The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FNM politicians, including former prime minister Hubert Ingraham, yesterday warned that the next government will have to “immediately” decide how to resolve the crisis at Bank of the Bahamas (BOB).

Dionisio D’Aguilar, the FNM’s Freetown candidate and a shareholder of the troubled BISX-listed institution, told Tribune Business it represented “the single biggest drain on the Treasury for the foreseeable future”.

Suggesting that a “monumental” further $300 million ‘bail out’ was required at Bank of the Bahamas, Mr D’Aguilar said the Government needed to sell its 79 per cent majority stake to a new owner who understood the local market.

He spoke out before Mr Ingraham told a Guardian Radio programme, hosted by his former minister of state for finance, Zhivargo Laing, that the next administration - whoever it is - will be required to make immediate, critical decisions over BOB’s fate.

“It is critical for the election to be over and decisions be made about Bank of the Bahamas immediately,” Mr Ingraham said, while also calling for the identities of politically exposed (PEPs)loan defaulters to be made public.

The former prime minister also expressed regret that he had not accepted an offer from A. F. Holdings (the former Colina Financial Group), and its principals, Emanuel Alexiou and Anthony Ferguson, to acquire Bank of the Bahamas while he was in office during 2007-2012.

Had he agreed to such a transaction, Bank of the Bahamas would have been removed from the Government’s hands, and not become the massive taxpayer liability it is today.

Tribune Business understands that A. F. Holdings/Colina made an offer to the Christie administration to acquire BOB, but were rebuffed because the Government considered the price too low.

BOB’s woes have intensified in recent months, with Tribune Business revealing this week that the BISX-listed institution is now embroiled in a court battle with its main regulator.

Bank of the Bahamas is seeking the Supreme Court’s protection from the Central Bank, which is demanding an “immediate” $50 million increase in loan loss provisions and legal action against “politically exposed” bad borrowers.

The Central Bank also wants BOB to convert its $10 million in contingent convertible bonds to common equity Tier 1 capital, with “all future capital injections.... paid in cash and constituting common equity Tier 1 capital”.

Bank of the Bahamas is resisting the $50 million provisioning, and $10 million convertible bonds, demands, which resulted in the Central Bank levying a $100,000 fine for non-compliance with its supervisory requirements.

This prompted the BISX-listed institution to initiate legal action in the Supreme Court on April 7, 2017, challenging the Central Bank’s demands and seeking an injunction to prevent it enforcing these impositions.

It is almost unheard of for a bank to resist the supervisory stipulations of its main regulator, given that the consequences are almost always the revocation of its license and placement into the care of a receiver/provisional liquidator.

Given that the Government, via the Public Treasury and National Insurance Board (NIB), is BOB’s majority 79 per cent shareholder, the court action effectively pits it against the Central Bank.

The Central Bank has expressed concern that BOB’s filings, especially its demand for an injunction, would impede its ability to regulate the bank, and also threaten public confidence in the integrity of the wider banking system given its systemic importance.

The demands being resisted by BOB would almost certainly require the Government to inject more capital into BOB, beyond the $170 million directly committed and over $300 million in deposits. Given the Treasury’s cash-strapped position, this is unlikely to be desired by the Christie administration.

The $10 million bond issue referred to by the Central Bank was the first of three equal tranches, set to ultimately total $30 million, all of which are being 100 per cent financed by the Government.

This commitment comes on top of the $100 million ‘promissory note’ injected into BOB as part of the bail-out deal that left taxpayers ‘on the hook’ for Bahamas Resolve’s bad loans, plus the $40 million used to take up the bank’s entire rights issue last September.

“When the FNM takes over, it’s going to be an incredibly complex and tough nut to crack,” Mr D’Aguilar told Tribune Business.

“The cost of what needs to be done to that bank is probably going to cost the taxpayer another $300 million. It’s a function of when and how we afford it. The Government will have to prop it up and sustain the losses we have.”

He added: “This will be the single biggest drain on the Treasury for the foreseeable future; the one single financial disaster that will be a drain on the Treasury.

What needs to be done to bail out that bank is so monumental that if they did what had to be done, the Bahamian people would demand to know what went wrong and who got those loans; all the politicians they loaned money to.”

Mr D’Aguilar reiterated that BOB’s corporate and ownership structure was “flawed”, adding: “You cannot have a Government running a commercial bank because the desire to make loans that are not financially viable to your supporters is huge. That is why we’re in the position we’re in.”

He added that the ultimate solution was for the Government to “extricate itself from the bank and put it into the hands of people who understand banking in the Bahamas”.

Mr D’Aguilar suggested that BOB could be sold for as little as $1, with a buyer agreeing to take over its debts and liabilities, and inject the necessary financing to recapitalise it and achieve regulatory compliance.

“You need to sell the bad loans to a third party and get back what you can, pay the depositors and cover any shortfall,” he added.

“Trying to make this bank whole is just costing the taxpayer more and more money. The Bank of the Bahamas is just a huge albatross around the neck of the Government.”

Bank of the Bahamas’ financials for the year to end-June 2016, as first revealed by Tribune Business, disclosed that 46.07 per cent, or $234.886 million of its total $510 million loan portfolio, was non-performing - meaning 90 days or more past due - at that date.

Meanwhile, the bank’s balance sheet at end-December 2016 shows that without the $100 million in promissory notes (bonds) issued to Bank of the Bahamas in October 2014 in exchange for the $45.2 million net ‘bad’ loans transferred to Bahamas Resolve, the institution would be insolvent with assets exceeding liabilities.

Bank of the Bahamas’ accumulated deficit now stands at almost $100 million, having totally wiped out the $54.622 million in ‘special retained earnings’ written back into its balance sheet via the Bahamas Resolve transaction.