The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A top QC yesterday urged minority Bank of the Bahamas shareholders to launch a ‘class action’ style lawsuit if the institution fails to fully account for its $100 million ‘rescue’ by the Government.

Fred Smith QC, the Callenders & Co attorney and partner, told Tribune Business that shareholders and Bahamian taxpayers needed to hold the Government and BISX-listed bank “accountable to the tiniest detail” over the so-called ‘bail out’.

Arguing that there were many unanswered questions surrounding the ‘bad loans-for-bonds’ swap, and the creation of Bahamas Resolve, Mr Smith said he “would be happy to participate” in any shareholder lawsuit as he was a Bank of the Bahamas investor himself.

The well-known QC said the episode again showed the need for a Freedom of Information Act in the Bahamas, but added that “a government that is honest with its citizens” would have no difficulty providing all information on the Bank of the Bahamas ‘rescue’ without one.

Noting that the bank, which is 65 per cent majority owned by the Government, was also publicly traded over BISX, Mr Smith questioned why financial services regulators were not doing more to provide information to the capital markets.

“The Securities Commission is who should be informing the public about what is happening,” Mr Smith said. “It seems very strange for the Government to effectively be bailing out a bank that is part public, and part privately, owned, to shore up its failed loan debts.”

The Government and Bank of the Bahamas, together with the Central Bank of the Bahamas, would likely all argue that they have disclosed all necessary details and material information to the public and investors on the ‘rescue’.

The plan saw $100 million of ‘bad’ commercial loans transferred from Bank of the Bahamas to Bahamas Resolve, a so-called special purpose vehicle (SPV) that will be wholly-owned by the Government through the Ministry of Finance.

These were exchanged for some $100 million in government bonds or ‘unsecured promissory notes’, which will repair the ‘hole’ left on Bank of the Bahamas’ balance sheet by the transfer of the 13 affected loans.

The Bank of the Bahamas situation has also been underwritten by a ‘Letter of Support’ or comfort letter from the Government, guaranteeing that the debt involved will be repaid.

The ‘net’ effect of the deal is to send $55 million back into Bank of the Bahamas, recapitalising it and taking its retained earnings back into positive territory, while also bringing regulatory capital ratios into line with Central Bank requirements.

From the Government’s perspective, the deal’s structure enables it to keep $100 million off its balance sheet and from adding to the national debt, although some accountants might debate that.

A legal opinion from the Higgs & Johnson law firm is said by Bank of the Bahamas to affirmed the ‘rescue’ plan as sound and compliant with all legal and regulatory requirements.

But, with Bank of the Bahamas’ ordinary shareholders having suffered an almost-$69 million loss for the year to end-June 30, 2014, as a result of loan loss provisions of an equal amount, Mr Smith suggested there could be grounds for a class action-type lawsuit if the bank and government were not more forthcoming.

“I urge shareholders and taxpayers generally to call for public accountability on these $100 million loans to the tiniest detail,” he told Tribune Business.

“What are the bad debts? Who are the debtors? Why has the Government stepped in? What did Bank of the Bahamas do to try and collect on the debts? If not, why not?”

The borrowers involved in the loans transferred to Bahamas Resolve have not been identified, although Tribune Business previously revealed that just 13 were affected.

Mr Smith, though, was not satisfied, saying: “The fact that we’ve created another government corporation to whom the debts have been transferred demands further explanation.

“As a shareholder, I urge other shareholders to consider demanding accountability from Bank of the Bahamas and, if we don’t get it, to bring a derivative shareholder action suing the directors, the bank and all of the various government ministers and this public corporation, Bahamas Resolve.

“Gone are the days when government and public corporations can simply hide under a cloak of secrecy.”

Mr Smith added that he “would be happy to participate in any movement by the shareholders to bring a class action”.

He added that Bahamas Resolve’s creation was “just smoke and mirrors, and a failure to reliably and properly account”.

Bahamian institutional and retail investors collectively own a 35 per cent minority stake in Bank of the Bahamas.

The well-known QC added, meanwhile, that a Freedom of Information Act would “oblige” the Government and Bank of the Bahamas to provide details on the $100 million ‘rescue’ “upon request” and what they were doing with taxpayer monies.

“This is just one more example in a long litany of recent events that have shocked the nation, and cry out for a Freedom of Information Act,” Mr Smith told Tribune Business.

“But a government that is honest with its citizens doesn’t need to wait to pass a Freedom of Information Act. The Government and Bank of the Bahamas could come clean with all the details now without the passage of any Act.”