The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

CIBC FirstCaribbean International Bank (Bahamas) has taken a $12.2 million one-time hit over the restructuring plan that will ultimately make 66 staff redundant, with some $5.953 million allocated to severance pay alone.

The BISX-listed bank’s annual report revealed that the decision to book this restructuring charge in its 2013 financial year was, along with a 133.3 per cent increase in loan loss impairment expenses, a key factor behind its plummet to a first-ever $17.9 million net loss.

The restructuring charge accounted for close to half the $26.3 million increase in operating expenses that CIBC incurred during the year to end-October 2013, with the annual report arguing that the downsizing is essential to “enhance long-term competitiveness through reductions in costs, duplication and complexity in the years ahead”.

“The plan will achieve operational efficiencies and annual savings,” CIBC added. “The plan is estimated to cost the bank $12.2 million, which has been included in operating expenses for this year.”

Further details were revealed in the annual report’s small print, which said the total $12.226 million cost would be spread over the next two years, “with the aim of achieving... annual run rate savings.

“The cost of the restructuring plan includes termination benefits, additional expenses covering the acceleration of depreciation and contract termination costs related to real estate,” CIBC added, placing severance pay due to terminated staff at just under $6 million.

Tribune Business exclusively revealed last month that CIBC would ultimately terminate 66 jobs in the Bahamas by October 2015, with 56 of those posts lost in the outsourcing of its operations group to Jamaica.

The reference to “contract termination costs related to real estate” is a likely tie-in to another Tribune Business exclusive - that CIBC FirstCaribbean has rented property at the corner of Bay and Parliament Streets in downtown Nassau, in the building owned by the Cayman-based Dart Group.

This indicates the bank may by considering switching from its larger branch, the former Barclays building on Bay Street, to its new rented premises.

CIBC has also advertised the impending closure of one of its two Grand Bahama-based branches, the location at Pioneer’s Way, and a consolidation of all operations at its East Mall site - another move seemingly aimed at cost-cutting.

Apart from the one-time restructuring charge and operational expense increase, CIBC also attributed the 2013 loss to a $44.3 million increase in loan loss impairment charges and a $4.9 million drop in net interest income.

Loan loss impairment charges rose year-over-year from $33.217 million to $77.502 million, with specific losses rising from $32.743 million to $72.943 million.

Impairment charges related to business and government loans increased more than five-fold to $44.263 million, from $8.433 million the previous year, while mortgage impairments rose from $16.683 million to $22.854 million.

And CIBC also elected to take a further $4.559 million impairment due to the weak overall economic environment prevailing in the Bahamas.

The BISX-listed bank said: “Loan loss impairment expense increased by $44.3 million or 133.3 per cent year-over-year. The specific allowance increases by $40.2 million as a result of declining collateral values, new non-performing loans and assumptions updates.

“The ratio of loan loss expenses to gross loans was 3.7 per cent compared to 1.4 per cent at the end of 2012. However, there was a smaller increase in the ratio of nonperforming loans to gross loans from 16.1 per cent to 15.7 per cent.

The other major driver behind the dramatic increase in CIBC’s Bahamian operating expenses, which rose from $82.231 million to $108.596 million, was the 74.4 per cent jump in Business Licence and management fee payments.

These rose from $16.865 million in 2012 to $29.42 million last year, something the bank said resulted from increased management fees extracted by its Barbados-based parent.

Elsewhere, CIBC said its Bahamian net interest income fell by 3.5 per cent year-over-year, due to a drop in “average volumes and yields” on the income earned from its loans and securities businesses.

While the bank’s total equity fell by $45.9 million or 5.8 per cent year-over-year, due to some $31.3 million in dividends adding to the net loss, CIBC said Tier 1 and Total Capital ratios remain well above regulatory requirements at 28 per cent and 29 per cent, respectively.

Revenues from its retail and business banking operations fell by $2.9 million or 3.2 per cent, from $89 million to $86 million, due to the rise in non-performing loans and reduction in “productive lending volumes”.

“Segment results decreased year-over-year by $49.2 million as a result of higher than historical loan loss impairment, impacted by declining collateral values and new non-performing loans,” the CIBC annual report said.

As for CIBC’s wholesale banking unit, which covers its corporate and investment banking units, revenues fell by $1.5 million or 2.8 per cent year-over-year - from $51 million to $50 million.