The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas saw almost $70 million wiped off its stock market value last week, as investors searched for the ‘floor’ following the removal of price movement restrictions.

Tribune Business calculations show that the BISX-listed institution’s market capitalisation fell some 62.45 per cent in just five days, as buyers and sellers found prices at which they were willing to act.

Based upon the 21,387,924 ordinary shares outstanding prior to Bank of the Bahamas’ $40 million rights issue, which closed yesterday, the $5.22 share price as at Monday, September 5, meant it started last week with a market capitalisation of $111.645 million.

However, BISX’s decision to expand the trading ‘bandwidth’ for Bank of the Bahamas’ stock to 54 per cent paid dividends in that it stimulated trading activity in a stock that had been stuck at a $5.22 price for more than two-and-a-half-years.

As a result, Bank of the Bahamas’ share price closed last week at $1.96, which caused its stock market value to drop to $41.92 million.

Such a calamitous fall would normally be regarded as a spectacular destruction of shareholder value, but in Bank of the Bahamas’ case, it was more a reflection of allowing the market to find- and reflect - what it believes is the bank’s true value.

BISX normally allows trading prices to only fluctuate by a maximum of 10 per cent either side of the previous day’s close, in a bid to eliminate the price volatility produced by small retail sellers wanting to exit a stock at any price.

Yet in Bank of the Bahamas’ case, BISX took the view that this was unduly restricting trading activity and preventing better ‘price discovery’ by the Bahamian capital markets.

The stock, though, is now valued some 27.6 per cent below what was the $2.70 rights issue price, where existing Bank of the Bahamas shareholders were being invited to purchase one new share for every 1.44 currently held.

This means that the rights issue was significantly overvalued, based on where the market believes Bank of the Bahamas’ true value is - a further indication that few, if any, of the 35 per cent minority investors had exercised their rights.

The increase in the number of listed shares as a result of the rights issue is likely, in theory, to push Bank of the Bahamas’ share price down further - and certainly well below the bank’s own proposed post-rights price of $4.18.

And the lack of minority interest means that the 65 per cent majority shareholder, the Government, will have to use either the National Insurance Board (NIB), the Treasury or a combination of the two (likely NIB) to pick up the bulk of the $40 million issue.

This will further dilute minority investor equity interests, and leave the Government owning 80-90 per cent of a commercial bank, with all the consequences that portends.

The results of the rights issue had not been released by Bank of the Bahamas as at press time last night.

But Dionisio D’Aguilar, a Bank of the Bahamas shareholder, told Tribune Business: “There’s a confidence issue at Bank of the Bahamas. After they increased the trading bandwidth, it went down to its market value.

“There’s two ways you judge the price of a stock. The first is whether it’s going to pay dividends, and that’s clearly not going to be forthcoming with Bank of the Bahamas. The second is whether the share price is going to go up.

“There’s nothing here to get you overly-excited. They still have problems, and we don’t know how deep they are. That’s what’s been reflected in the market price and driven it down. You don’t know how big the hole is.”

Mr D’Aguilar said that should Bank of the Bahamas turnaround, buying its stock now could reward purchasers prepared to take a gamble on its recovery prospects.

He pointed to AML Foods, for which he is chairman, noting that its stock had climbed back from a low of $0.59 per share to its current price of over $4, producing a more than seven-fold gain for those who had been prepared to buy low.

“I think the bank didn’t probably expect many shareholders to participate other than the majority shareholder,” Mr D’Aguilar said.

“It’s a bail out. They need to raise $40 million, and it’s very hard to get the average shareholder to buy into the fact this bank is going to turn around.”