Gregory Hill

ANSA Merchant Bank managing director, Gregory Hill, fields questions during the panel discussion at the 2023 Economic Outlook Forum hosted by the American Chamber of Commerce of Trinidad and Tobago (AMCHAM T&T), last week at the Hilton Trinidad.

AS GLOBAL financial institutions start to see some modest recovery after the pandemic, publicly listed ANSA Merchant Bank is confident that with its diverse investment portfolio and financial services performance, the company will return to profitability in 2023.

Speaking at the American Chamber of Commerce of Trinidad and Tobago (AMCHAM T&T) 2023 Economic Outlook Forum, last week at the Hilton Trinidad, managing director of ANSA Merchant Bank, Gregory Hill, said the reason the merchant bank expects to see a return to profitability, especially in its fixed income holdings, is that the US Federal Reserve should be at the end of its interest rate-hiking cycle.

“So while the Fed Funds rate is a high 4.50 per cent now, we expect there may only be two more rate hikes, but smaller hikes of circa 0.25 per cent each. So the interest rate increases will slow in frequency and quantum, on the basis that inflation moves in tandem with this. So as the rate of inflation slows, the rate hikes will slow and that is going to allow for the market to improve. And with that, we expect to see an improvement in the bond market firstly,” Hill explained.

The bank will then expect to see increases in valuations on its fixed-income holdings that will produce additional income across all its portfolios, he said.

“This will impact not just us, but all international investors. Notwithstanding, at home, our ANSA mutual funds outperformed in the local mutual funds’ markets.”

In his comments, Hill outlined that the international equity markets are fairly subdued now and the Bank believes that while there is global growth, there are still pockets of the uncertainty of economic growth and mild recessions and as such, share prices will be relatively stable or subdued in 2023.

“We don’t expect any huge depreciation or appreciation, as values will be relatively stable and range bound. However, again we invest for the long term and so we expect that over time, equity values will recover to higher levels in the future,” he highlighted.

Impact on performance

Hill briefly explained how the T&T company’s financial performance can be impacted by global markets.

He said Covid-19 disrupted the global financial markets, capital became frozen and central banks around the world jumped in with liquidity to stimulate economic recovery. That then led to significant pent-up demand and inflation across many countries.

“What we then saw was a positive correlation between equity and fixed income, which is not the norm. Normally, when equities are down, fixed income will do better, but in this case, all asset classes were depressed and only a few areas of investment were positive. As such, both equities and fixed income performed poorly in 2022, with their prices or valuations moving in an almost correlated negative direction, which is unusual,” he explained.

This translates into financial results, and Hill explained that ANSA Merchant Bank values its investment portfolio based on current market prices, also called marking-to-market, which is reported in its profit and loss statement. These daily movements in ANSA Merchant’s investment portfolio are non-cash items in the value of securities.

For the first nine months of 2022, ANSA Merchant Bank declared an after-tax loss of $158.7 million, compared to a profit of $172.7 million for the same period in 2021. The company’s revenue declined by 39.8 per cent for the period January 1 to September 30, 2022.

Investing for the long-term

“As we are investing for the long term, we have long-term assets and long-term liabilities, and as such, we have re-priced these values at various points in time over the long-term, based on global financial circumstances. As such, we expect those prices to recover over time, as we invest for the long term. Meanwhile, our core banking and insurance businesses have been performing commendably and increasing market share in all segments, as we look at future expansion through acquisitions and digitisation,” said Hill.

In drawing reference as to what is taking place internationally with bigger financial institutions, Hill said just last week it was reported that Goldman Sachs released results revealing its profits were down 69 per cent, following a 16 per cent fall in revenues to US$10.6 billion.

He noted this was the fifth straight reported period of lower profits for the prestigious US investment bank, due to the volatile investment markets caused by high inflation and the lingering war with Russia and Ukraine.

Despite the pandemic and ongoing war between Russia and Ukraine, Hill proudly said the AMBL Group received its first credit rating from CariCRIS last year which was one of the highest credit ratings locally and regionally at CariAA with a stable outlook.

CariCRIS, he said, also assigned a stable outlook to the ratings.

“The stable outlook is premised on our expectation that over the next 12-15 months, the AMBL Group will continue to record good financial performance and remain well-capitalised, with strong liquidity and asset quality metrics. CariCRIS expects the AMBL Group’s performance to be supported by continued economic recovery in the markets in which it operates, as most coronavirus (Covid-19) lockdown measures are lifted,” according to the rating agency’s report on ANSA Merchant Bank.

Acquisitive ANSA Merchant

Concerning ANSA Bank, which ANSA Merchant Bank acquired from India’s Bank of Baroda in 2021, Hill said that acquisition and the digitisation that followed will allow certain costs to be covered in the first few years of operation under the local investment bank.

He said the Bank of Baroda was a relatively small organisation with limited offerings.

“So we have made a significant investment into ANSA Bank and into the latest banking technology for the overall benefit of the local banking industry.”

Asked what percentage of its investment portfolio is in North America and what percentage is equity and in fixed income, the bank executive, quoting from the CariCRIS rating report, said 46 per cent was US domiciled in 2021 and 56 per cent of total in US dollars. In 2021, 44 per cent of ANSA Merchant’s investment portfolio was in equities and equity-linked/derived instruments while 43 per cent was in fixed income.

The balance of the portfolio, he said, was in alternative investments, which is an investment class that comprises a series of different types of investments that are not straight bonds or straight equity.

Questioned on whether the bank sold any of its investments during the downturn in the market last year, Hill indicated that foreign investment managers constantly rebalance and adjust all portfolios in real-time, to put them in a position to exceed their benchmarks.

On the topic of digitisation, Hill told the audience the bank will be launching its digital bank by the end of March 2023 and thereafter launching a wave of new product offerings during 2023.

“So every quarter we will be coming with innovations, something to excite and satisfy our customers. At the end of the day, we want to offer hassle-free, pain-free banking. Banking services should not be difficult for customers,” Hill stressed.

On October 28, 2022, the Central Bank granted approval to ANSA Merchant for its wholly owned subsidiary, TATIL, to acquire 94.24 per cent of the general insurance company, COLFIRE, from the liquidators of CL Financial. ANSA Merchant is now required to make a takeover bid for the shares in COLFIRE it does not own.

About 87 per cent of ANSA Merchant Bank is owned by the local conglomerate, ANSA McAL and affiliated companies.

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