By NEIL HARTNELL
Tribune Business Editor
Bahamas Resolve’s chairman yesterday revealed that “the majority” of bad loans transferred from Bank of the Bahamas related to “high-end homes” and condominiums, rather than commercial credit as initially thought.
James Smith told Tribune Business that the company was “working on a number of cylinders” to recover the Bahamian taxpayer’s $100 million ‘investment’ in the 13 bad loans transferred from Bank of the Bahamas.
While these have long been billed by the Government as commercial loans to Bahamian businesses, Mr Smith said yesterday: “The majority of them are actually high-end homes and a couple of condos, and then of the course the collateral for business loans. It’s kind of a broad mix.”
It was not made clear whether these “high-end homes” had been offered as collateral for commercial loans to businesses, but the Free National Movement’s (FNM) deputy leader was one who expressed surprise about the revelations on Bahamas Resolve’s loan composition make-up.
“We’ve always been told these are business loans that were going bad,” K P Turnquest, who is also the FNM’s finance spokesman, told Tribune Business yesterday.
“It’s definitely going to be very interesting to see who owns these homes. Who are these people that are being given special protection?”
Bank of the Bahamas shareholders and taxpayers are likely to echo Mr Turnquest’s concerns and questions, although Mr Smith yesterday confirmed that Bahamas Resolve had managed to reduce its ‘bad loan’ portfolio by one.
Conceding that the sale of underlying real estate in this particular case had been set in train by the bank, the former Central Bank governor said: “We got rid of one of them.
“That was sort of in the pipeline before the formation of the company [Resolve] and us coming on board. We were able to get rid of one piece of real estate.”
Mr Smith also conceded that Bahamas Resolve was unlikely to recover the full value of the collateral assets, or the $100 million ‘promissory note’ that the Government injected into Bank of the Bahamas in a bid to restore it to financial health.
“I don’t think there’s any way to get dollar for dollar,” he told Tribune Business. “There’s going to be a gap between market value and whatever we realise. There’s going to be a gap between what the Government put into the bank and the provisions that came over.
“The market determines that. The Government made the decision once it handed over the promissory note. That set the upper limit, and we’re trying to rid the portfolio at the best price we can, or work the portfolio where Deloitte acts as a receiver for those with business connections.”
Mr Smith added that the primary objective of the Bahamas Resolve transaction was “to remove the toxic loans off the balance sheet” of Bank of the Bahamas, and ensure it was returned to compliance with regulatory capital ratios. The transfer of such liabilities to the taxpayer was thus a secondary consideration.
The Resolve transaction saw Bank of the Bahamas exchange a net $45.4 million worth of ‘bad’ commercial loans with the Government-owned Bahamas Resolve 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.
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’ $17 million-plus net loss incurred to March 31 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.
Mr Smith, meanwhile, added that solving the remaining 12 ‘bad loans’ was “an ongoing process” with Bahamas Resolve’s manager, the Deloitte & Touche (Bahamas) accounting firm.
“We took over 13 loans and we’re in the process of still having an evaluation done,” Mr Smith said. “The underlying collateral, in many cases the real estate, we need to have appraisals done to see what might be the market value.
“At the same time we’ve been receiving inquiries from people interested in purchasing. We’re working on a number of cylinders.”
Mr Smith suggested that Bahamas Resolve was in for a protracted ‘bad loan’ work-out, given that it was competing with the several thousand distressed properties that the commercial banking industry was seeking to offload.
And real estate transactions were often difficult to close, given the difficulty some buyer had in raising the necessary financing.
“It’s moving real estate in a sluggish market,” Mr Smith said.