Bank of Jamaica has said it has no objection to the restructurings that Cornerstone has proposed in its application for a licence as a financial holding company, or FHC, but wants it to go further to bring two off-balance sheet companies onto its books.
The stipulation, which relates to Barita Finance Limited and MJR Real Estate Holdings Limited, goes further than what Cornerstone United Holdings Jamaica Limited, CUHJL, had proposed in the reorganisation of its holdings to conform with banking laws that require financial groups to separate banking entities from non-banking operations within their structure.
The plans being considered by Cornerstone, once approved by the court, will result in the delisting of Barita Investments Limited from the Jamaica Stock Exchange.
Cornerstone disclosed correspondence on the weekend that BOJ had written, saying it had considered the restructuring plan on March 1 and “raised no objection to the proposed reorganisation of the Cornerstone Group, on condition that the off-balance sheet vehicles (Barita Finance Limited and MJR Real Estate Holdings Limited) be consolidated in the financial group for prudential reporting purposes”.
Both companies operate independently but are referred to as affiliates of Barita Investments Limited. The three listed shareholders of MJR Real Estate, for example, are executives of Barita Investments. Up to last summer, Barita was reported to have poured some $10 billion into 1,900 acres of land for development through MJR.
Bank of Jamaica, in a statement on Wednesday, while making no specific reference to Cornerstone, explained that in its FHC licensing process, a ‘non-objection’ by the BOJ Supervisory Committee does not necessarily mean the licence will be approved, and is by no means an endorsement of a group’s financial condition and/or the quality of its senior management. It is just one step in the process.
“The bank does not automatically issue a financial holding company licence following the issuance of the non-objection to group reorganisation. The issuing by the Supervisory Committee of a non-objection to a proposed group reorganisation means that the entity has put forward a group structure that will facilitate effective consolidated supervision of the group consistent with the banking laws,” the central bank said.
BOJ also disclosed that so far only two financial groups had been issued FHC licences to date, namely, NCB Financial Group Limited, operator of National Commercial Bank Jamaica, and JN Financial Group Limited, operator of JN Bank Limited.
Cornerstone Group, which owns listed investment company Barita Investments Limited, and a deposit-taking operation, Cornerstone Trust & Merchant Bank Limited, CTMB, says it will be doing further due diligence on the central bank’s directive, but would proceed in the meantime with the current restructuring plan that had previously been approved by shareholders and its board.
Cornerstone will create a new holding company called Cornerstone Financial Holdings Limited, CFHL, which will become the ultimate parent of the group. Shares in CUHJL will be swapped for shares in Cornerstone Financial, and its assets and liabilities transferred to the new entity.
Additionally, the shares held by CUHJL in CTMB and Cornerstone USA will be transferred to Cornerstone Financial.
“The amalgamation of CUHJL and CFHL will see existing shareholders who currently own an equal number of shares in each of the Cornerstone entities owning one set of shares in the combined entity (CFHL), post amalgamation,” said Cornerstone Group.
Cornerstone Financial will also become the direct parent of the FHC that is still to be named. The FHC will become the holding company for Cornerstone Trust & Merchant Bank, Barita Investments Limited, and its subsidiary Barita Unit Trusts Management Company Limited.
“The FHC, post incorporation, will issue shares to CFHL in exchange for the transfer by CFHL to the FHC of shares it owns in Barita and CTMB. The FHC will thereafter become the direct parent of Barita and CTMB,” Cornerstone said in a statement.
Barita Investments Limited has a long-standing history with the Jamaica Stock Exchange. Although the investment company itself never listed on the market until 2010, its founder, Rita Humphries-Lewin, was a pioneer in the financial services industry as the first female chairman of the JSE and the first of any Caribbean exchange, and the first woman to establish a stockbrokerage in the Western Hemisphere.
Humphries-Lewin sold Barita to Cornerstone in August 2018, but later took a stake in Cornerstone in September 2021. She holds just under 1.39 million shares in Cornerstone United Holdings Jamaica Limited, equating to a 1.7 per cent stake. She is one of 14 shareholders in the company founded by CEO Paul Simpson and chaired by Mark Myers, Cornerstone’s annual returns show.
Humphries-Lewin also continues to hold a minority stake of at least 2.156 per cent in Barita Investments, market filings show.
Under Cornerstone’s ownership, Barita Investments has grown exponentially through several rounds of fresh capital raised on the market and new and expanded business lines, that have vaulted it from being a boutique brokerage into a large enterprise.
At year ending September 2022, Barita held assets of $110 billion and was capitalised at $32 billion. Its profits also topped $4 billion for a second year running.
Under the new scheme of arrangement that requires approval by the Supreme Court prior to implementation, Cornerstone Financial will become the ultimate parent of the group. The plan thereafter is to delist Barita from the JSE and list Cornerstone Financial in its place.
“The effect, as was the case when other financial groups undertook their own restructuring under the BSA [Banking Services Act], is that the shareholders of Barita, at the relevant point in time, will see their shareholding move from Barita to the FHC,” said Cornerstone.
“Further details on this process will be provided subsequently and prior to the implementation of the scheme,” it said.
Meanwhile, as it relates to the FHC licence, Bank of Jamaica says that once an applicant presents a group structure that is consistent with the banking laws it triggers the assessment of the licence application, a process that involves a “due diligence on a FHC’s corporate governance and internal control arrangements, financial strength and resources (liquidity, capital adequacy, earnings, etc), and information technology risk management”.
The non-objection letter issued to Cornerstone had cited Section 71(2) of the Banking Services Act in relation to the consolidation of Barita Finance and MJR Real Estate into the group.
The section deals with ‘risk related to financial group structure’, under which the BOJ may stipulate that a related entity be treated as a member of the group or alternatively require the group to terminate the relationship.
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