The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Three of the ‘bad’ Bank of the Bahamas’ debtors involved in its bail-out are refusing to grant access to their properties, with the total portfolio transferred now worth 55.6 per cent less than the original valuation.

James Smith, chairman of Bahamas Resolve, the special purpose vehicle (SPV) to which 13 ‘bad’ Bank of the Bahamas loans were transferred in October 2014, said its recovery efforts to-date had enjoyed limited success.

Reiterating that the 13 loans were secured by real estate, mainly high-end residential or commercial properties, or a mixture of the two, Mr Smith said the “tight” market and bank lending conditions were making disposal difficult.

“We sold, I think, two of the properties, and one is somewhere in the process where the lawyers are working on it,” he told Tribune Business.

“We worked out an agreement with one of the commercial loans to reduce the payments and lower the debt, because there was a rental property with a store, and another we were trying to work with by restructuring and resuscitating the business.”

Mr Smith then revealed that some of the troubled borrowers were being uncooperative, suggesting this stemmed from legal advice they had received due to previous disputes with Bank of the Bahamas.

“There are three that are not allowing us on the property,” he told Tribune Business. “Their lawyers are instructing them not to co-operate, but our lawyers have asked them to talk, because we can’t have this stalemate.”

Mr Smith added that all other properties in Bahamas Resolve’s portfolio had been advertised for sale, but all offers received to-date had been “really low ball”, and the SPV did not “want to get caught in a position where the owners might accuse us of a fire sale”.

The Bank of the Bahamas ‘bail out’ saw 13 ‘bad’ loans transferred from its balance sheet to Bahamas Resolve, in exchange for $100 million in government promissory notes (bonds).

This filled the hole in the BISX-listed institution’s balance sheet, while also enabling it to ‘write back’ some $55 million in ‘special retained earnings’, bring its capital ratios back into compliance with the Central Bank’s requirements.

The initial ‘value’ of the transferred loans was said to be a net $45 million, but Mr Smith yesterday said a revaluation exercise conducted by Bahamas Resolve and its manager, Deloitte & Touche, found the underlying collateral was worth less than half of that sum.

“The big story with Resolve is that in exchange for a $100 million note from the Government, the bank took something like $55 million back on to its books,” Mr Smith told Tribune Business.

“We took the underlying collateral and had a valuation done on the properties. We took discounts based on the possibility of recovery, and did a range from low to high.

“What we ended up with on the books was a low valuation of probably between $20-$30 million. We can only recover the value of the collateral given to us.”

Mr Smith said several recent developments might aid Bahamas Resolve’s recovery efforts on behalf of Bahamian taxpayers.

He identified these as recent moves by commercial banks, such as Scotiabank (Bahamas), to sell part of their non-performing mortgage portfolio at “a really deep discount”.

Mr Smith explained that such actions would make it more acceptable for Bahamas Resolve to do likewise to get properties “off the books”, while recent increased real estate market activity and signs of slackening by the banks on lending criteria could also help.

“Resolve could be a beneficiary of that type of movement,” Mr Smith said. “The pathway has been established and it’s about waiting for improvement in the rest of the economy. Land is not going anywhere.”