By Lavern Clarke, Staff ReporterIN THE midst of economic turmoil and the changing profile of the competition, Dehring Bunting & Golding Limited, a 10-year-old company run by a team of young professionals, has taken a look at its operations, and has now decided to realign its business mix.
Last year, the company chest-thumped its successful placement of a $3.552 billion infrastructure bond for the new National Road Operating and Construction Company, a huge deal well in line with the corporate business the investment bank had wooed since its start up.
But having taken stock of its margins on corporate and institutional trades, which were amounting to half a per cent on deals that take dedicated time and personnel to structure, versus the average two per cent it earns from its individual clients figures supplied by chairman/chief executive officer Peter Bunting DB&G has decided that it makes sense to grow the bank by growing its retail business.
The NROCC bond issue, for instance, reportedly took more than two years to set up.
Up to recently, DB&G's revenue mix was coming in at a 70:30 ratio, skewed towards its corporate clientele. But as its branch network began to take shape, now at seven across the island, the mix has now become 43:57.
INDIVIDUAL BUSINESS
The change in strategy, says Bunting, does not mean the bank will be giving up its corporate clients, nor will it be discouraging such new business when it comes through DB&G's doors, but rather, adds Gary Sinclair, chief operating officer and president, the more aggressive marketing thrust will centre on individual business as the 'growth area'.
The company sees positive signs in the performance of its new May Pen branch, which, though less than a year old, "is already profitable," Bunting announced at an investor briefing at the corporate headquarters in St. Andrew Tuesday, with other branches showing "substantial growth."
The addition of May Pen and Portmore to the network in the past year was part of the strategy, says vice president Chris Williams.
The short term plan is to swing the retail operation up to 75-90 per cent share of the business, leaving 10-25 per cent for corporate and institutional clients, and to do it within 12-18 months.
Already, the staff corps has been increased from about 110 to 140, and monthly training is ongoing. Vice president Chris Williams was named as the point man in charge of shaping the more personalised customer outreach.
With this shift, DB&G expects higher profitability, sales growth and a bigger slice of the market, but also dampened performance on its balance sheet in current year outlook as the market adjusts.
The investment bank is also trying to be less reliant on net interest income as the main source of revenues. Interest income, which accounted for 38 per cent of net revenues in the 12-months to March 2003, was down from 60 per cent. Securities trading contributed 30 per cent, up from 12.5 per cent.
EXPLORE OPTIONS
DB&G has no immediate plans to grow its network, but Sinclair notes that new branches will be added if the 18-month targets are surpassed. "And we plan to exceed them," he said, adding that they continue to explore options.
Alongside its sniffer dog approach, the company, whose eye-catching advertisements already seem to be pitched at the unorthodox, has announced plans to get even more aggressive with its marketing thrust, including more direct interface and personal sell to clients.
The bank is also boosting its audit and risk management capabilities, with Bunting announcing the appointment of Alistair MacBean as chairman of the Audit Committee. DB&G has also moved to minimise its exposure by a 'bankers blanket insurance policy.'
The shift in business focus comes at a time when the company's reported figures to March 2003 unaudited, reflects continued financial health a $5 billion boost in assets under management to $21 billion; a 39 per cent climb in net profits to $250 million, and a 24 per cent increase in net revenues to $748 million.
But a closer look at the percentages show that even while profits are increasing, the growth rate is slowing. Return on equity was basically flat at 40 per cent, the first time it has not been increased.
CAPITAL REQUIREMENTS
Within the wider market, new capital requirements, increased interest rates which remain at about 33-34 per cent, a more aggressive commercial banking sector providing similar services, too wide a deficit in the country's budget and trade balance, a weakened local currency, and a wider uncertainty about the economy, are the current realities.
But the company also named a few positives including a better than expected out-turn on the budget deficit for April, and the co-operative response to the appeal to stem the slide in the local currency.
There was a drop in the performance of the company's stock recently to just under $6, but trading is trending back up and is now at $7.74. Market capitalisation is over $940 million.
Bunting, noting that the stock had also dipped on the day its newest results came out, even though the figures were positive, said the performance might well be linked to what was happening in the wider sector and economy generally.
Sinclair adds that very thin markets like Jamaica tend to respond readily and noticeably to rumours and noise.
The DB&G chairman anticipates that there will be some consolidation of the smaller players down the road, having indicated that it is a direction in which regulator, Financial Services Commission is pushing the sector. His company has already started along that path, and recently got approval to acquire Issa Trust, which is to be merged with DB&G Merchant in three weeks.
Technology-wise, DB&G has consolidated its three information technology systems into one platform that links its entire branch network, a $55 million capital investment over two years.
