Chris Williams, managing director of NCB Capital Markets. - File

Ashford W Meikle, Business Reporter

Faced with a challenging economic environment and a weak equities market, NCB Capital Markets, the investment and brokerage arm of the National Commercial Bank group, has posted flat profits for its six months ending March 31, 2007.

On the back of a 17 per cent year over year increase in operating income of $1.5 billion, NCB Cap's after tax profit rounded out at $844.6 million - a less than one per cent increase compared to the previous year while net interest income increased by 13 per cent, to $845.4 million.

Returns were flat at 70 cents earnings per share, compared to the six-month results for 2006.

Expenses rise

Expenses for the company - which, with 120 employees is the smallest and most profitable brokerage - rose by almost 17 per cent to $398 million.

"The reality is the results are basically flat, as revenues and cost increased basically exactly the same," said deputy general manager of Stocks and Securities, Mark Croskery. "This needs to be examined."

Croskery argues that NCB Cap's results are "fair" in an environment of declining interest rates, lower Jamaican dollar financial instruments being offered by the Ministry of Finance, lower T-bill yields resulting in variable rates being lower, as well as a significant fall-off (of almost 10 per cent) in Jamaican equities in the first quarter of the year.

"Our results are stable despite operating in a challenging environment characterised by a depressed stock market and lower interest rates," said the brokerage house's managing director, Christopher Williams by email.

"Given the considerable reduction in asset yields in the industry over the year, our ability to maintain our strong profitability is highly commendable. It is a clear demonstration of our organisation's ability to adjust its business model and cost structure to outpace market conditions."

Balance sheet strong

Commenting on the financial health of the company, Croskery said NCB Cap's balance sheet remains strong.

"This continues to be robust which is good, and means good management of the portfolio or repo book as compared to competitors which are not showing these types of gains or even close,' Croskery told The Financial Gleaner.

The analyst said, however, that NCB Cap still needed to diversify its income stream.

"They need to grow traditional operating revenues and profits versus solely trading income," he said.

"Trading income will not always be as favourable as it has been and in the six-months' results, trading income represents approximately 62.5 per cent of net profit. SSL is concerned about this when looking a year or further into future financial results," the analyst cautioned.

To this, Williams responded: "Our intention is to grow both", pointing out that NCB Cap's net interest income had increased by $95.84 million or 12.8 per cent while operating income grew 21.4 per cent.

"This is attributed to a close monitoring of interest spreads and the ability to improve trading income," he said.

ashford.meikle@gleanerjm.com