The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas’ predicament has again exposed the “long overdue” need for stronger legal safeguards to protect minority shareholders, the Chamber’s chairman is arguing.

Gowon Bowe told Tribune Business that the BISX-listed institution’s 3,000 minority investors needed to understand how its recovery - and return to profitability - were being “mapped out”.

While the Government, as 65 per cent majority owner, might possess such plans, Mr Bowe said the 35 per cent minority ownership did not, and possessed “no legal avenues” to secure such information.

And Mr Bowe, an accountant by profession, said the decision to continue preparing Bank of the Bahamas’ accounts on the basis it is ‘a going concern’ was “not very robust”, given the numerous deficiencies that brought this into question.

Apart from the almost-$4 million ‘subsidy’ that the Government has provided to cover the due payments to the bank’s preference shareholders, Mr Bowe said the continued non-compliance with several key Central Bank capital ratios raised questions about whether it possessed sufficient “buffers” to be able to withstand a major shock.

Despite this, Mr Bowe said Bank of the Bahamas had continued to fulfill its main obligation, namely securing funds belonging to its depositors.

He added, though, that the bank’s woes continued to expose weaknesses in regulating companies that are publicly traded, and the need to enhance protection for minority shareholders.

“These matters... raise the spectre of minority interest laws and regulations,” Mr Bowe told Tribune Business via e-mail.

“The Government, as a majority shareholder, may very well be in possession of detailed plans that demonstrate the ability to continue as a going concern, and address the challenges facing the bank.

“However, the minority shareholders are not in possession of such information, and have no real legal avenues to demand such information,” he continued.

“Further, the Government, along with the National Insurance Board, have the ability to appoint the entire Board of Directors through the majority shareholding - there is no provision for Board appointments by the minority shareholders.”

These, and similar issues, were all vented at Bank of the Bahamas’ last annual general meeting (AGM) in December 2014, following revelations that it had incurred a near-$68 million loss just prior to its $100 million Government-funded ‘bail out’.

Paul McWeeney, the bank’s then-managing director, indicated at the time that Bank of the Bahamas was receptive to having minority shareholder representation on its Board of Directors, and to sharing its restructuring plan with investors once completed.

This enthusiasm for greater transparency, though, appeared to quickly cool. Mr McWeeney later told this newspaper that the restructuring plan could only be published with Board approval, which has seemingly not been forthcoming.

And there has been no more talk about minority shareholder representation on the Board. The bank’s new managing director, Wayde Christie, in unveiling a “transformation” plan said to have begun in January, did promised greater involvement for minority shareholders, but no details were provided.

Bank of the Bahamas is 65 per cent majority-owned by the Government, through the National Insurance Board and Public Treasury, and the former has retained the right to appoint the entire Board of Directors.

“The conversation regarding minority interest rights, and attending legislation, is long overdue in the Commonwealth of the Bahamas, Mr Bowe told Tribune Business.

“[The Bank] has continued to meet its obligations to depositors, which is the primary concern of the regulator, but there is great merit in debating the matters that, unfortunately, highlight the weaknesses in the regulating of companies whose shares are publicly traded.

“By no means should we be expecting SEC and PCAOB [the US Public Company Accounting Oversight Board] regulation, but we must be striving for protection of minority interests.”

Mr Bowe said such protection was made more important by the fact that most Bahamas International Securities Exchange (BISX) listed companies are majority controlled by either a single shareholder, or like-minded controlling block of shareholders.

“In prior years, the focus was on getting companies listed on BISX to provide capital market opportunities to the broader Bahamian population,” he added.

“As we continue to progress, we must now turn our attention to the strengthening of the capital markets to ensure that as we expand opportunities, we provide a formal voice to those that may not have the resources to control public companies but should have an input into the company that they help to finance.

“There are other cases of shareholders complaining about decisions being made by companies whose shares are traded on BISX, and they usually fall on deaf ears as there is little fanfare to excite the Fourth Estate [the media] and no legal avenues to resolve their concerns.”

While Bank of the Bahamas’ financials had been prepared on the basis it remains a ‘going concern’, Mr Bowe said: “This disclosure is not very robust given the indicators of significant doubt about its ability to continue as a going concern.”

He cited, in particular, the bank’s non-compliance with two key Central Bank capital ratios - Tier 1 Capital as a percentage of total risk weighted assets, and Tier 1 capital as a percentage of total capital - where it has been below the minimum for at least six months.

“The purpose of minimum capital requirements is to protect those stakeholders to whom the financial institution owes a fiduciary responsibility - in the case of Bank of the Bahamas, the depositors,” Mr Bowe said.

“The capital requirements, in particular with the introduction of Basle I, II and III, are to provide buffers for various risks....

“In layman’s terms, capital requirements are in place to require shareholders, who knowingly take the risk of investment, to protect the fiduciary stakeholders, namely depositors, from such risks,” the Chamber chairman continued.

“Therefore, any failure to meet capital requirements is in and of itself a deficiency in the necessary protection of depositors. This is not to be mistaken with depositors being at risk of loss, but rather, there being a deficiency in resources of the bank to protect against losses.”

Mr Bowe said the fact that the Government has had to pay Bank of the Bahamas’ preference shareholders for the past two years shows it is unable to meet all due obligations.

Pointing out that this amounts to a subsidy akin to what the likes of Bahamasair and the Water & Sewerage Corporation receive annually, he added: “There is no indication on the projected period such payments will be required, and more importantly how much is required from the public purse.

“The financial statements do not reflect these payments as either capital contributions from the majority shareholder or subvention from the Government, and do not indicate whether or not these amounts will rank in priority to minority ordinary shareholders.”

Mr Bowe said Bank of the Bahamas’ financial statements should include plans for how it will address these deficiencies, and deal with issues such as the resumption of preference share dividends; how it plans to end the losses; and what will be done to boost capital and liquidity.

“The success of Bank of the Bahamas is essential to the fiscal position and performance of the Bahamas. Although not directly mentioned, the IMF concluding statement speaks to the stability of the banking sector in the Bahamas and the need for continued stability,” Mr Bowe said.

“Therefore, there must be in-depth discussion and understanding on how this institution’s future success is being mapped out. There is no political party that should cast any blame regarding the affairs of Bank of the Bahamas, as its challenges did not appear overnight and its successful turnaround will require non-partisan actions, shareholder education to garner support, and possible financial contributions and continued attention by the general public.

“The Government and NIB are the shareholders called upon to contribute but, in reality, this means the Bahamian public is providing financial support regardless of whether its constituents are shareholders directly or not.”