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Tuesday, 19 November 2013

ANGUILLA'S GULLIBILITY - THE FEARS, THE TRUTHS, THE LIES, AND THE INNUENDOS CONTINUE...

MISMANAGEMENT, ABUSE, INTIMIDATION AND CORRUPTION PROMPTS BANK TAKEOVERS ON ANGUILLA

The takeover of the banks in Anguilla is a culmination of many years of corruption and abuse. This corruption and abuse was highlighted for years by this Facebook page and Mr. Ian Don Mitchell’s Corruption free Anguilla website. The manipulation of local utility company, ANGLEC’S sale by Mr. Fabian Fahie, Mr. Victor Banks, the Boards of both institutions, Mr. Claudel Romney and the Board and Director of Social Security was the start of glaring corrupt practices. 

Mr. Romney, Mr. Timothy Hodge, Mr. Fahie and Minister Banks “jimmy fixed” the sale of one million dollars of shares in ANGLEC even before the share offering was ready for the public offering. The local banks, the directors and what people in Anguilla calls, ‘the big boys club’ retained the lion’s share of ANGLEC. They were able to get the legislation framed in such a way that there is a guaranteed twelve per cent profit enshrined in the law with the fuel surcharge as the money making factor. 

Member Fabian Fahie, knowing the ANGLEC needed a commercial building for their operations, leased a building with this inside knowledge (Martha Stewart like insider trading) and then sublet it on a much higher rate to ANGLEC.

Members of the board of CCB ran the bank with intimidation and found the perfect Manager to carry out this practice of intimidation of staff. They loaned millions to themselves including member Clement Ruan who lent himself, with board authorization, in excess of eighteen million dollars and member Pastor Eustace Leslie Richardson lending himself with the same, some ten million and another ten million lent to his son, Sherwin Richardson. Legal practitioner John Benjamin QC also benefited from these liberal loans with some eighteen million dollars and Jere-Allan Gumbs benefiting the most with some twenty two million. By 2009, the members of the board of directors of CCB had lent themselves a whopping one hundred and forty-five million dollars. Some was refinanced by other institutions since then. 

A similar situation occurred at NBA during the boom years where members of the board invested heavily using their elevated role into real estate and heavy equipment. 

Former Chairman, Chief Minister Osbourne Fleming with the privileged information that was made by himself and the members of the CCB to expand their services to the West End bought a block of land for twelve thousand dollars and sold it to the Bank for eight hundred and fifty thousand shortly thereafter. 

The CEO of NBA not to be outdone bought a similar piece of land (four acres) on the West End abandoning the piece that was allocated west of MINGZ supermarket for the construction of the branch. That land belonged to Chairman Conrad W. Fleming of NBA. Angered that the CEO outsmarted him with the land at the west end, the Chairman got the material supply contract to build the twelve million dollar facility that was closed down recently, a mere 5 years after its opening. He subsequently sold the land to MINGZ.

Directors Eustace Leslie Richardson and Clement Ruan were able to purchase a building on the west end and then rent it out to the bank for twenty thousand dollars a month. To date, they have refused to re-negotiate the rental payments. These two directors, along with legal counsel issued a statement that is the lone opposition to the bank takeover. They too, had to be removed from the bank’s premises after barricading themselves in the boardroom of the bank. 

Directors of NBA, led by Mr. Frederick ‘Daddy’ Harrigan were able to get into the telecommunications business through the monopoly created by Government for Caribbean Cable Communications. 

Chief Minister Osbourne Fleming who also doubled as Chairman of the Board of Directors of the CCB was able to use his office to facilitate a partnership between Digicel and the CCB. It was this that Former Minister of Financed dismissed as a conflict of interest and dubbed it merely a conversion of interest but the submissions to the UK Foreign Affairs Committee did not accept that. It stated in 2008, “In addition to writing into law provisions for ensuring good government, no governor in Anguilla in recent years has been known to use moral persuasion to insist on good government. On the contrary, Governors have been known to permit and endorse actions that are publicly known or recognised to be improper. An example of this is the extraordinary circumstance that members of government occupy commercial positions involving mind-boggling conflicts of interest. The most conspicuous of these—and there are many other examples—is the fact that the Chief Minister retains his chairmanship of one of the leading commercial banks in Anguilla.” end of quote. 

The former Chief Minister as recent as 2008 was admonishing folks to go to the banks and borrow to build. This was done even though the world was imploding and Anguilla had taken a nosedive. 

Directors gave unsuspecting, ambitious Anguillians loans with the full knowledge that they could not repay based on the collateral. Land which directors were then able to grab when the loans were defaulted. Galaxy Supermarket, owned by Mr. Clement Daniel was such a property and the most glaring. Even though the loan was defaulted, Mr. Albert Lake, uncle of the owner of Galaxy’s children paid the extraordinary sums with a single check. The Board of NBA returned the check to Mr. Lake so that director Frederick Harrigan could acquire the property which he did and promptly demolished the buildings on the land. (house and grocery store building). 

There are numerous such stories of corrupt activities by both boards all under the watchful eye of the Minister of Finance (former) the ECCB and other entities including the FCO. 

In the early part of the last decade, over one million dollars in cash was removed from the vault of the CCB. The findings investigation that was conducted by Scotland Yard was never made public, neither was it shared with the shareholders of the bank. To date, it has been hidden and kept under wraps by the recent, removed Chairman.

Public servants sat on these boards and benefited from loans which some of them are now finding difficulties in repaying. One recently resigned from the public service to work in the private sector for far more money as the Human Resource Director of a hotel. 

As late as February of 2013, investigators commissioned by the ECCB released this finding to its board. It read in part as follows. 

“ECCB FINDINGS:

The problems facing the Banks have their genesis in the extremely poor governance that has been a consistent feature of its history.

Coupled with the highly visible management deficiencies and the lack of leadership, the dismal performance on all fronts is not an unexpected outcome.

Whilst the unfavourable economic climate since 2008 can be cited as a causal factor of the current state of affairs, the combination of the earlier identified fundamental weaknesses would have made such an outcome under any circumstances and it was and still is a matter of time before something catastrophic happens. 

Efforts to rehabilitate these institutions must begin in earnest on these two very critical fronts if success is to be achieved.

This short paper serves to summarise some of the specific actions recommended in these regards and thereafter some of the near term structural and organizational changes that are likely to lead to the reestablishment of a functional operation.” end of quote. 

The recommendations can cause stress for certain members of staff and has been omitted from this presentation.

The fact that the Anguilla United Front Party acquired a large campaign loan from the National Bank of Anguilla which to date is still considered underperforming remains cause for concern. The criteria for said loan remains questionable especially given that most loan applicants were told they had to cash secure said loans. This was not cash secured. 

The ECCB has been admonishing the indigenous banks to clean up their act for many years dating back to 2001 and more so in 2008 and 09. The former Minister of Finance is quoted as saying in his article that will be published on Friday August 16, “There has been need for intervention of some form for some time now. In fact, several of the Directors of both banks have been crying for some injection of capital and funding. Many have suggested that the British Government through the ECCB provide some form of “bail-out” to the indigenous banks. Such representations have been made to me in a past life but still even now as the Leader of the AUF Party.”

As recent as July 2013 a joint committee of the Boards produced the following document.

PROPOSAL TO REFINANCE NON-PERFORMING LOANS AT ANGUILLA’S TWO LOCAL BANKS (NBA & CCB)

Prepared by a joint committee of both Boards 15 May 2013

Anguilla is a small island in the northeastern Caribbean, with an area of 91 sq. km and a population of 13,000. Despite its small size and population, the island has, prior to 2008, attracted massive foreign inward capital to exploit its climate and magnificent beaches and crystal clear sea. 

The global recession which started in late 2008 and has been continuing ever since hit Anguilla particularly hard as the large inward investment flows dried up abruptly and only one out of the ten investment projects that the Anguilla United Front Government materialized and was salvaged by way of a public auction.

Anguilla’s Gross Domestic Product (GDP) fell sharply from US$355 million in 2007 to US$268 million in 2010 (a decline of 24.5%) and although there has been slow steady increases since 2010, issues on the ground give rise for concern as the world’s economies seem to be contracting and there is an absence of indigenous investment and foreign investment appears to be conservative in comparison to 2004 to 2007. 

Anguilla has four full service money-centre banks – two international banks (CIBC and Bank of Nova Scotia) and two locally owned indigenous banks. ECCB has continuously stated that Anguilla’s population cannot support four money-centre banks yet, up until late 2007, the banks performed incredibly well. CIBC and Scotia have traditionally focused on high-return consumer lending and supporting foreign inward investment, nut have typically avoided investing in the development and empowerment of local enterprise. 

The two local banks are:

• National Bank of Anguilla (NBA), which is publicly owned with shares held by most households on the island, is the largest bank on the island and one of the largest in the Eastern Caribbean; and

• Caribbean Commercial Bank (CCB), privately owned by a small group of shareholders comprising primarily of local businesspeople and bank employees. 

The local banks have lent heavily in the development of residential and commercial property and local enterprise. NBA alone accounts for approximately 45% of Anguilla’s mortgage loans. NBA and CCB combined account for in the region of 75% share of the overall market. NBA and CCB have financed most of the local business sector and have supported local enterprise when the two better-resourced international banks showed no interest in such development. 

The result, however, was that NBA and CCB were ill-positioned to handle a major external economic shock of the magnitude experienced with the global economic meltdown, and a large percentage of their loan portfolios have become non-performing since 2007 and more so since the 2008 recession. 

The bank regulator, the Eastern Caribbean Central Bank (ECCB), overseas all the other Eastern Caribbean islands where large local indigenous banks also dominate. The Stanford Banks experienced similar problems and the ECCB stepped in and stabilized that institution however, the ECB does not have the capacity to rescue the large number of sizable banks in all these islands, nor do governments of these islands have the financial capacity or expertise to fund toxic asset recovery programmes. 

The ECCB and island governments are therefore taking a soft approach to the problem while insisting on action to rescue the declining position of the banks. The government of Anguilla has requested that banks work with defaulting borrowers with lower interest rates, refinancing and flexible repayment plans so that these payments can be made. The banks have insisted they are in no position to do so. 

Not only is the massive bad-debt overhand threatening the entire socio-economic fabric of Anguilla, the failure to decisively address it since 2008 is preventing financially viable ventures and persons from being able to access funding and make new investments so no steps are being taken to stipulate economic recovery. The international banks operating in the Eastern Caribbean possess their own internal means of addressing their non-performing loans. 

NBA and CCB ASSETS and LOANS:

NBA has total assets of approximately US$370 million, which loans comprising approximately US$290 million. As a result of the global economic meltdown in 2008, approximately US$120 million of these loans have become non-performing and a further US$43 million is barely performing. 

CCB has total assets of US$280 million, with loans comprising US$170 million. US$43 million of these loans have become non-performing with a further US$20 million barely performing. 

Combined, NBA and CCB have assets of US$650 million and non-performing loans of some US$163 million. 

The two banks have begun to incur significant losses as they write down these loans. There is practically no interest income on the non-performing loans. This is due to procedural and psychological issues that the banks face. The banks issue formal Demand letters which require that the total loans be paid off in full in 30 days. Obviously, if a borrower has difficulty meeting a monthly payment, it would be utterly impossible for that borrower to find the funds to pay off the entire loan in just 30 days. The borrower didn’t know what to do next and stops making any payments on the loans. 

The banks has considered adjusting loan terms but in a small society such as Anguilla, the community would quickly find out about it and the up-to-date borrowers would flood the banks demanding the same favourable terms on their loans which the banks would not be able to afford to do. 

The issue therefore is: where can the banks source financing at costs that are lower than the present cost of money, and how can they get around the moral hazard question?

PROPOSED SOLUTION

a) Mr. Scott Revell facilitates NBA and CCB in obtaining loan financing of US$150 – US$200 million at low interest rates (up to 4% on the declining balance. 

b) This loan would be backed by the two banks’ assets and further by collateral on the underlying customer loans. 

c) The banks would use some of the borrowed funds to reduce their interest rates on their remaining good loans if possible. 

d) For a loan of US$200 million at 4% per annum, the annual interest expense would initially be US$8 million and declining thereafter. 

e) As part of the arrangements for providing the loan funding to refinance the banks’ non-performing loans portfolio, for Mr. Scott Revell would be entitled to a remuneration package on a certain level. This package would be paid by both NBA and CCB of a monthly allowance of US$15,000 plus an upscale villa housing with his expenses pro-rated between NBA and CCB in proportion to the value of non-performing loans purchased from each bank. Additionally, Mr. Revell undertakes to find new revenues for the banks, he would be entitled to bonus payments from NBA and CCB respectively. 

f) There must be an exit strategy for the lender. This could include approaches such as replacing the loan with the issuance of bonds, inclusion in long term government/sovereign debt refinancing, sale of banks’ assets, and the raising of new capital. 

The Banks’ boards has agreed to the terms to be implemented by 04 August 2013

A search of Mr. Revell shows he is nothing more than a financial criminal that has been a long standing colleague of former Minister Banks and is represented in Anguilla by former Board director Cora Richardson-Hodge. 

It is fair to say, the ECCB, FCO, World Bank, IMF, facilitated by the present Chief Minister and Minister of Finance Hubert Hughes acted in the nick of time. The Chief Minister is coming under heavy criticism for allowing this consortium to assume control of the institutions and initiate the investigation. The former Chairman said as much. The investigation is expected to take eighteen month to two years to complete. 

However, it is felt by experts that the Banks are now on the way to being stabilized and will be in good, capable and uncorrupted hands to ensure that they remain with us for the next hundred years and beyond albeit, as a combined institution.

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