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More Debt - The Legacy Of Another Bailout For Bank Of The Bahamas

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James Smith

TRANSFERRING more toxic Bank of the Bahamas loans to Bahamas Resolve will “tremendously” increase this country’s public debt, former Central Bank Governor and Bahamas Resolve Chairman James Smith said yesterday.

“By doing this you would free up the balance sheet and make it compliant with the Central Bank,” he said. “The downside is you’ve increased tremendously your public debt. There’s no winning in that situation but clearly if you want the bank to have a head-start you have to deal with the terrible loan book.”

Mr Smith said he recommended months ago to the previous administration that to turn BOB around, it should remove all of the bank’s toxic loans from its books, not just a part of it as the Christie Administration had done.

Meanwhile yesterday, former Court of Appeal President Dame Joan Sawyer criticised the new administration’s decision to follow in the footsteps of the PLP and transfer BOB’s toxic loans to a special purpose vehicle (SPV).

“So the FNM has followed the PLP’s nonsense,” Dame Joan said on the Nahaja Black Show. “They have gone down the train even further than the PLP in that regard.”

The comments came after Wayne Aranaha, chairman of BOB, revealed that $166m in toxic BOB loans will be transferred to Bahamas Resolve, the SPV the Christie administration created in 2015 to clean up BOB’s balance sheet and go after loans the bank was unable to recover.

The $166m is on top of the $100m in bad loans the previous administration transferred to the SPV.

Bahamas Resolve has faced significant headwinds going after the bad loans, leading Mr Smith to warn earlier this year that taxpayers will have to pay the interest and principal related to much of those loans.

The yearly interest to the bank is about two to three million dollars, Mr Smith has said. Bahamas Resolve has so far only been able to sell two of the properties from its original portfolio. Its recoveries were supposed to finance the interest payments to BOB.

“The banks isn’t clean in all of this,” Mr Smith, who served as minister of state for finance in the first Christie administration, said yesterday. “There are legal challenges before the courts on the amount of interest they were charging and agreements they didn’t keep. That helps explain why they couldn’t go after so much of the bad loans.”

Mr Smith said the Christie administration decided not to transfer the loans of politically exposed persons like members of the government to the SPV, a fact he believes meant efforts to clean up the bank’s balance sheet did not go far enough.

It’s not clear if the new administration will place a similar restriction on what loans can be transferred to the SPV.

Deputy Prime Minister and Minister of Finance Peter Turnquest has said the $166m transfer is the bank’s “best shot” for recovery, adding the previous administration “tried to protect certain borrowers,” resulting in the bank having to carry provisions it didn’t need to.

Nonetheless, “Bahamians will pay quite a lot” for this, Mr Smith said.

“The banking system had over $1b in non-performing loans, working through that during the last four years. One bank had to discount to take them off the books. “Similarly, we will have to eat it someway down the road and that process starts immediately. First you have to recognise the debt; $100m in promissory notes were given from the former administration to BOB in exchange for the bad loans.

“Now I presume another $160m notes will be exchanged. It’s a liability of the government for which they must pay back interest and principal over time.”

Mr Turnquest has said the government’s rescue of BOB will be debated in Parliament.

In 2015 Prime Minister Dr Hubert Minnis, then the leader of the Official Opposition, led about 100 supporters on a march to BOB’s headquarters on Shirley Street to protest the leadership of the bank.

“We have assembled here at the people’s bank to declare with one loud voice that enough is enough,” he said speaking from the bank’s steps at the time. “The government must act and they must act now. The use of government voting power to prop up failed leadership in the bank is unacceptable, when the Bahamian taxpayers have been made to swallow a $100m increase in the public debt load in order to prop up the same bank.”

Comments

Well_mudda_take_sic 5 days, 22 hours ago

You just knew it was not going to be long before this leech on the public's purse (i.e. James Smith) would pop up and be critical of the failed Bahamas Resolve bailout model that the corrupt Christie-led PLP government created and that Minnis and KP seem to be foolishly inclined to adopt with guaranteed huge political fallout for the new government. You can tell from Smith's remarks that he is giddy at the political stupidity of Minnis and KP in suggesting that the new FNM government would adopt (and thereby endorse) the highly costly and already failed Bahamas Resolve bailout plan as opposed to arranging for BoB to be immediately placed in liquidation, by appointing two official liquidators who would be under the supervision of the Supreme Court.

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Reality_Check 5 days, 20 hours ago

The sad part is that this leech James Smith, like so many others just like him, continues to collect multiple generous government pension and other benefits while greedily feeding off the taxpayers with lucrative government consulting contracts whenever "their" government is 'in power'. And, in the case of James Smith, he also gets handsomely rewarded by his FNM Greek paymaster who has over many years used him to gain political protection and limited influence whenever our country was run by a PLP government. By comparison, in the U.S. your social security and other benefits are reduced dollar for dollar above a certain amount of compensation if you elect to continue being gainfully employed in what would otherwise be your retirement years by either the government or the private sector. You can bet the greedy Smith made sure our country introduced no such policy while he was Minister of State for Finance. Yes, Smith is nothing but a very plump greedy leech, needlessly sucking daily from the public' purse while our public hospital (PMH) is plagued with a serious lack of financial resources!

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Well_mudda_take_sic 4 days, 2 hours ago

All of our public service pension plans, allowances and other benefits should be 'need based adjusted'. It makes no sense for people like Smith to get generous periodic benefit payments from pension plans funded by the Public Treasury at a time when these well-off former public sector employees/civil servants are also receiving generous compensation from the private sector. Meanwhile, truly needy Bahamians are going without so many essential things (food, medicines, etc.) because our government is financially broke.

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Reality_Check 3 days, 5 hours ago

Adjustments to pension benefit payments based on 'needs based testing' should apply to all defined benefit pension plans sponsored by the government. But in the case of government sponsored defined contribution plans, such adjustments should not apply to the portion of contributions paid in by employees plus income earned thereon in the plan.

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Well_mudda_take_sic 5 days, 21 hours ago

The previous government and its supporters would love nothing more than to see Minnis and KP take lock, stock and barrel ownership of the monstrous BoB and Bahamas Resolve financial mess with all of the inevitable current and future losses ending up in their laps (in the minds of voters) rather than the rightful laps of Christie, Halkitis and Smith himself. BoB and Bahamas Resolve are dead by every definition and will never ever again be financially viable or justifiable no matter how much money is thrown at these failed insolvent entities at the taxpayers' expense. It is well past time to recognize all of the losses associated with BoB and Bahamas Resolve's existing true capital deficits through a proper winding up process, thereby avoiding the need for taxpayers to subsidize what would undoubtedly be horrendous future operating losses. All of the pain must be taken now while the people fully appreciate that the losses properly belong to Christie, and to a lesser extent Ingraham, as part of their legacies. Minnis and KP can ill-afford to make a critical policy misstep here that would be tantamount to them committing political suicide.

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Well_mudda_take_sic 5 days, 21 hours ago

Repost: I am both astonished and stunned by the political naivety of the new Minnis-led government in simply adopting the fatally flawed Bahamas Resolve Ltd. model for dealing with the continued financial hemorrhaging of BoB. It must please Christie, Halkitis, John Rolle, Wendy Craigg, James Smith and others no end to see Minnis and KP make the disastrous political mistake of adopting the failed Bahamas Resolve government "bailout" model created by the previous corrupt Christie-led government. It is beyond comprehension why our new government did not seize the opportunity to put an end to the deceitful (and likely illegal) Bahamas Resolve model of continuing BoB bailouts. This model was designed for one deceitful purpose only: To drag out the inevitable liquidation of this failed bank over an extended period of time in order to force (through continuing operating losses and resulting capital replenishment needs) significant dilution of the non-government stakeholders' interest in BoB. This latest $166 million bailout brings the total BoB bailout amount thus far incurred by taxpayers and national insurance fund contributors to a staggering sum well in excess of three hundred million dollars ($300,000,000). It is unfathomable that Minnis and KP have decided to take ownership of the fatally flawed, and possibly illegal, Bahamas Resolve bailout model created by the corrupt Christie-led government. This devious model has permitted a technically insolvent bank to keep its doors open and make continuing significant losses, all at the taxpayers' expense, while its ownership interest in BoB increases at the expense of all of the non-government stakeholders. BoB should have closed its doors a long time ago and an official liquidator should have been appointed to wind-up its affairs. Had that been done, the non-government stakeholders would have at least been protected from the crippling effects of all the ongoing losses since incurred. Minnis and KP had a golden political opportunity to get government out of the banking business by putting BoB into liquidation with the blame for all of the losses falling on poor decisions and shenanigans of the corrupt Christie-led PLP government. Instead Minnis and KP have endorsed the poor decisions of the last government by adopting the Bahamas Resolve bailout model for themselves. This means they have foolishly elected to share with the last government responsibility for BoB's continuing financial mess. A naive colossal political mistake indeed!

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Well_mudda_take_sic 5 days, 21 hours ago

Repost: Most of us were elated to learn that Wayne Aranha (a highly experienced official liquidator of banks) and Tony Allen (a well-seasoned senior banker) had been appointed to the board of BoB, that is, until we very recently learned that Minnis and KP have foolishly elected to continue with the failed Bahamas Resolve bailout model that was created by the corrupt Christie-led PLP government. Aranha and Allen cannot possibly believe keeping BoB's doors open to the public is a good thing, and it is beyond comprehension that these two reputable professionals have apparently not advised our new government to arrange for BoB to be liquidated at the earliest possible time. BoB is undeniably insolvent for all intents and purposes because continued taxpayer support of its affairs is an unsustainable option. BoB needs to be shutdown to (1) prevent access by the racketeering numbers' bosses to a licensed bank for what the global financial community rightfully perceives to be money-laundering purposes, and (2) get our government out of the banking business with all of its attendant moral hazards. It seems Aranha and Allen have unwittingly allowed themselves to become part of the overall BoB problem for taxpayers and the non-government stakeholders alike. Armed with all of the information about BoB's affairs that has been in the public domain for quite sometime now, these two professionals should have conditioned the acceptance of their BoB directorships on BoB being liquidated in the very near term. Even better still, given their backgrounds they should have advised Minnis and KP that all legitimate stakeholders (including the taxpayers) would be better served by their appointment as official liquidators of BoB. Another golden opportunity has indeed been lost...meanwhile the taxpayers continue to suffer!

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DDK 5 days, 3 hours ago

Trust the FNM #1 and #2 will read and absorb your posts!

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Tarzan 5 days, 16 hours ago

PLEASE, privatize or close this bank!!! Government run banks have a sad history. It is all bad. Politics imposes itself on the lending decisions. Is this really hard to understand?

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DaGoobs 5 days, 12 hours ago

As one of the architects of Resolve, Chummo ought to know what he is talking about. Maybe that's why Perry Christie only went after this half heartedly because he realised or was advised of the negative impact. The problem that with this whole thing that the Minnis administration has inherited is that it's government that allowed this mess to happen and so now they have to find the least messy way to bail us out. When the USA had the subprime failures, there was all the talk about certain banks being "too big to fail". Well the government is in the position of of not being able to allow BoB to fail, particularly when all of the Canadian banks are downsizing and reassessing their position in the Caribbean. Royal Bank pulls out of Bimini; who else besides BoB is going to go in there? The Bahamians there deserve a banking system the same way as the Bahamians in Nassau. Aranha as the new chairman already realises that, which is why he's trying to set it up whereby the government covers the bank's costs of going into unprofitable or marginally profitable locations. If BoB is to continue and comply with banking laws, then these debts will have to be taken off its books through the Resolve PPV. Not the best solution but the best of a bad set of circumstances.

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Tarzan 5 days, 5 hours ago

Make a deal with one of the privately shareholder owned banks to subsidize them to provide services to the family islands. Far better than keeping what will always be a slush fund for the political class alive.

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Well_mudda_take_sic 5 days, 4 hours ago

Take off your blinkers DaGoobs - your line of thinking puts the cart before the horse! The sole reason the Canadian banks are scaling back their foot print in the Bahamas is because they have great difficulty competing with (1) the under-priced lending activities of the corrupt racketeering numbers' bosses like Craig Flowers and Sebas Bastian, and (2) a heavily taxpayer subsidized bank like BoB that is being used for money-laundering purposes by the gaming web shop owners and at the same time being supported by payroll and other business activities transferred to it by the government. The Canadian banks have had no choice but to react to what has become a very un-level playing field......it is incredibly difficult for them too compete against both the 'illegal' lending/investment activities of the racketeering numbers' bosses and a bank like BoB that is being wrongfully supported by the taxpayers' already over-taxed pockets!

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truetruebahamian 3 days, 7 hours ago

Just dump the B.O.B. It hasnever worked and never will. It has always been a wart on the banking system.

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Reality_Check 3 days, 5 hours ago

Repost - Dr. Minnis and KP are about to needlessly commit political suicide in their handling of the collective financial mess at BoB and Bahamas Resolve. All can see that the patient was brutally abused by the previous government and has been lying on the operating table quite dead for sometime now, notwithstanding very costly emergency treatment that was doomed to failure from the get go - including several blood transfusions from the taxpayer donors that simply bled out onto the floor. We, the people, supported Dr. Minnis becoming PM so that he could certify the time of BoB's death and sign its death certificate. We did not elect the new FNM government to foolishly continue trying to resuscitate a dead corpse at a ridiculously absurd cost for the family members who are barely able to make ends meet, i.e. we, the taxpayers. Get on with doing what you promised you would do Dr. Minnis, otherwise you will be the one to end up politically owning all of the inevitable horrendous losses associated with BoB and Bahamas Resolve. Just let the chips fall where they rightly politically belong - in Christie's lap and the lap of the PLP - because no matter what you do these unpleasant and very costly chips are going to fall in any event, and you certainly don't wish to take serious political pain that rightfully belongs as a part of Christie's despicable legacy.

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Well_mudda_take_sic 3 days, 5 hours ago

To hear KP say (presumably with the concurrence of Minnis) that the FNM government will table its announced position on BoB/Bahamas Resolve for debate in the HOA is beyond silly amusement given that the new FNM government has an overwhelming majority of MPs and James Smith has already gone on record as basically admitting the Bahamas Resolve solution to BoB's insolvency is an abject failure of an idea. Such political folly and naivety on the part of Minnis & KP has all four of the PLP MPs (and Bradley Roberts) champing at the bits to shower Minnis & KP with praise for recognizing the wisdom of Christie, as former Minister of Finance & PM, in creating the Bahamas Resolve bailout model that the new FNM government now seems all to willing to endorse and accept rather than shut down BoB. Christie is no doubt getting one helluva a good chuckle off of this major political faux pas by Minnis & KP! Christie had been worried that Minnis & KP were going to do the right thing and put all of BoB's inevitable losses where they belong - in Christie's lap as part of his abysmal legacy! We, the people, must now start seriously wondering about just who are the big wig FNMs that have delinquent unsecured loans and/or advances still on the books of BoB or that BoB has since written-off!

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concernedcitizen 3 days, 2 hours ago

This shows that two hundred and sixty million was stolen from us the Bahamian public right out the front door of BOB in fraudulent loans to cronies .Because we borrow more than we collect as a country add the interest your well over a 300 million . Its not thousands or hundreds of thousands or even millions anymore in five years we were robbed of well over a billion dollars ..

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Well_mudda_take_sic 3 days, 2 hours ago

You're forgetting the very first bailout of BoB when Christie approved the National Insurance Fund increasing its minority ownership interest in BoB by buying additional shares at a cost of $33 million. Even at that time several year ago, BoB was for all intents and purposes technically insolvent. Toady our National Insurance Fund is sitting on a huge investment it made in BoB that is worthless no matter what ridiculous artificial made up price BISX may post for consumption by the more foolish among us. Taxpayers and National Insurance Fund contributors are now on the hook for what could easily be well over $300 million ($300,000,000) of losses if BoB and Bahamas Resolve are immediately wound up, with the total losses growing with each passing day. Bottomline: Our government has absolutely no need for a bank and any politician who would dare try tell us otherwise should not be trusted!

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concernedcitizen 3 days, 1 hour ago

Yes I did forget ,they kept plowing so much of our money into BOB to steal it was hard to keep count .Like I said in five years they stole well over a billion dollars much of it paid to shady foreign consultants and divided up abroad ,,,tens of millions of our money went to Atlanta ,,

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