The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Minority investors in Bank of the Bahamas (BOB) are moving to seek financial redress for the spectacular destruction of shareholder value caused by $120 million in losses incurred over the past three years.

Shareholders in the troubled BISX-listed institution met at the British Colonial Hilton on Tuesday night to plot their next move, with a class action-type legal action among the options said to be under discussion.

A spokesman for the meeting’s organisers, speaking on condition of anonymity, told Tribune Business that there was a collective determination among minority shareholders to obtain financial compensation for the dramatic decline in their investment’s value.

Declining to go into detail on how they would achieve this, the spokesman promised that the group would act “properly” and responsibly, and that the shareholders were not seeking to further damage Bank of the Bahamas or the wider Bahamian economy.

“The goal is to make the shareholders whole, but they don’t want to cause disruption and bring the bank down,” the spokesman told Tribune Business. “They are in the process of deciding how to move forward.

“The concerned minority shareholders of Bank of the Bahamas had a meeting, and they are considering what steps to take in order to regain some value in their shareholdings.

“They’re going to act in a way that is proper, because they don’t want to cause any damage to the bank and the economy but, by the same token, they have to take reasonable measures to regain the value of their shares.”

Tuesday night’s meeting represents one of the few instances of minority shareholder activism in the Bahamian capital markets.

Most investors in BISX-listed, publicly traded companies, tend to be relatively passive, content to let the majority shareholder/shareholders control and manage the fate of their investments.

However, the depth of Bank of the Bahamas’ woes and the extent of shareholder losses, coupled with the Government’s involvement as 79 per cent majority owner, appear to have sparked enough outrage to unite the 3,500 minority investors.

The minority shareholder equity interest in Bank of the Bahamas has been progressively diluted, going from 49 per cent to 35 per cent, and now to 21 per cent following last year’s rights issue.

Tribune Business reported in September 2016 how almost $70 million was wiped off Bank of the Bahamas’ stock market value in one week, as investors searched for the ‘floor’ following the removal of price movement restrictions.

This newspaper’s calculations show that the BISX-listed institution’s market capitalisation fell some 62.45 per cent in just five days, from $111.645 million to $41.92 million, during its $40 million rights issue.

Bank of the Bahamas’ market capitalisation is now even lower, with its share price standing at $1.77 on BISX, compared to the 52-week high of $4.70.

The meeting spokesman yesterday suggested that the $1.77 price was still too high, arguing that Bank of the Bahamas’ stock was probably worth “less than 50 cents on the $1”.

Tribune Business understands that around 30 minority Bank of the Bahamas shareholders were present at the meeting, which was also attended by a legal team and forensic accountants.

One shareholder who was present, speaking on condition of anonymity, told Tribune Business that the meeting was called to unite minority investors, and determine how many were interested in taking collective action against Bank of the Bahamas.

“It was just to see who was in agreement with proceeding with the action against the bank,” the shareholder told Tribune Business.

“It was intended as a get together to see whether there’s interest, which there is. Everyone thinks there’s a very strong case.”

While share prices can lose value just as easily as they appreciate, the controversy surrounding Bank of the Bahamas’ collapse, which required a 2014 ‘bail out’ transferring significant liabilities to the taxpayer, has created potential grounds for investor action.

Among the possible claims are ‘minority shareholder oppression’, and demands that they be compensated for the loss of dividends and their investments’ value.

Successive Boards and management have not been held accountable for Bank of the Bahamas’ descent into sustained, heavy losses with no end in sight, and the accusations that many loans were made to politically-connected persons - although frequently denied - will not go away.

The meeting organisers’ spokesman yesterday argued that Bank of the Bahamas’ directors, management and the majority shareholder, meaning the Government, were all “culpable” for its problems, along with former auditors, Ernst & Young (EY). The Central Bank’s regulatory actions were also criticised.

They suggested that attendance on Tuesday’s would have been even greater had the Bahamas’ two main broker/dealers passed on details about it to their clients.

They accused CFAL and RoyalFidelity of failing to inform clients with Bank of the Bahamas shares about the meeting, explaining that the contact details for many shareholders were ‘care of’ either investment house.

“The organisers called on CFAL and RoyalFidelity to communicate the information to their clients, who they’re holding shares on behalf of,” the spokesman said, “but for whatever reason they chose not to.

“Shareholders should contact those entities to find out why they were not contacted, and what steps they ought to take to find out what is going on.”

The spokesman added that a website would be set up for Bank of the Bahamas’ minority investors, enabling them join in with whatever moves the existing group made.

A unified minority shareholder group, and the possibility of legal action, represent a further headache for Bank of the Bahamas and the Government (which holds its interest through the Public Treasury and National Insurance Board), plus possibly the Central Bank.

Should legal action result, all would face the possibility of having to make full disclosure through the filing of documents as part of the Supreme Court discovery process.

Bank of the Bahamas’ 2016 financials revealed that more than 46 per cent of its $510 million loan portfolio is now impaired.

And deposits by the Government and its agencies accounted for 52.8 per cent, or more than half, Bank of the Bahamas’ total deposits at the June 30, 2016, year-end.

This provides further evidence of just how heavily the Government is propping up Bank of the Bahamas, directing its agencies to deposit monies with it, and requiring new public sector hires to open accounts there.

The bank was also non-compliant with four of its five key regulatory capital ratios at end-June 2016, the annual financials revealing that the Central Bank of the Bahamas has made “certain supervisory interventions” with it.

The $40 million rights issue, and ongoing placement of $30 million in convertible bonds, is designed to correct this.