‘A bloody mess’: $17.1m loss sparks new BOB fear

Monday, June 15, 2015

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Angry shareholders are losing faith in Bank of the Bahamas (BOB) ability to regain full health, with one describing it as “a bloody mess” following a 73.4 per cent increase in investor losses to $17.148 million.

The BISX-listed institution, which received a $100 million government ‘bail out’ at end-October 2014, has unveiled third quarter results that show it is suffering increased losses on reduced top-line income.

Paul McWeeney, in his last message as Bank of the Bahamas’ managing director, again blamed “an ageing portfolio of systematically high non-performing commercial loans” and more aggressive provisioning methods for the bank’s continued ‘red ink’.

Loan loss provisions for the three months to end-March 2015 near-tripled, increasing by 180 per cent to $6.48 million compared to $2.311 million the year before.

For the first nine months of the bank’s 2015 financial year, such provisions increased by more than $2 million to $15.276 million – a 15.1 per cent increase.

Mr McWeeney, who stepped down from his post last week, confirmed that Bank of the Bahamas’ ‘bad’ loan portfolio was also acting as a drag on the institution’s top-line.

For the 2015 third quarter, interest income was down 10 per cent year-over-year at $10.593 million as defaulting borrowers failed to make their payments.

And, with fewer loan originations translating into reduced fee/commission income, Bank of the Bahamas’ total operating income for the three months to end-March was off by $2.3 million or 23.82 per cent at $7.397 million.

This is a repeat of the trend Bank of the Bahamas has displayed for the first nine months. With interest income down 18.8 per cent at $31.926 million, total operating income was off $7.03 million or 23.36 per cent at $23.065 million compared to $30.094 million the year before.

As a result, Bank of the Bahamas’ net third quarter loss jumped more than five-fold year-over-year to $7.252 million, compared to $1.301 million the year before.

And, for the first nine months, the BISX-listed institution’s net losses increased by 131 per cent to $17.148 million compared to $7.418 million in 2014.

The increased losses, despite the Bahamas Resolve ‘bail out’, are unlikely to inspire shareholder confidence in Mr McWeeney’s prediction that Bank of the Bahamas will be restored to profitability by the 2015 calendar year-end.

For the $17 million-plus net loss incurred year-to-date has already wiped out the $54.623 million ‘retained earnings’ write-back from the Bahamas Resolve transaction. That is now overshadowed by the $57.348 million accumulated deficit sitting on Bank of the Bahamas’ books.

The Resolve transaction saw Bank of the Bahamas exchange a net $45.4 million worth of ‘bad’ commercial loans with the Government-owned vehicle in exchange for $100 million worth of promissory notes (government bonds).

The benefits from that deal, which allowed Bank of the Bahamas to ‘write back’ $54.6 million in provisions and accrued interest, are already being eradicated by its continued losses.

And, if those $100 million worth of promissory notes are excluded, Bank of the Bahamas was barely solvent at March 31, 2015. Ignoring those notes, its total assets of $730.769 million exceeded $727.76 million in total liabilities by just $4 million.

Bank of the Bahamas also continues to cost the Bahamian taxpayer, as the Government used its position as 65 per cent majority shareholder to pay the $1.1 million dividend due to preference shareholders on January 9.

The Government has now paid a total $2.2 million in dividends to preference shareholders on the bank’s behalf, with the latter’s financials also confirming that the Bahamian taxpayer is ‘on the hook’ for the $100 million in bad loans transferred to Bahamas Resolve. The special purpose vehicle (SPV) is “owned and controlled by the Government”.

The increasing shareholder losses, which seemingly have no end in sight, have prompted Bank of the Bahamas investors to again demand that it produce “a game plan to get the bank back on the map”.

The BISX-listed bank has failed to deliver on promises, made at its December 2014 annual general meeting (AGM), to share its recovery strategy and proposed corporate governance reforms with shareholders.

Investors spoken to by Tribune Business warned that Bank of the Bahamas was “fast becoming a noose around the Government’s and taxpayer’s neck”, implying that they believed further publicly-funded bailouts might be required.

One suggested that Bank of the Bahamas needed to reduce its nationwide branch network by more than 50 per cent, plus downsize its corporate structure, arguing that its operational losses were exacerbating the ‘bad’ loan problem.

They also expressed surprise over Mr McWeeney’s reference to bad commercial loan woes, given that the worst performers in this category were supposed to have been transferred off the bank’s balance sheet.

Dr Johnathan Rodgers, the well-known ‘eye doctor’, told Tribune Business that were it not for the $100 million in ‘promissory notes’ Bank of the Bahamas would “still have a solvency problem”.

However, he suggested that the bank would “survive” due to the liquidity provided by its deposit base. Bank of the Bahamas’ deposit base has increased by almost $27 million, or 3.9 per cent, since the 2014 year-end to reach over $706 million.

While the Government has been prodding its own agencies to place money at Bank of the Bahamas, Dr Rodgers suggested the deposit base expansion may also have resulted from the web shop sector using the bank.

Bank of the Bahamas is the only commercial bank to publicly state it will accept deposits from a legalized web shop gaming industry, although the licensing process for that sector has yet to conclude.

Yet despite the liquidity boost, Dr Rodgers warned that Bank of the Bahamas’ ability to recover depended on it finding profitable lending avenues for those deposits.

“For their longer-term health, they’re going to have to start to lend out money and make money on the lending side, so they can build up their assets,” he told Tribune Business. “They have to decide what they’re going to do. What’s going to be their niche in the market?”

Dr Rodgers cited Fidelity Bank (Bahamas), which had struggled until its decision to switch to consumer loans, as an example of an institution that turned around its financial performance.

Bank of the Bahamas has expressed a similar desire to turn to consumer-type loans, and move away from its traditional loan book concentration in mortgages and commercial/industrial credit. Dr Rodgers, though, warned that such a transition would not be easy given the competition from both Fidelity and Commonwealth Bank.

“Bank of the Bahamas has to decide what they want to do,” he reiterated. “They have to determine what their game plan is going to be to get them back on the map, and to be recapitalized to the point where they can lend again.

“A lot of things need to happen for pieces to fall into place, and things come together. The other point is that operationally they are losing money as there are too many branches.

“They have to cut back on expenses. They need to cut that bank down to six branches, come up with a new game plan and downsize some of the overheads in the corporate structure to become a smaller, sustainable entity going forward.”

Bank of the Bahamas currently has 13 branches, with locations in islands such as Andros, Exuma, Inagua, Cat Island and San Salvador. Closures such as those recommended by Dr Rodgers would likely damage those communities culturally and socially, as well as create more unemployment, and the Government would be reluctant to take such steps.

And Bank of the Bahamas is also eyeing an expansion, having advertised for a joint venture partner to bring its long-planned West Bay Street headquarters building to fruition.

Tribune Business understands the bank launched what amounts to a ‘public tender’ after receiving several expressions of interest from potential partners in helping to develop the site.

Bank of the Bahamas sees the proposed headquarters, which would be located between the Holiday Inn and Dockendale House, as a way to generate efficiencies from consolidating head office functions currently split between different sites.

Dr Rodgers, though, disagrees. He told Tribune Business: “I think that would be a big mistake. Why are you trying to expand your bricks and mortar when you’re losing money? It makes no sense. You need to consolidate rather than expand. You need to survive.”

Dr Rodgers said his own turnaround proposals for Bank of the Bahamas had not changed. Apart from a $450 million recapitalisation, this involves downsizing; Board, management and corporate governance reforms; and a strategic plan to restore public confidence and trust by returning to profitability.

He added that Bank of the Bahamas had failed to deliver on promises made by its chairman, Richard Demeritte, to produce a credible turnaround strategy to shareholders.

Dr Rodgers’ fellow Bank of the Bahamas’ shareholder, Dionisio D’Aguilar, was more blunt about his investment’s ongoing woes.

“What is one to say other than Bank of the Bahamas is becoming a big bloody disaster for the Government?” he told Tribune Business, calling on it to exit the business by selling its 65 per cent stake.

Prime Minister Perry Christie, in an address to College of the Bahamas (COB) journalism students earlier this year, hinted that he had held preliminary discussions with his Trinidadian counterpart over a Caribbean bank’s interest in Bank of the Bahamas.

Tribune Business sources subsequently revealed that institution is Trinidad’s Republic Bank, but it is unclear whether its interest in Bank of the Bahamas has progressed to further talks with the Government

“I guess no one wants to buy Bank of the Bahamas now,” Mr D’Aguilar told Tribune Business, “and the Government is going to have to ride out this storm, which is going to cost the taxpayer more money….

“The Government should really exit this business. They’re meddling in all the things governments are not very good at. Bank of the Bahamas has come back to bite them in the backside very harshly, and it’s fast becoming a noose around their necks and the necks of the Bahamian taxpayer.”

Mr D’Aguilar said he believed the bank’s management and Board had no intention of sharing any turnaround strategy with the shareholders. He acknowledged that this was understandable, as it would likely “open another can of worms” for a business that had “been beaten up quite enough”.

“It’s just a mess. A big, bloody mess. That’s what it is,” Mr D’Aguilar added. “I’m sure Mr McWeeney is right that a certain element of the downturn in his portfolio was because the economy went bad, but there’s a significant belief – rightly or wrongly – that businesses who should never have received loans got them because they were politically connected.”

A third shareholder, Mike Lightbourn, told Tribune Business he had little confidence in Bank of the Bahamas’ prospects of returning to sustained profitability.

The Coldwell Banker Lightbourn Realty chief, recalling the ‘revival’ promises made at the AGM, said: “It’s just as shoddily run now as it was before, but they don’t have any money to give with those bad loans. They’ve got to be a lot more cautious.”

Mr McWeeney, in his last message to the bank’s 3,000 shareholders, said: “Our outlook is positive for the medium to long-term.”

He gave no specifics, though, on how Bank of the Bahamas will make good on that outlook. That will be the task for his as-yet unconfirmed replacement, with chief operating officer Wayde Christie holding Mr McWeeney’s post on a temporary basis.

Comments

Well_mudda_take_sic says...

BOB is indeed majority owned and controlled by the Bahamas government; accordingly its overall business affairs fall directly within the portfolio of Perry Christie as both PM and Minister of Finance. Most, if not all, of the loans and advances to politically-connected persons and their family members and businesses have had to be either fully provided for or written off by BOB, or transferred to Bahamas Resolve at great cost to hard working honest Bahamian taxpayers. Small wonder that Perry Christie was only too quick to come to the defense of Paul McWeeney for having so handsomely rewarded the PM's political friends and business cronies!

I also recollect the PM being only too quick to come to the defense of tax dodgers and dead beat debtors like Ishmael Lightbourne and Lady Poodling. In the case of Ishmael Lightbourne the PM readily admitted that he had phoned the managing director of CIBC First Caribbean Bank in an effort to wrongfully intercede in that bank’s seizure by mortgage foreclosure proceedings of Ishmael Lightbourne’s seaside mansion on West Bay Street. No doubt Christie would have been similarly inclined to contact certain members of BOB’s board of directors and senior management in order to intercede in the making of loans and advances on very generous terms to his political friends and business cronies. 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.

Of course Jame Smith and the other directors of Bahamas Resolve appointed by the PM have remained mum about the 13 borrowers totalling $100 million in loans, as has Deloitte & Touche who is suppose to be assisting with the collection of these bad debts that have little or no security of any value behind them. Will the politically-connected borrowers who have defaulted on their loans and advances be sued under the personal guarantees BOB would have obtained from them at the time the loans and advances were granted or has the duly signed paper work in support of these guarantees since conveniently disappeared? Families and businesses of many of the borrowers in question are believed to have significant assets resulting from use of the proceeds of the loans and advance obtained. What's being done to protect the hard working honest Bahamians from seeing their VAT tax dollars or National Insurance funds being used to fill the gaping financial holes created by the privileged few based on political patronage. Just look at the mansion McWeeney lives off of West Bay Street in the Love Beach area.

Posted 15 June 2015, 5:55 p.m. Suggest removal

Of course Wendy Craigg (Governor of The Central Bank of The Bahamas) also bears great responsibility for the losses incurred at BOB which are borne by Bahamian taxpayers. Had she feared less about losing her job, and simply done her job as bank regulator by expeditiously clamping down on BOB's corrupt lending practices involving politically-connected persons, the massive bleed out we see today may have been prevented. She will now retire and collect a handsome pension for not having done her job. Christie may have the nerve to reward Paul McWeeney for all his transgressions at BOB by making him the next Governor of The Central Bank. Christie's incompetent handling of BOB's implosion under his watch as Minister of Finance is very indicative of his mishandling of the Baha Mar situation, not to mention our country's dismal state of financial affairs.

Posted 15 June 2015, 5:56 p.m. Suggest removal

Most of us remember the articles published in The Punch in December 2013 informing 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.

Simply unbelievable!

Posted 15 June 2015, 6:01 p.m. Suggest removal

asiseeit says...

How is the share price of BOB still at $5.22? I would not give a dollar for a crap bank that is a government slush fund by any benchmark. Why is it ANYTHING the government of The Bahamas touches turns to crap? Why must these government types always be SO sketchy? Why must they always act like they are part of a tyrants "utopia" in some backwater Africa country. Zimbabwe always comes to mind when I think of our government, no lie.

Posted 15 June 2015, 7 p.m. Suggest removal

SP says...

**.................................................. TRANSLATION .................................................**

Dumb idiots robbed their own bank!

Posted 15 June 2015, 9:24 p.m. Suggest removal

Reality_Check says...

The much more correct translation: The cunning politically-connected thieves robbed our bank with the assistance of certain individuals and with the knowledge of others who had a duty to intervene and prevent the thievery. If you're one of the many Bahamian taxpayers who pays national insurance contributions, VAT, duty, real property tax, stamp and excise taxes, business license fees and any other taxes and fees levied by our Christie-led government, then you (like me) have been robbed by all of those politically-connected thieves who decided to steal by borrowing funds from BOB that they either knew they could not repay or never had any intention of repaying. The shenanigans here occurred under the watch of Perry Christie as our Minister of Finance (who is also our PM), Wendy Craigg as the Governor of The Central Bank which is the chief regulator of banks operating in and from within the Bahamas, Paul McWeeney as the the managing director and CEO of BOB and Richard Demeritte as Chairman of BOB and the other members of BOB's board of directors.

Posted 15 June 2015, 10:18 p.m. Suggest removal

Mayaguana34 says...

Not even the numbers man willing to take this bet!

Posted 16 June 2015, 1:11 a.m. Suggest removal

Does anyone know who's the current acting or new managing director and CEO of BOB now that Paul McWeeney has supposedly left after ensuring all incriminating records, including those turned over to Bahamas Resolve, were 'properly pruned'? There's a rumour floating around that one of Perry Christie's cousins (Wayde Christie?) is now running BOB and is being paid quite handsomely to do so. Surely this can't be true, if only for appearance sake! The losses at BOB relating to loans and advances that it granted on exceptionally generous terms to politically-connected persons, including their family members and businesses, need to be properly tabulated and laid at the door steps of Perry Christie as Minister of Finance and PM charged with keeping a watchful eye on the government's 67% ownership stake in BOB, Wendy Craigg as Governor of The Central Bank and chief bank regulator, and Hilliary Deveaux at the Securities Commission and Keith Davies at BISX who should have been protecting BOB's minority shareholders as investors in a publicly listed bank.

Posted 16 June 2015, 9:59 a.m. Suggest removal

Let's not forget the role also played in these enormous losses incurred at the Bahamian taxpayers expense by each member of BOB's board of directors, especially its Chairman, namely Richard Demeritte. How do these directors explain their lack of knowledge of, or failure to detect, the inordinately high concentration of loans and advances granted by BOB to politically-connected persons, including their families and businesses? There is no reasonable explanation, and the same applies to Perry Christie, Wendy Craigg, Hilliary Deveaux and Keith Davies. All of these individuals need to be held to account to the Bahamian people for the mega millions in losses attributable to BOB's apparent corrupt lending practices involving political friends and business cronies of Perry Christie.

Posted 16 June 2015, 10:09 a.m. Suggest removal

Agreed. And we have BOB's external auditors, Ernst & Young, to thank for not detecting and reporting on BOB's failure to recognize and properly disclose in its financial statements for earlier accounting periods many of these loan losses as was required by International Financial Reporting Standards. BOB's delay in recognizing and disclosing many of the politically-connected losses has likely resulted in even greater losses being incurred. The same applies for E&Y's apparent failure to call BOB out on its delaying tactics due to political pressure. It's clear from the dates and content of related correspondence exchanged between BOB and The Central Bank that certain of the losses should have been recorded and disclosed much sooner. Not a pretty picture by any stretch!

Posted 16 June 2015, 11:34 a.m. Suggest removal

duppyVAT says...

How much did Paul McCartney get in his severance package??????????

How much is Wayde Christie being paid now????????

How can a Board sit there and watch the BOB lose almost $20 million and do nothing?????

When will the MOF tell us that the $100 million payout has been collected???????

Posted 16 June 2015, 12:06 p.m. Suggest removal

Has any one noticed how ominously silent the leadership of the FNM is about BOB? Curiously that Chippy fella who chairs the Public Accounts Committee (PAC) would rather have a hissy fit about the shenanigans involving Urban Renewal expenditures which pale by comparison to the mega millions of Bahamian taxpayers' funds flushed down the toilette by BOB! How is it that Chippy, Minnis, and Butler-Turner have no interest in vigorously chomping on BOB's mega millions of losses (including those loan losses transferred to Bahamas Resolve) as a result of the scandalous loans and advances granted to political friends and business cronies of Perry Christie, as well as their family members and family businesses? The failure of the FNM to make great political hay out of this matter can't be due to any concern about causing a 'run' by BOB's existing depositors; according to media reports, all of that self-inflicted damage was done in a very public way as far back as December 2013. Could it be that Chippy is the immediate past managing partner of BOB's external auditors (E&Y)? Or could it be that certain opposition members in the house of assembly or senior FNM party officials (or their immediate family members or family businesses) have defaulted on material loans and advances received from BOB thereby contributing to the mega millions in losses? Minnis, LBT or Chippy had better soon come clean and explain to their constituents and supporters why they are so ominously silent about the BOB debacle in order to stop the growing rumours which certainly do not cast them in a good light!

Posted 16 June 2015, 1:12 p.m. Suggest removal

I am sure that there are PLP and FNM ceditors at BOB ............ but check out the alleged list issued by the Punch ............... probably more PLPs than FNMs........... but it doesn't matter your colour ........... its the abuse of public funds for private gain that is the big issue here .......... PAC???????????

Posted 16 June 2015, 1:23 p.m. Suggest removal

Some say the Colina group may be taking a serious look at BOB as a possible acquisition target. I can't imagine Michele Fields (our Insurance Commissioner) being happy about that, but hopefully she's proves to be much smarter than Wendy Craigg was as a regulator. Wendy's reputation has been royally sullied by her failure to expeditiously act on the lending problems at BOB when they first became known to her.

Posted 16 June 2015, 1:30 p.m. Suggest removal

And guess who are the external auditors of the Colina group? Yup, you guessed it....Ernst & Young (E&Y)!

Posted 17 June 2015, 10:53 a.m. Suggest removal

dahasamo says...

Between the Central Bank and the Insurance Commission, there is not much to choose. Remember Colina. Where and how did Bahamian policyholders leave the country and who was watching.

Posted 16 June 2015, 3:05 p.m. Suggest removal