The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas is hoping its financial performance will “start to be measured” from the New Year onwards, after it unveiled an expected $4.198 million net loss for the 2015 first quarter.

Paul McWeeney, the BISX-listed institution’s managing director, told Tribune Business that the first two quarters of its 2015 financial year had been impacted by the moves leading up to its $100 million ‘bailout’ via the Bahamas Resolve transaction.

With the ‘bad loans for bonds’ swap not completed until end-October 2014, Mr McWeeney said it was only from January 1 onwards that Bank of the Bahamas financials could show a ‘fresh start’.

Reiterating that the institution believed the “significant issues” with its non-performing loans were largely behind it, Mr McWeeney said it was still having to deal with occasional “surprises” involving reduced collateral values.

“We’re still making corrections as we go along,” he told Tribune Business, “but are starting to recognise a gradual decline [in the rate of loan loss provisions].”

Asked whether he felt the worst was now behind Bank of the Bahamas, following the Bahamas Resolve transaction, Mr McWeeney added: “We hope so. It appears that way.

“We still have surprises here and there, when we get property valuations, but for the most part the significant issues are behind us.”

Bank of the Bahamas’ results for the three months to end-September 2014, a period prior to the Resolve transaction, saw ordinary shareholders suffer a 32.2 per cent increase in the losses they sustained.

These increased year-over-year from $3.175 million to $4.198 million for the 2015 first quarter, but the comparisons - apart from highlighting the bank’s continued weakness - are relatively meaningless given that the Bahamas Resolve deal, for the moment, changes everything.

“The first four months of the year were all part of the Resolve exercise,” Mr McWeeney told Tribune Business. “Hopefully we can start to be measured from the quarter starting January 1, when we have a clean period. Both prior quarters included the Resolve transaction.”

Bahamas Resolve was devised as the ‘bad bank’ solution for Bank of the Bahamas’ financial woes, taking 13 non-performing commercial loans - worth a gross $100 million - from it in exchange for the BISX-listed institution receiving government bonds of the same amount.

This enabled Bank of the Bahamas to ‘reclaim’ some $55 million in prior loan loss provisions and accrued interest, bringing its retained earnings back into positive territory and ensuring its capital ratios comply with minimum Central Bank requirements.

Yet Bank of the Bahamas is not ‘out of the woods’ despite the Bahamas Resolve deal, as the Government had to step in for the second time to pay the $1.1 million dividend due to its preference shareholders on January 9, 2015.

The Government, as 65 per cent majority shareholder in Bank of the Bahamas, used its treasury deposits to do the same last year, meaning that the taxpayer has now subsidised the bank’s interest payments to its preference shareholders to the tune of $2.2 million.

Mr McWeeney said it was “just prudence, prudence” that required the Government to pay the preference shareholders, rather than use Bank of the Bahamas’ own resources to do so.

He added that there were Central Bank guidelines that included restrictions on dividend payments made by loss-making banks, such as Bank of the Bahamas, thus requiring its major shareholder to step into the breach.

“It’s just prudent financial management at this point in time,” Mr McWeeney said. “The Government is supporting the bank wholeheartedly, and it’s prudent to support the capital base.”

While there is no direct obligation on Bank of the Bahamas to repay the Government its $2.2 million, the plan is that this will eventually be returned by dividend payments on the ordinary shares owned by the Treasury and National Insurance Board (NIB), once the bank returns to profitability.

However, Mr McWeeney then confirmed to Tribune Business that the $3.4 million redemption of Bank of the Bahamas’ Class E preference shares, which occurred on New Year’s Eve, was financed from the bank’s own capital resources.

The redemption is part of moves to bring Bank of the Bahamas’ regulatory capital, and its composition, into line with the international Basel III Capital Accord - a standard all Bahamas-based banks are moving to meet.

Mr McWeeney then disclosed that the report on Bank of the Bahamas’ proposed internal and management restructuring was complete, and had been presented to chairman, Richard Demeritte.

“Once the Board approves it and signs off on it, it can be shared right away,” Mr McWeeney said, adding that the bank was taking advice from both attorneys and the Bahamas International Securities Exchange (BISX) on the best mechanism for distributing the document to shareholders.

While unwilling to discuss the plan’s contents, Mr McWeeney added: “I’m confident that when shareholders see the plan, they will be pleased.”

Bank of the Bahamas’ loan loss provisions for the three months to end-September 2014 were actually down year-over-year, standing at $3.713 million compared to $6.226 million the year before.

However, the impact from its deteriorating loan book was felt more in the top-line, as interest income dropped by one-third to $10.534 million, as opposed to $15.637 million the year before.

Bank of the Bahamas’ post October 31 balance sheet showed it had suffered a $6.511 million net loss for the first four months of its 2015 financial year.

Given that the first quarter net loss was $4.198 million, the bank clearly suffered $2.3 million in further ‘red ink’ during October 2014 - the month immediately prior to the Bahamas Resolve.