• Today
    February 22

  • 06:54 PM

BEHIND THE HEADLINES: Where is the Caribbean banking system heading?

TONY BEST,

Added 21 July 2015

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CANADIAN BANKS, the backbone of the financial services system in Barbados and the rest of the Caribbean, are weathering much of the financial storm triggered by huge losses on the operations in the region and a pile of non-performing loans.

But the beginnings of a turnaround in fortunes has come at a heavy price for Jamaica, Barbados, Trinidad and Tobago, the Cayman Islands and other island countries.

Hundreds of West Indians, who a decade ago were living out their dream of being successful bankers, have lost their jobs. Royal Bank of Canada, a mainstay of banking across the region for more than a century, sold its operation in Jamaica at a huge loss, and CIBC FirstCaribbean International Bank, the financial powerhouse, has initiated a restructuring programme that is leaving it leaner and more efficient.

But the bleeding may not be over, according to published reports in Toronto, London and Dublin. Take the case of the Canadian Imperial Bank of Commerce (CIBC), which owns the Barbados-headquartered FirstCaribbean. Without much fanfare CIBC has appointed Gary Brown as FirstCaribbean’s incoming chief executive officer.

He is succeeding Rik Parkhill and he must decide the full extent of the restructuring of FirstCaribbean that began two years ago and led to a sharp reduction of the staff by about 15 per cent, a consolidation of operations, and an aggressive attack on the bank’s problem loans.

“More than half of the bank’s total gross impaired loans reside in the [Caribbean] region, which contributes only three per cent of its [CIBC’s] profits,” wrote Tim Kiladze, who covers Canada’s banks for the Toronto Globe & Mail.

As Kiladze saw it, “the question is whether Mr Brown will continue CIBC’s restructuring plan, which helped deliver a US$52 million profits in the first six months of the current fiscal year or whether he will focus on selling the Caribbean bank.”

That’s not the first published indication that FirstCaribbean may be up for sale, a report that neither CIBC nor the Caribbean bank itself has commented on. The trouble is that potential buyers for it are said to be few and far between.

“A sale has been widely predicted, but until recently there haven’t been any willing buyers for Caribbean,” started Kiladze, who explained that indigenous Caribbean financial institutions, including Republic Bank of Trinidad and Tobago, were busy “cleaning up their own loan books”.

Reuters, the British news behemoth, quoted an unnamed source with knowledge of CIBC’s Caribbean strategy as saying Canadian executives were so “disappointed” with the region that they “would be eager to sell CIBCFirstCaribbean if they “could find a buyer”.

Of course, the FIFA corruption scandal and the United States (US) Federal indictments of Austin “Jack” Warner, the former CONCACAF president and FIFA vice president, and Jeffrey Webb of the Cayman Islands, who succeeded Warner, didn’t help the Caribbean’s banking image.

Apart from US Department of Justice charges of fraud and bribery related to the FIFA allegations, FirstCaribbean launched an internal probe after the department alleged that an illegal payment was facilitated by a representative of the Caribbean bank, who went from The Bahamas to New York and back, allegedly collected a cheque and returned to Nassau, putting the funds in a bank account.

But there is more to the banking picture than FIFA, allegations of fraud and money laundering. Puerto Rico’s financial problems caused, in part, by its mammoth bond debt of US$72 billion which the government in San Juan has warned was “non-payable”, were adding to the economic uncertainty swirling around the Caribbean.

Puerto Rico, once seen as a model for Barbados, Jamaica and the rest of the region, is home to a Scotiabank-owned commercial bank which it bought five years ago. It’s not a hard luck story.

Indeed, the acquisition of R-G Premier Bank by the Canadian bank has turned out to be a good move, adding US$34 million in profit to Scotiabank’s balance sheets last year at a time when the island was drowning in debt, unemployment was rising and Puerto Ricans were fleeing to the mainland as doom and gloom filled the air.

Like Barbados, Puerto Rico’s bonds have been downgraded to junk status by the Wall Street credit rating agencies and pressure is mounting on Washington to give its Spanish-speaking colony permission to declare bankruptcy if it would help halt the economic decline. It is unlikely to get it.

Little wonder, then, that some analysts in Canada are pushing the banks to withdraw from the Caribbean because of the few prospects for an early economic turnaround in the region.

John Stephenson, head of Stephenson & Company Capital Management in Toronto, described the Caribbean as a “highly-driven tourism economy that hasn’t really come back since 9/11. It’s been a disappointment for the banks. The FIFA scandal is just another reason to get out of there.” That’s not going to happen soon, if at all.

Seven years ago when the US economy went into a tailspin triggered in large measure by reckless American banks, and it took the Caribbean down the tube, Canadian banks were hailed around the world for their steady hand and conservative decision making. The losses in the Caribbean have dented that image somewhat and that’s true despite the fact that overall they remain profitable.

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