group provision of $1.2 billion in 2008), over the past three years.

This performance is satisfactory when compared to some of the leading players in the

securities industry such as Jamaica Money Market Brokers (JMMB) who had a ROAE of

18.74% for the same period. NCB Capital Markets have historically experienced above

average profitability in comparison to other securities companies and is based on strong

and aggressive operating fundamentals.

The company should seek to increase earnings by enhancing its sales and

distribution model and implement strategies to drive future growth in its funds under

management. This should be done by improved customer retention and new business

growth. The global financial crisis will undoubtedly challenge the company’s ability to

consistently generate positive financial performances over the next few years; however, if

the company adopts and implement the recommendations suggested in this paper, it will

not only increase its earnings but also lay the groundwork to achieving a sustained

competitive advantage.

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Capital Markets

STRENGTHS, WEAKNESSES, OPPORTUNITIES, THREATS

An efficient way of diagnosing a company is to conduct a Strengths, Weaknesses,

Opportunities and Threats (SWOT) analysis. This highlights a company’s internal

strengths and deficiencies against industry opportunities and treats. It is the most

fundamental guide towards developing strategies to guide the company forward. From

our analysis of the NCB Capital Markets we present a SWOT analysis of the company.

Table 7. SWOT Analysis

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Capital Markets

Strengths

1. Part of a group with strong brand

ownership and recognition.

2. Solid management team of professionals

that are experts in their individual fields

of portfolio and operations management.

3. Low operating staff cost.

4. Wide service delivery infrastructure - 24

NCB locations island-wide.

5. Strong culture.

6. Strong financial performance.

7. Employees share in profit generated by

the company.

8. Institution is well-capitalized.

Weaknesses

1. Improvement required in Information

Technology infrastructure - lack of

Customer Relationship Management

(CRM) system and online access.

2. Major gap in communicating

information across client base.

3. Aging client base where 50% of the

client base is over the age of 65 years

Product limitation.

4. Lack of a clearly articulated strategy.

5. Weak regional and international

presence.

Opportunities

1. Provide new wealth products and

services to satisfy needs of aging clients.

2. NCB Capital Markets can step forward

and satisfy inquiry generated by the

global financial crisis.

Threats

1. The fallout from the global financial

crisis and investor apprehension.

2. Inflation and economic slowdown.

3. Individual foreign exchange traders

and tech savvy online traders, using

e-trade.

Opportunities (Cont’d)

3. Regional expansion due to take-over

opportunities.

4. Enhance brand identity by becoming

leaders in time of crisis.

5. Leveraging the Diaspora.

Threats (Cont’d)

4. Political uncertainty due to reduced

majority in parliament could trigger

early election.

5. Diminishing returns from a manic

obsession to reduce costs

6. Scotia DB & Golding is poised to

becoming an investment powerhouse.

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Capital Markets

Government regulations

The SWOT analysis revealed that while NCB Capital Markets possess significant

internal strengths, their weaknesses are so fundamental to the long term survival of the

business that they must be addressed in the short term. In particular, the lack of a clearly

defined strategy retards the ability to gauge its level of performance. There also exist

numerous viable opportunities that the company can capitalize on in the pursuit of

revenue maximization and sustained competitive advantage. The threats are very real

and steps must be taken to mitigate, where possible.

PORTER’S FIVE FORCES ANALYSIS

The objective of using Porter’s Five Forces to further analyse the company is to

ascertain and highlight possible levers of competitive advantage that will guide in

developing the organization strategy that will be used to dominate its rivals. These five

forces importantly determine the level of competitiveness within the investment banking

industry which is - the bargaining power of suppliers and buyers; the threat of new

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Capital Markets

entrants; the strength of substitutes and the extent of competitive rivalry. According to

Porter in his article titled “The Five Competitive Forces that Shape Strategy” (Harvard

Business Review, 2008) understanding the competitive forces and their underlying

causes, reveals the roots of an industry’s current profitability while providing a

framework for anticipating and influencing competition (and profitability) over time.

A healthy industry structure should be as much a competitive concern to

strategists as their company’s own position. Understanding industry structure is also

essential to effective strategic positioning. As will be seen, defending against the

competitive forces and shaping them in a company’s favour are crucial to strategy.

We set this against the background of an almost perfectly homogenous product (Figure

18 below depicts the five forces).

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Capital Markets

Figure 18: Porter Five Forces

Porters Five Forces model validates what we have suspected all along NCB

Capital Markets Ltd. operates in a highly competitive industry where there are many

players of equal size and resources in a finite market.

Buyer Power

This represents the ability of a company to control the prices of its products while maintaining the same or greater levels of sales. As a result of the wide range of comparable choices available to consumers, this ability is severely limited.

Competitive Rivalry

Financial product by itself is almost perfectly homogenous and clients, especially savvy investors will move funds between instruments and investment houses.

Value creation

New Market Entrants

The threat of entry can put a cap on potential profits especially in a market as small as Jamaica. There are no significant barriers to enter the investment markets as once an individual is licensed by the FSC he can provide financial advice. There are also numerous online platforms where investors can purchase their own stocks and engage in foreign exchange trading. Switching cost are non-existent.

Threat of Substitute

The financial landscape is a fierce battle ground between the major local players Scotia DBG, JMMB and NCB Capital Markets Ltd.

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Capital Markets

COMPETITIVE ANALYSIS

In Jamaica, the Financial Services industry is comprised of many players with

significant resources. NCB Capital Markets Limited competitive advantage pivots on a

number of key variables some of which are:

1. Heritage and trust being the oldest Brokerage House in the country (formerly

Edward Gayle).

2. Tradition of stability and high level performance.

3. Strong historical brand affiliation (NCB 178 years of reputable performance).

4. Distribution network (approximately 24 locations island-wide) and the ability to

offer a wide range of financial services at these locations which include but are not

limited investments, insurance and general banking.

In recent years however, the company’s main focus has been geared towards the

attainment of sustained profit by increasing its Funds Under Management (FUM). This

has somewhat disproportionately skewed the organizational thrust towards a sales

orientation. As a result, growth and development of a defined customer servicing

architecture and achievement of a number of the company’s objectives have been

retarded. These objectives are to:

1. Create more loyal customers,

2. Gain a greater share of pocket from satisfied customers,

3. Broaden the scope of its brand value, and

4. Broaden possibilities for other wealth services.

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Capital Markets

In the current and future manifestation of the financial service industry, it would

be extremely difficult for any of the original sources for competitive advantage of NCB

Capital Markets Ltd to be sustained. This is based on the consolidation and acquisition of

entities such as the Bank of Nova Scotia Jamaica and Dehring Bunting Golding which

overnight, has erased the distribution advantage.

Furthermore, the historical variables for competitive advantage will not be valid

in the medium to long-term due to the fact that they can be easily replicated and imitated

by their competitors. According to Lynch (2006), “the only form of sustainable

competitive advantage is the culture, leadership and style of operation “This can lead to

“innovative products, exceptional levels of service, and fast responses to new market

developments” Lynch (2006) continued. Whereas this focus area maybe more difficult to

quantify than others, it somewhat adds to its unique appeal.

The global financial crisis has highlighted the fact that many investors were either

unaware of the persons with whom they did business or did not have intimate knowledge

of the products in which they invested. This will force investment banks to re-invest in

and reinvigorate the importance of client relationships as a major platform for sustained

competitive advantage.

NCB Capital Markets Ltd in utilising this approach will definitely gain the

ultimate competitive edge over its competitors, thereby ensuring that it regains the status

of market leader in the industry. According to Lynch (2006), the three main areas in

which an organization has to manage its strategy at the business level is:

1. It’s internal resources;

2. The environment in which its operates;

3. Its ability to add value to what it does (p.6).

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VIII.

FIRM’S OVERALL FINDINGS

Our research of the company revealed a number of challenges some of which are

immediate while others will be more protracted in their impact. The current ones are:

1. Lack of an articulated, layered strategy connected to the execution of specific tactics,

serving as a template for measurement and modification. This we believe will be the

primary source for a plethora of future problems including client retention and

profitability.

2. Delivery of exceptional customer service caused in part by the organizations

technological backwardness, and resulting in serious disparity in client satisfaction

across segments.

3. Client Relationship Officers (CROs) are ranked higher in client satisfaction survey

than Wealth Advisors. This speaks to an urgent deficiency in the overall skill set of

the Wealth Advisors.

4. There is also the problem of an ageing client base and the company must find

solutions geared at preventing attrition of these funds as well as attracting new

clientele such as young professionals and alternative investor groups.

The low brand communication does not distinguish clearly from its parent

company and there are perceived problems with affiliated groups such as AIC (recent

bond payment delay) and the recent write-off from Lehman Brothers. Advertisement

messages are not sufficient; they do not create resonance nor stimulate inquiry

commensurate with estimated costs. There is also the issue of suboptimal internal

prospecting regarding the group staff.

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No doubt, the findings highlighted above have contributed to the company losing

its coveted position of number one in recent times and the management will be

challenged to find innovate ways and implement corrective actions to regain a larger

market share.

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Capital Markets

IX.

SOLUTION ANALYSIS

NCB Capital Markets Limited should leverage its strengths to optimize its

position in the investment and wealth management industry as current strategies are

implicitly insufficient to afford the company sustainable competitive advantage. The first

approach that the organization needs to undertake is the development of a clear simple

strategy; redefine its business focus with congruent strategic imperatives flowing into the

overall framework. The organization must become a full service investment provider

which is not only sales driven, but values the client over a lifetime and generations to

come.

This quest should begin with the fundamental question “what business are we in,

are we in the business of selling investments or are we in the business of satisfying needs

through expert financial solutions?” Some of these needs are:

1. Retirement comfort

2. Reassurance

3. Stability

4. Provision for dependents

Investment has been viewed and indeed targeted erroneously as a need instead of

the process through which clients seek to satisfy their greater needs.

Levitt (1960) posits in his dated but groundbreaking essay “Marketing Myopia” (Harvard

Business Review, 2008) that people don’t enjoy buying gas for their car but they need

transportation. This understanding will direct all communications efforts which will be

discussed later under marketing recommendations.

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Capital Markets

Levitt (1960) further offers, all operations and dynamics of the organisation must

embrace this ethos or it will end up as a series of individual silos, static and at a loss for

direction. NCB Capital Markets Ltd. should aspire to understand what is currently

required for competitive advantage in the investment industry as indicated by (Rayport &

Jaworski, 2009) “interactions with customers and the customer experiences that result

from those interactions are, for many businesses, the sole frontier for competitive

advantage”. Our recommendations therefore highlight the need for improved strategies in

four symbiotic categories; which are people, processes, products and marketing, all of

which orbits the client as illustrated in Figure 16.

People

The Wealth Advisors are the tip of the spear and must be well trained

professionals, with exceptional networking and communication skills across all client

groups. They must be conversant with market research and daily fluctuations in the

industry. Staff must understand the strategic importance of client relationships in

garnering greater share of wallet from clients and utilise the technology to improve

efficiency and service of clients.

They should also understand modern sales and prospecting tactics and be

provided with consistent training schedule and programs. The leadership must

incorporate these skill set into a formal training architecture as none currently exists. This

will act as a template even if there is staff attrition as evidenced in the financial services

firm, Edward Jones which was named a top company for training, ranking number 54 on

Training magazine's 2008 Training Top 125.

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Capital Markets

As Jim Weddle (2008), a managing partner of the firm opines “A comprehensive training

program is a vitally important part of providing exceptional client service. Training helps

everyone at this firm stay focused on doing what's right for our clients.

Customer Focus

In looking at the shortcomings of NCB Capital Markets Ltd. strategy we think

that the service–profit framework as offered by Heskett, Jones, Sasser Jr, and

Schlesinger. “Putting the service profit chain to work” HBR 2008) could be adopted with

adjustments by the company. The service-profit chain establishes relationships between

profitability, customer loyalty and employee satisfaction, loyalty and productivity. Profit

and growth are stimulated primarily by customer loyalty, a direct result of customer

satisfaction which is influenced by value of services, outlined in Figure 17 of

Appendices.

This position is validated by the results of a customer service survey conducted by

NCB Capital Markets Ltd. in 2006 which recognized that the most satisfied clients are

the ones with the largest portfolios. Interviews conducted with Wealth Advisors have

confirmed that the more satisfied a client is, the more willing he/she is to bring in new

funds, although this correlation between service quality and profit is sometimes difficult

to prove. Reichheld and Sasser Jr. (1990) stated that a 5% increase in customer loyalty

can produce profit increases ranging from 25% to 85%.This is borne out by the Royal

Bank of Canada (RBC), Canada’s largest financial institution were able to improve its

customer servicing capacity and as a consequence, an increase in dividends from 68 cents

per share (in Canadian dollars) in 1996 to $1.72 per share in 2003.

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Capital Markets

This drove a 20% increase in high-value customers and a 13% rise in average customer

profitability between 1997 and 2001 (Gulati & Oldroyd, 2005).

Product

The organization should, with the approval of FSC, explore and implement new

products that will increase its funds under management. The organization should set up a

Special Investment Unit (SIU) that will be responsible for creating special sales thrust

into unique high revenue earners and target clients such as established and upcoming

Sports Stars, Reggae Artists and Informal Commercial Importers for example, Usain

Bolt, Dexter Lee and Sean Paul among others.

Some products that could be offered include Estate and Charitable Planning.

Estate Planning

This product will be geared towards mature clients with excess funds which will

help them to plan towards retirement and on the other hand, increase NCB Capital

Markets funds under management portfolio. The product includes assessing probate and

non-probate assets and reviewing beneficiary’s designations. Estate planning will

estimate and mitigate exposure to inheritance taxes and outline estate planning vehicles

appropriate to an individual’s life experience. This requires a Trust establishment,

funding and management services.

This service would be of particular priority against the background of a clientele

base of which 50% are over 60 years old. There is no guarantee that the inheritors of

these accounts will be inclined to keep their funds within the organisation unless a

specific plan can mitigate risk of attrition.

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Capital Markets

Charitable Planning

This product includes working with clients to develop their philanthropic goals

and to implement and manage these strategies. A number of high net worth clients are

interested in philanthropic ventures and this would definitely add value to the overall

product offering of NCB Capital Markets Limited.

Processes

Due to the inadequacies of the current information technology systems, the

organization needs to improve all business processes that clients utilize ranging from

account opening, online services to improvement and an efficient customer. The

implementation of a Customer Relationship Management (CRM) system is the platform

on which the ability to utilize client service as the competitive advantage rests.

CRM will be the medium that allow for client data to be easily accessed and fed into the

overall client service architecture by all members of staff at varying levels. This for

example, will afford the organization the ability to mine data thereby allowing access of

information on client such as birthdays, their professions, associations to which they

belong to name a few.

This enhances customer service as cards can be automatically issued to clients

celebrating birthdays or Wealth Advisors being able to easily check how many doctors

are investors, thus making marketing and communication efforts more direct and concise.

The data that feeds into this system needs to be totally clean, coordinated and maintained

by a neutral facility like an Information Technology Department. NCB Capital Markets

Ltd. could easily use the IT framework of the parent company to cost effectively manage

this process.

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Capital Markets

STRATEGIC ALTERNATIVES

Marketing tactics will stimulate business and client growth through improved

technology, segmentation, communication and relationship building. The overall strategy

should be congruent with the overall vision and strategy of the organization. The

Marketing strategy will seek to answer the question “who are our customers” and it must

begin with a definitive research into what customers value most from their investment

company.

Clients should be segmented in terms of needs as well as value to the business to

elucidate sections that require different messages. Also, the significant threats of ageing

clientele need to be addressed through transitional marketing tactics whereby the

company seeks business continuity when a client passes on and leaves accounts to their

children.

Targeting younger investors as well as those from non traditional sectors such as

nurses and teachers will mitigate funds migrating. Some of the marketing tactics that

should be employed are:

1. True lifestyle marketing that supports activities in which clients are involved namely,

golf, charity, and polo events and sporting clays.

2. Reach into the rural communities and expand marketing efforts outside of corporate

area. This was a key strategy of companies like Juici Patties operating in Jamaica

and Edward Jones in the United States of America.

3. Develop relationship condolence gifts by having Wealth Advisors attending funeral

services as well as the promotion of pushing bridal registry and graduation gifts of

stocks purchase by mature clients for older children and grand children.

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Capital Markets

4. Develop more efficient event sponsorships criteria for example, major sponsorship

persons with proposals (over $50,000) must have or willing to open account at NCB

Capital Markets Ltd. This should be tied to all sponsorships to account opening and

content for website.

5. Heavy promotion of Website usage.

6. Utilize cellular phone penetration and 3G technology as according to Economist

World Fact book (2009), Jamaica ranks eighth in the world in this regard.

7. Market needs not products, that is, promoting wealth access, and not the need it

satisfies.

8. Reduce billboard spend and channel funds towards client rewards and seminars.

9. Increase face to face contact with large groups such as Jamaica Teachers and Nurses

Associations.

10. Target Diaspora investing and showcase the prudence with which Jamaican banks

operate, get this message to them with the “Come Back Home Campaign”.

11. Move away from nebulous advertisements. Jamaica is invariably a low context

society; therefore personalities should be used for resonance.

12. Develop industry leading loyalty reward program with rewards that are actually

relevant to clients. For example, a NCB Capital Markets Ltd golf card which allows

the holder discounted sessions at golf clubs or lessons with a pro. Also, a simple

“bring a friend get a ten” referral reward program.

13. Encourage all suppliers to operate accounts with the business.

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Capital Markets

14. Focus on staff. This is a severely underserved segment with great potential. A “Cap

it off Campaign” where staff members are able to put aside money into an account

until it reaches the required minimum then it is transferred should be developed.

15. Build out the personalities of the Wealth Advisors by posting profiles on website to

include their hobbies.

16. Strategic partnerships should be formed and negotiated with other institutions to

reduce overall costs such as hotels, consumer goods, beverage, and entertainment

companies for events such as Jazz and Blues festival.

17. Copy and improve what works well like the “Mayberry Investor forum” to include

overseas presenters through partnerships with Virgin/Air Jamaica to reduce costs.

Also, utilizing venues belonging to the company such as the Wellness Centre.

18. Design standard presentations for different audiences like retirees, those made

redundant and those receiving retroactive payments.

19. Improve packaging dynamic designs for all collateral materials.

Service Recommendations

The service improvements begin with identifying customer touch points that is

instances where the client comes into contact with the organization. By reviewing each

and every process possible choke points and instances where the service delivery level

may be retarded, the organization will be able to create a seamless flow of service

delivery. Improvements are needed in:

1. Defining and implementing specific client service architecture.

2. Improving, increasing and maintaining client service training for staff interfacing

customers.

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Capital Markets

3. Improving client information and knowledge by communicating through additional

channels such as seminars and webinars.

Web site Development

The current website utilised by NCB Capital Markets is woefully inadequate

given the sophistication of today’s investor. They should move away from typical and

realise that in today’s business sphere, a company’s website is a critical selling tool. The

site needs to be revamped to represent a first world investment company and incorporate

the many activities and sponsorships that the company is involved with. The Web site

would also go a far way in connecting its “investing styles” marketing campaign with its

actual execution.

Educational information such as seminars should be uploaded and available for

viewing by clients. The Web site should follow best practice templates of design, ease of

use, copywriting, interactivity, use of technology, innovation and relevant content.

The site should be able to provide;

1. All the activities that the company sponsor.

2. Contact for Wealth Advisor by allowing questions to be directed to their

Blackberries. Provide streamed Wealth Advisor training and sales resource center.

Resource centre links to financial journals and other important financial updates.

3. Simple calculators for stage of life/ retirement calculators.

4. A clear complaints/recommendation page for information gathering.

5. Customers should be able to purchase stocks/securities online.

6. Cost reduction in running competitions on the Web site as opposed to expensive

media purchasing.

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Capital Markets

This strategy will pull people to the site for example, if the company sponsored a seminar

on cardiovascular treatments aimed at medical professionals, they would be able to

stream presentation and pull Junior doctors to the Web site.

Edward Jones, one the leading investment banks in the United States, has won

many awards for its Web site. In the 1990s, this company invested in what it considered

the future in investment banking. Michael Porter in a 1999 paper stated that the Edward

Jones web site posted every broker’s individual page that featured his/her picture and a

list of stocks of local interest. As a result, investors were able to access stock quotes and

mutual funds prices of their choice which allowed them to e-mail questions to their

broker in a relatively short time.

Overall, Jones believed that providing this service to clients would boost broker

productivity by reducing time spent on administrative tasks and also provided clients a

convenient means of contacting the company 24 hours a day.” Today, Edward Jones rates

among the top 10 in customer service among the Fortune 500 companies (Edward Jones,

2008).

NCB Capital Markets should now therefore embark on an exercise geared

towards the implementation of the proposed recommendations made in an effort to

enhance its service delivery to its clients. We suggest that these strategies be

implemented on a phased basis with the most critical and practical being implemented on

a short-term basis while other on a medium to long-term basis, some of which are

outlined in Table 8 below:

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IMPLEMENTATION PLAN

Table 8: Strategic Implementation Schedule

Activities Actions to be Taken Action Taken By Timetable Outcomes

Develop Overall Strategy

1. Diagnostic Review of current strategy.

2. Re-examine Vision.3. Examine research

documents.4. Develop new working

policy document.

Form a strategy team with the Managing Director as the Chairperson and a representative of a Senior Manager from each group of employee in Customer Service and Information Technology.

June 2009 Strategic and Tactical Blueprint document.

Human Resource Strategic Review

1. Review skill set for customer facing employees.

2. Reconcile with industry needs.

3. Develop training architecture.

4. Review compensation structure.

5. Link targets to customer satisfaction elements.

6. Determine annual training schedule for different positions.

Human Resource Strategy Team in collaboration with the Group’s Human Resource Manager and Training School personnel.

July 2009 1. Training architecture.

2. Detailed job description with personality directives.

3. Efficient compensation and benefits.

4. Client service manual.

Customer Service Review

1. Develop client service architecture.

2. Improve all client touch-points.

3. Technology improvement.

4. CRM implementation.5. Website development.6. Online improvement.

Customer Service Manager, Customer Relationship Officers,Wealth Advisors,Receptionists, Telephone Operators and IT Manager

July 2009 1. Client Service Charter.

2. Client service template with minimum and maximum timeframes for each process.

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Table 8: Strategic Implementation Schedule (Cont’d)

Product Review 1. Conduct market research.

2. Assess regulatory framework.

3. Conduct feasibility and value added study.

Vice President - New Product DevelopmentResearch Manager and Client Service Manager.

August 2009

New suite of products.

Marketing Strategy Development

Based on overall strategy

Manager Client Service and Manager Marketing.

August to September

2009

Strategic Marketing Plan ready for 2010 financial year.

Strategy Review

Management Team. October 2009

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Capital Markets

X.

CONCLUSION

This analysis began with and contains many references to the current global

financial crisis. The unprecedented scale and scope has been a necessary scenario for

students to study in years to come. For us, the immediate crisis has presented a

dichotomous exposure to two sides of the same strategic coin. The first side represents

the reason for the collapse, the imprudent practices as it relates to risks, investments

leverage and efficiency. The collapse of gargantuan institutions have proved that might is

not always right.

The other side represents the best use of management practices relating to the

same variables resulting in an equal number of companies that have remained relatively

unscathed. The lesson for us is simply this, there are obvious reasons why companies fail,

lag or remain bottom feeders of their particular industries. Likewise, there are reasons

why companies perform consistently at the top of their respective industries as in the case

of Edward Jones. The difference is will.

There are no revolutionary or ground breaking strategies that have been

highlighted by this analysis. Indeed they may have been presented to the organization

before. What is now required of the leadership of NCB Capital Markets Ltd. is to engage

the strategic will to properly envision, explore and implement where feasible, the

investment in its people, improved processes, innovative products and superior client

relationship. This may be the only way in which NCB Capital Markets Ltd. can truly

differentiate itself from its competitors and gain sustained competitive advantage.

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Appendices Capital Markets

APPENDIX A

Table 1: Interest RatesChange (% PTS)

Dec-08 Monthly 12 - Mth YTDAverage Savings Deposits 5.33% -.21% .45% -15.49%Average Loan Rate 23.17% 0% 2.35% 2.35%6 Month T-bill 24.26 % -.19% 10.93% -.19%30 days CD - Jan 09 17.00% 0% 4.35% 0%90 days CD - Jan 09 20.00% 0% 7.20% 0%180 days CD - Jan 09 21.50% 0% 8.50% 0%365 days CD - Jan 09 24.00% 0% 10.50% 0%

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Appendices Capital Markets

APPENDIX B

Table 2: Competitor Analysis: Securities Firms

Details NCB Capital Market Scotia DBG Capital and Credit Financial Group

JMMB Pan Caribbean Financial Services

Mayberry

Incorporation Previously known as Edward Gayle & Co. – (1969), now NCB Capital Markets – October 30, 2003

Started in 1992 as Dehring Bunting & Golding Ltd. and acquired by Scotia Group Ltd and officially renamed to Scotia DBG Investment Ltd in April 2008

Capital & Credit Merchant Bank (CCMB) - January 1994 CCS-2002

1992 August 1983 1985

Ownership Structure

Over 75% majority shares were acquired in 2002 by AIC Limited-Canada

Owned subsidiary of the Scotia Bank Group Jamaica

Owned Subsidiary of Capital & Credit Financial Group

Related company of Jamaica Money Market Brokers

38% owned by associated company of First Life Ins Co. with the parent company being Pan-Jamaican Investment Company

Listed on Jamaica Stock Exchange in April 2005. Majority of shares privately owned.

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Appendices Capital Markets

APPENDIX B

Table 2: Competitor Analysis: Securities Firms (Cont’d)

NCB Capital Markets Scotia DBG Capital &Credit Financial Group JMMB

Pan Caribbean Financial Services

Mayberry Investments

Strategy/ Objective

Remain stable and sure, with performance that reflects high ethical standards, dependability & commitment to understanding and satisfying client needs.

o Make offerings to customers more accessible through increased awareness of investment products and services.

o Further expand network of financial advisors.

o Regulatory initiatives to migrate customers away from traditional Repurchased to Mutual Fund type instruments to attain additional growth for already established funds.

o Cost containment.

o Expansion of product line and services in Jamaica and the Caribbean.

To remain committed to ensuring that most attractive products are offered to clients in an efficient manner while maintaining excellent client care standards.

To grow business through additional mergers and acquisitions, new products and expansion throughout the Caribbean.

To offer the public with a wide variety of investment products that yield good returns.

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Appendices Capital Markets

APPENDIX B

Table 2: Competitor Analysis: Securities Firms (Cont’d)

DetailsNCB Capital

Market Scotia DBG Capital and Credit Financial Group JMMB

Pan Caribbean Financial Services

Mayberry Investments

Vision To make NCB Capital Markets an industry leader renowned in the Caribbean for its wealth management services, innovation and financial success, attained through well-trained and committed employees, outstanding service delivery and corporate citizenship.

To be the leading wealth management provider, delivering innovative financial solutions and superior customer experience by a highly skilled and dynamic team while achieving profitable growth for all our stakeholders.

With vision, professionalism and integrity, to be the leader in providing superior value added financial services of internationally competitive standards for the benefit of our customers, employees, shareholders & the wider community.

o To be a dynamic international, multifaceted investment institution that operates in a caring, loving and fun environment where employees are creative and content.

o Ensuring customer satisfaction through optimum use of technology and continuous improvement on a path of excellence where solidarity, ethics credibility and openness are hallmarks of its existence as experts in all aspects of operation.

Committed to clients’ financial future: Pan Caribbean aims to making their financial future a success by providing comprehensive planning, saving and investing opportunities.

Full service financial advisory firm committed to protecting its customers savings and investment through quality financial service and total customer care.

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Appendices Capital Markets

APPENDIX B

Table 2: Competitor Analysis: Securities Firms (Cont’d)

Details NCB Capital Market Scotia DBG Capital and Credit Financial Group JMMB Pan Caribbean

Financial ServicesMayberry

Investments

Tag Line “Serious about Wealth.”

“You’re safe with us.”

“Count on our expertise. Financially focused.”

“Your Goals. Full Stop.”

“Build on your Success.”

“Mayberry clients make money. Investments management you can trust.”

Product & services

o Tax Free Investments

o Government Securities

o Money Market Securities

o AIC Mutual Fundso Stockbrokerage

Services Asset Management and investment Planning Services.

o Equity Capital Markets

o Debt Capital Markets

o Mergers and Acquisitions

o Money Market Investment

o Unit Trust/ Mutual Funds

o Stockbrokerage/ Equity Trading Services

o Pension/Asset Management

o Cambio Serviceso Deposits, Loans/

Lease Financing

o Stock Broking/ Bond Trading

o International Bond Accounts

o Financial Planning Services

o Investment Advisory Services

o Portfolio/ Pension Fund Management

o Money Management Accounts

o Unit Trust/ Mutual Funds Services.

o Stocks Brokerage Services

o Money Market Bonds

o Cambio Services

o Pension Fund Management

o Savings Account

o Tax Free Investment

o Global Investment

o Repurchase Agreements

o Savings Accounto Corporate

Lending Facilities

o Personal Portfolio Management

o Cambio Serviceso Fixed Income

Investments o Stock Brokerageo Security Tradingo Tax Advantage

Plano Global bondso Unit Trusto Government

Instruments

o Repurchase Agreements

o Portfolio Management

o Government Securities

o Pension Fund Management

o International Trading/Cambio

o Stockbrokerage Services

o Offshore US Funds Management

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Appendices Capital Markets

APPENDIX B

Table 2: Competitor Analysis: Securities Firms (Cont’d)

Details NCB Capital Market Scotia DBG Capital and Credit Financial Group JMMB Pan Caribbean

Financial ServicesMayberry

Investments

Stock Exchange Listings

o Jamaica Stock Exchange

o Trinidad & Tobago Stock Exchange

o Jamaica Stock Exchange

o Trinidad & Tobago Stock Exchange

o Jamaica Stock Exchange

o Trinidad & Tobago Stock Exchange

o Jamaica Stock Exchange

o Trinidad & Tobago Stock Exchange

Jamaica Stock Exchange

Jamaica Stock Exchange

Co-operative links with other organizations

o National Commercial Bank Jamaica Ltd.

o NCB Insurance Company Ltd.

o NCB (Cayman) Limited

o West Indies Trust Company Limited

o NCB Remittance Services (UK) Limited

o Data-Cap Processing Ltd.

o Mutual Security Insurance Brokers Ltd

o N.C.B. Jamaica (Nominees) Limited

o Scotia Bank Jamaica Ltd.

o Scotia Jamaica Building Society.

o Scotia Jamaica Life Insurance Co. Ltd.

92.73% of the Jamaica Unit Trust Services Ltd.

o JMMB Trinidad Ltd.

o JMMB Securities Ltd.

o JMMB Insurance Brokers Ltd.

o Associated companies:- 45% owned

CMMB Trinidad Ltd.

- 50% owned CMMB Barbados Ltd.

- 45% owned CMMB Securities Ltd.

- 50% owned IBL

Manufacturers Credit & Information Services Ltd.

Source: Wealth management firms published annual reports for 2007/2008

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Appendices Capital Markets

APPENDIX C

Table 3: Securities Firms: Comparative Financial Performance for Quarter Ended December 31, 2008/January 2009NCB Capital

MarketsScotia DBG Investments

Jamaica Money Market Brokers

Limited

Pan Caribbean Financial Services Limited

Capital and Credit Financial

Group

Mayberry Investments

Limited

1st Quarter, 31/12/08, $’000

1st Quarter, 31/1/09, $’000

3rd Quarter, 31/12/08, $’000

4th Quarter, 31/12/08, $’000

4th Quarter, 31/12/08, $’000

4th Quarter, 31/12/08, $’000

Financial Year Sept. 30th Oct. 31st Mar 31st Dec. 31st Dec. 31st Dec. 31stNet Profit 483,247 385,216 635,644 480,044 81,249 (296,220)Previous Year 416,701 304,736 334,820 307,598 56,939 185,598Total Asset 65,637,879 67,610,533 105,082,589 63,772,864 47,051,329 24,040,766Previous Year 56,983,966 59,071,137 97,015,072 49,797,164 54,841,228 23,895,425Return on total Asset

0.74% 0.57% 0.60% 0.75% 0.17% (1.23%)

Previous Year 0.73% 0.52% 0.35% 0.62% 0.10% 0.78%Net Interest Income 381,526 621,205 169,216 491,672 257,884 (5,640)Previous Year 413,660 440,045 442,542 470,464 268,922 106,464Total Equity 7,662,866 5,852,849 5,935,679 7,084,189 5,224,275 2,453,167Previous Year 8,430,248 6,208,225 7,296,811 7,530,930 5,956,719 3,365,121Return on Equity 6.31% 6.58% 10.71% 6.78% 1.56% (12.08%)Previous Year 4.94% 4.91% 4.59% 4.08% 0.96% 5.52%Efficiency Ratio 23.9% 36.2% 42.3% 36.9% 89.1% (84.1%)Previous Year 25.1% 41.1% 64.3% 33.9% 87.3% 45.7%Earnings Per Share $0.40 $0.91 $0.43 $0.88 $0.08 ($0.25)Previous Year $0.35 $0.72 $0.23 $0.56 $0.04 $0.15

Source: Jamaica Stock Exchange Listed Companies Published Reports and the Financial Gleaner Stocktrack Reports Dated Feb. 27, 2009.

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Appendices Capital Markets

APPENDIX D

Table 6: Major RisksRISK DEFINITION

Regulatory RiskThis refers to breach or non adherence to legal and regulatory guidelines.

Liquidity RisksThis relates to the company’s inability to meet cash flow obligations when they fall due.

Counterparty Credit Risk

This refers to the potential variation in the company’s capital and earnings as a result of counterparty’s, issuer’s or borrower’s failure to fulfill their actual or implied contract.

Interest Rate RiskThis reflects the impact on the company’s profitability of changes in short and long term market interest rates.

Market Risk

This represents the risk to the firm’s capital or earnings arising from changes in the market value of the company’s portfolio due to changes in interest rates, foreign exchange rates, equity prices, market liquidity and credit spreads.

Operational RiskThis refers to the potential for systems or managerial errors which will result in significant material loss for the institution.

APPENDIX E

Figure 2: Daily % Change in Major Currency Rates (Source: BOJ Database, 2009)Source: BOJ Database

APPENDIX F

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Appendices Capital Markets

Figure 5. Credit Union Membership

APPENDIX G

Figure 11: Efficiency Ratio Securities Firms

APPENDIX H

94

Appendices Capital Markets

Figure 12: Earnings per Share by Securities Firms

APPENDIX I

Figure 16: NCB Capital Markets Strategic Template

95

Appendices Capital Markets

APPENDIX J

96

Appendices Capital Markets 97

Loyal productive employee Employee

support services

Value creation

Increased funds under management

Client loyaltyIncreased profit

margin

Value creation

Appendices Capital Markets 98

Value creation

Increased funds under management

Client satisfaction

Client loyaltyIncreased profit

margin

Value creation

Appendices Capital Markets

Figure 17: NCB Capital Markets Ltd. Service Profit Chain

99

Capital Markets

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