The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cacique award winner’s bid to avoid financial ruin may receive late help from a former Cabinet Minister, after ‘whistleblower’ evidence cited “inconsistencies” with CIBC FirstCaribbean’s case.

Damian Gomez QC confirmed he was asked to do “some further research” into Malcolm Spicer’s fight to avoid foreclosure on both his family home and Abaco-based investment project, which was designed to provide for his family in retirement.

“I’m doing some further research,” Mr Gomez told Tribune Business of his case review. “It’s really just covering all the bases and making sure nothing is left.”

He added that no decision had been made on whether he will intervene on Mr Spicer’s behalf, praising the way the latter’s existing attorney, Dywan Rodgers, had handled the case to-date.

Tribune Business understands that attorneys for both CIBC and Mr Spicer have closed their arguments, and are now waiting for Supreme Court Justice, Estelle Gray-Evans, to resolve their bitter loan dispute.

But Mr Spicer, who is well-known in sporting and teaching circles, is hoping his case received an ‘11th hour boost’ after a ‘whistleblower’ came forward to challenge several key foundations of the bank’s case.

CIBC FirstCaribbean has long argued that the matter is a simple asset/security repossession following the borrower’s default, but the ‘whistleblower’ backed Mr Spicer’s argument that responsibility lies largely with the bank.

A former CIBC FirstCaribbean executive, they concluded that based on the available evidence, the bank “miscalculated the loan amount” and then concealed this from Mr Spicer.

The ‘whistleblower’, whose assessment was admitted into evidence after attorneys had completed their closing arguments, said the affidavit from CIBC FirstCaribbean’s Abaco branch manager contained several “inconsistencies” with the bank’s then-policies and internal culture.

Besides alleging that it was “common practice” for bank officials to verbally reassure borrowers further funding would be forthcoming for construction projects, they added that there was “tremendous pressure” upon staff to originate loans at the time Mr Spicer obtained his.

Executives were also rewarded handsomely for hitting ‘sales targets’ in the 2005-2008 ‘boom’ period prior to the global recession, with CIBC FirstCaribbean even giving some new SUVs (sports utility vehicles).

CIBC FirstCaribbean declined to comment because the case is before the Supreme Court. But attorneys from Meridian Law Chambers described the ‘whistleblower’s’ evidence as “integral” to Mr Spicer’s case.

Gilbert Thompson, one of Mr Rodgers’ colleagues, alleged in an April 26, 2016, affidavit: “It goes as far as, we say, to further dilute - and even impeach - the credibility of the evidence of the plaintiff [the bank].”

He claimed that Mr Rodgers, in his closing submissions, suggested that there had been “a cover up”, and that affidavit evidence from the CIBC FirstCaribbean branch manager “was generated to conceal the true state of affairs”.

Tribune Business was asked not to publicise the ‘whistleblower’s’ name, on the grounds that they were involved in other court cases.

However, the person was already known to this newspaper as a former CIBC FirstCaribbean employee, having figured in the news when the bank was created in 2002 as a result of the merger between CIBC and Barclays.

The ‘whistleblower’ was employed as a mortgage specialist with Barclays from 1996, with their title switching to ‘home finance specialist’ following the 2002 merger - a position they held until 2005, around the time Mr Spicer negotiated his loan.

Their affidavit is designed to back Mr Spicer’s claim claim that CIBC FirstCaribbean knew it was lending a sum, $855,500, that was inadequate to complete the first stage of what was to be a rental apartment and bar/restaurant complex located near the Abaco Club at Winding Bay.

Mr Spicer, in an affidavit filed last year, alleged that he only agreed to proceed with the project after receiving verbal assurances from the bank’s Abaco branch manager, Bryan Thompson, that more funding would be forthcoming.

And he is also claiming that CIBC FirstCaribbean withheld from him the fact that the original loan amount was based upon a fundamentally flawed calculation.

Tribune Business revealed earlier this year how a realtor’s March 2006 appraisal report on Mr Spicer’s property, commissioned by the bank, came up with the following calculation:

“Proposed buildings:

4 at 4,014 square feet = 12,042 square feet.”

Based on the maths, the appraisal report should have produced a 16,056 square feet calculation. However, it went on to base the ‘replacement method’ for valuing Mr Spicer’s property on the 12,042 square feet.

Using a price of $125 per square foot for the buildings, and a $210,000 valuation for the existing undeveloped land and improvements, the appraisal valued the potential project at $1.715 million.

Given that the ‘first stage’ involved just two (half) of the four proposed buildings, Mr Spicer is alleging that he should have been eligible to receive $253,500 more on the original loan which, at $855,500, was based on 50 per cent of the incorrectly calculated $1.7 million

But Mr Thompson, in a November 6, 2014, affidavit, refuted key aspects of Mr Spicer’s case.

He said that “at no time did the bank agree to” or indicate that it would definitely provide further financing beyond the original loan.

And Mr Thompson also denied that CIBC FirstCaribbean “miscalculated the value of the appraisal” based on the March 22, 2006, realtor’s report, or that this was “a fundamental error which undermined the funding of the project”.

These assertions, though, were challenged by the ‘whistleblower’ in their April 20, 2016, affidavit filed with the Supreme Court.

“There are several statements contained therein which I would dispute/challenge, as they are not consistent with how CIBC FirstCaribbean operated at the time,” they alleged of Mr Thompson’s affidavit.

“Of critical importance: During the time that I worked with the plaintiff bank (which includes the timeframe of the Spicer/Spicer Group International loan), I was instructed to give - and I would give - verbal assurances such as ‘we’ll take care of you’ or language similar in nature.

“It was not unusual, and was in fact quite typical, to give assurances of additional funding without putting it in writing.”

The ‘whistleblower’ alleged that executives such as Mr Thompson would have been in position to provide such “leeway and discretion”.

They added that ‘verbal assurances’ were frequently provided in relation to construction projects such as Mr Spicer’s, given that extra financing was often required, and the bank did not want to risk being stuck with an incomplete development.

The ‘whistleblower’ then alleged that “financial self-interest” also motivated the use of ‘verbal assurances’, especially given that written promised could “slow down moving ahead with the original loan”.

They claimed that this was particularly prevalent during the Bahamas’ ‘credit boom’ of 2005-2008, when banks were eager to find lending clients and set high targets for their loan officers.

“Lending staff were under tremendous pressure to sell, sell, sell mortgages and lend money out because they were given high loan targets by the plaintiff, particularly during that time; in the 2005-2008 period before the global recession,” the ‘whistleblower’ alleged.

This was when Mr Spicer’s loan was originated, and they further claimed: “And if the branch manager(s) or loans officer(s) reached [CIBC’s] goals and/or exceeded them, they were given financial bonuses and, even on occasion, Nissan Trail SUV vehicles as reward(s).

“More importantly, their professional review, or staff appraisal report, was based on how well they did at selling or generating loans in order to get salary increases for meeting targets.”

This suggests that Bahamas-based commercial banks may at least be partially responsible for their own misfortune, namely the $1.1-$1.2 billion ‘bad loan’ pile they are currently stuck with.

In the run-up to the 2008-2009 recession, when credit was plentiful, the pressure on bank executives to hit ever-higher ‘sales targets’ will likely have induced them to lend to unsuitable borrowers who should never have received funding.

As a result of aggressively trading away safety for growth, the commercial banking industry is still being held back a decade later by delinquent loans where there is little prospect of repayment and falling collateral (real estate) values.

This, in turn, is retarding both the housing market and private sector, as even ‘good risks’ are unable to obtain credit due to a tightened lending criteria.

The ‘whistleblower’, meanwhile, took issue with Mr Thompson’s assertion that the Spicer loan was based on the latter’s business plan.

They argued that CIBC FirstCaribbean would “never” have determined the loan sum based on any potential borrower’s business plan, and that the policy was always to require an independent realtor’s appraisal.

While Mr Thompson argued that the flawed appraisal “had no material impact” on the sum lent to Mr Spicer, the ‘whistleblower’ said he had never seen CIBC FirstCaribbean calculate a mortgage based on a business plan - especially one that was 18 months “out of date”, as in this case.

“It would have been against the plaintiff’s [CIBC] policy to have calculated the loan any other way, other than from that very March 2006 bank-approved appraisal,” the ‘whistleblower’ alleged.

They argued that Mr Thompson’s “alternate explanation” for how CIBC FirstCaribbean calculated the sum loaned to Mr Spicer “cannot be true”, as the bank “would not determine and/or calculate the size of a loan on a property project like this based solely on a borrower’s business plan”.

The ‘whistleblower’ added that banks commissioned appraisal reports from independent realtors to ensure there was sufficient security/collateral for the loan in the event of default, and the potential need to repossess or foreclose.

Mr Thompson had alleged that CIBC FirstCaribbean calculated the loan to Mr Spicer as “85 per cent of the overall costs in the 2005 business plan” prepared by the latter.

The ‘whistleblower’, though, said the bank’s loan commitment letter to Mr Spicer made “no mention” of either the 85 per cent or a requirement to prove that he could finance the remaining 15 per cent from his own resources.

“The loan amount must be such to have a viable loan to create business completion and success,” they said. “If it is different, it needs to be stated in writing on the bank’s commitment letter how it will be completed.

“If it is not stated in black and white, as it is not in this case, then it must have been that the bank gave Spicer/Spicer Group International credible verbal assurances that more monies would be forthcoming.

“If that claim by Mr Thompson were so, then the 15 per cent should have been stated so that auditors can see that the project will be completed and generating income to repay the loan,” the ‘whistleblower’ continued.

“In other words, there would be clear evidence to show that applicant has 15 per cent liquid cash to be deposited to the account to ensure that full funding, but that is not present in the banking documents I have seen in this action.”

The ‘whistleblower’ branded Mr Thompson’s affidavit as “misleading and designed to divert the responsibility” for basing the loan to Mr Spicer on a flawed appraisal.

“In this case, it is my opinion as a mortgage specialist that, for all the reasons described above, the truth in this case is that the plaintiff [CIBC] miscalculated the loan quantum by missing out one of SGI/Spicer’s four buildings (4 x 4 does not equal 12) without ever telling the customer,” they alleged.

“And when the customer responsibly asked about the low loan amount, the plaintiff gave verbal assurances, which they trusted based on a long-standing relationship.”

Claiming that the mistakes exacerbated the project’s under-funding, Mr Spicer alleged last year that a Bahamas Realty appraisal of his property in October 2007 showed that construction work had increased the property’s value by 33.5 per cent.

Arguing that this should have been sufficient to satisfy CIBC FirstCaribbean’s demand for ‘progress’, Mr Spicer alleged that his requests for further funding to complete the project were met with silence for a 10-month period.

Yet he was still having to pay $6,000-$7,000 per month to service the original loan, without any income coming in from the apartments as planned to meet the payments.

When the extra funding from the bank failed to materialise, Mr Spicer’s project ground to a standstill. He was forced to sell his Abacom Wireless Services business in 2010 “to keep his financial affairs afloat”, while also having to use the profits and cash flow from his other company, Abacom Computer Services, to service the CIBC FirstCaribbean loan.

Ultimately, he fell into default, and the bank is now seeking - through the Supreme Court - to repossess not just what remains of the apartment/restaurant project, but also his family home - which was offered as additional security.