By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank of the Bahamas shareholders are being asked to “throw good money after bad”, with the BISX-listed institution now non-compliant with FOUR out of five key Central Bank capital ratios.

Dionisio D’Aguilar, another Bank of the Bahamas shareholder, said the $40 million rights issue that launched yesterday was merely the latest phase of a rolling series of government ‘bail outs’ for the institution.

He added that current investors were being asked to inject more equity capital despite no apparent, meaningful changes having yet been made to Bank of the Bahamas’ corporate governance structure, while few specifics have been revealed about its turnaround plan.

Suggesting that few of the 35 per cent minority investors were likely to exercise their rights and subscribe for extra shares, Mr D’Aguilar also queried the $2.70 per share price, arguing that Bank of the Bahamas’ stock “ain’t worth $1”.

His comments came as the bank’s unaudited financial statements for the year to end-June 2016 revealed it is now non-compliant with 80 per cent of the Central Bank’s key capital ratio requirements.

Bank of the Bahamas is now in breach of four critical ratios, as compared to just two out of five at end-June 2015, showing just why the institution is desperate to boost its equity capital.

According to the financials, the bank’s Common Equity Tier 1 capital ratio was just 5.93 per cent at end-June 2016, having dropped from 11.06 per cent the year before. The former figure is also well below the 9.6 per cent minimum set by the Central Bank.

Bank of the Bahamas’ Total Tier 1 capital as a percentage of ‘risk weighted assets’ was in a similar condition, also standing at 5.93 per cent compared to 11.06 per cent at June 2015, and well below the 12.8 per cent regulatory minimum.

Total capital had also slipped below the 17 per cent of ‘total risk weighted assets’ minimum, having closed Bank of the Bahamas’ 2016 financial year at 11.58 per cent, while Total Tier 1 Capital had slipped further below the 75 per cent of total capital benchmark - declining from 62.47 per cent to 51.25 per cent.

The only Central Bank ratio that Bank of the Bahamas remains in compliance with is Common Equity Tier 1 capital as a percentage of Total Tier 1 Capital, where it exceeds the 75 per cent minimum at 100 per cent.

The prospectus for the rights offering says the $40 million proceeds will be used to bring Bank of the Bahamas back into conformity with its regulatory requirements, with some observers likely to question why the Central Bank has not taken tougher action over non-compliance that has lasted for more than a year - and grown worse.

With the Government owning a majority 65 per cent stake in Bank of the Bahamas via a combination of the National Insurance Board (NIB) and the Public Treasury, it appears that at least $26 million of the total $40 million rights offering sum will be taken up.

Agreeing that NIB would likely have to take up most of the $14 million remainder, given that few minority investors would subscribe for more shares, Mr D’Aguilar described the rights offering as “the third government bailout” of Bank of the Bahamas.

The first, he explained, occurred when NIB acquired non-voting ordinary shares that boosted Bank of the Bahamas’ capital base and took the Government’s combined equity stake to 65 per cent, without changing the latter’s 51 per cent majority voting rights.

Then came the October 31, 2014, transaction where some $45 million worth of toxic loans were transferred from Bank of the Bahamas’ balance sheet to Bahamas Resolve, a government-owned special purpose vehicle (SPV), in exchange for $100 million worth of bonds.

While the 4,000 minority investors will see their equity stakes in Bank of the Bahamas diluted if they do not subscribe for their rights, Mr D’Aguilar said many would be reluctant to invest further in a troubled institution.

“This is a government bail out,” Mr D’Aguilar added of the $40 million rights issue. “This is another of the number of bailouts the Government is going to have to do to put Bank of the Bahamas in line after running it into the ground.

“I’m pretty sure that a lot of the individual shareholders are not going to be happy to be diluted, but in their minds it’s not worth much to them.

“The quandry is: Do you throw good money after bad? Can the bureaucrats and people running the bank turn it around, given its corporate governance structure? There’s still the ability for the political directorate and civil servants to meddle in the governance of the bank with painful consequences.”

Mr D’Aguilar echoed calls by fellow Bank of the Bahamas shareholder, ex-FNM chairman and senator, Darron Cash, for the Government to either reduce its shareholding or sell the institution outright.

The rights issue has been priced at $2.70 per share, with existing shareholders able to acquire one new share for each 1.44 that they hold, but Mr D’Aguilar again joined critics who argue that this is overvalued despite being a 48.3 per cent discount to the prevailing BISX price.

“Nobody is buying the shares at $5.22,” he told Tribune Business. “Those shares ain’t worth $1.

“The bank’s in a desperate situation, suffered year after year of big losses, there’s turmoil in the head office and it’s stressed. The Government bailed them out with $100 million via Resolve, $26 million now, and will probably have to put in the full $40 million because no shareholder will participate in the process. They just don’t have a good feeling on the bank.”

Bank of the Bahamas and its advisers, Leno Corporate Services, appear to have been anticipating a few negative answers from minority investors as regards their participation, given that the rights issue will only last one week before closing on Monday.