Cornerstone: Solid Foundations

Last December the Moody’s credit rating agency announced that it was upgrading Jamaica’s outlook from positive to stable. It simultaneously revised the senior unsecured rating of Jamaica upward from B3 to B2, citing the administration’s ‘vigorous commitment’ to fiscal consolidation and structural reforms. Moody’s announcement was yet another step on the long post-colonial journey that the island has been on since it won independence in 1962. It also represents the passing of another milestone toward fulfilment of the Vision 2030 Jamaica, the initiative launched in 2007 with the objective of repositioning Jamaica as an empowered, cohesive and environmentally friendly society underpinned, of course, by a prosperous economy.

According to the IMF, Jamaica started coming out of a long period of economic stagnation in 2016 as the effects of the significant sustained fiscal reforms and consolidation, public debt restructure and reduction, and deep structural reforms, have provided a stable macroeconomic environment conducive to growth, the 2014 Banking Services Act that was designed to regulate the island’s financial services sector began to kick in. Cornerstone’s Founder and CEO Paul Simpson agrees that  “The entrenchment of low interest rates, low inflation, and the long term stability in other macroeconomic variables consequent to the country’s sustained fiscal austerity and consolidation, have created an enabling environment for private credit expansion together with new business formation and growth.”

Simpson was in the right place at the right time. In 2015, during a successful 13-year career as an investment banker, he set up the Cornerstone financial holding companies and a year later acquired a majority stake in the MF&G Trust and Finance Merchant Bank Limited, Jamaica’s oldest merchant Bank. Since then, The millennial has emerged as a star of the Jamaican financial services  sector and his reputation is such that when he went to the capital markets to raise the funds required to help him acquire Barita Investments Limited two years later, the $5billion bond was oversubscribed.

At the same time, he managed to raise an additional $3 billion in equity through round-table commitments from his fellow shareholders at Cornerstone. The support he received from the Cornerstone Board was to be expected, because, without exception, the shareholders of this privately held investment holding company are captains of Caribbean industry. As such, they all share Simpson’s vision of creating value by investing in high-growth and undervalued companies through a strategy of mergers and acquisitions. With their current focus being on the establishment of an integrated group of financial services entities capable of serving select commercial and retail markets across the region, Barita was a perfect fit.

While Simpson may have won the markets over by the time Cornerstone was ready to make its bid for Barita, his original investment in MF&G Trust raised a few eyebrows. “Most of the merchant banks in Jamaica have converted themselves into commercial banks, and we are the only merchant bank left,” he explains. “The acquisition wasn’t very popular at the time, but we had set ourselves the end goal of becoming the leader in the fintech space and these days it takes a couple of years to obtain a banking license, so we wanted to get that out of the way. We are almost there now; we have raised the money; we have been granted the banking license we need to operate; and now we are in the process of signing off on the contracts for the technology.” Simpson’s background is computer science.  He expects the commercial roll-out of the new  strategy to commence during 2020. He is especially bullish because of the policies being  by the new Minister of Finance, Dr Nigel Clarke and the new Central Bank Governor, Mr. Richard Byles both of whom he says are real sector practitioners and deeply cerebral and forward looking.  If Barita’s performance since the Cornerstone takeover proves to be an accurate yardstick, the fintech push should be a roaring success.

Barita was established in 1977 by the legendary and truly formidable Rita Humphries-Lewin (the region’s first ever female stockbroker and the first Caribbean woman to chair a stock exchange). Barita also has the distinction of being the oldest stockbroking company in Jamaica. Licensed by the country’s Financial Service Commission, a member of the Jamaica Stock Exchange and a Primary and Cambio Dealer for the Bank of Jamaica, Barita had already built up a solid reputation before it was acquired by Cornerstone in August 2018. Since then, however, Simpson and his team have taken it up to another level altogether.

“We didn’t necessarily put in the highest bid for Barita, but the previous owner handed it over to us in good faith because I promised that we would both preserve her legacy and grow the company she had put so much effort into building up over 40 plus years.” He has been as good as his word; the 10% stake holding Humphries-Lewin held onto after the acquisition is now worth more than the sum she sold the entire business for and Simpson is proud to point out that Barita’s value has grown almost six fold in the first twelve months of Cornerstone’s ownership. Barita’s capitalization has soared from $2.9 billion to approximately $14 billion through two hugely successful rights issues.

Its human and intellectual capital has risen too. “Our employees happiness is very important to us,” says Simpson. “We expanded the talent capabilities of the workplace; we increased the average salary by 25% in the first 12 months and we continue to look to recruit top-tier talent from both the international and local markets.” The same holds true for Cornerstone itself. The majority of its management team are graduates of the University of the West Indies (UWI), Harvard and Columbia University and people whom their CEO proudly collectively classifies as a smart, intelligent and entrepreneurial team that understands the cultures they are operating in. “We have some of the best talent, hands down and their ability to execute is unparalleled.”

Humphries-Lewin must also be proud as well as financially delighted with the way Cornerstone has built on her legacy and adapted it to the fast-changing environment of the 21st century. She must be particularly pleased with the newly branded MoneyIQ concept which combines advances in technology with Barita’s proven expertise in market intelligence and industry insight which continues to enhance her brainchild’s flair for both developing real solutions and building real wealth. “Barita is the ultimate Financial BrainTrust,” says Simpson. “We believe in data; we believe in technology and we believe in staying ahead of the curve through our human resources.”

He and his fellow Board members are also firm believers in the importance of risk management. Unusually for a start-up such as Cornerstone, one of their first strategic moves was to poach the head of Scotia Bank’s regional market risk management department to make sure that every aspect of its operation was watertight. The second, was to add the head of the Corporate Governance Committee of the Jamaica Stock Exchange, Attorney at Law, Matthew Hogarth, to its  Board  “We have to be prudent, not just for our shareholders’ and our clients’ sake but for Jamaica as well,” he points out. “Barita is an internationally recognized brand name, and we have a fiduciary obligation to protect the company, including its reputation. It is a work in constant progress, and the Board is constantly assessing and reviewing governance and risk.”

Internally funded and heavily capitalized when measured against most financial benchmarks and ratios, the 350 million USD shareholders’ equity startup is well equipped to withstand economic headwinds that the future may hold in store for the Jamaica or wider Caribbean economy. As far as Simpson is concerned, however, things are only likely to get better for both Cornerstone and country.

One of the most diversified economies among the UN-classified Small Island Developing States (SIDS) group, Jamaica’s FDI inflows are also among the top five in the group. According to a recent report from the UN, the combination of the authorities’ reinvigorated backing for the creation of a network of Special Economic Zones and Jamaica’s unfolding potential to promote itself as a tourist destination could see inward investment climb ever upwards. With Prime Minister Holness returning from trips to the US, China and Japan last year, visibly fired up by the commercial opportunities that President Trump, President Xi Jinping, Shinzo Abe and  other countries may have to offer his country, Simpson’s confidence seems even more justified.

Ocho Rios port Jamaica“Jamaica has a very stable environment and much of the red tape that was obstructing business in the past has been cut away by this Government and now we also have a great opportunity to enhance our importance as a business and shipping hub. Our ports and harbors are relatively deep, and we are on one of the world’s major shipping routes. Our political environment is very stable too, and it is much easier to do business here than it used to be.” The island’s potential is, he believes, still largely untapped and there is much more to Jamaica than great reggae and outstanding beaches. “Our people are smart enough to compete with the best and brightest in the world;  my team grew up Jamaica, some went abroad and are back to help me build the Cornerstone group of companies, country and region.”

So, where does Simpson and Cornerstone go from here? Next up, of course, is the launch of its new fintech operation, which promises to change the face of the Jamaican banking sector. In the longer term, Simpson’s horizons are more international. “Within the next three to five years, I want Cornerstone to be listed on one of the major international exchanges,” he says. “I want us to become a conduit for the average Jamaican investor to be able to invest in the international markets through an indigenous investment vehicle. I want to create more wealth for not only Jamaicans but Caribbean people generally. Cornerstone wants to be seen as the people’s bank, the easiest one to do business with.”

Simpson is on a mission to help Jamaica and its people to  reach their full potential.