The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Businessman Franklyn Wilson last night declined “to confirm or deny” whether he is in talks with a Mexican company over a joint venture partnership that would acquire, then restructure, delinquent Bahamian mortgage loans.

The Arawak Homes chairman was contacted by Tribune Business after multiple banking industry sources revealed he was in discussions with Ascendancy Mexico, whose presence in the Bahamas as a cure for the nation’s $1.2 billion worth of ‘bad loans’ is being driven by at least one major commercial institution.

This newspaper was told that Ascendancy’s involvement was being pushed by Scotiabank, and its Toronto head office, given that the company has successfully undertaken a similar task in dealing with its Mexican non-performing loans.

Ascendancy is understood to have subsequently expanded into other Caribbean nations, with financial services contacts suggesting it had partnered with an International Monetary Fund (IMF) sub-agency in its inaugural Mexican venture.

Sean Albert, Scotiabank (Bahamas) managing director, told Tribune Business via e-mail that he was ‘off-island’, but indicated that he was prepared to talk once he returned to the Bahamas.

However, a high-level source at one of Mr Albert’s competitors, speaking on condition of anonymity, said: “I heard Scotiabank was in the process of selling $30 million of their delinquent mortgages to this Mexican company called Ascendancy, which will be looking to raise money in the local market from local investors.”

While unable to say how Ascendancy would seek to raise capital in the Bahamas, the same source said they understood that Mr Wilson was one of the prospective Bahamian partners that the Mexican company was talking to.

When contacted by Tribune Business last night, Mr Wilson responded: “I’m not in a position to confirm or deny the matter. You asked me the question: I said I’m not in a position to confirm or deny those conversations.”

However, spoken to earlier in the day before his involvement with Ascendancy became known, Mr Wilson lamented the absence of any “tradition of investors buying distressed mortgages”.

Suggesting that “one institution” had been seeking a buyer for its distressed mortgages, he added that such an initiative was not linked to the Government’s efforts to revive the Mortgage Relief Plan.

Mr Wilson, who was asked by Prime Minister Perry Christie to lead those revival efforts via negotiations with the commercial banks, added that the Government would likely have already “aired” its new proposals had it not been for Hurricane Joaquin.

In what many observers will likely interpret as a ‘nod’ towards the Ascendancy plan, the Arawak Homes chairman told Tribune Business: “One of the constraints of the capital markets in the Bahamas is that there’s no tradition of investors buying distressed mortgages, then redesigning and developing them.....

“I think one institution has gone out to look for someone to buy and sell their bad mortgages to. I think that’s a matter between one bank and institution.

“The Government can’t tell who to sell mortgage assets to. Each bank, each institution has to decide their own strategy.”

Some $672 million worth of Bahamian mortgage loans are past due, weighing down both bank balance sheets and depressing their profits, via reduced interest income and higher loan loss provisions.

This, in turn, has resulted in a construction and real estate slowdown, and several thousand Bahamian families facing the loss of their homes, as banks continue to public 20-20 page brochures featuring distressed properties for which there are no buyers.

Mr Wilson told Tribune Business that the Prime Minister should be making an announcement on a revived Mortgage Relief Plan “pretty quickly”, as “a great deal of consensus” had been achieved within the banking industry.

“Had it not been for the hurricane, I believe it would have been a matter thoroughly aired by now,” he told Tribune Business, adding that it would have a “positive impact for the economy as a whole”.

Meanwhile, should any Bahamian joint venture with Ascendancy be consummated, it would require the necessary regulatory approvals from both financial supervisors, such as the Central Bank of the Bahamas, and the Government.

A joint venture with local partners is likely being sought to both pave the way for Government approvals, and to overcome the potential stigma/backlash associated with a ‘foreign company’ acquiring distressed Bahamian loans and subsequently impacting Bahamian lives.

Another Tribune Business contact said Ascendancy would incorporate a Bahamian company, which will likely be staffed and operated by a mostly local staff, with some senior expatriate support.

“The IMF did a pilot strategy in Mexico and used this group,” the source said. “The IMF put money into it, and the banks were able to get their bad loans written off and off their books.

“This is a pilot programme by the IMF, and one of their sub-agencies did it successfully in Mexico.”

The source suggested that the initial tranche of delinquent Scotiabank (Bahamas) mortgages was effectively a ‘pilot project’, which could translate into bigger business for Ascendancy and its Bahamian partners if its proved successful.

Ascendancy’s planned Bahamian joint venture would be similar to the Bahamas Resolve vehicle that the Government employed in October 2014 to ‘bail out’ Bank of the Bahamas.

That transaction saw a net $45.2 million worth of non-performing loans transferred off Bank of the Bahamas’ balance sheet to Bahamas Resolve, with the ‘hold’ filled by a $100 million ‘promissory note’ backed by Government bonds.

The Ascendancy scheme would likely operate in the same way, with non-performing (more than 90 days past due) mortgage loans transferred to it from Scotiabank, although the transaction terms will be much different than those employed in the Bank of the Bahamas deal.

The Ascendancy joint venture will likely pay a discount to the total ‘face value’ of the mortgages it acquires, then seek to either re-write or restructure them with those delinquent borrowers who can be saved, or sell the real estate collateral for these loans and throw the occupants out.

Banking industry sources suggested this would create a major ‘cultural shock’ for delinquent Bahamian borrowers, as Ascendancy would likely be far more aggressive than the banks in their collection and restructuring efforts.

“The bottom line is that Bahamians will have to deal with a new owner of these mortgages, and they will have the same rights as enshrined in the mortgages,” one banking executive said.

“They’ll move aggressively to sell these properties. Bahamians will lash out. They want it for nothing, and don’t want to pay for it. It’s going to be harder for those delinquent mortgage holders than being with a bank.”

Another banking executive, speaking on condition of anonymity, told Tribune Business that the Ascendancy proposal could be “a step in the right direction” for the industry.

They added that the commercial banks had been forced to beef up their collections and restructuring departments to 40-60 persons, and the involvement of an entity such as Ascendancy could allow them to “get back to running a bank”.

The IMF, in its Article IV report on the Bahamas earlier this year, urged the Government to abandon its proposed Mortgage Relief Plan and instead create a “specialised agency” to tackle the Bahamas’ bad loan crisis, with private sector credit having dropped to 2009 levels.

“The authorities should consider the merits of an adequately capitalised specialised agency to help resolve debt overhang in the banking system,” the IMF said.

“Staff noted recent efforts of the authorities and some banks to address long-standing non-performing loans, and discussed the potential advantages of establishing a specialised agency, including a possible successor to the Government’s Mortgage Relief Plan.”