The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Angry shareholders are losing faith in Bank of the Bahamas (BOB) ability to regain full health, with one describing it as “a bloody mess” following a 73.4 per cent increase in investor losses to $17.148 million.

The BISX-listed institution, which received a $100 million government ‘bail out’ at end-October 2014, has unveiled third quarter results that show it is suffering increased losses on reduced top-line income.

Paul McWeeney, in his last message as Bank of the Bahamas’ managing director, again blamed “an ageing portfolio of systematically high non-performing commercial loans” and more aggressive provisioning methods for the bank’s continued ‘red ink’.

Loan loss provisions for the three months to end-March 2015 near-tripled, increasing by 180 per cent to $6.48 million compared to $2.311 million the year before.

For the first nine months of the bank’s 2015 financial year, such provisions increased by more than $2 million to $15.276 million – a 15.1 per cent increase.

Mr McWeeney, who stepped down from his post last week, confirmed that Bank of the Bahamas’ ‘bad’ loan portfolio was also acting as a drag on the institution’s top-line.

For the 2015 third quarter, interest income was down 10 per cent year-over-year at $10.593 million as defaulting borrowers failed to make their payments.

And, with fewer loan originations translating into reduced fee/commission income, Bank of the Bahamas’ total operating income for the three months to end-March was off by $2.3 million or 23.82 per cent at $7.397 million.

This is a repeat of the trend Bank of the Bahamas has displayed for the first nine months. With interest income down 18.8 per cent at $31.926 million, total operating income was off $7.03 million or 23.36 per cent at $23.065 million compared to $30.094 million the year before.

As a result, Bank of the Bahamas’ net third quarter loss jumped more than five-fold year-over-year to $7.252 million, compared to $1.301 million the year before.

And, for the first nine months, the BISX-listed institution’s net losses increased by 131 per cent to $17.148 million compared to $7.418 million in 2014.

The increased losses, despite the Bahamas Resolve ‘bail out’, are unlikely to inspire shareholder confidence in Mr McWeeney’s prediction that Bank of the Bahamas will be restored to profitability by the 2015 calendar year-end.

For the $17 million-plus net loss incurred year-to-date has already wiped out the $54.623 million ‘retained earnings’ write-back from the Bahamas Resolve transaction. That is now overshadowed by the $57.348 million accumulated deficit sitting on Bank of the Bahamas’ books.

The Resolve transaction saw Bank of the Bahamas exchange a net $45.4 million worth of ‘bad’ commercial loans with the Government-owned vehicle in exchange for $100 million worth of promissory notes (government bonds).

The benefits from that deal, which allowed Bank of the Bahamas to ‘write back’ $54.6 million in provisions and accrued interest, are already being eradicated by its continued losses.

And, if those $100 million worth of promissory notes are excluded, Bank of the Bahamas was barely solvent at March 31, 2015. Ignoring those notes, its total assets of $730.769 million exceeded $727.76 million in total liabilities by just $4 million.

Bank of the Bahamas also continues to cost the Bahamian taxpayer, as the Government used its position as 65 per cent majority shareholder to pay the $1.1 million dividend due to preference shareholders on January 9.

The Government has now paid a total $2.2 million in dividends to preference shareholders on the bank’s behalf, with the latter’s financials also confirming that the Bahamian taxpayer is ‘on the hook’ for the $100 million in bad loans transferred to Bahamas Resolve. The special purpose vehicle (SPV) is “owned and controlled by the Government”.

The increasing shareholder losses, which seemingly have no end in sight, have prompted Bank of the Bahamas investors to again demand that it produce “a game plan to get the bank back on the map”.

The BISX-listed bank has failed to deliver on promises, made at its December 2014 annual general meeting (AGM), to share its recovery strategy and proposed corporate governance reforms with shareholders.

Investors spoken to by Tribune Business warned that Bank of the Bahamas was “fast becoming a noose around the Government’s and taxpayer’s neck”, implying that they believed further publicly-funded bailouts might be required.

One suggested that Bank of the Bahamas needed to reduce its nationwide branch network by more than 50 per cent, plus downsize its corporate structure, arguing that its operational losses were exacerbating the ‘bad’ loan problem.

They also expressed surprise over Mr McWeeney’s reference to bad commercial loan woes, given that the worst performers in this category were supposed to have been transferred off the bank’s balance sheet.

Dr Johnathan Rodgers, the well-known ‘eye doctor’, told Tribune Business that were it not for the $100 million in ‘promissory notes’ Bank of the Bahamas would “still have a solvency problem”.

However, he suggested that the bank would “survive” due to the liquidity provided by its deposit base. Bank of the Bahamas’ deposit base has increased by almost $27 million, or 3.9 per cent, since the 2014 year-end to reach over $706 million.

While the Government has been prodding its own agencies to place money at Bank of the Bahamas, Dr Rodgers suggested the deposit base expansion may also have resulted from the web shop sector using the bank.

Bank of the Bahamas is the only commercial bank to publicly state it will accept deposits from a legalized web shop gaming industry, although the licensing process for that sector has yet to conclude.

Yet despite the liquidity boost, Dr Rodgers warned that Bank of the Bahamas’ ability to recover depended on it finding profitable lending avenues for those deposits.

“For their longer-term health, they’re going to have to start to lend out money and make money on the lending side, so they can build up their assets,” he told Tribune Business. “They have to decide what they’re going to do. What’s going to be their niche in the market?”

Dr Rodgers cited Fidelity Bank (Bahamas), which had struggled until its decision to switch to consumer loans, as an example of an institution that turned around its financial performance.

Bank of the Bahamas has expressed a similar desire to turn to consumer-type loans, and move away from its traditional loan book concentration in mortgages and commercial/industrial credit. Dr Rodgers, though, warned that such a transition would not be easy given the competition from both Fidelity and Commonwealth Bank.

“Bank of the Bahamas has to decide what they want to do,” he reiterated. “They have to determine what their game plan is going to be to get them back on the map, and to be recapitalized to the point where they can lend again.

“A lot of things need to happen for pieces to fall into place, and things come together. The other point is that operationally they are losing money as there are too many branches.

“They have to cut back on expenses. They need to cut that bank down to six branches, come up with a new game plan and downsize some of the overheads in the corporate structure to become a smaller, sustainable entity going forward.”

Bank of the Bahamas currently has 13 branches, with locations in islands such as Andros, Exuma, Inagua, Cat Island and San Salvador. Closures such as those recommended by Dr Rodgers would likely damage those communities culturally and socially, as well as create more unemployment, and the Government would be reluctant to take such steps.

And Bank of the Bahamas is also eyeing an expansion, having advertised for a joint venture partner to bring its long-planned West Bay Street headquarters building to fruition.

Tribune Business understands the bank launched what amounts to a ‘public tender’ after receiving several expressions of interest from potential partners in helping to develop the site.

Bank of the Bahamas sees the proposed headquarters, which would be located between the Holiday Inn and Dockendale House, as a way to generate efficiencies from consolidating head office functions currently split between different sites.

Dr Rodgers, though, disagrees. He told Tribune Business: “I think that would be a big mistake. Why are you trying to expand your bricks and mortar when you’re losing money? It makes no sense. You need to consolidate rather than expand. You need to survive.”

Dr Rodgers said his own turnaround proposals for Bank of the Bahamas had not changed. Apart from a $450 million recapitalisation, this involves downsizing; Board, management and corporate governance reforms; and a strategic plan to restore public confidence and trust by returning to profitability.

He added that Bank of the Bahamas had failed to deliver on promises made by its chairman, Richard Demeritte, to produce a credible turnaround strategy to shareholders.

Dr Rodgers’ fellow Bank of the Bahamas’ shareholder, Dionisio D’Aguilar, was more blunt about his investment’s ongoing woes.

“What is one to say other than Bank of the Bahamas is becoming a big bloody disaster for the Government?” he told Tribune Business, calling on it to exit the business by selling its 65 per cent stake.

Prime Minister Perry Christie, in an address to College of the Bahamas (COB) journalism students earlier this year, hinted that he had held preliminary discussions with his Trinidadian counterpart over a Caribbean bank’s interest in Bank of the Bahamas.

Tribune Business sources subsequently revealed that institution is Trinidad’s Republic Bank, but it is unclear whether its interest in Bank of the Bahamas has progressed to further talks with the Government

“I guess no one wants to buy Bank of the Bahamas now,” Mr D’Aguilar told Tribune Business, “and the Government is going to have to ride out this storm, which is going to cost the taxpayer more money….

“The Government should really exit this business. They’re meddling in all the things governments are not very good at. Bank of the Bahamas has come back to bite them in the backside very harshly, and it’s fast becoming a noose around their necks and the necks of the Bahamian taxpayer.”

Mr D’Aguilar said he believed the bank’s management and Board had no intention of sharing any turnaround strategy with the shareholders. He acknowledged that this was understandable, as it would likely “open another can of worms” for a business that had “been beaten up quite enough”.

“It’s just a mess. A big, bloody mess. That’s what it is,” Mr D’Aguilar added. “I’m sure Mr McWeeney is right that a certain element of the downturn in his portfolio was because the economy went bad, but there’s a significant belief – rightly or wrongly – that businesses who should never have received loans got them because they were politically connected.”

A third shareholder, Mike Lightbourn, told Tribune Business he had little confidence in Bank of the Bahamas’ prospects of returning to sustained profitability.

The Coldwell Banker Lightbourn Realty chief, recalling the ‘revival’ promises made at the AGM, said: “It’s just as shoddily run now as it was before, but they don’t have any money to give with those bad loans. They’ve got to be a lot more cautious.”

Mr McWeeney, in his last message to the bank’s 3,000 shareholders, said: “Our outlook is positive for the medium to long-term.”

He gave no specifics, though, on how Bank of the Bahamas will make good on that outlook. That will be the task for his as-yet unconfirmed replacement, with chief operating officer Wayde Christie holding Mr McWeeney’s post on a temporary basis.