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Bank's $10m Compliance 'Catapult' From Gov't

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas International yesterday said a planned $10 million increase in its capital base was designed to “catapult compliance” with international standards, while not diluting existing shareholders’ holdings.

Pal McWeeney, its managing director, told Tribune Business that the increase in the bank’s ‘authorised capital’ from $150 million to $160 million will be 100 per cent acquired by its major shareholder, the Government of the Bahamas.

But Bank of the Bahamas International’s 4,000 private shareholders, who collectively hold just under 49 per cent of its equity, will not be diluted as 10 million common shares are non-voting.

This means they cannot be used at annual general meeting (AGM) votes or decisions on other material resolutions, meaning existing investors’ holdings will not be diluted.

Elsewhere, Mr McWeeney told Tribune Business that Bank of the Bahamas International planned to “aggressively pursue” growth in its private banking business, which in just six years had grown to $78 million in assets under administration.

The BISX-listed institution had entered into agreements with “two major international [private banking] organisations”, which Mr McWeeney declined to name, and was also targeting the so-called ‘unbanked’ market as a “huge” opportunity.

He said this area’s potential had been indicated by Bank of the Bahamas International’s issuance of more than 20,000 pre-paid cards.

However, Mr McWeeney said there was “nothing sinister” about the 92.5 per cent budgeted year-over-year increase in compensation for Bank of the Bahamas International’s non-executive directors.

Several shareholders had contacted Tribune Business to express concern over this, noting that the total compensation was proposed at $450,000 for the year to end-June 2013, compared to the $233,769 that was actually paid out to the former Board in 2012.

The $450,000 was also a 38.5 per cent increase over the $325,000 in compensation approved at the previous AGM, and some shareholders expressed unhappiness at these increases given that Bank of the Bahamas International’s profits (particularly those accruing to ordinary shareholders) and dividends had been much reduced.

Indeed, total dividends paid to ordinary shareholders for the year to end-June 2012 were $775,671, while preference shareholder dividends totalled $2.462 million.

Mr McWeeney, though, said fees/compensation per director had not changed. He explained that the $450,000 was a budgeted item, and this did not necessarily mean it would all be paid out.

Much depended on how many Board, and Board committee, meetings each director attended, and the bank also had to make provision for the fact the Government could choose to increase the Board’s size to a maximum of 15.

Apart from the directors’ compensation, Bank of the Bahamas International shareholders will also be asked at the upcoming May 3 AGM to approve a change to its Memorandum of Association.

This is designed to facilitate the $10 million increase to a $160 million capital base.

Explaining this move, Mr McWeeney told Tribune Business: “That has to do with getting ready for Basle III and the new capital requirements. We want to use that to catapult compliance with Basle III capital adequacy.”

Bank of the Bahamas International, he added, currently had $35 million in preference share capital on its balance sheet, which under the new rules will no longer qualify as Tier 1 capital.

As a result, it must be replaced, and the $10 million increase is Bank of the Bahamas International’s first step along the road to doing so.

Banks have 10 years to replace preference shares, and Mr McWeeney said the proposed capital increase was structured to “facilitate the majority shareholder assisting us in replacing that capital and not diluting the existing shareholder base.

“It’s intended that the majority shareholder picks them [the 10 million shares] up.”

The Government currently holds a collective 51.82 per cent equity stake in Bank of the Bahamas International, with 24.04 per cent held by the Treasury and 27.78 per cent in the hands of the National Insurance Board (NIB). It is unclear which entity will pick the shares up, although the betting would be on NIB.

Mc McWeeney said the $10 million injected by the Government would be used to “redeem, replace” other liabilities as well as replace preference shares.

Meanwhile, Bank of the Bahamas was expanding its private banking relationships with other providers with a view to either bringing clients to it, or providing custodian and related services to these firms and their clients.

Describing private banking and trusts as “a growing area of need” among both Bahamian and international clients, Mr McWeeney said: “The plan is to really aggressively pursue that line of business, because the risk is minimal.

“There’s a great deal of emphasis placed on that area, because the credit portfolio is not growing and the bank has to look at new opportunities. That’s one area we think we can grow, outsourcing or doing in-house.”

The ‘unbanked’, or those outside the traditional banking and financial services system, were another target for Bank of the Bahamas International.

Competition from other banks in the pre-paid card sector was increasing, Mr McWeeney said, adding: “We have to find ways of expanding the functionality of pre-paid cards - adding more functions.”

As for the increase in directors’ compensation, the Bank of the Bahamas International chief added: “There’s nothing sinister in it. Fees per director have not changed.

“The issue I have is the Articles of Association allow the majority shareholder to appoint up to 15 directors. Right now we’re at 12, and I have to make provision in the event it goes to 15. I’m almost required by law, the Companies Act, to do that."

Pointing out that the $450,000 was a budgeted sum, Mr McWeeney said the bank had come in considerably below the $$325,000 directors’ fee provision made in 2012.

“We spent 70 per cent last year, but while I’m confident we will not spend anything like that, I have to put in provisions in case it happens,” Mr McWeeney said.

He added that the sums paid to directors would also depend on how frequently they attended Board meetings, so it was almost performance-related pay.

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