The Government has been pushed further down “the wrong road” on Bank of the Bahamas by the recent $40 million rights offering, an outspoken shareholder said yesterday.

Dionisio D’Aguilar, the FNM candidate for Montagu, told Tribune Business that through being forced to take up the “entire” issue, the Government had increased its equity stake to 79 per cent when it needed to take the opposite action.

He argued that the Christie administration appeared to be defying “common sense”, as the rights offering outcome had provided further proof that Bahamian retail and institutional investors were reluctant to invest in businesses majority-owned and controlled by the Government.

Suggesting that the need to prop up, and ‘bail out’, Bank of the Bahamas might ultimately end up costing Bahamian taxpayers up to $300 million, Mr D’Aguilar said the Government needed to “run like a wild horse” and rapidly exit the banking business.

While commending the Christie administration for standing behind the BISX-listed institution in the short-term, the businessman said it was doing so “for the wrong reasons” but had little choice, given that a bank failure would have potentially catastrophic consequences for depositors and the wider Bahamian economy.

“The Government is going the wrong way,” Mr D’Aguilar told Tribune Business, suggesting that it needed to follow a model that had proven successful with other business ventures - that of minority ownership, if not total divestment.

He pointed out that Cable Bahamas, Arawak Port Development Company (APD) and Commonwealth Brewery were all examples of profitable, successful companies where the Government had retained a minority equity interest but relinquished Board and management control to the private sector.

“Look at what works,” Mr D’Aguilar said. “The Government has a minority interest and no control; that works. In companies where it has the majority interest and control, it doesn’t.”

The rights issue, to which none of Bank of the Bahamas’ current 3,000 shareholders subscribed, has pushed the Government even more deeply into the model that Mr D’Aguilar considers a proven failure.

Bank of the Bahamas, via the Public Treasury and National Insurance Board (NIB), is now more of a government-controlled bank than ever before. With almost four-fifths of its equity in government hands, calls may soon start for it to offer to buy out the 21 per cent minority.

The $40 million rights issue’s outcome is also likely to complicate efforts to find two independent directors, from among the minority investors, to serve on Bank of the Bahamas’ Board.

Minority shareholders had been given until October 1, 2016, to submit nominations for the independent director posts - a process agreed to by Bank of the Bahamas, in a bid to allay investor concerns and show it was open to corporate governance reforms.

However, with the bank now even more deeply owned and controlled by the Government, there may be few candidates willing to serve as independent directors on a Board that will be dominated by the former’s representatives.

Mr D’Aguilar, though, described the potential appointment of independent directors as akin to “putting a band aid on a gunshot wound”.

“The corporate governance structure of Bank of the Bahamas is fundamentally flawed,” he told Tribune Business, pointing to a Board where currently all members are selected by the Government.

“They have to change the governance structure of the bank. You can’t run a bank knowing that if the Government changes every five years, the Board will, too. And you can’t have the Prime Minister and the Cabinet choosing the managing director.”

Rather than government appointees, Mr D’Aguilar said Bank of the Bahamas - especially in its current predicament - needed directors were who were experienced professionals who understood banking.

Describing the rights issue outcome as yet another ‘bail out’ of Bank of the Bahamas, Mr D’Aguilar said: “They [the Government] don’t want to seem to listen to common sense.

“That is: No Bahamian will want to invest in Bank of the Bahamas until you get the Bahamian Government out of running it. End of discussion. No one wants to put money into a bank because of the ineptitude of government.”

Mr D’Aguilar said his remarks were “apolitical”, and that investors would be reluctant to inject capital into Bank of the Bahamas regardless of which party was the Government.

He argued that the Government had held on to its interest in the BISX-listed institution for too long, and past profits had now been “wiped out” by bad loans extended to borrowers who should never have received credit.

This had ultimately resulted in the Bahamian people, especially the taxpayer, providing four different forms of ‘bail out’ to Bank of the Bahamas - the $100 million ‘bonds for bad loans’ swap, with the liability for the latter now transferred to the taxpayer; the Government and its agencies placing deposits with the bank; the payment of dividends to the preference shareholders; and now the $40 million rights issue.

“The Government, by the time all is said and done, is going to spend probably $300 million rescuing that bank,” Mr D’Aguilar told Tribune Business.

“They need to cut their losses and run like wild horses. Get someone to look at the book of business and value it. Obviously there’s going to be a portion no one will buy, so they will have to take their write-offs, lick their wounds and get out of the business. Someone who understands banking has to take over.”

Acknowledging that Bank of the Bahamas was “too big to fail” in the context of the Bahamian economy, he added: “The Government has to bail it out. They can’t put depositors at risk. There can’t be a run on the bank.

“It’s good the Government is standing behind the bank. They have to do that, but it’s all for the wrong reasons.”