Weak pound drives Somers to $10.7m loss
The weakness of the UK pound was the major factor driving the owner of Bermuda Commercial Bank to a $10.7 million loss in the fourth quarter of last year.
Somers Ltd, a Bermuda Stock Exchange-listed financial services holding company, said more than half of its gross assets were denominated in currencies other than the dollar — chiefly the UK pound and the Australian dollar.
During the quarter, sterling weakened by 5 per cent against the US dollar as the repercussions of the UK's vote to leave the European Union continued to weigh on the currency.
Somers' net asset value per share fell to $17.58 from $17.81 during the three months ended December 31, a fall of 4.4 per cent, mostly unrealised losses.
Net foreign exchange losses were $6.6 million for the quarter with an additional $3.6 million of exchange losses on Somers' investment in its foreign operations.
Somers has stakes of varying sizes in several UK-based firms, including Waverton Investment Management Ltd, Ascot Lloyd Holdings Ltd, Merrion capital Holdings Ltd and Stockdale Securities Ltd.
During the quarter, Somers completed a deal that gave it a 59 per cent stake in Australian lender Homeloans Ltd.
There was a $3.7 million loss on the company's investment portfolio during the last three months of the year, resulting from a change in the valuations of holdings including Ascot Lloyd, Waverton and BCB.
The investment portfolio was $317.2 million at the end of last year, down from $332.0 million as of September 30, with equity investments accounting for 95 per cent of this total.
The company did not detail earnings for BCB, but said the bank maintained “a high capital ratio of 23 per cent”.
Shareholders' equity ended the quarter at $215.7 million, down from $230.4 million at the end of the third quarter.
Somers bought back 3,149 of its own shares at a cost per share of $13.30 during the three months.
Somers' share price on the BSX ended the period at $13.75 — a discount of 22.8 per cent to the company's diluted net asset value per share.
“The last quarter has been characterised by continued US dollar strength and this has negatively impacted our net asset value by 4.6 per cent due to a significant percentage of our portfolio being denominated in non-US dollar currencies,” Warren McLeland, chairman of Somers, said.
“However, the underlying performance of our investee companies continues to be strong.
“During the quarter, Resimac merged with the ASX-listed Homeloans Ltd and Somers is now a 59 per cent shareholder in Homeloans.
“We look forward to working with the Homeloans management team and assisting them in driving the synergies that made the merger compelling.
“In December, PCFG received conditional approval for a deposit-taking licence in the UK and they anticipate being in a position to accept deposits in the second half of 2017.
“This is a key moment in their development and has the potential to be a step change for the business. Our other investee companies continue to benefit from strong equity markets and even allowing for the increased geo-political risk are well positioned for 2017.”
“We therefore look forward to the rest of the financial year with cautious optimism.”