Chief executive officer of Victoria Mutual Building Society, Richard Powell (left), consults with auditor Patrick Chen at the society's annual general meeting held at its corporate headquarters, Half-Way Tree Road, St Andrew, on July 30. - Kyle Macpherson/Freelance Photographer
WITH ITS deposit portfolio remaining flat last year, Jamaica's second largest mortgage bank, Victoria Mutual Building Society (VMBS), says that its ability to attract savings was weakened by the raft of unregulated schemes that offered super returns to investors.
Things, though, have begun to change, VMBS says.
The explanation for the weak performance in this segment of the society's business is outlined in its recently released annual report and underlined by the bank's chairman Roy Hutchinson and CEO Richard Powell when they addressed members at the annual general meeting last week.
Hit by the loss of savings
It was the first time that a major deposit-taking institution had publicly conceded that it had been hit by the so-called alternative investment schemes - some of which have now gone bust - but which, at their height, were estimated to have held up to $200 billion in funds under management.
At the end of last year, the Victoria Mutual group had $37.8 billion in its saving accounts, approximately 11 per cent more than in 2006, but well below the level of inflation, which crested at 19.9 per cent.
The deposit growth, Hutchinson wrote in his chairman's overview to the VM's annual report, and repeated at last Wednesday's AGM, was not "to the extent desired".
"It is our view that the popularity of the various unregistered financial schemes adversely affected our ability to attract significant levels of new customers and savings," he told members of the mutual company.
Tight competition
Powell, the CEO, made largely the same point, but could not quantify the fallout of business because of the controversial schemes that were guaranteeing returns of upwards of 10 per cent per month.
"What we are saying is the entire financial sector having to compete with those entities would have had difficulties in securing new deposits from new depositors and maybe to an extent new deposits from existing members," said Powell.
"So, to that extent, we would not have grown our savings base to the extent that we would have otherwise done. I believe it is also true although this is difficult to get numbers on these things, we may have even lost some deposits where persons went off to seek higher level of returns from these schemes."
Powell said that with some of these investments schemes now in difficulty, the competition that they provided would lessen.
Indeed, by mid-year the company was seeing improvement in the performance of the savings portfolio, although specific figures were not immediately available.
A raft of investment schemes, some ostensibly trading on the international foreign exchange market, had been little noticed for a long time, but gained significant public attention in the past two years as they resisted regulation by the Financial Services Commission (FSC).
Ponzi schemes
The commission had hinted that people might be putting their money into Ponzi schemes.
One, Cash Plus Limited, which claimed to be investing in real estate and other businesses, had up to 40,000 customers, mostly from the middle and lower middle classes. When creditors caused a court-appointed receiver to be sent into the organisation earlier this year, it was apparent that its investors would be out of pocket to the tune of hundreds of millions if not billions of dollars.
Cash Plus' founder and CEO, who spent time in jail in the United States for financial fraud, was arrested and charged with fraud and money laundering. He is now out on bail.
Another company, Olint, run by David Smith, moved off-shore in the face of its resistance to FSC regulation - a battle it lost in the Jamaican courts. It had an estimated US$800 million to US$1 billion under management.
For months, Smith has been unable to pay his members neither principal nor interest, a problem he has blamed variously on moves by local banks to close his accounts, due diligence reviews from United States banks and regulators and more recently, a freeze on his company's assets by police in the Turks and Caicos Islands, from where he operates.
World wise plight
Smith has said he hopes to begin paying deposits within nine months.
Another company, World Wise Partners, was this week slapped with a cease and desist order by the FSC, preventing it from taking new business, but not from paying existing clients, which it has not done for several months while it, ostensibly, reorganised.
Although World Wise is now taking online requests for payouts, but not in person, it has given no specific timelines on when people will receive their money.
Investors in a fourth scheme, Mae Daisy, have heard little or nothing from its principals in recent months.
Challenging year
But even as the retreat of these schemes will potentially make it easier for traditional financial houses - which were often berated for the supposed meagre returns they offered investors - to pull in new cash, VM's Powell warned that 2008 would remain challenging for his organisation. Inflation and rising energy costs would crimp the economy and people's capacity to save.
"What we know for sure is that the high levels of inflation we are experiencing will reduce purchasing power and will perhaps put households under pressure to meet their ongoing expenses and may impact their savings rate and may even impact their ability to service their obligations," Powell said.
dionne.rose@gleanerjm.com
