Benchmark’s debt to its customers has increased sevenfold without alarm

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By NEIL HARTNELL

Editor-in-chief of the Tribune

[email protected]

A BISX-listed company has reassured investors that the sevenfold increase in amounts owed to customers at the end of 2021 is not alarming since it stems from $150 million in trading activity of titles.

Julian Brown, President and CEO of Benchmark (Bahamas), speaking to Tribune Business ahead of tonight’s Annual General Meeting (AGM), said the $18.44 million on the company’s balance sheet represent monies that belonged to customers rather than funds owed to them by the company. himself from his own account.

Explaining that as a broker/dealer he holds clients’ funds on a fiduciary basis, he added that this sum represents the proceeds of trading in securities that clients now collectively seek to ‘cash in’ and hold. And it was these businesses that drove Benchmark’s return to profitability in 2021 via net income of $3.38 million, propelled by an increase of nearly $5.5 million in commissions paid by clients for the carrying out their stock market transactions.

“It’s just the level of activity we were doing last year. Last year, we traded more than $150 million worth of securities on our desk on behalf of clients,” Mr. Brown told this newspaper, when asked why the amounts owed to clients had gone from $2.519 million to $18.44 million year over year. “This is the result of our ability to see a substantial increase in amounts owed to customers cashing in with us at the end of the year.”

He explained that broker/dealers such as Benchmark and its subsidiary Alliance Investment Management typically hold client assets to trade “off-balance sheet” because they are not owned by the company. Rather, they are held in escrow, or in trust, in the name of the client who then directs their securities trading activity and then pays a commission to the broker/dealer for completing the transaction.

Profits from securities transactions can be reinvested and used to fund further purchases and sales ‘as appetite dictates’, or clients can choose to ‘liquidate positions’ and convert their holdings into cash. Mr Brown said that when customers opt for the latter, monies owed to them revert to Benchmark’s balance sheet and are shown as owed to customers.

The Bahamas’ benchmark financial statements show that assets under administration, representing client assets, increased 84% or nearly $20 million year-over-year from $22.36 million end of 2020 to $41.4 million about 12 months later.

Describing 2021 as a banner year for Benchmark (Bahamas), due to strong stock market performance driving increased client trading activity, he conceded that 2022’s performance – although still likely profitable – probably will not match the previous year.

“We have had a significant increase in our trading volumes as a result of COVID, and many of our clients have resumed trading activity in 2021,” Mr Brown told Tribune Business. “That’s what determined the bottom line. With the markets as they are this year, we can see trading volumes go down because there is a lot more volatility and a lot more uncertainty.

“Our business evolves with the movement of the markets and its impact on the clients who trade through us. We had a very good year last year. At the beginning of this one, we were on a good pace, then we had the war in Ukraine which dampened the markets, and then the Federal Reserve raised interest rates several times.

This year the markets have become volatile and it affects the way people think about trading activity and has cooled it down. That’s what we saw in the third quarter, a slowdown in trade, but business is still good. Our business is a business that comes and goes based on this business activity. We are a broker/dealer.

Mr Brown acknowledged that Benchmark (Bahamas) “will not produce as much” profit for the year 2022 as in 2021, given that “it has already been slow” and that such conditions are expected to last another six months unless . “We will be profitable, but not as profitable as last year,” he added. “I think everything will be fine.

“The good part of the story is that even though clients aren’t trading as much, assets in the trading portfolio are accumulating. Our portfolio has actually grown from last year due to increased assets , but customers are trading less due to market volatility. It’s like reserves in your tank. When things get better, it will be good news for us. When things calm down and come back, I am excited about 2023.”

Tribune Business revealed last week that the external auditors of Benchmark (Bahamas), PKF Bahamas, had given a “qualified” opinion on the group’s 2021 year-end accounts which were not signed until July 31, 2022. , before being released via the BISX website in August. 15. BISX-listed companies generally have 120 days from the end of the year to disclose their annual financial statements, which means Benchmark must have been granted an extension.

Although Benchmark didn’t get a clean bill of health, the accounting firm said all other aspects of the financial statements reflected the company’s true position at year-end 2021. However, other things of interest to shareholders include the fact that the group has made a provision for 87%, or $10.267 million, of the $11.807 million advanced to clients for activities such as margin trading. This means that they are “bad debts” that cannot be collected.

Several related party transactions are also identified in the financial statements, although their purpose is not fully explained. “A subsidiary of the company [Benchmark] advanced loans in the amount of $1.511 million to an entity affiliated with the group under joint management,” the audited statements add. “The loans have no fixed repayment terms.

“Under a management and advisory agreement, the subsidiary has the option of converting a portion of the loans into common shares of the entity. This option, once exercised, will allow the subsidiary to convert its loans into a majority stake in the entity up to 51%. This convertible option is at the discretion of the branch and has no expiration date. A provision of $500,000 was recorded on these loans at year end.

The same anonymous subsidiary is also said to have advanced some $36,137 to other entities, always with the possibility of converting them into a controlling interest. Meanwhile, Benchmark Ventures, another subsidiary, reportedly “entered into an agreement with PureWater Systems to purchase the administrative software developed by the latter for monitoring and optimizing its day-to-day operations at a cost of $250,000.

“PureWater is a related party by common ownership and key management,” the financiers added. Benchmark also continues to guarantee that it will provide sufficient funding to maintain the solvency of its subsidiary Alliance due to the historical losses accumulated on the books of the latter, while the preferential share capital of $ 5 million of the parent company remains caught up. by the fraud-related collapse of his former client. , BC Capital Group.

Mr Brown, however, expressed optimism about Benchmark’s prospects and pointed to the benefits of diversifying into real estate investments through its subsidiary Properties. This now includes a condo in the GoldWynn condo complex in Goodman’s Bay, as well as the shopping complex at the junction of Carmichael Road and Fire Trail.

“Properties have become very successful with revenue and revenue for us,” he added. “We have invested in one of GoldWynn’s units, and it will go live when the hotel opens next year. The properties have been a very good investment for us. We started at $2-3 million, and now it’s on the books at $6 million, so we can’t complain about that.

“I think we are in good shape. We will be doing a number of new things. I am very excited about our business and our future. I think it’s going to be exciting not just 2023, but ten years ahead. We started at $4.5911 million and are at $16.034 million (equity) today. I think we did a very decent job developing the book. In the next 25 years, we can become a 50 million dollar company. I smile. I smile. I smile.”

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