The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

CIBC FirstCaribbean’s $174 million net loss is a warning signal to Bahamian trade unions not to make unrealistic demands or engage in the threatened three-day national strike, a leading businessman believes.

But despite the scale of the BISX-listed institution’s loss, Franklyn Wilson expressed total confidence that CIBC FirstCaribbean and its Bahamian subsidiary would “weather the storm” and rebound fully.

The Sunshine Holdings chairman told Tribune Business that in the bank’s case, it had acted wisely in “swallowing its medicine” one-time, disclosing what had happened to investors and moving on.

Noting that Sunshine Holdings had one of the longest corporate relationships in the Bahamas with CIBC FirstCaribbean, the bank having lent the group its first $100,000 to get started, Mr Wilson said of the $174 half-year loss: “That’s not good news for anybody.

“But the good news is that these guys are a global institution. They will weather the storm. These guys will move on and go from strength to strength.”

CIBC FirstCaribbean’s Bahamas operation unveiled a capital market-record net loss for the first half to end-April 2014, largely due to a $115 million impairment charge applied to the $187 million worth of goodwill it has carried on its books since the 2002 merger with Barclays.

The other loss driver was a $75 million general loan loss provision, booked largely because the Bahamian economy is not recovering from recession as rapidly as expected.

When asked whether the bank’s downbeat message represented a loss of faith in the Bahamian economy’s recovery powers, Mr Wilson replied: “I don’t necessarily see it as that.

“These guys are far more sophisticated that I am. When you take medicine, you’re better off swallowing it one time. If you’ve got some pills to take, do it one time, get it behind you and move on. You tell the capital markets, get it behind you and move on.”

Mr Wilson told Tribune Business that the real message from the CIBC FirstCaribbean announcement was one to the trade unions, indicating they should mollify their demands in a fragile economy.

“If there’s a real message for the Bahamas, it is that this is clearly not the time for employees to start rattling the cage and making demands for this and that. This is hardly the time for that,” the businessman said.

Meanwhile, capital markets observers suggested to Tribune Business that CIBC FirstCaribbean had been forced to book such a high general loan loss provision [$75 million] because it had been “late” in recognising these.

One analyst, speaking on condition of anonymity, said: “They’ve been late to market in terms of recognising their provisions. I think you saw the other banks recognising their losses a bit earlier.

“FirstCaribbean is late, but the good thing about the bank is that its capital base is sound. It can take a loss of $174 million and absorb it all in its capital base. It has such a depth of capital that it does not put the bank at risk.”

CIBC FirstCaribbean said last week that the goodwill impairment would not impact its operations or capital ratios. Its Tier 1 and total capital ratios stood at 27.2 per cent and 27.5 per cent, above regulatory requirements.

The source questioned, though, why CIBC FirstCaribbean’s Bahamas operation did not book all its restructuring and one-time charges at year-end 2013, when it announced an almost-$18 million net loss.

“It makes you a bit uneasy that they did not recognise this earlier. They would have known this was coming,” they added of the bank. “They should have dealt with this last year.

“This, I hope, will be the final phase of a clean-up exercise for FirstCaribbean. I think it’s one of these catch-up type issues, and hopefully once they put these out they will be in a position to move forward. Hopefully it sets them up to move forward positively.

“Catching up with booking provisions puts you in a good position to go forward. They’ve been hoping that things would improve faster, and maybe they weren’t booking. Now they’re booking, and it’s a new reality.”

Another capital markets source, also speaking on condition of anonymity, said the CIBC FirstCaribbean announcement had highlighted the growth/recovery dilemmas facing the Bahamas and wider Caribbean, and the limited policy arsenal governments had available to address these issues.

“This notice is an indicator of a bigger picture for the Bahamas and the wider Caribbean,” the source said. “The bigger picture is that there’s a soft, or neutral, outlook for economic recovery, and the pace of recovery that has extended throughout the Bahamas and the Caribbean.

“The time by which we have a full recovery has been lengthened. This is in lock-step with the IMF and Moody’s predictions that things are not as good as we predicted, and backs up the 0.7 per cent growth that the Central Bank and Department of Statistics came out with.”

With CIBC FirstCaribbean having announced plans to shed 66 jobs in the Bahamas by October 2015, and reduce real estate costs by consolidating its Freeport and Bay Street branches, the source said: “They’re taking out all the costs, all the fat.

“They’re trying to reduce their footprint and be as efficient as possible to extract as much return on capital.”

Noting the wider policy implications, the source added: “This applies against a backdrop of all these taxes being imposed, and companies’ ability to pay their bills and hire new people, and households’ ability to pay their bills, being called into question.

“The question is what we are doing as a country. Baha Mar is losing its glimmer. What is left in the Government’s arsenal? It can’t be more taxes. That’s a steep hill to climb for the people.”