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Bob’S ‘Problems Much Bigger’ Than Resolve Bail Out

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas’ continued quarterly losses show it has “much bigger problems” than the $100 million in ‘bad’ loans already removed from its balance sheet, the Opposition’s deputy leader said yesterday.

K P Turnquest, the FNM’s finance spokesman, suggested more troubled credit may have to be transferred to the Bahamas Resolve vehicle, after the losses incurred by Bank of the Bahamas shareholders increased by 73 per cent year-over-year.

Speaking after the BISX-listed institution unveiled $17.1 million in investor losses for the nine months to end-March 2015, Mr Turnquest called on financial industry regulators to pay closer attention to what was happening at the bank.

He added that it was “unacceptable” that the Bank of the Bahamas’ Board, and management, had failed to deliver on promises made at last year’s annual general meeting (AGM) to disclose the bank’s turnaround strategy to shareholders.

And the Opposition’s deputy expressed “surprise” that Bank of the Bahamas was blaming its continued losses on delinquent commercial loans, given that the 13 worst performers in this category were supposed to have been transferred to Bahamas Resolve as part of the Government-organised $100 million ‘bail out’ last October.

“I think it’s a major concern for us,” Mr Turnquest told Tribune Business. “What exactly is the strategy at Bank of the Bahamas, and what is the plan for restructuring and putting the bank back on a sound footing?”

Paul McWeeney, in his last message as Bank of the Bahamas’ managing director, blamed “an ageing portfolio of systematically high non-performing commercial loans” and more aggressive provisioning methods for the continued ‘red ink’ through the 2015 third quarter.

Mr Turnquest described this statement as “very telling with respect to the continued delinquency and arrears in the commercial portfolio”.

“I’m very surprised,” he said of the reasons cited by Mr McWeeney. “It says there is, or was, a much bigger problem than the 13 loans they shoved into this special purpose vehicle [Bahamas Resolve].

“There’s obviously a much bigger problem to the extent there is still obviously a significant portfolio of non-performing and under-performing loans. How stable is the bank now, and how much more are we going to have to absorb?”

Tribune Business revealed on Monday how Bank of the Bahamas’ results for the third quarter and first nine months of the financial year to end-June 2015 show it is suffering increased losses on reduced top-line income

Its net loss for the three months to end-March 2015 jumped more than five-fold year-over-year to $7.252 million, compared to $1.301 million the year before, due to reduced revenues and higher loan loss provisions.

That quarter was the first full three-month period that was free from the Bahamas Resolve transaction’s impact, yet it produced Bank of the Bahamas’ highest quarterly loss for the 2015 financial year.

Several shareholders told Tribune Business on Monday that Bank of the Bahamas was “fast becoming a noose around the Government’s and taxpayer’s necks”, implying that as 65 per cent majority shareholders they would bear the burden of recapitalising the institution.

While acknowledging that “there’s always that risk”, Mr Turnquest told Tribune Business: “I don’t know if I want to go that far.

“The Government had the opportunity to point the bank in a new direction with respect to changing the current Board of Directors’ make-up.

“They believe they can continue to operate in the same manner as in the past,” he added. “In the absence of any strategic plan being presented to the shareholders, we’re left to guess what’s different.

“It’s obviously not working. If we continue in this vein, we’re going to be in serious problems in a minute.”

Mr Turnquest suggested that the Government expand the ‘Bahamas Resolve’ concept by transferring all Bank of the Bahamas’ problem loans to the special purpose vehicle (SPV).

This would further the ‘good’ bank/’bad’ bank solution the Government adopted in October following Bank of the Bahamas’ $69 million net loss for the 2014 financial year.

Bahamas Resolve is the ‘bad’ bank filled with toxic loans, leaving Bank of the Bahamas - in theory - as the ‘good’ bank with performing credit than can help rebuild its balance sheet and restore the institution to profitability.

However, Bank of the Bahamas’ latest results suggest it is still being weighed down by problem loans. Yet transferring these troubled assets to Bahamas Resolve will merely switch liability from the bank and its shareholders to the Bahamian taxpayer.

“I think that the first thing to do is recognise we have a problem, and since we’ve already taken the extra step of creating Bahamas Resolve to take these large loans, we might as well go ahead and fully re-capitalise the bank by transferring the rest of the troubled assets, so the bank has the opportunity to rebuild,” Mr Turnquest said.

“Then we will have to collect for the Bahamian people what monies are transferred to this vehicle. This is the Bahamian people’s money, the Bahamian people’s bank.”

He added: “There’s no point in trying to resuscitate a bank or asset that shows no ability to turn around on its own.

“I believe the regulators have some responsibility here. The Securities Commission, because this is shareholder money, and I’d be interested to see what the Central Bank has to say on it.”

Bank of the Bahamas’ $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.

Comments

John 2 years, 11 months ago

Shareholders have been shredded. In this bloody mess.

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Well_mudda_take_sic 2 years, 11 months ago

The continued exacerbation of the loan portfolio problems at Bank of The Bahamas (BOB) should have been well known to Christie as Minister of Finance and PM at the time of his recent Annual Budget Communication. Yet Christie said "nada" about this matter in his budget speech which speaks volumes about his willingness to knowingly deceive the Bahamian people. It certainly would seem that Christie does not possess an iota of honesty or integrity when it comes to the shenanigans that have occurred at BOB which apparently have greatly benefited many of his political friends and business cronies. Meanwhile the FNM seems happy to give Christie a free pass by simply suggesting that all bad loans and advances made by BOB be transferred to the very opaque Bahamas Resolve; in other words, the FNM is content for all of the more material loan losses to be heaved on to the backs of poor honest hard working Bahamian taxpayers. Clearly, the FNM's hands must not be clean as regards certain of the loan losses incurred by BOB and certain of the loans transferred from BOB to Bahamas Resolve. Here we see the classic example of both the PLP and FNM conspiring to cover up important information that should be made public. Bank secrecy should not apply to Bahamas Resolve. Bahamian taxpayers who have been stiffed with the tab of the bad loans transferred to Bahamas Resolve have a right to know who the borrowers are, the amounts of their loan(s) in default and the estimated minimum net realisable value of the security, if any, held in support of the loan(s). James Smith and certain of the other directors appointed to the board of Bahamas Resolve are not at all well suited to seeing to it that the sun shines where it should in this most serious and costly matter for the Bahamian people. In fact, James Smith is the PM's little dutch boy charged with keeping his finger in the dyke so that the flood of information on the other side of the embankment does not rightfully make its way to the Bahamian people.

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Reality_Check 2 years, 11 months ago

Here we have a publicly listed bank, majority-owned and controlled by the Christie-led PLP government, that is imploding right before our very eyes. And this is after the Christie-led PLP government has already recently used $32 million of the people's National Insurance funds and issued $100 million in bonds on the backs of taxpayers in a failed effort to prop up Bank of The Bahamas ("BOB"). We are told by that McWeeney scoundrel as he leaves BOB, that BOB's liabilities are now equal to its assets which means all of BOB's shareholders' equity has been wiped out. In other words, the two-thirds (2/3's) of BOB owned by the Christie-led PLP government through investments of the National Insurance Board, etc. and the one-third (1/3) of BOB owned by its minority shareholders (investors in the Bahamian public) are now essentially worthless. The losses racked up here on the backs of all Bahamians (except of course Christie's political friends and business cronies who still have not repaid the millions of dollars in loans they received from BOB) are simply a staggering amount. The moral hazard implications of BOB's implosion are great because many other borrowers (not only from BOB) will now deliberately default on their loans even if they have the ability to repay them, taking their cue from the senior politicians and their business cronies who have made out like bandits by not repaying their own loans received from BOB. Sitting smugly in the House of Assembly are several senior politicians with businesses or family members and very close friends who have either out rightly defaulted on their loans received from BOB or had their borrowings restructured on such generous terms that they are no longer profitable for BOB today. No doubt certain politically-connected loans were transferred from BOB to Bahamas Resolve no matter that McWeeney and others have claimed otherwise. As we have seen time and time again, nothing these scoundrels say can be believed and with good reason; they have been strongly financially motivated to deceive the Bahamian public. Our government probably borrows at rates of interest much higher than the rates these politically connected scoundrels pay on their borrowings. The entire BOB affair should be the subject of a Royal Commission of Inquiry brought about by mass demonstrations (if need be) of the Bahamian people who have been fleeced by horribly corrupt politicians.

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duppyVAT 2 years, 11 months ago

Is BOB money going the way of NIB money ?????????? Use as the government/political cronies' see fit?????????

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happyfly 2 years, 11 months ago

The primary problem with this entire story is that KPT also thinks transferring bad loans to a publicly funded 'resolve' to protect shareholders is a good idea. WTF !!!!!!! The bank has failed. The shareholders loose everything and the directors are held accountable for the losses. Shut the thing down and focus on spending money on social services instead of pretending you have a clue about venture capitol you good for nothing bunch of stupid crooks. The lot of you.

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