• disposal of its holdings in Union Bank of Jamaica (UBJ) to RBTT International Limited – a subsidiary of the RBTT Group from Trinidad & Tobago

• consolidation of its holding in the NCB group of companies via the restructuring of that group

• assumption by the Government of Jamaica through the Debt Management Unit of the Ministry of Finance of the debt portfolio of FINSAC Limited (and Financial Institutions Services Limited) with effect from March 31, 2001

• injections of capital for Life of Jamaica.

The results of these activities are included in the Profit & Loss Account and Balance Sheet.

PROFIT & LOSS ACCOUNT

FINSAC had its fourth consecutive year of operational loss as was expected. Total losses amounted to J$30.3Billion (J$30.8Billion - 2000) before exceptional gain of J$3.7Billion (Nil - 2000) resulting in a net loss for the year of J$26.6Billion. Cumulative losses for the four years now total J$125Billion.

In the year under review FINSAC earned J$4Billion in revenue (J$3.4Billion - 2000). Operational costs amounted to J$22.8Billion (J$18.7Billion - 2000) resulting in an operational loss of J$18.8Billion (J$15.3Billion - 2000). Other charges of J$11.5Billion (J$15.6Billion - 2000), and exceptional gain of J$3.7Billion (Nil - 2000) brought the net losses for the year to J$26.6Billion (J$30.8Billion - 2000).

General and Administrative Expenses

Although total expenses increased marginally from J$433Million to J$437Million, there were significant increases/decreases in individual expense items. Most debts which were considered bad, had been provided for in previous years. The provision for bad debts was, therefore, decreased by J$137Million (J$169Million – 2000, J$32Million – 2001).

FINSAC had to utilise the services of professional advisors in assisting in the preparation for and advising on the disposal of major and unique investments and debts, with a resulting increase in the costs incurred in this category of expenses. Foreign and local professional fees increased by J$65Million (J$76Million – 2000, J$141Million – 2001) and J$17Million (J$22Million – 2000, J$39Million – 2001), respectively. There were major increases in investment in computers as part of FINSAC’s fixed assets in the latter part of the previous year and early this year. Associated depreciation costs increased by J$22Million (J$14Million – 2000, J$36Million – 2001).

During the year FINSAC incurred maintenance charges from investment properties that were vacant. These charges helped to increase rental and building maintenance charges by J$20Million (J$12Million - 2000, J$32Million - 2001). Stationery and office supplies increased by J$9Million (J$2Million – 2000, J$10.6Million – 2001). This increase is a result of FINSAC’s agreement to absorb the printing and stationery costs involved in the Scheme of Arrangement through which the restructuring of NCB took place.

Interest on Loans and Advances

Interest on loans and advances increased from J$15Billion in 2000 to but J$18.2Billion in 2001 (a 21% increase). The stock of third party debts continued to grow as interest continued to be capitalised. Additional non-performing loans were acquired, and contracts for the acquisition of a substantial portion of these additional loans were concluded within the year under review, for which interest related to the previous year. All these interest costs were booked in the current year. The impact was, however, reduced as no interest was charged on debts owed to the Government of Jamaica. These debts were forgiven as at May 2000. The impact was reduced further by the redemption of debt in December 2000 and January 2001, using proceeds from loans from international lending agencies. Interest rates, which were tied to the Six-Month Treasury bill rates, showed small downward movement during the year. The closing rates for 2001 ranged from 17.88% to 20.41% per annum moving from a range of 17.96% to 23.03% per annum at the beginning of the year.

Other Charges

Other charges consist of provisions. Over the previous three years, FINSAC has assessed its loans, deposits and investments and made the appropriate provisions. The need for provisioning fell from J$15.5Billion in 2000 to J$11.5Billion (a 27% reduction). Loans and deposits are with financial institutions in which FINSAC has intervened, while investments are in FINSAC’s subsidiaries and associated companies.

BALANCE SHEET

Asset Composition

During the year FINSAC disposed of its investment in Union Bank of Jamaica (UBJ). The cost of this investment was J$5.8Billion. J$1.6Billion of the sale proceeds was outstanding at March 31, 2001 and was included in accounts receivables and prepayment. The additional investment of J$4.5Billion in UBJ was converted to a loan and was reclassified as Loans to Financial Institutions as at March 31, 2001.

As a result of the restructuring of the NCB Group, FINSAC’s investments therein were consolidated and are now being held indirectly through its wholly owned subsidiaries Atrium Holdings Limited and Atrium XS Holdings Limited. FINSAC acquired additional investments of approximately J$1Billion in properties and equities and purchased additional non-performing loans of J$1.5Billion. FINSAC settled debts of J$0.8Billion on behalf of intervened institutions. For the year under review, FINSAC increased its provision against total assets by J$11.5Billion.

The above transactions resulted in a reduction in total assets (after provisions) from J$24.5Billion as at March 2000 to J$19.2Billion as at March 2001. Major individual changes from March 2000 to March 2001 were – investments decreased from J$17.9Billion to J$7.3Billion; loans to financial institutions increased from J$4.0Billion to J$6.1Billion; and accounts receivable and prepayment increased from J$0.8Billion to J$2.1Billion.

Equity

During the year, Cabinet made the following decisions:-

• to assume all liabilities of FINSAC (and FIS) arising from issuing of bonds and similar instruments; and

• to forgive FINSAC (and FIS) all debts owed to the Government.

FINSAC (and FIS), therefore, recalled and cancelled all their bonds. In return bondholders received cash and/or Government Local Registered Stocks (LRS). The amount of the cash paid, plus the value of the LRS issued were charged to Contributed Capital as it was fully funded by the Ministry of Finance (as beneficial equity holder of both FINSAC and FIS). (See Note 10 of the Financial Statements).

Shareholders’ equity, therefore, increased by this Contributed Capital of J$131.4Billion. The equity was, however, reduced by the net loss of J$26.6Billion for the period. Shareholders’ equity, therefore, improved from a negative balance of J$98.5Billion as at March 2000 to J$6.3Billion as at March 2001.

Long-Term Liabilities

New issues of bonds, plus capitalisation of interest on bonds, less the recall and subsequent cancellation of these bonds, resulted in long-term liabilities being reduced from J$114.6Billion as at March 2000 to J$11Billion as at March 2001. Of the remaining J$11Billion, J$7Billion was subsequently redeemed for cash and the remaining J$4Billion is being held by FINSAC-controlled entities (Eagle Merchant Bank, Jamaica Mutual Life and Crown Eagle Life).

Accounts Payable and Accruals

The impact of the cancellation of FINSAC’s bonds reduced the interest accrual by J$7Billion from March 2000 to March 2001.

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