The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

BAHAMAS Resolve has yet to be “formally asked” to remove more toxic loans from Bank of the Bahamas, amid calls from the latter’s irate shareholders for the Central Bank to “intervene” and take over its operations.

Several investors in the BISX-listed bank told Tribune Business that Friday’s announcement of a two-month extension for the filing of its 2015 annual results came as little surprise, with some saying they have written-off 100 per cent of their investment in the troubled institution.

Bank of the Bahamas, via newspaper advertisements, informed investors that its annual financials are now set to be published by New Year’s Eve - a time when many Bahamians and shareholders will have other events on their minds.

And, in what amounted to a warning of bad news to come, the bank said it was “pursuing various strategic alternatives to further strengthen its capital position, improve operational efficiency and ensure long-term stability”.

While difficult to determine precisely what that means, it appears that Bank of the Bahamas is again in breach of the minimum capital ratios stipulated by the Central Bank.

Further heavy losses and provisions, coupled with extensive loan write-offs seem likely, while the reference to ‘operational efficiency’ may allude to plans to downsize Bank of the Bahamas’ extensive branch network and staff.

The final element, referring to ‘long-term stability’, hints that last year’s $100 million taxpayer-funded ‘bailout’ of Bank of the Bahamas has not worked, and that a further rescue package is needed.

The previous ‘bailout’ involved the transfer of a net $45.2 million in toxic loans from the bank to Bahamas Resolve, a Government-owned special purpose vehicle (SPV), in exchange for $100 million in unsecured promissory notes (bonds).

The two-month extension to Bank of the Bahamas’ results filing suggests that external auditors, Ernst & Young, are unable to give an unqualified sign-off to the financial statements for the year to end-2015.

And that more ‘bad’ loans, possibly totalling in the hundreds of millions of dollars, need to be removed from Bank of the Bahamas’ balance sheet to make it solvent and profitable again.

James Smith, Bahamas Resolve’s chairman, did not return Tribune Business calls seeking comment. But one source intimately familiar with the SPV’s operations told Tribune Business it had not been asked to take any more Bank of the Bahamas bad loans - yet.

The source, speaking on condition of anonymity, confirmed, though, that Bahamas Resolve’s creation had accounted for the fact it (and the taxpayer) might have to absorb more ‘toxic’ Bank of the Bahamas credit.

“That was always contemplated, but that hasn’t happened,” the source replied, when asked if Bahamas Resolve had been asked to take more ‘bad’ loans.

“Some people have said that may be in play, nothing has formally happened yet. It’s early days, so I wouldn’t be surprised.”

Nor would many shareholders or other interested observers. For at end-June 2014, some $250.43 million or 38.52 per cent of Bank of the Bahamas’ $750.417 million loan portfolio was declared to be non-performing.

That means more than $1 out of every $3 lent was non-performing or past due, while just $192.209 million worth of its credit portfolio - only 17.2 per cent - was deemed to be a ‘satisfactory’ risk in mid-2014.

The Government appears to have been hoping that Bank of the Bahamas would somehow ‘muddle’ its way back to health following the Bahamas Resolve ‘bailout’, but that has not happened.

Tribune Business revealed back in June that Bank of the Bahamas had suffered a 73.4 per cent increase in investor losses to $17.148 million for the first nine months of its 2015 financial year, with the figures for the full year now awaited.

The $17 million-plus net loss incurred then had 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 benefits from that deal have already being eradicated by 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.

Bank of the Bahamas shareholders spoken to by Tribune Business said they were “not at all surprised” at the bank seeking, and obtaining, a two-month extension to release its annual results from the Securities Commission and the Bahamas International Securities Exchange (BISX).

Dr Johnathan Rodgers, the well-known ‘eye doctor’, told Tribune Business that minority investors in Bank of the Bahamas (the Government owns the 65 per cent majority) may have grounds for a class action-type lawsuit, and called for the Central Bank to intervene.

“The time has come for the Central Bank to intervene and take the necessary steps required to stabilise Bank of the Bahamas,” he told Tribune Business via e-mail.

“This would, at a minimum, require the replacement of the entire management team and the Board of Directors with an apolitical team of bankers and directors who would be given the authority to do whatever is required to rehabilitate Bank of the Bahamas and regain the trust of the public.”

Dr Rodgers also called for the Central Bank to undertake a forensic audit of Bank of the Bahamas’ books for the period 2005-2015, in a bid to uncover whether there was any truth to the allegations surrounding politically-connected loans.

He added: “Should the Central Bank not take any further action, then Bank of the Bahamas minority shareholders would certainly have grounds for a minority shareholders action in order to protect their interest, given that the majority shareholder is seemingly reluctant to take any meaningful initiatives to regularise [the] state of affairs.”

Dr Rodgers said he had been informed that the reason for the delay in releasing Bank of the Bahamas’ annual financials stemmed from differences among the Board over the ‘regularisation’ of past loans. Without agreement, he added that Ernst & Young were unable to complete the audit and sign-off.

Mike Lightbourn, president of Coldwell Banker Lightbourn Realty, told Tribune Business he had virtually written-off his Bank of the Bahamas investment.

“I don’t expect to ever get one penny back,” he said. “That’s all I can say. You’d have to be a damn fool to buy any shares in that bank.

“The Government cannot continue to pump money into it. The Government cannot run anything; it’s as simple as that, particularly this government.”

And Dionisio D’Aguilar, Superwash’s president, told Tribune Business: “The bottom line is whether it’s one month from now, six months from now or 12 months from now, it’s going to be a disaster.

“I don’t know what’s taking them so long, but the news is not good. You don’t delay good news. If there’s a delay, it must be bad news.

“We wait and see. I hope it doesn’t cost the taxpayer more money, but I know it will. We feel it will.”

Mr D’Aguilar said he believed Bank of the Bahamas had fallen victim to “slack internal controls and inappropriate lending”, and added: “All the other banks suffered losses and were hit hard by the recession, but they did not cost the Treasury a dollar. It’s what happens when the Government manages them.”