Bankers never die…They just lose all interest. The popular saying goes that the problem with banker jokes is that bankers don’t think such quips are funny, while ordinary people don’t think of these as jokes.
What initially sounded like another jest Tuesday, must have soon wiped the lingering smile off satisfied Finance Minister, Winston Jordan’s sunny face and snatched the seasonal spring out of his sashaying stride, preceding proud presentation of the country’s $300.7B new Budget, in Parliament, just hours before.
From Anguilla, to St Vincent and the Grenadines, the sudden announcement from cloudy Toronto that Canada’s third largest bank, the Bank of Nova Scotia has lost long-time interest in most of the Caribbean and would cease operations in Guyana and eight such countries, seemed to have overshadowed even the 2019 National Budget.
Attracted by a thriving trade of Canadian salted fish for lucrative West Indian rum and cane sugar almost 130 years ago, the institution is an old and respected player in the region, boldly calling itself “Canada’s most international bank.” Despite years of indications that all has not been well following the 2008 global financial crisis, its latest move appeared to have surprised many, including regional governments and groupings, senior ministers, key regulators, nervous customers and worried workers alike. The apparent lack of official consultation and common courtesy of properly and much earlier briefing the various administrations, meant the news slammed with the gasp force of a hundred ice hockey pucks, blasted from the freezing far reaches of Eureka, Nunavut, where the temperature averages a mere minus19.7 °C/minus 3.5 °F for the year.
In perhaps the coldest blow of all, to rival Snag, Yukon’s minus 63 °C/81.4 °F the lowest ever recorded level in the land of the midnight sun, mainland Guyana received a sobering icy rebuff a year before its much anticipated first oil from a fledgling industry run by American multinational ExxonMobil. With world energy market prices expected to remain low, the 84 000-miles-impoverished, but resource-rich Cooperative Republic of less than a million residents was dismissed as another non-performer fit only to be listed in “the divestiture of some non-core operations in nine smaller countries in the Caribbean” among them the sister-CARICOM states of Antigua-Barbuda, Dominica, Grenada, Saint Lucia and St Kitts-Nevis, but excluding for now the also economically troubled threesome island-bigwigs of traditional oil producer Trinidad and Tobago (TT), Barbados and Jamaica.
In a conference call with select financial analysts, a transcript of which was released online, Bank President and Chief Executive Officer, Brian Porter spoke up from Toronto and the Great White North, Tuesday morning, hailing the institution’s 2018 year-end and fourth quarter results. Stating that the divestitures’ “impact on earnings is not material” he added bluntly, “Exiting these non-core operations is consistent with a strategy that began five years ago to sharpen our focus, increase scale in core geographies and businesses, improve earnings quality and reduce risk to the Bank.”
“Over this period, we have either exited or announced our intention to exit over 20 countries or businesses, while still meeting or exceeding our medium-term financial objectives. That said, we expect to remain in our core markets across the Caribbean region” as “we’re redeploying that capital in our major markets and our major businesses.”
Back in November 2014, to avert a crisis, Scotiabank announced it would cut 1,500 jobs, about two-thirds of them in Canada, as it restructured operations and closed 120 branches of its international banking arm including in Mexico and the Caribbean. Restructuring charges amounted to Cdn$149M alone, with Cdn$109M more in loan loss provisions related to the region. The value of its then investment in a Venezuelan bank was due to be written down by Cdn$129 million while Scotiabank absorbed a Cdn$47M charge related to unremitted dividends from Banco del Caribe in Venezuela, due to a change in currency exchange rates, the Canadian Press reported. Included in the write-offs were a Cdn$62M fee covering unsecured bankrupt retail accounts in Canada, a Cdn$55M sum for ongoing legal claims and a $30M funding valuation amount covering uncollateralized derivative receivables.
Since then, the Bank has shuttered branches in territories ranging from Belize in Central America, to the Cayman Islands, the British Virgin Islands, The Bahamas and even Jamaica where earlier this month the multinational revealed it would shut down its oldest branch, on King Street in downtown Kingston. The Bank launched in the British West Indies over a century ago, opening the Jamaican branch in 1889, following another giant, the Royal Bank of Canada (RBC) in 1882. In 1914, RBC purchased the British Guiana Bank that had opened since 1836, becoming only the second foreign-owned commercial bank in the history of the country. Scotiabank has been in Guyana since 1968.
Maintaining that international banking delivered stronger results up 16%, Porter explained the results of high net interest income and fees from good loan growth were driven mainly by the trade block Pacific Alliance (Alianza del Pacífico) countries, comprising Chile, Colombia, Mexico and Peru, which all border the Pacific Ocean.
“When you look at what we’ve retained in the Caribbean, that’s 90% of the population. And this strikes at the core of our strategy to bulk up and get scale in markets that (in terms of) geographies and businesses that we deem important where we can turn the dial for our customers and our shareholders.”
The Bank’s life insurance entity in Jamaica and Trinidad & Tobago will be transferred to Sagicor Financial Corporation, which struck a 20-year insurance-distribution deal with Scotiabank, and agreed to be bought by Toronto-based Alignvest Acquisition II Corp. The firm is to be publicly listed on the Toronto Stock Exchange.
“As far as the insurance business goes, we’ve always said that we didn’t want to be in the underwriting business. We want to be in the distribution business. This is a relatively small business, and so that made sense for us to dispose of that business. But in terms of the DR (Dominican Republic) DR is a bit different and it’s a country of over 11 million people in contrast to Jamaica. Jamaica is 2.8 million people,” he said in response to a question.
“So, the DR has size. It has scale. It has average GDP growth over the last 10 years of 5.5%. It’s a dynamic market. We’ve operated there for over 90 years. We’re very comfortable operating in the DR, and we look forward to growing our business there.”
The powerful parent company of Republic Bank, the TT-based Republic Financial Holdings Ltd (RFHL), revealed on Tuesday in a separate release, that it had agreed to pay Scotiabank US$123M for the divested holdings, subject to all regulatory and other customary approvals and conditions. Since Republic Bank is already in Guyana, the number of commercial banks here will shrink to four.
Our Finance Ministry was rightfully unamused. On the heels of Minister Jordan’s ambitious prediction of 4.6 per cent annual economic growth, his Ministry chose not to make “a song and dance” but quickly expressed regret about the “Scotiabank decision…when Guyana’s economy is on the cusp of financial transformation with the onset of a massive new oil and gas sector” and warned it “raises concerns.”
“The Financial Institutions Act (FIA) has clear stipulations regarding ‘acquisition of control’ and requires approval of the Bank of Guyana (BOG) following the submission of an application and due diligence being conducted. Further the FIA addresses as well the issue of ‘fundamental changes’ as it relates to mergers and transfer of assets or liabilities.”
Pointing out that the agreement between RFHL and Scotiabank raises several issues for the banking sector and the public, the Ministry added, that with the BOG and the Guyana Government, it will need to carefully consider the “effect on competition and the potential for Republic Bank to have too much influence on pricing of banking products and rates.”
“Republic Bank currently holds 35.4% of the banking systems assets and 36.8% of deposits and the acquisition will up this to (a majority) 51% of both assets and deposits. This raises concerns about an over-concentration of banking services, market domination and the ‘too big to fail’ risks,” the Ministry asserted, listing too, the likely loss of jobs as Republic Bank moves to consolidate branches; and issues related to correspondent
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Across in Antigua and Barbuda, a “deeply disappointed” Prime Minister and Finance Minister, Gaston Brown was more blunt, criticising Scotiabank’s haste as “unacceptable” stressing it needed to apply to the Government for divestment approval and that such divestment should be offered first to local banks.
“I am further deeply concerned that the Bank of Nova Scotia would spring such an important decision on the people of Antigua and Barbuda, particularly its many clients who have displayed great loyalty to the bank for almost 50 years, providing it with significant profits.”
ID repeats the joke: “Hospitals report that the hearts of bankers are in strong demand by transplant patients, because they’ve never been used.”
