Q&A with CMMB Securities

Q: What in your opinion is the major issue in the proposed FCB/UTC merger?

Amjad, Point Lisas

A: There has been a lot of talk about this proposed merger in terms of its legality. Such a question is extremely important, but there is another issue which is purely economic and which has to do with the impact on the structure of the financial industry if this merger were to go through.
In any industry the greater the number of players, the higher is the level of competition. It is also intuitively obvious that as competition increases in any industry the price of a commodity, product or service would obviously fall. In that kind of environment it is the consumer or customer that benefits most and this should be the case as it is a fundamental premise of the economic system we have adopted.

In the United States public policy has been fashioned so that in any industry the bargaining power of consumers is paramount. However, the secondary effect of this merger-mania was that the structure of industries were so significantly changed after the mergers that the level of competition was drastically reduced and as a result, prices started to increase and consumers lost their bargaining power. As a result the US Government devised certain measures by which they could adjudicate on whether proposed mergers were in line with public policy. This type of legislation came to the fore in the latter part of the 1980’s as companies embarked on mega mergers in pursuit of growth. Similarly, in the case of the financial system in Trinidad and Tobago, if two mega financial companies were to merge it could change the degree of competition in the industry and hence the level of prices and bargaining power of consumers ie depositors/investors and borrowers. This would then be counterproductive to the objectives of the economic system as a whole as changes in the financial sector would have cross-linkages to every other productive sector of the economy. The necessary legislation must therefore be put in place to govern circumstances like these.

Q: I am reading in the press that companies from Barbados and Jamaica would like to “cross-list” in Trinidad and Tobago. How does this work?

Emile, Woodbrook

A: There are stock exchanges in Trinidad and Tobago, Barbados and Jamaica where companies are listed and their shares traded. But, a company on any one of the three exchanges may choose to have its shares traded on another stock exchange in another country.
For example, Barbados Shipping & Trading (BS&T), initially a Barbados-listed company is also listed on the stock exchange in Trinidad and Tobago as well. Similarly, Grace Kennedy, initially a Jamaica-listed company is also listed on the exchange in Trinidad and Tobago as well as Barbados. RBTT Financial Holdings is another company which is listed on all three exchanges. Currently there are two more companies which are coming to be cross-listed in TT — Capital & Credit Merchant Bank from Jamaica and Sagicor from Barbados. But why are these companies coming here and what is the attraction? Well, there are many benefits. For the company there’s the opportunity for greater breadth as well as depth of shareholding. Investors also stand to gain a number of benefits.

There are four main ones:
*There is a greater degree of tradability since shares can be now transferred between exchanges.
*Since there is a larger number of buyers and sellers trading the share the price moves more quickly to the fair value of the share, that is, it’s real worth.
*Being able to switch freely between exchanges allows investors, to some degree, to hedge foreign exchange volatility in a particular territory.
*Investors are allowed to diversify their portfolios by spreading risk, not only across companies in TT, but in companies across countries.
Apart from the normal benefits associated with cross-listing, now is also a very good time for companies to list in Trinidad and Tobago. Currently, interest rates are at an historic low in this country due a shift in monetary policy by the Central Bank. As a result pension funds and other financial institutions are yielding very low returns on their fixed income investments. These institutional investors are now more than ever considering the stock market as a place to earn higher returns, of course, with the attendant risks involved. There is therefore a high level of demand for shares and so there is a higher probability of shares being listed here receiving a good reception from the local market. It is also now possible for individuals to buy shares in these companies. Talk to a qualified financial advisor to determine whether any of these may be suitable for your particular investment needs.

Questions can be sent to Po Box 830, Wrightson Road, Port-of-Spain.
E-mail: cmmbsecurities @mycmmb.com