By Al Edwards, Business Co-ordinator
RAYMOND Campbell's career path has been meteoric to date and he has garnered a reputation as one of the Caribbean's foremost young bankers. Starting a career in the financial sector at the Barita Group of Companies under the guidance of chairman, Rita Humphries-Lewin, the top brass at CIBC identified him as a man wan with a future and solicited his services with the idea of having him run its merchant banking arm in Jamaica. In a relatively short time he was promoted vice president of CIBC's Jamaican operations.
At high school he harboured ambitions to become an accountant and was well set on his way to accomplish just that. A graduate of the University of the West Indies (UWI)with a BSc in Accounting, he went on to gain a professional qualification in chartered accounting.
At 36, and after five and a half years at CIBC he finds himself in the envious position of stewarding the merger of the Canadian bank , a significant player in the Caribbean and the English banking stalwart, Barclays into First Caribbean.
SO WHY A MERGER?
"He saig Both banks had an interesting dilemma facing them. The first dilemma was that banking has increasingly become a business of high cost and therefore you need to have economies of scale. There are high cost from a technology perspective, increasingly high cost from a labour perspective, because you have to hire skilled people at competitive salaries. This all leads to a huge cost push. This cost push margin is exacerbated by a debt interest margin decline, in other words the margins that you are operating on, because of competition is shrinking. So the scenario is one where you have rising technology costs, rising labour costs etc., then you have a declining trend in your net interest margins. The only way to address and rectify this is by economies of scale."
MODERN TECHNOLOGY
CIBC has a presence in eight Caribbean countries and is not as diversified as Barclays which has a presence in 14 territories. CIBC has made strides with its implementation of modern technology whereas if Barclays wanted to have a presence in the Caribbean region it would have to make a substantial investment in technological applications. Barclays has a reputable international/offshore business whereas CIBC's venture into this area has not proven as successful. Barclays does not possess CIBC's strength in capital markets and corporate clientele banking. CIBC has been in Jamaica for more than 60 years and Barclays does not presently have a presence in the Caribbean's largest English speaking island and to be a Caribbean bank you have to be in Jamaica.
It is patently clear now why the banks are undergoing a merger economies of scale, size of territories, landscape, business mix, technology. Both banks had certain similarities particularly in regard to net income and domestic banking assets. The complimentary fits that are apparent pertains to the modernisation of Barclay's branch structure, and CIBC's desire to gain a greater slice of the international offshore market.
Raymond Campbell pointed out that unlike CIBC, which was run by a holding entity, First Caribbean will be controlled by a regulated bank, First Caribbean International Bank. Therefore, there will now be First Caribbean Jamaica Limited, an operated company; Barbados Limited, another operated company; Cayman Limited, also an operated company. There will be five operated companies under the First Caribbean umbrella. There will now be First Caribbean with a restricted banking licence and then the five operated companies conducting business in 15 countries within the region with unrestricted banking licences.
" As First Caribbean we will be able to compete effectively throughout the region. Largely as a result of economies of scale and the other factors mentioned earlier. We will have a rights issue and we will have assets as we close the financial year on October 31,2002, of somewhere in the region of US$9.5 billion. We will have a Tier 1 capital of approximately US$700 million. All this will create perhaps the most highly capitalised bank in the region with a Tier 1 capital ratio of 14 per cent. This means you take all your assets, you risk rate them, come up with your enumerator, then the denominator meaning the rate at the top is your capital, you then divide your capital by your assets and our ratio comes out at 14 per cent. Now, that is a very strong ratio.
ADEQUATELY CAPITALISED
The ratios in the United States and Europe for Tier 1 tends to be 4 to 5 per cent. Combined, that's Tier 1 and 2 the Basle Standard excepts 8 per cent as being adequately capitalised. At 14 per cent at Tier 1, we are more than adequately capitalised and have more than the Basle Standard requires to operate a viable banking operation in the region."
No doubt then First Caribbean has a very strong capital/asset ratio. When one looks at the Jamaican business, the nominal value of capital is still not as high as Scotiabank. However, as a bank operating across the region First Caribbean is better capitalised than any of its competitors. First Caribbean is currently undergoing a strategic review and mulling over just what proportion of that US$700 million of capital will be allocated to its Jamaican operations. With a market capitalisation of US$2 billion, First Caribbean is easily placed within the top 500 banks in the world. CIBC is currently listed on the stock exchanges of Jamaica, Trinidad and Tobago and Barbados. First Caribbean International will now be listed on those exchanges with First Caribbean Jamaica being listed on the Jamaica Stock Exchange (JSE). First Caribbean Bahamas will also be listed on the Bahamian Stock Exchange. The reason for this decision is that in the Bahamas, once a company is listed there it cannot cross list on other exchanges.
In 1994 CIBC took the decision to be one of the first companies to have a cross border listing in the Caribbean. Almost 10 years later RBTT and Grace, Kennedy & Com-pany have also decided to cross list.
First Caribbean will have 83 branches throughout the Caribbean with the 12 existing CIBC branches in Jamaica undergoing a change of name to First Caribbean. First Caribbean will have the second largest branch network in the region with Bank of Nova Scotia still leaders in that respect but in terms of market capitalisation First Caribbean will hold the number one spot in the region. That said, First Caribbean has more overseas investors than its Canadian rival. First Caribbean and BNS will compete hard to be the leading banking institution in the Caribbean.
Mr. Campbell observed that it is very hard to predict looking five years down the road, who will own or not own Scotia and who will own and not own First Caribbean but he expects them both to be the leading players in the region. He sees larger global banks making bids on the Canadian banking franchises.
" We have taken the approach that not all customers are equal. Saying that, at the end of the day all customers want good service but how each customer defines good service is what we must now pay attention to. We will be placing a lot of our focus on our corporate clients and the way we intend to do that is through our capital market segment. Large corporate clients operating throughout the region with large balance sheets will require various types of structured trade finance and other capital market solutions, those businesses we will manage under our capital markets department.
There is increasingly another type of customer in the region, the one that does business here but does not reside in the region. We will treat that customer as part of our international business. That kind of business goes all the way up to large multinationals seeking to leverage various types of offshore funds in order to reduce the level of taxation that applies in their home countries or seeking to operate global treasury units and therefore want their money managed offshore rather than onshore, all that forms part of our international segment."
First Caribbean has come up with the strategy of having four segments and within the segments there will be some differentiation. The segments are: retail, corporate, capital markets and international, with Mr. Campbell heading the capital markets segment. Walter Wells will head Retail, Sharon Brown will lead Corporate, and Mark Traversham formerly of Barclays will be the executive director of the International division.
This formula will be replicated within the various countries in which First Caribbean operates. Mr. Camp-bell will retain the position of country manager of Jamaica, with the section heads reporting directly to him. This will see him operating in a dual capacity and in effect becoming First Caribbean's anchor man.
WHAT ARE HIS VIEWS ON THE BANKING SECTOR IN JAMAICA TODAY?
"In the later nineties a certain degree of consolidation had
occurred. But I think of particular significance is that UnionBank which is now RBTT and NCB are now both in the private sector. Both these banks formed the largest indigenous banking institutions and now we have a banking sector which is now truly privatised and this augers well for competition and customer service.
I think there will be little opportunity for the larger commercial banks to make acquisitions now that w UnionBank has gone to RBTT. The area where there may well be acquisition activity is in the merchant banking arena. Issues of competition will drive service and price and will determine levels of innovation. In the nineties people were less concerned with innovation and focused more upon financial stability. Today they are still concerned about stability but I think the emphasis is now shifting to innovation.
"With the meltdown of the sector, many of us learned invaluable lessons, and one of those lesson is that you can and rightfully ought to try to have a competitive advantage. Modernising the economic and financial landscape has proven to be vital, for instance the need for a modernised clearing house has become self evident. Mind you this has nothing to do with competitive advantage because only the customers and the economy as a whole stands to gain from this.
The formation of Jets with the Multilink and debit cards over the last five years shows the banks off at their collaborative best. Here the banks came together to improve the system as a whole and the customer was the primary beneficiary. So therefore the banks should compete among themselves over products and prices and become collaborative on those issues that improve the system as a whole, for example cheque clearance and debit cards.
I think a major challenge facing the banking sector is getting an effective credit bureau in place. Individuals will have an opportunity to examine credit history and so take advantage of that history so that people will be able to access better loan rates. Right now most individual borrowers tend to borrow at the same rate regardless of credit history because there is no credit bureau.
" Banks in Jamaica have no idea if you went belly up yesterday or whether you sought the same loan from the other banks across the street, that has to be put right. I am aware that a credit bureau requires huge investment in capital and technology. What you don't want to do is try to implement an effective credit bureau and then botch it. To have a credit bureau that can truly work in Jamaica there needs to be changes in the existing banking legislation and technology such as more information sharing."
Over the next five years, Raymond Campbell sees a more collaborative effort by all the existing banks leading to even more consolidation in the sector. Competition he sees will drive more products and services leading to the sector becoming even more modern with banking increasingly moving away from the cash handling business. He envisages even more transactions both in dollar terms as well as numbers of transactions processed by Jets.
"It is very hard to say five years hence who will own or not own Scotia, who will own and not own First Caribbean but I suspect they both will be the leading players in the region. It is almost unlikely in the immediate future that larger global banks will make bids on practically all the Canadian banking franchises, but this will not stop the trend for banks requiring even larger capital bases and making economies of scale and looking to make grater use of technology-all that will intensify over the next five years. I read in your paper that Scotia's merger with the Bank of Montreal was turned down. This may be as a result of Canada liberalising its shareholding of banks. I see three areas of growth for First Caribbean and come to think of it the banking sector as a whole which will add greater value to shareholders. One, squeezing more from the existing orange, that includes cost efficiencies and maximising profits. Two, grow even more revenue from existing customers possibly by offering more products and three expand in countries where you already have a presence or those where you don't have a presence. At this point in time we don't have a presence in Trinidad, Cuba , Haiti and Dominican Republic and I am not too clear opportunities exist in those territories but our strategic review of all business will no doubt indicate territories in which we can exploit opportunities."
The idea of initiating a brokerage arm has been considered, this will take the form of insurance brokerage and stock brokerage which will tie into the capital markets segment.
How does Raymond Campbell see the Jamaican economy?
"The Jamaican economy is one of great potential but at the same time fraught with major obstacles that need to be overcome. Great potential in the sense that I think as a business environment we have gone through our adolescence and think the same applies to our society as a whole. Through Independence, to the Michael Manley era and up to the present day we have matured as a nation.
I think today the business community is more pragmatic and less politicised than previous generations. Jamaica possesses many business opportunities and competitive advantages of which the one that immediately springs to mind is that we have the largest English speaking population in the Caribbean and that counts for something. We also have geographic positioning added to the fact that Jamaicans are hard working and ambitious makes us well sought out by foreign investors.
But saying that we do have our negatives. The size of the informal economy is too large for anyone's comfort and that creates issues around taxing it and policing it from a security perspective. We have issues on education, the literacy rate is too low- crime, too many murders and we have issues on the quality of governance that our leaders currently provide and we demand of them. These are the things we have to work on but by and large, we so more than any other country in the region (with the possible exception of Trinidad) have taken various steps to modernise our economy. We have liberalised our telecommunications market, we have liberalised our foreign currency regulations, we have liberalised our banking industry. In Jamaica there is no regulation of interest rates for depositors or for that matter for borrowers - it is all market driven. We have developed - all be it by accident, ownership within the tourism industry which is local without compromising standards whereas throughout the Caribbean many hotels are foreign operated as well as foreign owned and so the total economic benefit is not felt by the country as a whole.
If you look at SuperClubs and Sandals, you see Jamaican ownership and Jamaican management in operation. But if you go into a Marriott, well you can see for yourself.
"We are today more competitive than we were five years ago but that has come at a cost. The cost has been inefficient businesses in Jamaica have gone bust. Despite the fact that many entrepreneurs got burnt over the last seven years, we have to find a way to encourage the Jamaican entrepreneur to have a go and keep trying to establish new ventures and take risks.
The nature of the entrepreneur is such that they create value from opportunities that didn't exist before. Yes government can do more to help the entrepreneur but that does not pertain to just the Jamaican Government. But saying that, entrepreneurs tend to succeed regardless of the environment around them.
I'll paint a picture for you, take the telecommunications industry in Jamaica. If you took a hundred people from around the world each of whom had a $1 billion in cash or assets and said would you invest a fraction of that in Jamaica. Then you say let's look at Jamaica, an hour and a half out of Miami, 2.5 million people, per capita income of around US$2,500 per year, high levels of crime, high levels of illiteracy- the average investor would have said no. Digicel said yes and the rest is history. Many people do not have the ability to accept failure the way the entrepreneur is able to do. Most people treat failure as some sort of social shame, dishonour, loss of status and damage to ego and pride. Entrepreneurs view failure as a learning experience. They are prepared to do things most people are not prepared to do and that what separates an entrepreneur from your standard businessperson who plays it safe.
"Another picture, if you had said to most people, whether they had cash or didn't have cash, would you have gone into tourism in Jamaica in the seventies knowing full well the political environment, given the crime violence given what was happening with capital flight and the national psyche at the time most people would have said no. Butch Stewart, John Issa and Lee Issa took that risk despite the prevailing obstacles. It is doing what other people would not have done that makes these men entrepreneurial.
The US Government did nothing special for Bill Gates or Michael Dell but we all know of the might of these computer companies.
There is no silver bullet for success in business. Businesses needs a few basic things in place and I think they are as follows, good infrastructure, whether it be roads, electricity, water, telephones, education and law and order. It is disturbing that every year we have heavy rainfall the roads are damaged because they are poorly built, that's something that business can do without. Business doesn't need the high levels of crime and violence that presently exist in Jamaica. Long term economic growth means that some of those basic issues have to be taken care of. Then you need a private sector that has confidence in the future and that can go out there and bring in business. Jamaica should be an example to other small nations rather than they become an example to us. But saying that we have got a few things right. For the first time since I have left school, we have got inflation on a sustained basis below 10 per cent. That has meant reduced price inflation and less wage pressures. We don't have the cost push that undermines the entire economy.
"If there is a prescription that will help the Jamaican economy get back into a strong growth mode it is addressing the crime problem." A keen golfer, (taken up the game thirteen months ago) a family man Raymond Campbell will undoubtedly leave his mark on the Caribbean banking landscape and there is no doubt that he will do so with a certain dash and panache. His mission- to make First Caribbean the premier bank in the region is yet another challenge he faces and he has spent a career to date facing and realising challenges set before him.
