Wed | Feb 19, 2020

NCB reports big gains but rare profit dip

Published:Friday | February 8, 2019 | 11:52 AM
A branch of NCB at Half Way Tree, Kingston.
A branch of NCB at Half Way Tree, Kingston.

NCB Financial Group posted a rare decline in net profit for the December quarter, due to a restated one-off gain from an acquisition booked in the previous period.

The banking conglomerate earned $7.4 billion in the review period – which was buttressed by a gain of $3.3 billion from the sales of its stake in JMMB Group – but those results were nearly two per cent lower than the December 2017 first quarter.

In the latter period, NCB booked a restated, and upsized, $4.4-billion gain from its acquisition of Bermuda-based Clarien Group. Its net profit for that period, which was initially reported as $4.6 billion, was restated at $7.54 billion as a result.

It was the first dip in quarterly profit in four years. Back in December 2014, before the bank group restructured as a conglomerate, NCB adopted the treatment of its full year’s asset tax in one quarter, as required under international accounting rule IFRIC 21. The $2.1 billion in quarterly profit that it made back then, down from $2.5 billion in the year prior period, currently represents less than one month of profit for the group.

NCB Financial initially booked its gain on the Clarien acquisition at $1.47 billion, but that was restated to $4.4 billion with the release of its most recent earnings report published last month. The financials show that the variance was due to a $3.4-billion increase in intangible assets to $5.1 billion, and a $2 billion reduction in ‘other liabilities’ to $512 million.

NCB Financial reported that the group acted on provisional information at the time of the Clarien acquisition in December 2017 and restated the amount, as allowed under general accounting rule IFRS 3. The rule allows a measurement period of up to a year to account for new information after acquisition.

“The group’s share of net identifiable assets acquired was determined provisionally from the financial statements of Clarien as at December 31, 2017. On that basis, $1.47 billion was recognised as negative goodwill on acquisition of subsidiary in the income statement for the quarter ended December 31, 2017,” said the banking group. “This amount was subsequently revised to $4.4 billion upon finalisation of the determination of the fair value of the net assets (including intangible assets) acquired.”

Last December, NCB sold its remaining stake in JMMB Group for $9.2 billion to Proven, which resulted in a $3.3-billion gain on the disposal. The banking group initially acquired 428.8 million shares in JMMB back in 2011 for about $3.45 billion. It previously sold 100 million of the shares in September to PanJam.

Despite JMMB’s regional presence in Jamaica, Trinidad and Dominican Republic, which appears to align with NCB’s own regional push, the banking conglomerate’s Deputy CEO and Chief Financial Officer Dennis Cohen argued they could make better use of the capital.

“We have to make strategic choices. The fact is that we do not have unlimited capital and we have to make decisions on what we believe will provide the best shareholder value,” Cohen said at the bank’s annual general meeting held ON January 25.

The gain from the disposal would fund other investments, he said.