The Tribune

Now that the dust is slowly settling since the hastily-called press conference on October 31, we can see more clearly what happened and what it means for the future.

The Government ‘bail-out’ of Bank of the Bahamas (BoB) must be called just that. Although no cash was used, $100 million of new debt was created in the form of Bahamas Resolve promissory notes, essentially backed by the full faith and credit of the Government. Standard & Poor’s (S&P) has already called them ‘contingent liabilities’ affecting our public debt.

It is not the ‘bail out’ itself that should be criticsed, but Bank of the Bahamas’ prior actions that made this necessary. By the time that the bank’s disastrous figures for fiscal 2014 (to June 30) were becoming known to the its Board, the Central Bank and the auditors, it was obvious that an extreme solution was required, and that the bail- out was the best of all painful alternatives.

Probably the meticulous Central Bank governor, Wendy Craigg, had tense meetings convincing managing director Paul McWeeney, the Prime Minister and minister of state for finance, Michael Halkitis, that this action had to be taken. Note the press conference photo showing the lady remote from the three lads standing together.

As a result, Note 33 to the Bank of the Bahamas was quickly drafted, approved by Ernst & Young and tacked on to the financial statements, just in the time for the auditors’ October 30 sign-off letter.

Note 33, describing the ‘subsequent event’ (after June 30) of the bail out, should be read closely, since it gives the lie to much of the hype (both pro and con) that has since been spouted. In terse financial language, it makes clear that just $45 million of impaired loans, not the popular figure of $100 million, was removed from Bank of the Bahamas’ books and taken by the ‘special purpose vehicle’, Bahamas Resolve. In exchange, Bahamas Resolve issued $100 million worth of promissory notes to Bank of the Bahamas, allowing the bank to immediately add the $55 million balance to its equity base.

That’s a good short-term move for Bank of the Bahamas, but hardly a long-term rescue, since at June 30 it had about $254 million in impaired loans (Note 30), against which $45 million is a drop in the bucket. What happen if another big chunk of that $254 million proves uncollectible? Mr McWeeney’s statement about just 13 loans leaves a question: Do they make up $100 million or just $45 million? And is he saying that nowhere in the entire loan portfolio are there any ‘politically exposed persons’? Demands to disclose the identity of borrowers will initially be blocked by banking confidentiality laws, but there is an exception for court-ordered disclosure. Won’t names be revealed when Bahamas Resolve brings legal proceedings against recalcitrant debtors?

It is only natural that damage control immediately went into effect to protect reputations and massage the future, starting with Mr Christie’s initial speech and and glowing full-page newspaper ads clearly drafted by a savvy public relations adviser. The question is: Will any of this be believed by a sceptical public? Messrs Christie and Halkitis emphasised that all the other local banks, including the Canadian-owned ones, had to take major write-downs on their Bahamian loan portfolios in this recessionary period Quite true, with the essential distinction that none of the other banks, to my knowledge, had to apply to their governments, Canadian or Bahamian, for financial relief.n They balanced their assets and liabilities more prudently so losses could be self-contained.

In his letter to shareholders, Mr McWeeney has promised “sustainable growth” through a variety of restructuring measures and new business programmes to attract new customers, particularly from the civil service and public agencies. We hope these will work. Nobody would take any pleasure from seeing business shrink and major lay-offs in the bank’s staff, all of whom loyally followed orders.

But we have our doubts. Any bank depends on credibility, and once that is eroded, growth is tough to achieve. There are two specific steps that Bank of the Bahamas should take, as initial steps in a campaign to restore credibility.

First, as soon as possible before the next annual general meeting (AGM), it should produce up-to-date financial statements showing the precise effect of the recent bail-out actions on its balance sheet and earnings. This would cover the period from June 30 through October 31, and they could explain many unanswered questions.

Second, it should accept the resignations of the chairman and the managing firector. Whatever direct responsibility these individuals have for past events, a major reorganisation under their governance will not satisfy public doubts, and it is common practice for leadership to change in these circumstances.

Both these gentlemen have distinguished records. Their departure will not damage their well-being, and statements that they are resigning “for the good of the bank” will be respected.

Once these steps are taken, the minority shareholders (3,000, 3,500, or 4,000 - sources vary) can decide what position they plan to take. Holding shares frozen into non-marketable illiquidity, they certainly have a right to complain. With little power under the Companies Act, they can nevertheless agitate effectively for better representation and for changes in Government control. After all, they are voters, too. Probably their best long-term solution would be the sale of Bank of the Bahamas to a respected private sector commercial bank, although that’s not likely under the present PLP administration.