The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An ex-Central Bank governor yesterday said the proposed acquisition of CIBC FirstCaribbean could be positive for the Bahamian economy if it "breaks up the cartel" in the banking industry.

James Smith, pictured, told Tribune Business that the Colombia-based Gilinski Group could give The Bahamas a much-needed "shot in the arm" post-Hurricane Dorian if it created more competition in the commercial banking industry by "challenging the oligopoly" that presently exists.

Conceding that there were "more questions than answers" over the proposed sale of CIBC's regional Caribbean business, including its Bahamas operations, Mr Smith argued that the Gilinski Group should also make the same buyout offer to the Bahamian minority shareholders as it has given to the Canadian banking giant.

The region-wide CIBC FirstCaribbean acquisition thus seems likely to provide the first test for The Bahamas' Securities Industry (Takeover) Rules 2019, which came into effect on April 17, 2019, when they were published in the official Government Gazette.

These reforms were passed as part of a much-touted package of legislation designed to better protect and safeguard minority shareholder rights - a move that secured a significant improvement in this area in the World Bank's recent "ease of doing business" rankings.

CIBC FirstCaribbean International Bank (Bahamas), which is the largest listed stock on the Bahamas International Securities Exchange (BISX) by market capitalisation, is less than five percent owned by Bahamian minority investors. It is also likely to be the largest and most profitable unit in the group alongside Barbados, accounting for 30-40 percent of its overall business.

Given that the 95 percent-plus majority shareholder, CIBC FirstCaribbean's Barbados parent, is seemingly set to undergo an imminent ownership change, this appears likely to trigger the Takeover Rules that require the buyer to offer the same price, and terms and conditions, to the minority shareholders as were offered to the vendor (CIBC).

K Peter Turnquest, deputy prime minister, yesterday confirmed that he had been "introduced" to the potential CIBC FirstCaribbean purchaser who he declined to name. He added that the Government had yet to receive any applications for the necessary National Economic Council (NEC) and Investments Board approvals needed by a foreign investor.

"No requests have been made to this point, just an introduction," Mr Turnquest confirmed. John Rolle, the Central Bank governor, declined to comment when asked by Tribune Business whether the regulator had received any approval applications or contacts related to the CIBC FirstCaribbean transaction.

Mr Turnquest's comments indicate that while no deal has been concluded yet, its completion is likely imminent. CIBC has been seeking to exit the Caribbean market for some years, having aborted a $240m New York initial public offering (IPO) last year when it was unable to obtain the valuation it was seeking.

Media reports, which first surfaced in Latin America, last week reported that the Gilinski Group is aiming to acquire a 70 percent majority stake in CIBC FirstCaribbean for around $2.2bn. The latter was yesterday tight-lipped on the deal, although it did not deny it.

"CIBC FirstCaribbean International Bank is a strong, well-performing business that continues to grow across the region. As a publicly-traded company in the Caribbean, there has always been investor interest in our bank," a spokesperson said via e-mail

"Our focus is on enhancing our long-term growth prospects while creating value for our clients, shareholders and other stakeholders. If and when decisions are made about our business, we'll advise our stakeholders as appropriate."

Mr Smith yesterday said there were several potential implications for The Bahamas and its commercial banking industry if the Gilinski Group acquisition was ever consummated. "It could mean two things," he told Tribune Business.

"The Canadians tend to march in concert. They have that type of banking structure. If one bank moves out you have to wonder whether the others will look at downsizing or moving out in the medium term. This area is not as profitable as it used to be because of the great recession and huge debt overhang being carried in the Caribbean."

There has long been speculation that Royal Bank of Canada and Scotiabank want to follow CIBC's lead, with the Canadian banks having endured enough of the Caribbean region's low economic growth and high non-performing loan levels, but both have denied this.

"On the other hand," added Mr Smith, "if we want to be positive, a new actor if it has deep pockets could provide the kind of competition in the market to challenge the oligopoly. The banks here, they move in concert on fees and spreads (deposit and loan interest rates). You don't move from one bank to another and expect a much better deal.

"If a new company comes in and decides to break up the cartel it could be beneficial to the local economy. I'm raising more questions than answers, but taking the worst and best case scenarios, it could have a positive impact on competition at a time when the country needs a shot in the arm to keep the economy moving."

Mr Smith, though, agreed that "it would follow best international practices" if the Gilinski Group offered to buy out the Bahamian minority shareholders in CIBC FirstCaribbean International Bank (Bahamas) on the same terms, conditions and price as offered to CIBC.

"It's a very small amount, and the buyer is coming into new territory," he told Tribune Business. "One thing you want to avoid is coming in and leaving existing shareholders out in the cold. It would be good corporate behaviour to recognise there is a minority group here and make a similar offer to them as to the majority. There may be some that have faith in the new owner and stay in for the ride, but give them the opportunity to make that decision."

On the downside, Mr Smith questioned whether CIBC FirstCaribbean under the Gilinski Group's ownership would be able to maintain the necessary correspondent banking links to keep commerce moving through the clearance of US dollar transactions.

Under CIBC's ownership, the Bahamian institution will have been able to clear through its Canadian parent's worldwide network to overcome the regulatory difficulties and withdrawal of correspondent relationships suffered by other local and regional banks.

The Gilinski Group is headed by Jaime Gilinski Bacal, who is said to be Latin America's second richest man with a net worth of $3.9bn. The group has a history in banking that dates back to the 1990s, and it currently owns Colombian bank, GNB Sudameris, which has over $10bn in assets.

Mr Gilinski also has a $500m stake in Banco Sabadell, Spain's fifth largest bank.