29 JANUARY 2003
From the fledgling markets in 1987 to the cautious investors of today, Globe Deputy Chairman James Blake has seen it all. Matthew Vella writes
Globe Financial Services was formed in 1987, at a time when the market was undergoing massive changes both locally and internationally. In a political climate recovering from economic self-sufficiency, Globe was practically operating in a market which had been hitherto non existent. Changes started manifesting themselves in the early 1990s, with the creation of the Malta Financial Services Centre and the Malta Stock Exchange and a body of financial legislation that was introducing new financial services to the island.
James Blake has been a part of Maltas financial markets ever since the setting up of the MSE, having been part of its initial fleet of brokers. His experience has lent him the erudition that makes him one of Globes leading figures.
Coming of age in such a fledgling market has had its hardships, as James Blake records:
"Although it finally created a proper basis for us to work on, after 1995 we started being regulated by the then-MFSC, and that was probably an opportunity for us since we had been already operating well before these changes happened. However, these changes were difficult. It was very hard for us and any other company to have to suddenly adjust to the fact that we had to report to the authority and fulfil other financial requirements.
"But it created an environment of openness, with more people looking at investments, not just in the privacy of their home, but also looking at a more organised market. The Stock Exchange boomed, financial services boomed, and what has happened in the market in Malta has had pretty much a similar pattern as in other new financial markets.
"Their experience in the equity market has now turned them into shrewder investors. They shop around more, they do actually understand more, and I think that all financial advisors are doing their best to communicate better with their clients.
"On our part, Globe has issued a question-and-answer user-friendly booklet on how to invest your money and that was probably the first publication of its kind. Soon after there were similar MFSA and MSE booklets, so Id like to think that we were the first to pre-empt such a move."
The rise and rise of Maltas equity market however, has done much to contribute to an equal degree of scepticism in would-be traders. As James Blake puts it, people have had their fingers burnt. The equity market had been rising to unimaginable heights, attracting new traders who yearned for its profits, until it reached an unhealthy and superficially high situation. The results were explosive:
"What has happened is that there are people who today would not touch the equity market, so we might need a new generation to start looking at the market differently."
Traditionally, the Maltese have looked towards bonds and other securities as safe bets, but again, James Blake advises caution, pointing his fingers at equally bad experiences as that in the equity market: "People have to be more discerning in the bond market. We have unfortunately had bad experiences within the emerging markets, in Argentina and South Africa for example, and we have to understand that Malta is not new to this sort of situation where bonds can suffer. It is very important for investors to look closely at what they are investing in and there seems to be a greater culture developing in this respect."
The worrying factor has been that the MSE still lacks many of those equities which others had been anticipating over the years, partly as Blake puts it, through a sped-up government privatisation process. This has however been hampered by the collapse of international markets. In yet another discouraging note, he notes that now is probably not the time to introduce new equities: "I think we need a situation where we have people who are market makers, people who can actually purchase equity. We need a greater variety of stock being offered and unfortunately we have to try and avoid a situation where small trades are dropping the share prices significantly."
With the pensions reform waiting just round the corner, Globe are also embarking on what could be expected to be a series of innovative products based on a combination of insurance and investment.
James Blake sees Globe taking a primary role in what could be the new overhaul of the countrys social services.
"Id like to think that we can firstly contribute to the policies of the decision-makers. We would like to participate, give our point of view. Today, British-American is only the fourth insurance company in Malta, whilst the others are agencies. And the fact that we are an insurance company makes us totally independent. I believe that all four insurance companies, HSBC Life, Citizen, Middlesea and ourselves will participate strongly in this market and it will be a nice combination of investment and insurance coming together.
"I worked abroad for six years in the UK when the pensions market was being reformed. There was a situation where people below a certain age had to opt out of national insurance. Anyone over that age had a choice. There will be a situation where younger people will be taking a private pension. Obviously it is up to government to provide an air-tight structure that protects policy-holders, and that is where we have to rely on the experience of the islands four insurance providers."
The great news with Globe has obviously been the recent merger with British American, set to provide the company with renewed strength. James Blake speaks about the journey from the proposal to last weeks go-ahead from the MFSA as a learning experience that is still continuing. Today the merger has succeed in centralising both the logistical and physical aspects of both operations, maximising the office space that had already been present at 120 The Strand as the operation is gradually being smoothed out.
"The MFSA have been very helpful in getting us to where we got to. Such a merger does not happen every day in the financial industry, so there were new queries that had to be answered. One of the requisites was for us to transfer British American over to Malta, in the process introducing Lm2.5 million from overseas, setting up a strong asset base. MFSA would not give you a license if you dont have enough financial resources to operate since you are in fact dealing with peoples money. That has been done and today British American is valued in terms of capital at Lm3.2 million.
"Altogether the global financial services group at todays prices are now valued at Lm13 million, and that gives us a lot of strength to go into these ventures as we in fact hope to. Of course, we are still subject to the winds of the market."
Following the merger, Globe have now presented its clients with the Income Capital Guaranteed Gainer, specifically directed towards clients who as Blake puts it, dont want to risk anymore.
"We got an excellent response from our clients and from new clients. We have set a programme which covers this years and next years product development. We are trying to anticipate the way the market is heading. Products are not easy to introduce since they need regulatory approval and overseas approval.
"Today we have a fully fledged RnD department that studies whats happening overseas and trying to adapt what is happening overseas to the local scene. For me, this is the oxygen of the company and I would worry when that chain of work-in-progress products would start to slow down.
As James Blake says, part of Globes strategy has been engraved within the creation of their alliances.
"You can grow so much internally by using your internal resources, but the learning curve is so steep. However, you can also grow through merging into an alliance, and this what we have done in the past and that has experience has given us the ambition to do it again on a bigger scale.
"This time we have done it because we have realised that our business was very reliant on the roller coaster of the market. At the moment we are passing through a very difficult time, both locally and internationally. But when we studied the business carried out by the insurance sector, we realised they too were being affected by the economic conditions but not to such a large extent as financial services in the investment sector, so insurance is a more stable form of income."
Globes guarantee now rests on the success of this merger, which will be focusing on three main areas that will be characterising its business, namely investment, life and medical insurance.
Reflecting on the current market situation Blake believes that there is a lot of pessimism locally.
He adds: "There are always pessimists and optimists, and where there is a sale there is always someone who is buying. Unfortunately there are too many pessimists. I think that if we are more optimistic and if we really believe more in what we do, I think we could have a boom in the future. When the current political indecision will be sorted out, whatever the outcome, we could see another positive time in Malta."