By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
Bank of the Bahamas' (BOB) losses were exacerbated by the former government protecting "certain borrowers", the Deputy Prime Minister yesterday describing the new $166 million 'bail out' as "the best shot" for recovery.
"We're freeing up the bank of its problem loans," he said of the latest $166 million 'rescue', which was announced at BOB's shareholders' meeting on Wednesday night.
"The prior government bail-out had basically tried to protect certain borrowers, and resulted in the bank having to carry certain provisions it didn't have to."
Those loan loss provisions will have contributed to the $120 million-plus losses BOB suffered over its past four financial years.
Mr Turnquest's comments are likely to infuriate the bank's long-suffering minority shareholders, who will likely interpret them as further evidence that 'toxic' loans to so-called politically exposed persons (PEPs) have been a key factor in destroying the value of their investment.
It may also trigger renewed political controversy over BOB and its fate, but the Central Bank of the Bahamas confirmed the validity of concerns over delinquent loans to politically-connected persons when it earlier this year urged the bank to be more aggressive in pursuing recovery against such defaulters (see article on Page 3B).
Many BOB observers had also long questioned whether the initial 'bail out' in October 2014 was adequate, given that just 13 'bad borrowers' - with collective loans worth a 'book value' of $45.2 million - were removed from the bank's balance sheet and transferred to the Bahamas Resolve vehicle. This enabled the write-back of previous loan loss provisions.
One former MP told Tribune Business at the time that the 13 appeared to have been "carefully selected" so as to include a balanced mix of political loyalties, with none linked to then-government ministers and MPs.
The October 2014 'bail out' only provided temporarily stability for BOB, as its capital ratios again quickly became non-compliant with Central Bank requirements, while its accumulated deficit again soared as losses continued to mount.
Mr Turnquest, meanwhile, said BOB's new Board - and its recovery plan - "gives us the absolute best opportunity" to restore the BISX-listed institution to sustained profitability.
He added that the new $166 million 'bail out', which is effectively a repeat of the 2014 Bahamas Resolve transaction, albeit at a much higher value was the least bad option when it came to addressing BOB's woes.
The Deputy Prime Minister emphasised that protecting depositors and staff jobs, in addition to preventing any systemic impact to the wider economy and banking system from a BOB, was uppermost in the Government's thinking.
He said that once restored to profitability, the Government would rapidly seek to sell its 79 per cent majority equity stake or reduce it to a minority ownership percentage.
"We're convinced the plan the bank has outlined will give us the absolute best opportunity to be successful," Mr Turnquest told Tribune Business. "From what I know, I believe it will be successful.
"We have the best shot. This is the best opportunity, the best shot that's been presented to us to return shareholder value, protect jobs and the depositors."
Mr Turnquest said the Government was "already in the process of securing" the bail-out financing, which will initially involve the injection of government bonds into BOB's balance sheet.
Some $107 million of these will be redeemed over the course of the 2017-2018 fiscal year as the Government replaces them with equity capital.
The Deputy Prime Minister said BOB's drain on the Bahamian taxpayer was "not necessarily directly tied" to the Government's recently-announced 10 per cent recurrent spending cut, as it seeks some $200 million-plus in Budgetary savings.
"We are committed to the bank to ensure it has an opportunity to return to profitability," Mr Turnquest said. "This is just part of the plan.
"Clearly, we don't have very many options, but we believe in the bank and, through the plan put forward, we can return it to profitability and return shareholder value.
"We recognise the value of BOB to the Bahamian community. It is the sole bank in some communities, and we recognise the value of the jobs and the effect, as you stated, a failure can have on the overall jurisdiction."
Mr Turnquest confirmed that the Minnis administration had given "a commitment" to the new BOB Board that it will not interfere with itself, or management, in any way.
"Our first job is to return to profitability and shareholder value," he reiterated. "But our position is we want to be out of this bank, or reduce government's ownership back down to a minority interest, as soon as possible. We recognise that we need to give the professionals an opportunity to do what they need to do."
Comments
FreeportFreddy 7 years, 4 months ago
Seriously...this just gets more foolish by the minute!
CLEAR OUT THE BOARD OF DIRECTORS AND SENIOR MANAGEMENT .... they failed at every level and should be financially liable and held accountable.
That's the way it works.... you get the big pay ... BUT you are RESPONSIBLE AND LIABLE.
DONE!
John 7 years, 4 months ago
Thats why the bail out was not effective in bailing out the BoB
Well_mudda_take_sic 7 years, 4 months ago
Repost: 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
Repost: 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!
Porcupine 7 years, 4 months ago
The numbers, in the millions, are tossed about as if someone actually understands the pain and suffering it will cause our country, the poorest the most, as always. We took a wrong turn some years ago. There is no indication we recognize this fact, or care to correct it. I wish it could be fixed with a few million dollars. We are a country of 400,000. We have way too many who do not understand. We have way too many who do not care. We have way too many who lie and cajole. We have way too many who are thieves. There are many, many good and great people in this country. We have way too many who are not.
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
Putting more BOB "bad debt" in an illegal SPV is definitely not the answer ....... it's dangerous
truetruebahamian 7 years, 4 months ago
CLOSE DOWN BOB AND LET IT DIE! NO MORE GOVERNMENT INJECTIONS!
Well_mudda_take_sic 7 years, 4 months ago
Repost: 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!
John 7 years, 4 months ago
BoB was a viable and profitable institution before government's interference. It was putting money by way of dividends and share price increases into the hands of local Bahamians and into the government coffers. Government (PLP) is the one that raided the bank by way of political loans and made the bank insolvent. So government should be the one bearing the financial burden in attempts to make the bank whole. Sad is the person that thinks the bank should be closed and mothballed after it has proven its success. Make the people (political) who still owe pay their loans.
killemwitdakno 7 years, 4 months ago
Is this the same BOB that was the reason for Darren Cash's computer being raided? Result?
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