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Bob Warns Preference Investors: No Dividend

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas has thrown the Bahamian capital markets into confusion after informing its preference shareholders that the Government will not be paying their customary year-end dividend on its behalf.

Tribune Business can reveal that Renee Davis, Bank of the Bahamas’ acting managing director, wrote to holders of its class A,B, D and E preference shares on January 19, 2017, to inform them that the normal January payment would not be forthcoming.

However, while many are likely to jump to the conclusion that the struggling BISX-listed bank has defaulted on its obligations to investors, this newspaper understands that - technically - this is not the case.

Capital markets sources explained to Tribune Business that because of the characteristics of Bank of the Bahamas’ outstanding $27.5 million perpetual preference shares, the institution is under “no obligation” to make any dividend payments.

This newspaper was also told that the year-end preference share dividend had not been cancelled, but instead deferred to mid-2017, as part of a wider strategy to ensure Bank of the Bahamas’ capital structure was compliant with new international regulatory standards, called Basle III.

Bank of the Bahamas has already redeemed one preference share class this year, and Tribune Business was told that the remaining $27.5 million have to now be ‘converted’ into securities that will still qualify as Tier One capital under Basle III.

Neither Ms Davis, nor Bank of the Bahamas’ chairman, former auditor-general Richard Demeritte, could be contacted for comment over the weekend.

However, investors and capital market contacts spoken to by Tribune Business slammed the lack of explanation coming from Bank of the Bahamas and the Government over the dividend non-payment.

They said this action, and the resulting information vacuum surrounding it, could have created the impression that the Government was no longer prepared to stand behind, and financially support, the troubled bank that has lost $120 million collectively over the past three years.

The Government, rather than the Bank of the Bahamas, has been paying the semi-annual preference share dividends for the past three years at mid-year and year-end, in a bid to ease some of the latter’s financial strain.

“Due to the Bank’s accumulated deficit position, since July 2014 the Government in its capacity as the major shareholder of the bank agreed to deploy a part of its treasury deposits directly to the paying agent for disbursement to the preference shareholders,” the bank’s 2016 annual financial statements confirmed.

Payments for the 2016 financial year totalled $1.97 million (for 2015, it was $2.2 million), sums that pale against the Government’s purchase of Bank of the Bahamas’ entire recent $40 million rights issue, and ongoing $30 million investment in the institution’s convertible bonds.

This has only added to the confusion as to why the Government would inject such huge sums into Bank of the Bahamas, both to ensure its survival and compliance with regulatory capital requirements, yet decline to make such a ‘minor payment’ to the preference share investors.

Tribune Business understands that Ms Davis’s note to the preference shareholders, who are Bahamian institutions such as pension funds, insurance companies and banks, was effectively just one line informing them that “Bank of the Bahamas will not be paying the December 31 dividend”.

Preference shares are a form of debt, therefore creating an obligation for Bank of the Bahamas to repay investors their principal, as opposed to equity shareholders, where the capital return is discretionary.

Capital markets reaction was swift, one source, speaking on condition of anonymity, said: “I just don’t think they understand it. Doing it just before an election; do they know the repercussions of this? It doesn’t make an awful lot of sense, does it? I don’t think the Government understands this, and what it means from a public perception.”

Another contact, also requesting anonymity, told Tribune Business: “I’m still none the wiser as to what this means.

“The Government has been paying on the bank’s behalf for so many years, and for some reason the Government has determined it needn’t continue to make those payments.”

The source, who had seen the January 19 note, continued: “One assumes the payments were being made to provide some security to Bank of the Bahamas, and to make investors feel more comfortable with the bank.

“I don’t know if the Government feels that because it purchased the rights offering and convertible bonds, it needn’t pay the dividend. $1 million every six months; for the sake of that, why discontinue it? The messaging is loud and the impact small; I’m not sure what people should take from it.”

The source said that without further explanation from both the Government and Bank of the Bahamas, the whole situation “reflects poorly on the credibility of the bank”.

However, they conceded that the non-payment did not represent a default, and that from a legal and technical standpoint Bank of the Bahamas was “fine” to be taking this action.

The source emphasised that the perpetual nature of the preference shares meant there was “no obligation” on the bank’s or the Government’s behalf to pay the semi-annual dividend.

However, they said there was “an understanding” that such payments would be made, and the Bank of the Bahamas situation raised immediate questions as to whether other government entities with outstanding perpetual preference shares would follow suit.

“For all the other entities that have perpetual preference shares, none of them have missed a payment,” the source said.

“Although technically they’re not required, or obligated, to make a payment, there’s an understanding they will.”

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.

Comments

banker 3 years, 8 months ago

In every other civilised jurisdiction, the bank would have been shuttered and wound down by now, as per the law. This is why the Corruption Index in the Bahamas is so high and foreigners see the Bahamas as a corrupt, non-level playing field. The Bank along with BISX is so Mickey Mouse, that it is beyond funny. It is criminal.

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sealice 3 years, 8 months ago

Perry dem gotta use ya money now but wait till after election if dey win you might get somethin....

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banker 3 years, 8 months ago

First of all, it is spelled Basel not Basle.

Secondly, it is highly unusual for a shareholder like the Government, to pay the dividend. Highly unusual. Liked Clockwork Orange unusual. This is proof that the bad loans are politically driven and the government is/was using the Bank to reward cronies. And you wonder why we are a corrupt banana republic?

The Treasury should not be used to pay shareholder dividends of the BoB. It's criminal.

It's not even worth my while to look up what the capitalisation of BoB is, but here are the Basel III requirements:

Here is what Basel III says are the minimum requirements:

Minimum Common Equity Capital Ratio: 4.5%

Capital Conservation Buffer: 2.5%

Minimum common equity plus capital conservation buffer: 7.0%

Phase-in of deductions from CET1: 100%

Minimum Tier 1 Capital: 6.0%

Minimum Total Capital: 8.0%

Minimum Total Capital: 10.5%

Liquidity coverage ratio – minimum requirement: 100%

I am willing to bet that BoB meets none of these. If I were I minority shareholder (I am not that stupid), I would immediately demand the release of the above figures compared to the Basel III mandates.

If they are not met, I would demand the immediate windup and liquidation of the bank.

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bogart 3 years, 8 months ago

The Central Bank should take over the keys and run the Bank as this is a critical part of our banking system.

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banker 3 years, 8 months ago

The Central Bank has inspectors, and it has ALLOWED BoB to become this way. It is a paper tiger regulator. The Central Bank doesn't have the moral, ethical or fiduciary compass necessary to do its job.

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B_I_D___ 3 years, 8 months ago

Yeap...Central Bank is pretty much useless.

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truetruebahamian 3 years, 8 months ago

Ikaliki, you are dead right on this. The government is stealing from us the black hole fund to pay those who buy shares - at a risk of reduced value that they accepted upon purchase.

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Well_mudda_take_sic 3 years, 8 months ago

Pericles Gladstone Christie is nothing but a low life pathetic thief who has already personally authorised by either his action or inaction, as Minister of Finance, the wrongful and illegal plowing of mega-millions of dollars of VAT collected and National Insurance funds into BoB knowing all the while beyond a shadow of doubt that BoB has been for years now and will remain an insolvent financial institution requiring involuntary (compulsory) liquidation. Included in those who have aided and abetted Christie's wrongful and illegal theft from Bahamian taxpayers and National Insurance fund participants of the mega-millions of dollars plowed into an insolvent BoB are the following: Paul McWeeney, the former managing director of BoB and puppet of Christie, Wendy Craigg, the former governor of the Central Bank and another of Christie's puppets; John Rolle, the current governor of the Central Bank who is an indentured servant of Christie; Michael Halkitis, Christie's number one gopher in the Ministry of Finance; every individual who has served as a director of BoB at anytime during the past seven years; Deloitte & Touche, the past auditors of BoB at a time when the fraudulent lending practices involving cronies of Hubert Alexander Ingraham and later Christie began to pick up pace; Keith Davies at BISX for not having long ago halted the trading of BoB's shares as a clearly defunct entity; the immediately past and current Chairman of the Securities Commission; Sean McWeeney (brother of Paul McWeeney), legal counsel for BoB at Graham Thompson & Co; and so on.

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Well_mudda_take_sic 3 years, 8 months ago

Articles published in The Punch in December 2013 informed the Bahamian public that Bank of The Bahamas (BOB) had made the following loans and advances connected to political friends and cronies of Perry Christie:

• $28 million to Leslie Miller and/or entities owned by him and/or members of his immediate family. • $3.5 million to Obie Wilchcombe & Pleasant Bridgewater re. Universal Distributors Bahamas Ltd., a company apparently now defunct for all intents and purposes. • $8 million to another senior PLP cabinet minister, rumoured to be pudgy with short stubby grubby dirty sticky fingers. • $6.3 million to PLP business woman Patricia Mortimer who purportedly is a best friend and business partner of Lady Poodling and the owner of several shops at Nassau International Airport. • $2.3 million re. GEMS Radio Station which at the time was owned by Debbie Bartlett and Cyprianna McWeeney, the latter being the wife of PLP lawyer Sean McWeeney who is the brother of Paul McWeeney. • $4.5 million to enterprises owned/controlled by Edward Penn. • $4.6 million to Phil Lightbourne re. Phil's Food Services (Phil Lightbourne was the front man and spokesman for Ben Frisch who owned Bahamas Food Services up until the PM allowed the Frisch Family to sell it to Sysco Foods (a large U.S. public company) in April 2013.

Keep in mind that BOB is majority owned and controlled by the Bahamas government; accordingly its overall affairs fall directly within the portfolio of Christie as both PM and Minister of Finance. Most, if not all, of the loans and advances mentioned above had to be fully provided for by BOB, and likely have since been either written off by BOB or transferred to Bahamas Resolve or another special purpose entity for nominal value at great cost to hard working honest Bahamian taxpayers. Small wonder that, notwithstanding the mega millions in taxpayers and national insurance participants' funds required to bail out BOB, Perry Christie was only too quick to come to the defense of Paul McWeeney (brother of Sean McWeeney) for having so handsomely rewarded the PM's political friends and business cronies. The PM's agreement to a $750,000 termination bonus being paid to Paul McWeeney says it all!

No doubt Christie contacted certain members of BOB’s board of directors and senior management (Paul McWeeney in particular) in order to intercede in the making of loans and advances on very generous terms to his political friends and business cronies that should have never been granted. All of these shenanigans on the part of Perry Christie clearly evidence that he has a very twisted moral compass by any standard. It is therefore absolutely frightening to think that this warped man has cabinet responsibility as both PM and Minister of Finance for our country's financial affairs.

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banker 3 years, 8 months ago

The SPV or Special Purpose Vehicle of which the government is very fond of using are used to hide outflows from the treasury as well.

An SPV is an entity that issues shares of itself. For all intents and purposes, it is a company (it usually is, or may be incorporated as a limited corporation), So, it needs to be capitalised. For example James Smith needs to collect his six figure income from Resolve. And the toxic loans need to be taken off the books. So the government capitalises Resolve. The big question here, and since there is no Freedom of Information Act, is "Did the government pay any monies to BoB through Resolve when they took the loans off the books?". It is a slick way of siphoning funds from the Treasury to BoB using Resolve as a smokescreen to hide the origin of the money.

The other question is for the $40 million SPV to take up the share issue for BoB to bring it closer to Basel III requirements. We know that the government capitalised the SPV and bought the BoB issue, but I am wondering if they also transferred the shares of the SPV to BoB as well, allowing it to use the $40 million twice -- first as the cash from the SPV and then adding the shares of the SPV to its balance sheet as assets that can be converted to capital. I am not an accountant, but since they are playing footsie with the numbers, anything is possible. It's sad when you are the principal, the tranferee, the owner, and the regulator all in one. Tell me that there is no room for corruption. John Rolle should hang his head in shame and resign.

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sheeprunner12 3 years, 8 months ago

Well every Bahamian who has invested in a BOB share should vote NO to the PLP along with every BPL customer, every BTC customer, every car gas consumer, every Bahamasair passenger, every grocery buyer and every public school parent ........... that's 98% of the voters

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Well_mudda_take_sic 3 years, 8 months ago

And vote "Yes" for who? The greedy Dimwitted Doc is one hundred times worse than Crooked Christie could ever be, and everyone knows it!

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banker 3 years, 8 months ago

I don't. I think that he has a forward looking team.

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bogart 3 years, 8 months ago

The challenges of this bank holds back better performance of the other banks backed by their own Bahamian shareholders funds from doing better as the govt intervenes in its support without holding management responsible. The internationally proper thing would be for the Central Bank to intervene and take over its operations. However for that to happen staff from the Central Bank who have loans at BoB or is paid from govt sources must be prevented from participating in the operation, thirdly persons related by blood must not be a part of the team, fourth persons holding a relationship and are from the same Family Island must be excluded, next persons being connected by virtue of being from the same church or social organization must be excluded, persons being from the same political party must be excluded. Obviously local agencies paid by the Bank should not be allowed to comment on the Bank they are investigating. In short given the aforementioned connections which may compromise correcting deficiencies it would be prudent to call in outsiders and the last outsider the Canadian report has never been published. As a part of he global financial centres where all are connected we must act first and fully examine the bank and punish wrongdoers and close if necessary so that the rest are not affected further.

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