The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

BISX-listed Benchmark (Bahamas) has been forced to “guarantee” its broker/dealer subsidiary will meet all financial obligations for “at least 12 months”, after regulators expressed concern over whether it was a ‘going concern’.

Details of the guarantee, which will require Benchmark (Bahamas) to make “sufficient funds” as needed available to its Alliance Investment Management subsidiary, were contained in the former’s audited financial statements for the year to end-December 2012.

The accounts, audited by Pannell Kerr Foster (PKF) Bahamas, disclose that as a result of the Securities Commission’s concerns, Benchmark had to upgrade the security it was providing to Alliance from a ‘comfort letter’ to the guarantee.

The Securities Commission’s concerns relate to how Alliance has become embroiled in the collapse of its largest client, BC Capital Group, which is now in supervised liquidation before the Supreme Court.

Benchmark also disclosed that it had been negotiating “in good faith” with the Securities Commission to resolve concerns over whether Alliance had adequate regulatory capital - concerns that remained outstanding as at the beginning of May 2013.

But despite this, the Benchmark (Bahamas) financials said discussions between management and its attorneys had concluded that the BC Capital issue would “not have a materially adverse effect” on the BISX-listed parent’s financial condition.

“The group [Benchmark] has provided a guarantee to Alliance to make sufficient funds available to enable it to meet its present and future obligations for a period of at least 12 months from the date its financial statements were approved by the Board of Directors,” the financial statements state.

That date is April 30, 2013, and the statements further disclose: “The regulator [Securities Commission] has also raised concerns as to [Alliance’s] ability to continue operating as a going concern.

“Following the regulator’s request, the directors [of Benchmark] have replaced the letter of comfort with a letter of guarantee.”

No details were disclosed as to the nature of the guarantee, and the dollar figure of Benchmark’s potential financial exposure -details most of its more than 730 Bahamian shareholders would likely wish to know.

Elsewhere, Benchmark’s financials added: 
“Concerns over the adequacy of [Alliance’s] regulatory capital was raised by the Securities Commission.

“The directors have been responsive in communicating with the regulator in good faith to resolve this issue. As at the date of approval of these consolidated financial statements, the directors have requested, and are awaiting, further clarification from the regulator to resolve this issue.”

A key concern for the Securities Commission is that 100 per cent of Benchmark’s $5 million preference share capital is owned by BC Capital.

The investments were made to offset funds due from Alliance to BC Capital, and the statements note that it is the former’s decision when they are redeemed.

Those $5 million in preference shares have been critical in ensuring Benchmark retains a positive solvency or net worth, but its current liabilities again exceeded their asset equivalents by $971,337 at the 2012 year-end.

BC Capital’s liquidators, in their report to the Supreme Court, described the $5 million preference share investment as “of considerable concern” to them.

BC Capital Group acquired them in two separate deals, one worth $2 million, the other $3 million, on June 11, 2010,and December 1, 2011, respectively.

Yet the liquidators alleged that the two investments were essentially ‘paper transactions’, with no capital physically injected into Benchmark/Alliance.

For the first $2 million, Alliance was said to have simply reduced the sum it owed to BC Capital Group by the same amount, while for the latter deal it credited its largest client with a $3 million equity account.

“Alliance recorded the company’s purchase of its Class ‘A’ non-voting preference shares by debiting its due to customer account (a liability account) and crediting preference shares (an equity account) on the dates in question, for $2 million and $3 million, respectively,” the BC Capital Group liquidators alleged.

“The company’s purported investment in Alliance represented a radical departure from [its] investment strategy. Such apparent departure is of considerable concern to the joint official liquidators, and will be the focus of their continuing attention.”

Meanwhile, Benchmark’s financial statements described its net exposure to BC Capital as just a $357,000 receivable, which includes “unrealised exchange gains on conversion of foreign currency accounts”.

Alliance’s net loss for 2012 also fell considerably year-over-year, from $2.236 million in 2011 to $74,227, due to increased provisions on customer advances that did not relate to BC Capital Group.

The financial statements note that Benchmark (Bahamas) total assets under administration, namely assets not belonging to it but to clients, dropped year-over-year from $140 million to $22 million due to the BC Capital collapse.