By NEIL HARTNELL
Tribune Business Editor
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.”