Speaker you will recall that I advised this Honourable House
towards the end of the last financial year that:
elements of the financial sector sought the Government's
assistance to restore them to financial viability as they were
experiencing financial difficulties consequent on a mis-match of
assets and liabilities;
the Government decided to establish the Financial Sector
Adjustment Company (FINSAC), to work with those institutions in
the financial sector that were experiencing financial problems.
This was with a view to restoring such institutions to financial
Government's action in this regard was to protect the thousands of
depositors, policyholders and pensioners who placed their life
savings in these institutions.
Speaker, in the ten (10) months of FINSAC's operations, FINSAC has
intervened in three life insurance companies, and the Eagle
Financial Enterprises consisting of a life insurance company, a
commercial bank, a merchant bank and other financial institutions.
participation in Life of Jamaica, one of the three life insurance
companies, led to its acquisition for cash of approximately
J$870M, Life of Jamaica's shareholdings in Citizens Bank and CIBC.
Mutual Life Assurance Company, the largest of the life insurance
companies, is close to concluding negotiations with FINSAC. This
Company has approximately 360 000 policyholders and manages $4.5B
in Pension Funds. It is also the largest shareholder in NCB
Limited, the largest commercial bank, covering about 40% of total
depositors in the banking system. FINSAC has been negotiating with
Jamaica Mutual since May 1997. The principle around which they
have been conducting the negotiations is that Jamaica Mutual
should disengage from its ownership of a banking institution (NCB)
and should return to its core business, that of insurance. Broad
points of agreement have been agreed between FINSAC and Jamaica
Mutual, and these are as follows:
FINSAC will inject into Jamaica Mutual at least J$10B. Of this
total $9B will be in a subordinated loan which will be paid in two
tranches. The subordinated loan will bear an interest rate of 4.5%
The first tranche will be approximately $7B and this will be paid
immediately to creditors on signing of the agreement. The second
tranche of $2B will be made in about a month thereafter.
The first tranche will allow Jamaica Mutual to retire the
overdraft of approximately $7B outstanding on the books of the
National Commercial Bank.
The second tranche will allow for the provision of needed working
capital to the Society.
has been discussing with the Society the structure that will offer
the best protection to the 360 000 policyholders. The Society has
to be recapitalized. A mutual society such as Jamaica Mutual has
certain peculiarities which make it difficult to:
ensure that the agreed strategic plan to restore the Society to
viability is implemented;
ensure that the capital injected by FINSAC is protected.
the option being actively considered is that of demutualization.
Once FINSAC and the Society finally agree on the appropriate
structure, an employee stock option plan will be adopted as a
Society's Board will be reconstituted to comprise 15 directors,
one of whom will be an Executive Chairman acceptable to FINSAC and
NCB Group's shares held by the Society will be sold to FINSAC at
the price prevailing on the Jamaica Stock Exchange on the date of
the transfer. This is estimated to cost approximately J$1B. FINSAC
will be given immediate power of attorney over the shares.
individual acceptable to FINSAC will be appointed to fill a new
post of Director, Finance and Investment, reporting to the
review of remuneration will be undertaken, and in so doing pay
packages for management will be split into a basic pay and
incentive pay component.
acquisition of Mutual Life's shareholdings in NCB will put FINSAC
in the position of controlling shareholder in NCB. At this point,
Mr. Speaker, I wish to state that the Government has no desire
whatever to assume control of the Financial Sector. We have
acquired financial interest in the sector because we were asked to
intervene and we realised that depositors and policyholders in the
sector had to be protected. This is not peculiar to Jamaica and
has occurred in several other countries. Mr. Speaker, the
Government is still committed to providing the framework within
which the Private Sector will maintain and strengthen its lead
role in the economy.
Speaker, FINSAC's objective is to ensure that those institutions
in which it has intervened will emerge from this period stronger
and more vibrant.
FINSAC will be working closely with the other significant
shareholder in NCB, Jamaica National Building Society, in the
management of the Bank until FINSAC divests itself of these
currently negotiating with Jamaica National Building Society, the
main elements of a plan which will strengthen NCB and enable it to
maintain its position as one of the premier financial institutions
in the region;
currently engaged in recruiting additional short term consultants
who will have special responsibility for NCB matters;
currently reviewing the components of a draft strategic plan
prepared by the management of the NCB Group.
and Jamaica National have agreed that there should be one Board
for both the NCB Group and the Bank and that a new Board has to be
urgently identified for NCB. Mr. Oliver Clarke, the current
Chairman of Jamaica National, will immediately assume the
chairmanship of NCB.
Speaker, problems in the financial sector are not unique to
Jamaica. Several developed and developing countries have all
experienced such problems. Countries such as the USA, with its
savings and loans crises, Japan, Mexico, Argentina, Chile and some
of the Asian tigers have also had significant financial sector
difficulties in recent times. The Government in all cases have had
to intervene to protect the financial system and domestic savers.
Speaker, we have consulted with some of these countries to learn
from their experiences and they have confirmed that our approach
to the resolution of the problem is consistent with the approach
they have adopted in trying to resolve the situation in their own
countries. Mr. Speaker, we remain
committed to the orderly resolution of the financial sector