Thursday, June 16, 2016
By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
Bahamas Resolve’s ability to service the $100 million worth of bonds that plugged the hole in Bank of the Bahamas’ balance sheet will “soon” be impaired unless it can sell its distressed properties, Tribune Business was told yesterday.
James Smith, the special purpose vehicle’s (SPV) chairman, said it had encountered several obstacles in its efforts to sell the real estate and other assets it inherited from the troubled BISX-listed bank in October 2014.
The former Central Bank governor revealed that some of the 13 ‘bad borrowers’, whose loans and related collateral were transferred to Bahamas Resolve, were “denying” the SPV and its managers access to their properties.
As a result, Mr Smith said Bahamas Resolve and its managers, the Deloitte & Touche accounting firm, have been unable to properly assess the current ‘market value’ of these assets - prohibiting it from releasing accurate financial information on its affairs to the public.
He then revealed for the first time that the proceeds from Bahamas Resolve’s ‘distressed asset’ sales are intended to both finance its ongoing operations and pay the interest due on the bonds received by Bank of the Bahamas as part of its $100 million ‘bail-out’.
Mr Smith said Bahamas Resolve has to-date been self-funding, having received the proceeds from one real estate sale that occurred in January 2015, which the bank had already set in motion.
He indicated, though, that Bahamas Resolve was not close to sealing any other deals, despite coming close on several occasions. These sales, Mr Smith added, had been frustrated by the inability of potential buyers to obtain financing.
“Resolve needs to fund itself from the proceeds of sales,” he told Tribune Business. “One sale, in January 2015, had been completed, and the proceeds from it have been used up to now to handle any expenses the company undertakes.”
Mr Smith added that the bulk of Bahamas Resolve’s costs to-date had been the professional fees paid to Deloitte & Touche in return for its services as the SPV’s manager.
He declined to reveal how much the accounting firm has been paid, but acknowledged that the company’s cash balance was shrinking rapidly following a year without any distressed asset sales.
“It’s obviously dwindling, and replenishment can only come from another sale,” Mr Smith told Tribune Business. “Another sale is being frustrated by legal and other matters.
“One of our major contributions is the servicing of the bonds at Bank of the Bahamas. We’ve paid that so far from the proceeds [of the first sale], but unless we get another sale soon, we’re going to have to take a short-term facility and apply it until a sale comes through.”
Should such a scenario ultimately occur, Mr Smith said one option was for the Government to take over paying the interest on Bank of the Bahamas’ bonds temporarily, until a Bahamas Resolve asset sale was consummated.
The proceeds could then be used to repay the Government, he added, while another option was for Bank of the Bahamas “to hold off” on demanding its interest payments.
Mr Smith, though, acknowledged that this would “defeat the whole purpose of the SPV”, and impact a still-troubled bank that is struggling to survive and needs recapitalisation.
“Resolve itself is kind of an interim, medium-term measure to solve Bank of the Bahamas’ problems with the regulator, the Central Bank of the Bahamas, and give the Government breathing room as the majority shareholder to prepare a rescue plan for the bank going forward. Then Resolve will disappear,” Mr Smith told Tribune Business.
The reference to the Central Bank alludes to non-compliance by Bank of the Bahamas with the former’s key minimum capital ratios, which was initially solved by the October 2014 ‘bail out’.
That saw a collective $45.2 million in ‘bad loans’, belonging to 13 delinquent borrowers, transferred to Bahamas Resolve, with the subsequent ‘hole’ in the bank’s balance sheet plugged by $100 million worth of government bonds.
Mr Smith, though, said that even if Bahamas Resolve were to sell its distressed assets for ‘market value’, there would still be a ‘hole’ at Bank of the Bahamas that the Government (Bahamian taxpayer) will have to fill.
“Quite frankly, given the valuations we have seen as to what we can expect, even if we sold all the properties going forward into the future, the Government has to deal with the gap [at Bank of the Bahamas] and get authorisation to fill that gap,” he told Tribune Business.
Mr Smith said Bahamas Resolve was being impeded in its efforts to determine the current ‘market value’ of its distressed assets, indicating that the collective worth was likely to be less than the $45.2 million assigned to them at the time of transfer.
“We kind of have to develop an opening valuation,” he said of Bahamas Resolve’s assets. “There’s always a difference between the book value of assets transferred to the company and market value.
“We have got recent valuations on a number of the properties, and doing as many as we can. We have a couple of properties where the owners are denying us access, so we’re unable to do the valuations.
“We have put in the hands of the lawyers, who are going to take legal action to allow access to the properties to get the valuation done.”
Mr Smith acknowledged that the legal process was “not easy”, and likely to be time-consuming, given that some of the 13 ‘bad borrowers’ had taken out previous actions against Bank of the Bahamas.
He added, though, that these issues are preventing Bahamas Resolve from disclosing its financial affairs to the public, as any report will be incomplete without the asset valuations.
Hubert Chipman, the St Anne’s MP, yesterday questioned in the House of Assembly when the audited financial statements for Bahamas Resolve will be published, and how it is financing its operations.
Mr Smith said Bahamas Resolve had initiated sales processes for all those properties to which it has clear title, but buyer financing woes were preventing the closure of any deals.
“There are any number of inquiries, going so far as to clinching a deal, but then funding becomes an issue,” he explained.
“All this is being done against the backdrop of an extremely tight mortgage market, where any number of foreclosures have been going on for six to seven years. It’s a very long, drawn out process.”
Comments
Economist says...
So who are those 13 "bad borrowers"? Name and shame, please.
Posted 16 June 2016, 3:47 p.m. Suggest removal
watcher says...
This is a copy and paste from earlier discussions on the topic of BOB, but should shed some light on the shenanigans that went on....(this is not my original comment, credit should be given to the whosoever originally posted it in the comments section of The Tribune)
Quote..........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.
Posted 16 June 2016, 4:51 p.m. Suggest removal
Well_mudda_take_sic says...
And corrupt Christie, and Wendy Craigg (who is believed to now have a lucrative position in either the PM's Office or the Ministry of Finance), made sure these loans were either kept by BOB (where they could be later fully provided for and/or written off by none other than BOB's corrupt Chairman, Richard Demeritte, who is Christie's number one lackey at BOB) or transferred to Bahamas Resolve at nil value to be covered up by Christie's number two lackey, James Smith. Contributors to National Insurance and the honest hardworking taxpayers are taking the hit big time for the shenanigans of the corrupt Christie-led government that has been aided and abetted in the defrauding of the Bahamian people by the likes of Wendy Craigg, Richard Demeritte, James Smith and Paul McWeeney (brother of Sean McWeeney).
Posted 16 June 2016, 5:26 p.m. Suggest removal
banker says...
What blows me away, is how all of this is smoke and mirrors.
The Bank of the Bahamas is not compliant with Central Bank in regards to key capital minimum ratios. So to rescue it Resolve, issues a bond to cover the amount of bad loans to BoB. All of a sudden, BoB is good again.
Bank of the Bahamas puts this bond into their pot, and voila! -- the minimum capital issue goes away, because theoretically, the bond from Resolve is like cash --it can be a negotiable instrument -- if anyone was stupid enough to buy it.
But here is the problem. The bad loans are backed by properties with "book value". Someone pledge a property as collateral for a $15 million dollar loan, so the book value of the property is marked as $15 million. In reality, the property is worth say $5-$8 million maybe, if a gullible buyer can be found.
So even if Resolve manages to sell the properties, it still will not cover the bond.
Now, not only will the Government be on the hook to cover the bond, they must also pay the interest to BoB that Resolve owes BoB on the bond. Good money after bad!
The hope was that Resolve sells the properties, pays off the bonds and everyone is happy. But you have to remember that this is the kleptocratic PLP - (two for me and one for you) and they are math-retarded.
Rather than do a book valuation, they should have done a quick market evaluation for the bond, and wrote down the difference from BoB's books. That way, Resolve would have at least a chance of working. Instead, the fecal-matter-for-brains geniuses blithely issued a bond that they knew would default, but it looked politically expedient at the time. And Deloitte aka Raymond Winder (where have I heard that name before ... baha ... baha ... baha . ha ha ha ha mar ) collects another couple million in fees.
Posted 16 June 2016, 5:03 p.m. Suggest removal
croberts6969 says...
Talk talk talk. While the PLP gets rich and bankrupts the country.
Posted 16 June 2016, 10:35 p.m. Suggest removal
banker says...
What the government hasn't realised, is that they have loaded up the Bank of the Bahamas with a toxic asset (ie. the bond that Resolve will default on). The corollary are the bonds issued in the sub-prime debacle. BoB has valuation and capital assets on their books that are smoke and mirrors and not worth the paper that they are printed on. This is beyond belief.
Posted 17 June 2016, 9:51 a.m. Suggest removal
bogart says...
Excellent point banker. Plus almost 300,000 ordinary shares have no buyers see BISX except for one odd trade a month which apparently keeps it looking ok. 4,000 shareholders. All loans would have been scrutinized by loan officers and in cases high senior officials for approval or rejected and if approved normal banking policy is to closely monitor etc. Who is negligent, bank or customer?. What about others customers who may have problems or reverse discrimination? Obviously BOB is not perfect. Bonds, shares, assets, customers loans,national bank which the world googles and no investigation? Desperation sets in and the bank floods the market with repossessed houses affecting existing collateral of the entire housing industry and other banks, more misery.
Posted 18 June 2016, 12:38 p.m. Suggest removal
bogart says...
Absolutely true. Plus flooding the market creates a glut making values drop. Supply and demand. Freeport is an example where mortgagors loans may be underwater, repaying debt for more than what the value of house is. The whole situation of defaulted mortgagors need to be examined and predatory banking. bankers have targets of mortgages to give out and performance linked to salary increase. Stop throwing taxpayer money in the hole, investigate. There may actually be genuine reasons why customers defaulted. Form a panel to listen to customers and complaints and punish those responsible for causing the problem. There are many customers who may want to complain, perhaps even staff.Documents and records are not going to hide so its time now, 2, 3,10 years later but the stories will eventually come out. If a bail out is needed the investigation must happen and persons punished. It is an actual agony for those in Resolve to be screwed especially when the banker has been paid a fee to advise on what should not have been invested as much as the do not like it.. Bad bankers need to be punished if that is discovered to be the case. Bankers are not perfect. even though they have fancy suits and have fancy offices.
Posted 17 June 2016, 12:49 p.m. Suggest removal
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