The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

CIBC FirstCaribbean’s capital market-record $174 million net loss is unlikely to be repeated and represents the final stage in a “three-phase approach to revive our business”, its Bahamian managing director told Tribune Business.

Responding to e-mailed questions from this newspaper, Marie Rodland-Allen effectively confirmed that the BISX-listed institution had over-estimated the pace at which the Bahamian economy would recover from the 2008-2009 recession, forcing it to take $75 million in extra loan loss provisions.

The remainder of CIBC FirstCaribbean’s loss for the six months to end-April 2014 stems from a $115 million write-down of the $187.747 million in goodwill that the bank has been carrying on its books since the merger with Barclays 12 years ago.

Thus the bulk of the Bahamian operation’s 2014 first half loss stems from an accounting treatment, rather than operating losses. This will likely be of little consolation to the local investors holding less than 5 per cent of its equity, although the good news for them is that CIBC FirstCaribbean remains fully solvent and in business, its deep capital base having enabled it to withstand a hit of even this magnitude.

Still, the Bahamas accounted for 87.4 per cent of CIBC FirstCaribbean’s region-wide $199 million net loss for the same period. And its Friday comment that the $75 million in new loan loss provisions “reflect our revised expectations on the extent and timing of the anticipated recovery in the Bahamas” could be interpreted as a ‘no confidence’ vote in this nation and the likes of the Baha Mar project.

Mrs Rodland-Allen confirmed that the impairment charge related to the Barclays’ goodwill, and conceded that CIBC FirstCaribbean had been over-optimistic on the Bahamian economic recovery.

“We had anticipated that the economy would show signs of recovery, but this is not the case, which is why we have taken these provisions,” she told Tribune Business of the $75 million hit.

“It should be noted that the Bahamas is not the only market where economic recovery has not been at a pace that we have anticipated. This is further evidenced by GDP growth at 0.7 per cent and unemployment at around 15-16 per cent in the Bahamas.

“Despite this, we should note that excluding these items, CIBC FirstCaribbean Bahamas generated $16 million of net income for the period, compared with $11 million for the same period in the prior year. Operating profit (total revenue less operating expenses) was $42 million for the six months ended April 30, 2014, compared with $39 million for the same period in the prior year.”

Asked whether the $174 million impairment was a ‘one-time’ hit, Mrs Rodland-Allen responded: “It is highly unlikely that the magnitude of the loan losses booked this quarter will be repeated. Our future performance will be closely tied to the recovery in the region.”

As to whether the $75 million provisioning showed the bank was playing ‘catch up’, and should have booked these loan losses much earlier, Mrs Rodland-Allen replied: “Over the past few years we have implemented a systematic approach to the restructuring of our business.

“These charges reflect the last phase of our three-phase approach to the remediation and reviving of our business, which includes bolstering of our controls, strengthening our credit and lending policies and processes, and reviewing our portfolio to provide for increased loan losses in the current environment...... We will continue to focus on the full recovery of non-performing loan exposures, which originated many years ago.”

Several shareholders and capital markets observers have questioned to Tribune Business why CIBC FirstCaribbean did not book the $174 million net loss at its 2013 year-end, and effectively got ‘all the bad news’ out the way one time.

The bank incurred a first-ever annual net loss of $17.9 million for the year to end-October 2013, and appears set for a repeat performance this year. Most of that loss was due to a one-time $12.2 million restructuring charge associated with the loss of 66 jobs, plus loan loss provisions.

And questions were also posed as to why the bank did not inform Bahamian shareholders of the drastic action it planned to take at its annual general meeting, held on March 18 this year. It was argued that CIBC FirstCaribbean would have known by then what it planned to do, and should have given investors and the markets a ‘heads up’.

In reply, Mrs Rodland-Allen told Tribune Business: “Our public disclosure and reporting has always indicated that we have elevated levels of non-performing loans and that this was a problem.

“At our meeting with our shareholders we did speak to the IMF report (Article IV) which highlighted that the Bahamas had the highest level of NPNAs (non-performing loans) in 2010 as compared to our regional peers, and that it had climbed steadily from 2010 to 2013. We went on to state that the overhang of NPNA accounts in the Bahamas is something we have to work through, as there is no easy fix.”

CIBC FirstCaribbean’s 2013 year-end accounts show that a total $358 million worth of loans, in a portfolio worth $2.222 billion, were non-performing. The bulk of this sum was mortgages, standing at $196 million, with bad business and government loans accounting for $118.402 million.

Personal loans brought up the rear at $43.258 million.