Stocks & Securities (SSL) dumped their repo business and sold it to Jamaica National Building Society. Mark Croskery, Managing Director of SSL, said this is in keeping with the trend in the industry where financial institutions are reducing their exposure to this business.
The two government debt swaps (JDX) have brought into full focus the risk that is inherent in the business. The sharp swings that have taken place in interest rates has resulted in major changes to the value that companies book in their financial statements. Such risk means that these entities need to have a greater level of capital to withstand the potential losses that can occur.
Croskery stated that SSL has applied for a unit trust license, which they hope will be approved for later in the year. They expect to enter the market for money market offerings using unit trust vehicle.
The amount of the sale was not disclosed but at the end of 2011, SSL had $4 billion on their books. However, a source suggests that the amount may have declined to a much lower figure. With such sums and with the interest rates as low as they are, making a decent profit from the repo business is marginal. Interestingly, Croskery stated that there would be no staff changes as a result of the sale.
The sale is likely to provide capital for the company and strengthen its balance sheet.
SSL customers were recently advised that the company would no longer be offering these instruments.