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‘Catastrophic Cash Call’ Fear On $106m Mortgage Corp Gap

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Mortgage Corporation’s (BMC) immediate past chairman yesterday called for urgent action to tackle a $106 million financing gap, and prevent “a catastrophic cash call” on the taxpayer.

Dr Duane Sands told Tribune Business that the BMC’s 2013 financial statements, published yesterday, showed it was not “going in the right direction” when it came to covering its $170.168 million obligation to bond investors.

The BMC’s ‘bond sinking fund’, intended to finance the repayment of principal when its bond financing matures, held just over $64 million at end-June 2013.

This means there is a more than $106 million gap between the BMC’s financial reserves and its total principal repayment obligations, amounting to a ‘ticking financial timebomb’ that exposes the Government and Bahamian people to another financial ‘bail-out’ unless rapid corrective action is taken.

Just 37.7 per cent of the outstanding bond principal is covered by the BMC’s ‘sinking fund’, and the ‘crunch’ will be hit between 2023-2026 - just seven years away - when some $110 million becomes due.

“There has to be appropriate financial management to avoid a catastrophic cash call on the Government,” Dr Sands told Tribune Business, suggesting that the 2013 audited financial statements showed little to no progress had been made.

“These things don’t fix themselves; they have to be fixed by whoever is managing the financial affairs of the Corporation.

“While you will not fix the problem immediately, you need to at least be going in the right direction. This is not going to do it.”

Dr Sands told Tribune Business that the BMC’s ‘bond sinking fund’ contained $66.8 million as at June 30, 2011, a sum slightly higher than that noted in the 2013 accounts.

He added that at that point, with $159 million in bond principal outstanding, the BMC had a ‘financing gap’ of $92.5 million - less than that indicated in the 2013 statements.

Dr Sands said the “peak” bond sinking fund deficit occurred in 2009, when it hit $119 million, due to $52.7 million in funding and $171 million in bond outstanding.

“We engaged in a very aggressive attempt to strengthen the bond sinking fund,” Dr Sands told Tribune Business.

“We’re going to take it when it comes to 2023, which is a mere seven years from now. In the ensuing seven years, we’ve got to find $106 million. There has been no significant improvement in the strength and health of the bond sinking fund since 2011.”

All Bahamians would be impacted by a BMC default, as the nation’s social security system, the National Insurance Board (NIB), holds $102.7 million or 60.3 per cent of the outstanding bonds. Bahamian commercial banks, insurance companies, pension funds and other institutional investors hold the remaining $65.4 million.

Dr Sands said that as “stewards of the people’s money”, NIB’s Board and investment committee needed to desist from further investments in BMC bond issues.

“There is no way you can say the BMC is a reasonable investment; no way. NIB is exposed to this horrible mess,” he added.

With the BMC needing to issue new bonds whenever a previous issue/tranche matured, in order to prevent the ‘sinking fund’ falling below “what is deemed a reasonable standard”, Dr Sands suggested it almost akin to a ‘Ponzi’ scheme.

Arguing that the BMC was “over-staffed” and being treated like an employment agency, Dr Sands said this compounded the challenges caused by its 30-40 per cent mortgage delinquency rate, and often left it unable to cover operating expenses.

And he suggested that the BMC, with $282.426 million in assets, was being managed “like a Mom and Pop store”.

Dr Sands described this as “financial recklessness”, and questioned what had happened following the work done by his former Board, which “accomplished” the task of getting BMC’s books and financial records “back into shape”.

The former Ingraham administration had instructed his Board to implement systems, and personnel, to straighten out the BMC’s financial mess, plus prepare audited statements for the years 2006-2010 - two of which covered the first Christie administration’s term in office.

Dr Sands admitted he was “surprised” by the conclusion of 2013 auditors, Beneby & Company, who refused to render an ‘opinion’ on the BMC financials because of the “breakdown” in internal controls and record-keeping.

“It suggests that nothing whatsoever has been done since, and the financial affairs are not in order,” he added of the 2013 audit, which covers the BMC’s first year under the Christie administration. “It speaks again to the fact we’ve dropped the ball.

“No tough decisions have been made to right the wrongs at the BMC. If Mr Christie wants to have a Mortgage Relief Plan, use that money to make BMC sound.

“If they say they have got $20 million, you could change the financial standing of this Corporation with $10-$20 million. For some reason there seems to be a reluctance.”

Detailing the work done by his Board, Dr Sands added: “We would have gone through great pains to get a verifiable balance sheet, statement of affairs and accounts etc...

“We spend probably $1 million, I don’t recall the exact amount, on financial teams to bring the accounting system up to date, arrive at a verifiable trial balance we could all believe was not a number someone picked out of the sky.

“We found bank accounts no one knew existed in the BMC’s name. There were cheques lying around on desks, for hundreds of thousands of dollars, for two years.”

Comments

banker 3 years, 5 months ago

According to the Central Bank, the non-performing mortgage portfolio in the Bahamas, amounts to $675,000,000.00 dollars (675 million).

With the BMC, it has $112,000,000 in delinquent mortgages with the banks sharing the rest. At $112 million in delinquencies, how does the BMC intend to get almost the same amount as a surplus to cover the repayment of the bond?

They can't do it. It will default on its bonds. It will exacerbate the ticking bombshell at NIB that has has a pension underfunded (or unfunded) liability of a billion dollars. This default will add 10% to the unfunded total and both the mortgage corporation AND the NIB will not be able to meet their financial commitments. Who suffers? The pensioners, retirees, and the poor. There will be a lot more poverty.

Eventually, there will not be enough money to go around, and the government will have exhausted its ability to borrow. The Bahamas will be the next Greece, however the IMF will not bail the Bahamas out because of our insignificance in the world economy.

Coupled with the 30% systemic, endemic unemployment, the crime wave, the Baha Mar debacle, the flight of capital due to FATCA, the degeneration of the financial services industry and the US & Canadian government warnings about unsafe tourism, it doesn't take a genius to see that the Bahamas is on the road to becoming a failed state. It is the common people that suffer.

Already, those that have eyes can see. Do you notice the tourist restaurants around town failing? Do you notice less tourists on Bay Street and shops closing? The portents are not good.

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Well_mudda_take_sic 3 years, 5 months ago

AND TO BOOT, THIS BLITHERING CORRUPT IDIOT CHRISTIE IS GOING TO GIVE THE CHINESE WHATEVER THEY WANT, PERIOD! IF NEED BE CHRISTIE WILL TAX ALL OF US EVEN MORE SO HE CAN PAY THE CHINESE TO COMPLETE THE BAHA MAR DEVELOPMENT. The corrupt Christie-led PLP government has already sucked the "non-politically connected" private sector businesses dry of financial resources as part of its social welfare campaign aimed at buying votes at any cost by making voters dependent on government jobs, government handouts and government concessions of one kind or another. Now Christie wants to give mega millions in additional concessions to the Chinese which will result in honest hard working Bahamians being taxed out of business or taxed to death. Bottom line: Lamed-brain Christie and his loyal buffoons are ignorant corrupt imbeciles totally incapable of formulating and executing on national economic policies that would create well paying private sector jobs that in turn would result in an expanded tax base to lessen the tax burden on an already severely over-taxed "non-politically connected" private commercial sector. It's really all as simple as that!

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