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Bob ‘Reputation’ Boost From $15m Repayment

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of The Bahamas believes it will boost its “reputation and creditworthiness” by repaying its last $15m in preference share debt, and declaring an interest dividend, before year-end 2018.

Wayne Aranha, the BISX-listed institution’s chairman, told shareholders at its annual general meeting (AGM) that the repayment - besides boosting the bank’s standing with capital markets investors - will also “eliminate high cost funding”.

He disclosed that Bank of The Bahamas (BOB) primary regulator, the Central Bank, has approved both the principal repayment to holders of Series A and B preference shares plus the declaration of interest on them via a dividend payment.

BOB’s sustained eight-figure annual losses from 2014-2017 resulted in the suspension of preference share dividends in December 2016, and their effective resumption through the year-end payment depends on the bank having generated sufficient profits to finance the payment.

Mr Aranha said the outstanding interest needed to be paid as it effectively represented a potential “claim” the preference shareholders may have against BOB, although he emphasised the dividend’s declaration was not yet a certainty due to the conditions imposed by the Central Bank.

“On September 28, 2018, the bank obtained the approval of the Central Bank to redeem outstanding and issues preference shares amounting to $15m,” the BOB chairman revealed, adding that the required 90 days’ redemption notice was immediately given to investors.

He added that the regulator had also given approval to pay the interest dividend “on condition that the bank generates a profit from which dividends can be paid”. The date for both the principal and interest payment is December 27, 2018.

“The board intends to declare payment of a dividend,” Mr Aranha said. “It is envisioned such payment will be made on December 27, 2018, concurrent with the redemption of the remaining issued and outstanding preference shares.”

Explaining the consequences, he added that BOB will no longer have preference shares among its balance sheet capital, which will be reduced as a result of the principal repayment. The chairman, though, later adopted a more cautious tone on the interest dividend payment during the AGM’s “question and answer” period with shareholders.

“There’ll be no more principal for certain. I was cautious in my statement that we’ll likely be declaring a dividend on the same date,” Mr Aranha said, having earlier explained that “dividends remain outstanding and have to be paid” since they represented a potential investor “claim” against BOB.

With the Series A and B preference shares priced at Prime plus 2 percent, and carrying a 6.25 percent interest coupon, the BOB chairman said repaying the institutional and high net worth investors who hold them will eliminate an expensive funding source for the still-recovering commercial bank.

“The bank’s reputation and creditworthiness, in the view of the Board and management, will effectively be enhanced by the repayment and redemption of the preference shares,” Mr Aranha concluded.

BOB unveiled similar action at its year-end 2017 AGM, when it announced the $6.4m principal repayment to holders of its Series D and E preference shares to avoid a default caused by missing three consecutive interest dividend payments.

Mr Aranha, meanwhile, said the “cautious optimism” shown at last year’s BOB AGM had been justified by the institution’s return to profitability in 2018 and for the 2019 first quarter, with total comprehensive income for the latter period up by 199 percent or near-tripling to $1.966m.

He conceded, though, that multiple risks still faced the troubled institution which will ultimately cost taxpayers more than $300m to rescue via the two Bahamas Resolve-led bail-outs and a $40m rights issue.

Mr Aranha, conceding that the profits delivered thus far “fall short of the returns shareholders expect”, added that loan portfolio growth - “so significant to our results” - had been elusive and caused a build-up of cash and cash equivalents equalling $176m at the end of the 2019 first quarter.

BOB’s liquid asset capital ratio was more than double the Central Bank’s 100 percent requirement at both year-end 2018 and end-September, and the chairman said: “We need to lay-off some of this money in loans, investments. We’ve been able to place those funds, when we’ve not been able to lend, into Treasuries [Bills].”

The bank’s 2018 annual report disclosed that net loans and advances to customers for the 12 months to end-June fell by $96.6m or 21.56 percent, down from $448.1m to $351.5m. This credit portfolio slipped by a further $20m during the 2019 first quarter to $331.315m.

Mr Aranha added that BOB also took a $4.7m equity hit at the beginning of its 2019 financial year due to the adoption of new accounting standards, which require itself and other banks to now assess potential loan losses on a forward-looking basis as opposed to when they actually occur.

This, though, has been partially offset by the profits generated during the three months to end-September 2018 - a result which, Mr Aranha said, justified the “cautious optimism” shown at year-end 2017 as “warranted”.

Yet he was quick to point out: “The Board remains prudently watchful of the risks that confront the bank, and the results - while positive - fall short of the returns shareholders expect. We believe we’ve taken the first steps on the path to sustained profitability and a return to shareholder value.”

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