The Tribune

Prime Minister Perry Christie yesterday revealed it will take a further two years for Bank of the Bahamas to return to profitability, as he confirmed plans to recapitalise the troubled institution.

Mr Christie, in unveiling the Government’s 2016-2017 Budget, warned the bank’s long-suffering shareholders that their investment would only become profitable by the 2018 second quarter.

That puts the BISX-listed institution’s recovery some 24 months away, with the Prime Minister indicating that the rebound is heavily dependent on the Government’s continued support.

Acknowledging that Bank of the Bahamas “now requires recapitalisation”, Mr Christie said: “This is to be achieved through a combination of a rights offering and convertible contingent bonds.

“The Government has supported the bank through this period of restructuring and modernising, and I am pleased to note that the bank is on schedule to return to profitability in the second quarter of 2018.”

Shareholders yesterday reiterated that Bank of the Bahamas required “a change of structure” and governance to revive, starting with the Government finding a buyer for its controlling 65 per cent interest.

“Bank of the Bahamas will not be profitable until the Government gets rid of its controlling interest in the bank,” Dionisio D’Aguilar told Tribune Business.

“The politicians don’t understand; it’s not a function of banking, it’s a function of corporate structure. That’s the problem with that bank.”

The Superwash president continued: “Compare it to Commonwealth Bank. All its directors and owners are private. It makes a lot of money.

“Bank of the Bahamas is owned by the Government, its Board and managing director are appointed by the Government, and it does not make money.

“They need to change the corporate structure of Bank of the Bahamas and get seasoned bankers on the Board. I would not put my money in that bank until the structure has changed.”

Commonwealth Bank’s success as a 100 per cent Bahamian-owned commercial bank showed what was possible, Mr D’Aguilar said, adding that Bank of the Bahamas “doesn’t have to reinvent the wheel.”

Another prominent shareholder, Coldwell Banker Lightbourn Realty president, Michael Lightbourn, said of the predicted recovery timeline: “That’s really good considering how much in the hole we are.

“I don’t see how that [2018] is possible. I just think it’s ridiculous.”

That timeline, though, matches the one set by Richard Demeritte, the bank’s chairman, when he told last month’s annual general meeting (AGM) that a turnaround would take at least another 18-24 months.

The Prime Minister’s comments also came after Renee Davis, Bank of the Bahamas’ newly-appointed managing director, told the same AGM that it needed another $30 million in capital to meet global regulatory requirements.

She added at the time that Bank of the Bahamas’ Board was assessing “various options” for achieving this, and had made “no final decision” as to how the extra capital was to be raised.

And Mr Demeritte was unable to “confirm or deny” whether a rights issue to existing shareholders was an option, when questioned by former FNM chairman, Darron Cash.

However, based on Mr Christie’s comments yesterday it appears that a decision has now been reached on how Bank of the Bahamas will recapitalise.

No details were provided, though, on the ‘split’ between the rights issue and contingent bonds, and how much capital will be sought from the two structures.

A rights issue involves the issuance of new stock to existing shareholders in proportion to their existing holdings. However, given Bank of the Bahamas’ more than $100 million in total losses over the past two-and-a-half years, not to mention the Bahamas Resolve ‘bail out’, many investors are likely to be cool about subscribing for their rights.

As a result, the bank, which is 65 per cent majority-owned by the Government through the Treasury and National Insurance Board (NIB), will probably have to rely heavily on the bond (debt financing) issue for the majority of its new capital.

It is also likely that Bank of the Bahamas will be seeking more than the $30 million referred to by Ms Davis, although no figures were given yesterday by the Prime Minister.

Mr Christie, meanwhile, also confirmed that Bank of the Bahamas’ revival will require continued heavy government support.

He said yesterday that the institution will be “refocusing itself as a bank for the public service, which will include the provision of loans to public officers as well as banking services to public institutions”.

This implies a continuation of the strategy in effect since the Government was forced to ‘bail out’ Bank of the Bahamas in October 2014, transferring $45.2 million in ‘toxic loans’ from its balance sheet in return for $100 million worth of bonds.

However, the effects of that transaction have been negated by Bank of the Bahamas’ sustained heavy losses.

For the nine months to end-March 31, 2016, it incurred another $6.854 million worth of ‘red ink’. This pushed its accumulated deficit to $77.451 million, more than wiping out the $54.623 million ‘write back’ the bank enjoyed from the 2014 ‘bail out’.

The nine-month results also show Bank of the Bahamas is now in non-compliance with four of the Central Bank’s five key capital ratios, up from just two at calendar year-end 2015.