The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas Resolve’s chairman yesterday admitted he “wouldn’t rule out anything” when it came to the possibility of removing more toxic loans from Bank of the Bahamas.

James Smith, head of the Government-owned special purpose vehicle (SPV) that played a key role in last year’s $100 million Bank of the Bahamas rescue, agreed that transferring more ‘bad’ credit to Bahamas Resolve was an option for resolving the BISX-listed institution’s continuing woes.

While Bahamas Resolve has yet to be formally asked to ‘take on’ more troubled loans, Mr Smith suggested this - or a multi-million dollar injection of fresh equity capital into Bank of the Bahamas by the Government, as 65 per cent majority shareholder - were the only two viable options.

“I haven’t heard anything official, but it would seem to me that if they [Bank of the Bahamas] continue to have problems with liquidity and capital adequacy, there are a number of ways to try and correct it,” Mr Smith told Tribune Business.

“One of the ways is to remove [bad loans] from the balance sheet to allow them to write back, or a capital injection.”

The latter option is likely to be a non-starter for the Government, which is already struggling with a $6.4 billion national debt and multi-million dollar annual fiscal deficits. It simply does not have the free cash.

And, with a significant portion of the Government’s stake held by the National Insurance Board (NIB), there will be concern about throwing ‘good money after bad’ and endangering the Bahamian people’s pension and social security funds.

Asked whether Bahamas Resolve had been asked by the Government to take more Bank of the Bahamas ‘bad’ credit, Mr Smith replied: “I wouldn’t rule out anything at this stage, but so far we’ve not been officially asked.

“We haven’t been approached but I guess that, if asked, it would be more of the same.”

The previous Bank of the Bahamas ‘bailout’ involved the transfer of a net $45.2 million in toxic loans from the bank to Bahamas Resolve, in exchange for $100 million in unsecured promissory notes (bonds).

The two-month extension to Bank of the Bahamas’ results filing, revealed by Tribune Business on Monday. suggests that external auditors, Ernst & Young, are unable to give an unqualified sign-off to the financial statements for the year to end-2015.

And that more ‘bad’ loans, possibly totalling in the hundreds of millions of dollars, need to be removed from Bank of the Bahamas’ balance sheet to make it solvent and profitable again.

At end-June 2014, some $250.43 million or 38.52 per cent of Bank of the Bahamas’ $750.417 million loan portfolio was declared to be non-performing.

That means more than $1 out of every $3 lent was non-performing or past due, while just $192.209 million worth of its credit portfolio - only 17.2 per cent - was deemed to be a ‘satisfactory’ risk in mid-2014.

Mr Smith, meanwhile, confirmed that Bahamas Resolve had yet to recover, or collect, on any of the 13 ‘bad’ borrowers transferred to it in October 2014.

He said the SPV, and its managers, Deloitte & Touche (Bahamas), were still trying to obtain independent valuations for all the real estate and other assets that the 13’s loans were secured upon - a process that should be completed in around a month.

“We’re still at the stage of getting our arms around the valuations,” Mr Smith confirmed to Tribune Business. “We need independent assessors to valuations of the properties.

“We’re just trying to do an opening balance to see exactly what we have got realistically. That’s the starting point for trying to recover, and to do that we need the valuations on the underlying properties.”

Mr Smith said Bahamas Resolve was likely to split the 13 ‘bad’ borrowers into two groups - businesses that might be operated once again via Deloitte & Touche acting as receivers, and assets that will go to “direct sale”.

Besides assessing whether “there’s a chance of getting these companies going again, so they can repay these loans with ongoing operations”, Mr Smith said Bahamas Resolve was also working to ensure it possessed the necessary title and mortgage documents to effect real estate sales.

He added that Bahamas Resolve would have to compete with the hundreds of other distressed properties being advertised for sale by commercial banks, in what remains a depressed real estate market.

Tribune Business revealed earlier this year that the 13 ‘bad’ borrowers whose loans were transferred from Bank of the Bahamas to Bahamas Resolve are:

• Philip Lightbourne, Premium Food Services and H&B Investments

• Kingsley Enoch Edgecombe Jr and his wife, Cheryl Jane Edgecombe

• Dr Donald Leon Cooper and his company, DLC Investments

• John H. Bain and Idena C. Bain, and their company, Bain Investments and Development

• Kendal Robert Williams and Kendal Williams Construction Company

• Franklyn Morley and Longside Investments Ltd

• North Andros Food Services Ltd and Jerome Rofeno Forbes

• Campbell’s Electric Company and Stanley Gustavious Campbell

• Lock Resorts ltd, Datavu Ltd (guarantor), Brenda Carolyn Lockhart and Laverne Rudolph

• Philip Lundy and East Street Investment Company

• Landstar Concrete Products

• Malv Investments, Sea-Ban Products (Bahamas) Ltd, and Ruiz Edmund Munnings and Ingrid Munnings

• Anthony Erasto Albury and Anthony Edward Albury

The Government appears to have been hoping that Bank of the Bahamas would somehow ‘muddle’ its way back to health following the Bahamas Resolve ‘bailout’, but that has not happened.

Tribune Business revealed back in June that Bank of the Bahamas had suffered a 73.4 per cent increase in investor losses to $17.148 million for the first nine months of its 2015 financial year, with the figures for the full year now awaited.

The $17 million-plus net loss incurred then had already wiped out the $54.623 million ‘retained earnings’ write-back from the Bahamas Resolve transaction. That is now overshadowed by the $57.348 million accumulated deficit sitting on Bank of the Bahamas’ books.

The benefits from that deal have already being eradicated by continued losses. And, if those $100 million worth of promissory notes are excluded, Bank of the Bahamas was barely solvent at March 31, 2015. Ignoring those notes, its total assets of $730.769 million exceeded $727.76 million in total liabilities by just $4 million.