Ashford W. Meikle, Staff Reporter
WYNTER AND LEE CHIN
FACED WITH the inevitability of the wipe-out of its half a billion dollar investment in the Dyoll Group, the National Commercial Bank (NCB) has made a $536 million impairment provision according to the unaudited six months (to March 31, 2005) financials of the NCB Group.
The largest shareholder in Dyoll, NCB holds just over 27 million shares or approximately 46 per cent of the company. The impairment provision amounts to roughly $19.11 per share.
Principally, as a result of the impairment cost, there has been a fluctuation in NCB's operating profit. In fact, compared to the corresponding quarter last year there was a 53 per cent decline in the operating profit, which fell by $375 million, to $858 million. Viewed against its six months, there was a flat movement in NCB's operating profit, which increased by a negligible four million dollars.
Importantly, the impairment cost by the group represents its first official acknowledgement of the extent of the losses suffered from its investment in the Dyoll Group. Hitherto, NCB executives had been reluctant to commit to the losses suffered from the Dyoll debacle. In fact at last month's AGM, group managing director of NCB, Patrick Hylton, advised shareholders that the bank had not made any provisions for the Dyoll loss since it had not concluded the level of its exposure. "We don't know what [our Dyoll] losses are at this point," he said.
It appears that the turnabout decision by NCB management to make the impairment provision was influenced by the announcement two weeks ago by the Financial Services Commission (FSC) that it would be applying to the courts for a liquidation of Dyoll Insurance Company. "At this point, liquidation is the best option," said its executive director, Brian Wynter, in a press release. Mr. Wynter said the FSC's decision was based on the recommendation of the temporary manager, Kenneth Tomlinson.
THE BANK'S POSITION
A statement by chairman of NCB, Michael Lee Chin, no doubt reflected the bank's position. Speaking for the first time on the Dyoll debacle at the NCB's AGM, he said, "notwithstanding the enormity of our shareholding, we thought it would be in the best interest of our shareholders to fold our tent at that point because we were not prepared to put any more investment dollars into what we thought at the time was a black hole," he said as he explained why NCB and AIC had decided against a capital injection into Dyoll. As to whether NCB could salvage some opportunity from the current Dyoll imbroglio, Mr. Lee Chin said, "We had not been given an opportunity to mitigate our losses."
While it is the Dyoll Group that is listed on the stock exchange, the proposed liquidation of the insurance company would essentially result in a shell of a company.
NCB paid $561 million, or $19.99 per share, last year for its investment in Dyoll last February. However, that investment was seriously compromised when Dyoll's capital base was eroded as a result of the plethora of claims submitted to the company in the aftermath of Hurricane Ivan and its inability to honour those claims. With rumours swirling about the financial health of the company and of its difficulty in getting capital injection, the Jamaica Stock Exchange (JSE) suspended trading in Dyoll's shares at $14.50.
In early March the Financial Services Commission (FSC) assumed temporary management of the insurance company, sending in Kenneth Tomlinson from Business Recovery Services Limited to do an audit of the company's finances. Within days of assuming control of Dyoll, the FSC sold the insurance company's Jamaican portfolio to Jamaica General Insurance Company, a subsidiary of GraceKennedy Limited.
