The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Benchmark (Bahamas) yesterday said it had “reduced the risk exposure” in its investment portfolio in a bid to boost profitability, as it continues to tackle its local and international regulatory issues.

Julian Brown, the BISX-listed firm’s chief executive, told Tribune Business it had moved aggressively in 2015 to tackle the impact that actual, and unrealised (paper), changes in the value of its securities investments are having on shareholder returns.

This has consistently acted as a drag on Benchmark (Bahamas) performance, as happened last year, when net income of $307,415 was turned into a $296,341 comprehensive loss by a reduction in its investment portfolio’s worth.

Mr Brown expressed hope that this would eliminate “volatility” and enable increased revenues to show in the company’s profit line, something that would start to reverse the $7.908 million accumulated deficit on Benchmark’s books at year-end 2015.

Elsewhere, Mr Brown said Benchmark (Bahamas) was continuing to work with the Securities Commission to address the regulatory capital deficiencies at its main subsidiary, Alliance Investment Management.

PKF (Pannell Kerr Foster) Bahamas audit of Benchmark Bahamas’ financial statements confirmed that the regulator’s concerns over Alliance’s capital base, and “ability to operate as a going concern”, have remained unchanged for the past three years.

Mr Brown, while acknowledging that Benchmark wanted Alliance to “stand on its own feet”, said the broker/dealer’s performance and financial health were continuing to improve.

The BISX-listed company, as Alliance’s ultimate parent, had also provided a guarantee to bring the latter into compliance with the Securities Commission’s $300,000 requirements.

Still, PKF - without qualifying its audit opinion - warned that Alliance remained in a “net deficit position” at year-end 2015, and reliant on its BISX-listed parent to continue operating as “a going concern”.

“The statement of financial position shows net liabilities and deficit as at December 31, 2015, resulting in Alliance not being able to meet its regulatory capital requirements,” Benchmark’s financials state.

“The company [Benchmark] has provided a guarantee to Alliance to make sufficient funds available to enable it to meet its present and future obligations for a period including, but not limited to” April 2017.

Despite these ongoing weaknesses and questions, Benchmark’s performance for the 12 months to end-2015 showed signs of improvement.

Total revenues were up 38.5 per cent at $1.659 million, compared to $1.198 million in 2014. This was driven by a major jump in Alliance’s trading commission income, which rose 75.5 per cent to $851,872 in 2015.

Rental income from Benchmark’s commercial property complex, at the corner of Carmichael and Fire Trail Roads, also grew by 32.6 per cent to $340,189, compared to $256,600.

Mr Brown said the commercial property “made a profit” for 2015, driven by the re-negotiation of long-term leases with its key tenants - Bank of the Bahamas and the NUA insurance agency - for a further five years, and at higher rates.

He added that the new lease agreements had only been in place for six months of 2015, meaning that the current financial year will be when the full impact comes through. The complex is now 70 per cent occupied.

“We also had a very good year in terms of revenue from Alliance,” Mr Brown told Tribune Business. “We took the opportunity to adjust the portfolio a bit more to reduce the volatility of what we’ve been experiencing over the last few years in the earnings.

“It meant reducing some of the risk exposure we had in the equity portfolio. I think it’s going to be quite successful. We’ve reduced the risk to the point where we feel there will be a significant impact to our earnings going forward.”

Mr Brown said Benchmark, through Alliance, had enjoyed strong revenue growth for three consecutive years, adding that “reducing the exposure of the equity portfolio..... will allow us the opportunity to realise earnings growth to the bottom line”.

Benchmark also reduced its total expenses by 19.5 per cent in 2015, cutting them by more than $300,000 to $1.352 million, compared to $1.658 million the year before. This enabled the company to produce a $667,000 net income line reversal from 2014’s $459,867 net loss.

The company is still working to resolve its regulatory issues in the Bahamas and the US, with Mr Brown pledging that Benchmark and Alliance were working feverishly to improve the latter’s capital position.

“We have made changes that have caused a number of improvements,” he told Tribune Business. “We have put in place the necessary financial comfort that allows us to meet these requirements, and it’s just a matter of working through the process to allow Alliance to stand on its own.

“It has the necessary protection required to meet the regulatory capital required in terms of the Commission. Benchmark has put a guarantee in place that addresses that concern, to the best of my understanding.

“I would like each one of our entities to stand on its own, and if we continue to perform on the top-line and hold expenses down, I believe Alliance will continue to show improvement.”

Mr Brown declined to give a timeline for when Alliance would be able to “stand on its own”, reiterating that its parent’s guarantee would provide breathing space to achieve this.

He added that settlement negotiations over the Securities & Exchange Commission’s (SEC) lawsuit against Alliance and himself were still ongoing, with another round of talks scheduled before the two sides are due back before the northern Illinois federal court on June 17.

The Bahamian duo have vigorously denied, and defended, allegations they facilitated a $400 million global ‘Ponzi’ scheme by Nikolai Battoo and his BC Capital Group.

The SEC claimed that the Bahamian defendants misled investors by suggesting they were the independent custodian for the BC Capital funds, whereas these monies were all directly in Battoo’s hands.

And it also claimed that Alliance “helped him hide the massive losses by sending out bogus account statements that fraudulently overstated the value of investor assets by more than $148 million”.