By NATARIO McKENZIE
Tribune Business Reporter
nmckenzie@tribunemedia.net
Bank of the Bahamas' (BOB) latest $166 million 'bail out' was yesterday described as "the best shot" to rescue it, its newly-appointed chairman revealing the deal will likely be "consummated" on or before August 10.
"The Government is preparing to infuse $166 million into BOB," Wayne Aranha told shareholders at the BISX-listed institution's annual general meeting (AGM) on Wednesday night.
"This commitment came since our appointment, and so it's not a question of the new government honouring a contract given to the old government. This is something entered into recently. It's so new that we are in the process of trying to consummate the deal on or before August 10."
The new 'bail out' is essentially a repeat of the first Bahamas Resolve transaction from October 2014, although the sums involved are much higher.
The latest rescue will remove some $166 million worth of 'toxic' commercial loans from BOB's balance sheet and transfer them to the Bahamas Resolve special purpose vehicle (SPV).
The loans, which are to be paid for at gross book value, will be exchanged for promissory notes (government IOUs or bonds) that will be provided by Bahamas Resolve. This will fill the hole left on BOB's balance sheet by the removal of the impaired loans.
The transaction effectively represents a significant transfer of liability/risk from BOB and its shareholders to the Bahamian taxpayer, who is now on the hook for collecting on these 'bad' loans and securing their underlying collateral (real estate) via Bahamas Resolve.
Given the sheer size of the $166 million 'bad loan' portfolio, it appears likely that the taxpayer will be stuck with a 'bad bank' in the shape of Bahamas Resolve for decades.
The Government is also supposed to redeem $107 million of the promissory notes now held by BOB before the June 30, 2018, end of this current fiscal year.
It will make a $50 million payment on August 30, followed by another $19 million on November 30, 2017. The balance will be paid in further quarterly instalments on February 28, 2018, and May 31, 2018.
The Government is making the redemptions on Bahamas Resolve's behalf, recognising that the SPV has no possibility of doing this by itself.
This is because Bahamas Resolve has only managed to sell two of the properties upon which its original October 2014 'bad loan' portfolio was secured.
Bahamas Resolve's recoveries were supposed to finance the bond interest payments to BOB, but the SPV's inability to rapidly collect on the collateral will likely mean further taxpayer exposure - once the $166 million 'bail out' goes through - in terms of having to meet the interest liabilities.
Mr Aranha, meanwhile, suggested that BOB would make further demands on the taxpayer by seeking "cost recovery" from the Government if it was asked to provide branches on remote, unprofitable Family Islands.
The bank is due to open its Bimini branch on August 21, 2017, replacing the departing Royal Bank of Canada (RBC). Addressing queries over the move at the AGM, Mr Aranha said: "One of the things we had discussed with government was that we can't be operating branches at a loss. We have to come to some working arrangement. If there is a national desire for a bank to be there, and Bank of the Bahamas is approached about going, I think BOB goes and the appropriate arrangement is made."
BOB already operates locations in Family Islands such as Andros (two), Inagua, San Salvador and Exuma, all of which are likely to produce marginal profitability at best.
But BOB shareholder and former FNM senator, Darron Cash, told Tribune Business: "At first look one might get the impression the expansion into a small Family Island community, particularly a full-fledged branch with all operating costs, might not be financially viable.
"The argument can be made as to whether it makes financial sense, and whether the level of demand and business is there. The caveat or part of the reality that I think everyone has to acknowledge is that to the degree that BOB will rely on the financial support of the Government and the Bahamian people is the degree we ought to expect the bank to be responsive to the Government's calls for the bank to be in some communities to satisfy those needs."
Mr Aranha, meanwhile, added that as at June 30, 2017, the bank's total assets amounted to $757.7 million, with liabilities at $691.2 million and total equity of $66.5 million.
"From initial reviews, there is a need to engage a more aggressive approach to reducing delinquencies. There is room for improving the collection of non-performing loans and procedures (and possibly resource adjustments) will be implemented imminently to ensure improvements are realised," he said.
"Asset realisation will be employed more frequently; the provisions established at 30 June, 2017 reflect a more aggressive approach in this regard. Facilities will be restructured where appropriate; serial restructuring will likely be indicative of a situation where restructuring would be inappropriate."
Acknowledging BOB's poor efficiency ratio, a function of reduced revenues and higher costs, Mr Aranha said: "Stringent cost control measures will be implemented, consistent with the need to ensure that risks are appropriately managed and customer service is not sacrificed."
Comments
Well_mudda_take_sic 7 years, 4 months ago
I am both astonished and stunned by the political naivety of the new Minnis-led government in simply adopting the fatally flawed Bahamas Resolve Ltd. model for dealing with the continued financial hemorrhaging of BoB. It must please Christie, Halkitis, John Rolle, Wendy Craigg, James Smith and others no end to see Minnis and KP make the disastrous political mistake of adopting the failed Bahamas Resolve government "bailout" model created by the previous corrupt Christie-led government. It is beyond comprehension why our new government did not seize the opportunity to put an end to the deceitful (and likely illegal) Bahamas Resolve model of continuing BoB bailouts. This model was designed for one deceitful purpose only: To drag out the inevitable liquidation of this failed bank over an extended period of time in order to force (through continuing operating losses and resulting capital replenishment needs) significant dilution of the non-government stakeholders' interest in BoB. This latest $166 million bailout brings the total BoB bailout amount thus far incurred by taxpayers and national insurance fund contributors to a staggering sum well in excess of three hundred million dollars ($300,000,000). It is unfathomable that Minnis and KP have decided to take ownership of the fatally flawed, and possibly illegal, Bahamas Resolve bailout model created by the corrupt Christie-led government. This devious model has permitted a technically insolvent bank to keep its doors open and make continuing significant losses, all at the taxpayers' expense, while its ownership interest in BoB increases at the expense of all of the non-government stakeholders. BoB should have closed its doors a long time ago and an official liquidator should have been appointed to wind-up its affairs. Had that been done, the non-government stakeholders would have at least been protected from the crippling effects of all the ongoing losses since incurred. Minnis and KP had a golden political opportunity to get government out of the banking business by putting BoB into liquidation with the blame for all of the losses falling on poor decisions and shenanigans of the corrupt Christie-led PLP government. Instead Minnis and KP have endorsed the poor decisions of the last government by adopting the Bahamas Resolve bailout model for themselves. This means they have foolishly elected to share with the last government responsibility for BoB's continuing financial mess. A serious naive political mistake indeed!
Reality_Check 7 years, 4 months ago
Yes, our government will end up owning 100% of BoB, assuming National Insurance gets reimbursed by government for the $33 million is was wrongly required to invest in BoB at a time when BoB was known to be technically insolvent. It seems that only after a prolonged period of unnecessary continuing operating losses, will our new government finally realize the taxpayer bailouts of BoB are unsustainable and BoB must be properly liquidated. By that time though, mega-millions more of taxpayers' dollars will have been needlessly pissed away in the form of more bailouts to a dead bank that can never be resuscitated or resurrected, no matter what our new government may do. Minnis and KP have succumbed to poor advice on how to best deal with BoB from the standpoint of the interests of both taxpayers and the non-government stakeholders. What our new government has done by endorsing Christie's failed Bahamas Resolve model is politically daft by any measure to say the least!
killemwitdakno 7 years, 4 months ago
$700 M matches the loan for the budget. The lending bank would end up owning BOB.
killemwitdakno 7 years, 4 months ago
Bailout undercwhat conditions? Just millions with no adjustments?
watcher 7 years, 4 months ago
I agree with well_mudda and reality above ^^^ that under any normal circumstances, BoB would be liquidated. But these are not normal circumstances.
If Government is ever to collect monies from the collateral free / illegal loans made to PLP cronies, it must keep these loans "on the books", whether it be in BoB or Resolve. Liquidating the bank / Resolve would be tantamount to admitting forever and a day that we will not, eventually, prosecute those responsible for (a) approving the loans and (b) recovering the debt, or seizing the assets of the lenders
The numbers men / drug dealers are the only 3rd party persons keeping BoB in fresh deposits (I do not count government employees whose salaries must be paid into their BoB accounts, as I'm sure that the vast majority would want nothing to do with BoB if they had a free choice in the matter) When the time comes to co-operate with the American authorities in tracing all illegal flows of monies which used or still use BoB, we will need to have BoB as a still active entity to help with the analysis of flows of monies, whether it be the racketeers or persons who were politically connected to previous administration(s)
Well_mudda_take_sic 7 years, 4 months ago
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Porcupine 7 years, 4 months ago
Sadly, the costs to the average Bahamian for the impropriety of their fellow Bahamians, in the form of "nonperforming loans", is almost beyond comprehension. The great potential advantages of a locally-owned government bank are enormous. Somehow, we managed to squander it. And, we still don't have a full list of those who borrowed and haven't paid up. Perhaps, this list of borrowers is considered essential to national security and thus remains secret. In the bigger picture, if a sober minded person were to look at the state of our finances here, the state of BoB, the unemployment rate, cost of living, ease of doing business report, credit agency ratings and a host of other indicators which would help give a reasonable synopsis of what the next 20 years looks like in The Bahamas, what would a fair-minded person say? We will be so loaded with extra administrative costs, huge amounts of interest and penalties, and so far behind in opportunity costs that one would have to have a serious discussion about the livability of The Bahamas for the remainder of time that this country is above water. We haven't forgotten that all-important issue closing in on us, have we? It is perhaps the most important discussion this country could ever have in its' history. And yet, it is not even newsworthy in this country. The Bahamas is one of the most seriously at risk countries with impending sea level rise, and it isn't even on our national radar. Talk about some real problems ahead, while we keep our heads in the sand. I wish BoB was our biggest problem, but it ain't.
It is only one of many problems which we continue to kick down the road for our kids to deal with.
sheeprunner12 7 years, 4 months ago
What is the mission, role and purpose of BOB?????? ........ Has anyone heard that answered by the PLP or FNM?????? ............ Are they going to make that the official bank of the government as it seems that Royal Bank is winding down its operations???????? ........ Answer that, DPM
Maybe if the government make BOB a PPP type bank with at least 80% public shareholdings, and close the webshops, it can have a truly national presence ......... and then become the vendor for the national lottery ......... but the DPM cannot be afraid to make the hard decisions
baldbeardedbahamian 7 years, 4 months ago
I want to scream, What is wrong with these people?
proudloudandfnm 7 years, 4 months ago
If government can't get rid of it's BOB shares then just close it down. As long as government bails it out it will never be successful. We'll be bailing this garbage bank out yearly. CLOSE IT DOWN...
BahamaPundit 7 years, 4 months ago
Repeatedly bailing out BOB will sink the entire Bahamas. Watch and see. Bailing it out is throwing money down the drain.
sheeprunner12 7 years, 4 months ago
I really hope that the Tribune Editor or GM do lobby for our commentary to be shared with the "powers that be" ....... The Tribune needs to organize a Convention of its frequent commentators ..... Watsayu?????????
OldFort2012 7 years, 4 months ago
LOL. Let's hope not. It would be an embarrassment. In the English Composition and Grammar department, if nothing else.
truetruebahamian 7 years, 4 months ago
This is idiotic! Close down the institution! Sue and confiscate the property of those owing the toxic debts, No soft treatment - it has to go!
DaGoobs 7 years, 4 months ago
BoB can't close, at least not now. It is the only bank that will provide services in areas in the Bahamas which the Canadian banks no longer consider profitable. After effing up the bank, it's easy for you Nassuvians to say "close it down, it's essentially defunct". However, all Family Islanders are entitled to the same quality and level of services as Nassau. So, yes open a branch in a place like Bimini but it doesn't have to have a full complement of staff or necessarily offer loans right out of the gate. Either that or look at offering more electronic services that are less manpower dependent. Serious, if necessary merciless, efforts must be made to collect as much as possible on the delinquent loans.
Well_mudda_take_sic 7 years, 4 months ago
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Well_mudda_take_sic 7 years, 4 months ago
Most of us were elated to learn that Wayne Aranha (a highly experienced official liquidator of banks) and Tony Allen (a well-seasoned senior banker) had been appointed to the board of BoB, that is, until we very recently learned that Minnis and KP have foolishly elected to continue with the failed Bahamas Resolve bailout model that was created by the corrupt Christie-led PLP government. Aranha and Allen cannot possibly believe keeping BoB's doors open to the public is a good thing, and it is beyond comprehension that these two reputable professionals have apparently not advised our new government to arrange for BoB to be liquidated at the earliest possible time. BoB is undeniably insolvent for all intents and purposes because continued taxpayer support of its affairs is an unsustainable option. BoB needs to be shutdown to (1) prevent access by the racketeering numbers' bosses to a licensed bank for what the global financial community rightfully perceives to be money-laundering purposes, and (2) get our government out of the banking business with all of its attendant moral hazards. It seems Aranha and Allen have unwittingly allowed themselves to become part of the overall BoB problem for taxpayers and the non-government stakeholders alike. Armed with all of the information about BoB's affairs that has been in the public domain for quite sometime now, these two professionals should have conditioned the acceptance of their BoB directorships on BoB being liquidated in the very near term. Even better still, given their backgrounds they should have advised Minnis and KP that all legitimate stakeholders (including the taxpayers) would be better served by their appointment as official liquidators of BoB. Another golden opportunity has indeed been lost...meanwhile the taxpayers continue to suffer!
music23 7 years, 4 months ago
here
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