The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An FNM MP yesterday said she still harbours “grave concerns” that National Insurance Board (NIB) funds will be used to ‘bail out’ Bank of the Bahamas, despite Cabinet-level denials.

Loretta Butler-Turner told Tribune Business she was going to “closely watch” how the BISX-listed bank’s ongoing $40 million rights issue plays out, following Shane Gibson’s rebuttal of her concerns about NIB’s likely involvement.

The duo clashed over the issue on Wednesday during the House of Assembly’s debate on amendments to the Securities Industries Act, and Mrs Butler-Turner said Mr Gibson’s intervention had done nothing to ease her fears.

“I actually heard from pretty reliable sources that they [NIB] are about to put up a substantial sum of that $40 million,” the former FNM leadership contender told Tribune Business.

“I’m just going to wait and see what transpires, and watch this closely, because individual shareholders are not going to be well-disposed to investing in Bank of the Bahamas.”

Mr Gibson, though, intervened on a ‘point of order’ in the House of Assembly to deny any suggestion that NIB was planning to purchase further ordinary shares in Bank of the Bahamas via the current rights issue.

“He said that’s not even been discussed, it’s not something that’s been considered, there’s no truth to it, and I should retract it,” Mrs Butler-Turner added. “I’m waiting to see if he’s correct or I am.”

Given that NIB, together with the Public Treasury, hold a collective 65 per cent equity stake in Bank of the Bahamas, it is hard to believe that the nation’s social security system will not subscribe for its full allotted rights.

Failing to do so would result in NIB’s equity stake being diluted once the rights issue closes this Monday, September 5, plus leave Bank of the Bahamas woefully short of the $40 million it requires to recapitalise and come into compliance with the Central Bank of the Bahamas’ regulatory requirements.

NIB’s last published annual report shows it as holding a 28.21 per cent stake in Bank of the Bahamas, meaning that its rights issue investment would be $11.284 million should its full allocation be taken up.

It is also inconceivable that one government entity will not be used to assist another, especially when it is under the financial stress currently being endured by Bank of the Bahamas.

Mrs Butler-Turner said further NIB investments in Bank of the Bahamas went to the heart of her wider concerns about how the social security system’s assets were being invested and managed.

“That’s where I was going,” she said of her House of Assembly contribution. “I do not believe we’re making good investments with the [NIB] funds.

“But I decided to pull back after he [Mr Gibson] came up on a ‘point of order’. I said to myself to leave it and come back to it. I know over time that I’m going to be absolutely correct.”

Several existing Bank of the Bahamas investors told Tribune Business earlier this week that shareholders were effectively being asked to “throw good money after bad”, given the institution’s heavy losses and absence of a well-articulated turnaround plan.

And, with the 35 per cent minority unlikely to take up much of their rights, capital markets opinion is that the Government will have to turn to NIB, the Public Treasury or a combination of both to raise the $40 million.

Hence Mrs Butler-Turner’s concern that further NIB investments in Bank of the Bahamas may not be appropriate, especially since the social security system’s assets are intended to benefit the Bahamian people.

NIB’s investments are intended to generate income that will be used to pay long and short-term benefits to all Bahamians, such as pensions, sickness, industrial (injury) and maternity benefits, and therefore need to be managed prudently to ensure maximum returns.

“I’m really concerned about it,” Mrs Butler-Turner told Tribune Business of NIB’s investments. “I believe it could become a huge concern with regard to the fund.

“I also believe that by them investing in Bank of the Bahamas, it may not be the best thing to invest in and subscribe for those shares.

“There was a forensic review of Bank of the Bahamas, and we have yet to see that. All these things are of grave concern, but no one seems to be paying attention to it.”

NIB has already taken hits as a result of its Bank of the Bahamas investments, with the latter producing a total $120 million loss over the three years to end-June 2016.

It suffered a two-thirds cut in total comprehensive income for 2014, which fell from $33.7 million in 2013 to just $11.5 million, due largely to a $17.37 million loss on its ‘investment in associates’ - chiefly Bank of the Bahamas.

A similar result occurred in 2015, and Mrs Butler-Turner lamented the absence of “transparency and accountability” in financial management at both NIB and other government agencies.

This, she added, helped to create perceptions of “slush funds”, and that NIB monies were being used to prop up other failing government entities.

The MP also expressed concern over whether NIB would be used to finance the Government’s planned housing programme expansion, given the proposal to issue more Mortgage Corporation bonds.

The Bahamas Mortgage Corporation’s last published accounts, for its 2013 financial year, showed that NIB holds $102.7 million or 60.3 per cent of the former’s outstanding bonds.

The Mortgage Corporation’s ‘bond sinking fund’, intended to finance the repayment of debt principal when its bond issues mature, held just over $64 million at end-June 2013.

But while a seemingly significant sum, it covered just 37.7 per cent of the $170.168 million worth of bond principal that remains outstanding and owing.

“NIB does not have a regulatory agency that oversees its investments” Mrs Butler-Turner told Tribune Business.

“I suggest that it would be judicious for the Government, at some point in the near future, to look at corporate governance policies for these quasi-governmental institutions that pretty much have free rein with our money that they’re investing. It would augur well.”