Voice of the Common Man: FIRE-SALE: PAYOFFS or PERIL

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by Hilly Bennett

“This is another indication of a loss of confidence in Belize’s economic future.”

The announced acquisition of Scotiabank Belize Limited (SBL) by Caribbean Investment Holding Limited (CIHL) has created a stir amongst the financial sector and the customers of the SBL.

The main concern is the price SBL is being sold or maybe undersold for. A fire-sale price of US $30 million; that is $100 million less than its identified net worth pronounced by Central Bank of Belize (CBB ). BHL subsidiary CIHL has agreed to the purchase price of up to $30.5 million to acquire SBL. This includes SBL’s shareholder equity of $28.5 million and a premium of $1.5 million.

Should the shareholders’ equity value exceed $28.5 million prior to the closing of the deal, it is agreed that an additional $4.5 million will be paid. Nonetheless, it is mandated in the agreement that offering cannot exceed $35 million.

Scotiabank has been operating in Belize since 1968 in the retail and commercial banking services to its customers. The banking industry was established in Belize in 1903, in the Bank of British Honduras. Several of its Directors came from the local elites. Eventually the Bank of British Honduras was bought by the Royal Bank of Canada (RBC). Thereafter the RBC was purchased by Lord Michael Ashcroft in the mid-eighties.

The divestiture of SBL is viewed as a sudden undertaking. However, Brian Porter, Scotiabank President and CEO proffered that “exiting these non-core operations is consistent with a strategy that began five years ago to sharpen focus, increase scale in core geographies and businesses, improve earnings quality and reduce risk to the bank.”

Additionally, Ignacio Deschamps, head of international banking at Scotiabank explained that “due to the increasing regulatory complexities and the need for continued investment in technology to support our regulatory requirement we made the decision to focus the bank’s effort on those markets with significant scale in which we can make the greatest difference for our customers.”

Notwithstanding, it is this writer’s opinion that this is another indication of a loss of confidence in Belize’s economic future. The acquisition comes on the heels of Dean Barrow’s proposed idea of issuing U. S. dollar denominated Treasury Notes to augment the stock of CBB reserves. Economists suggest that such a move is to quell investor’s fear of the advent of economic storms—Devaluation, default.

Contrarily, the Governor of Central Bank of Belize (CBB), Joy Grant is singing praises that the “significant investment and expansion represents a bold expression of confidence in long term potential of the economy.” Grant added that such “faith is praise worthy.”

Glenn Ysaguirre, former governor of CBB retort, regarding Joy Grant cheer-leading the venture, was that the regulator must be “satisfied that the entities involved are capable of conducting this transaction without disrupting the system.”

Interestingly, Ysaguirre posits that “acquisition and mergers can have significant pay-offs or can introduce significant peril.”

The most obvious “peril” is the majority control of the banking industry. The oligopolistic nature is realized in the banking system when one bank acquires a major percentage of all deposits and loans. Belize Bank now owns over 50% and is the market leader. Hence, if not properly regulated could result in the financial institution dictating the rates which the rest of the banking institutions will certainly follow. Case in point, in 2006 Belize Bank increased cost in non- performing loans resulting in the customers absorbing the cost.

Another concern over the venture is the manner of payment for retained earnings of SBL. Ysaguirre fiddled around the concern cunningly suggesting the CBB reserves could be undermined if payments are made in US dollars. Presently the fragility of CBB reserves lends grave concerns.

Superficially, the divestiture of SBL looks like a beneficial transaction for Belize’s banking industry. However, when everything is considered it sends a hollow ring. One of haunt in the future for Belize’s banking industry.