The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

RoyalFidelity Merchant Bank & Trust is targeting 15-20 per cent growth in client assets under management for 2016, with its president admitting yesterday that last year’s profits will be “hard to match”.

Michael Anderson told Tribune Business that the Bahamas-headquartered investment bank had effectively enjoyed the ‘perfect year’ in 2015, with “significant across the board” growth for all business lines.

He attributed the ‘near doubling’ of RoyalFidelity’s bottom line to the continuing ‘low interest rate’ environment in the Bahamas, which was finally forcing retail and institutional clients to move from the traditional haven of bank deposits.

Acknowledging that this change had benefited the merchant bank, and its collection of higher return-yielding products, Mr Anderson expressed hope that the Bahamas would become “more like international markets” when it came to investors diversifying their portfolios.

“We expect to see assets under management growth somewhere in the region of 15-20 per cent,” Mr Anderson told Tribune Business of RoyalFidelity’s 2016 expectations.

“Last year, assets under management grew by about 27-28 per cent. At 15 per cent this year, that’s still good compared to last year.”

RoyalFidelity’s total comprehensive income increased by 96.9 per cent year-over-year for 2015, jumping from $3.129 million to $6.16 million on the back of strong capital market activity.

Apart from investors switching out of bank deposits into equity and debt securities, Mr Anderson said the investment bank also saw “significant growth” in its mutual fund business.

RoyalFidelity also benefited from the fee income generated by its role as the placement agent/financial adviser to the Government’s capital raisings via its new debt securities, the Bahamas Government Stock (BGS) and Treasury Notes.

Private sector capital raisings also helped its corporate finance earnings, while there were “significant increases” in its brokerage and pension business.

“We had an excellent year last year,” Mr Anderson said. “We had an across the board increase in business. I don’t think there was a line of business that did not increase strongly last year.

“It was also a good year in terms of blending the asset management business with the raising of capital.”

The RoyalFidelity president, though, conceded that the investment bank would struggle to repeat last year’s total comprehensive income in 2016.

“I don’t think we will match last year,” Mr Anderson told Tribune Business. “We had some private securities holdings that had a great recovery. They had not performed for some time, and then they suddenly recovered.

“Between assets under management, the mutual fund side and corporate transactions, and these other deals, it will be hard to repeat that in the near term.”

Mr Anderson said RoyalFidelity’s client assets under management had grown by 3-4 per cent since the 2015 year-end, leading him to project 15 per cent growth for the full year.

However, he warned that the Bahamian equity markets were unlikely in 2016 to see the same level of capital appreciation (share price increases) as had been enjoyed over the past four to five years.

“This year, one of the problems is that the equity markets will not see the same level of gain that they’ve had in the last four to five years,” Mr Anderson said.

“For the past four years, we’ve seen equity gains of 10-12 per cent just on the BISX Index through capital appreciation, and we don’t see that same level of increase this year.”

He added that the equities market was up around 2 per cent for 2016 to-date, compared to 4-6 per cent “this time last year”.

Still, Mr Anderson suggested that the present ‘low interest rate’ climate, which he believes is likely to persist for at least one to two more years, will spark lasting change in investor attitudes and risk appetite.

“I think that fundamentally the market has changed in terms of customers and the rates they get at the banks,” he said, “and the need to invest outside the banks if they want to get decent returns.

“People are prepared to move to get returns independent of the banks.”

With bank deposits offering interest returns of between 1-2 per cent, and debt securities carrying coupons greater than the 4.75 per cent Bahamian Prime lending rate, Mr Anderson said investors had little choice but to head for uncharted territory if they wanted greater yields.

He acknowledged that many Bahamians were reluctant “to move into areas where they don’t understand the risk”, such as securities, but urged investors to overcome these fears.

“It’s a small change in the market, but it has had a huge impact on us,” Mr Anderson told Tribune Business. “We have really great potential to grow our capital markets business over the next couple of years.

“It’s in these times that we make a difference in people’s investments. Hopefully this will be a chance for people to make decisions, choose alternatives, move their money and the Bahamas become more like international markets in terms of the amount of money people have in investments as opposed to the bank.”

With expenses relatively flat compared to 2014, RoyalFidelity’s improved bottom line resulted from a near $3.5 million increase in income, which rose by 38.1 per cent to $12.558 million as opposed to $9.092 million the year before.

The major jump came in fee and commission income, which grew by more than $3 million or 45.8 per cent to $9.838 million.

RoyalFidelity’s assets grew across all major line items on the balance sheet to total $108.208 million at year-end 2015, a 44.1 per cent increase upon 2014’s $75.085 million.

Liabilities also increased by near-$25 million, with customer deposits expanding from $58.224 million to $75.707 million year-over-year. RoyalFidelity’s net worth also rose by more than 40 per cent or some $6 million to $21.243 million.

RoyalFidelity is 50/50 owned by a combination of its BISX-listed commercial banking affiliate, Fidelity Bank (Bahamas), and Royal Bank of Canada (RBC).