By NEIL HARTNELL
Tribune Business Editor
Fidelity Bank (Bahamas) “can be proud” that it nearly doubled the value of its investment in exiting its former merchant bank affiliate, a top executive said yesterday.
Gowon Bowe, pictured, the BISX-listed institution’s chief financial officer, told Tribune Business it has also gained $3m in undistributed profits and dividends from the sale besides the $7.6m gain on the initial price paid for its 50 percent stake in RoyalFidelity Merchant Bank & Trust.
The $16.449m that Fidelity Bank (Bahamas) will receive from RoyalFidelity’s management-led buyout represents an 85.4 percent increase on the $8.9m that it originally paid for its ownership interest, and Mr Bowe said the difference between the two figures will be paid out to shareholders alongside the regular November dividend.
“Given that we would have earned our shareholders profits over the period, and closed at almost double the purchase price compared to what we originally paid for it, the return on investment for our shareholders is one we can be proud of,” Mr Bowe told this newspaper.
“There was $3m received on top of the sales price. We also got the accumulated profits in the entity [RoyalFidelity] up to the end of September, and got a dividend at the same time. Any profits were distributed to the original shareholders.”
Under the sale terms, any retained earnings (undistributed profits) and due dividends on RoyalFidelity’s books at the time of last Wednesday’s closing were to be split and paid out 50/50 to Fidelity Bank (Bahamas) and Royal Bank of Canada (RBC) to reflect their respective ownership stakes.
Mr Bowe, meanwhile, said the $7.6m “purchase/sale price” gain will be paid out to Fidelity Bank (Bahamas) investors alongside their regular November dividend, which is due to be declared when the institution issues its 2019 third quarter results.
“There’s no great urgency to accelerate that,” he added of the upcoming shareholder payment. “As it stands we can do it all as part of the same process. It can go out with the November dividend distribution.”
However, Mr Bowe urged shareholders to use their extraordinary capital return to invest in other income-generating assets rather than treat it as a Christmas “bonus or windfall” and spend it.
“What is important is the shareholders appreciate this is the present value of future profits that they have now foregone,” he explained of the dividend payout. “The strong recommendation is to seek appropriate investment opportunities so that money can be deployed into income generating assets.
“Yes, it’s a windfall, but it’s windfall representing future profits [from RoyalFidelity], so the best way to maintain those future profits is to invest the windfall in equally-successful income generating assets.
“That would be our fiduciary recommendation. As good stewards, we’ve returned the money to you, and while you’re happy don’t let Christmas distract you from your investment goals. While you may treat it as a Christmas bonus, you should look at it as profits from the future that you want to reinvest.”
Mr Bowe said Fidelity Bank (Bahamas) would “love to hit that target” of $1bn in assets on its balance sheet, having grown to $700m to-date, but had set “no timeline” for doing so as it prioritised sustainable growth.
“It’s about keeping your shoulder to the wheel, working on the things you do well and want to improve on, and balancing risk with reward,” he told Tribune Business. “It’s all engines go, and we will continue to do the things we’re doing.
“We believe we have started on the path leading to prosperity, and will continue on that path to grow the bank organically into a much larger institution. It’s not growth for the sake of growth. It’s sustainable growth that’s palatable.
“Sometimes that means a reduction in the balance sheet, sometimes that leads to an expansion in the balance sheet. It’s more about earning a return on assets, and a return on equity in the mid-20 percents is what we want to continue doing. The primary focus is a sustainable return on equity and positive return on assets.”