24 March 2021

De-Risking In Jeopardy 4

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De-Risking in Jeopardy 3 concluded at the stage when the Canadian Imperial Bank of Commerce (CIBC) had reached an agreement with the Gilinski Group, Colombia, to purchase FirstCaribbean International Bank Limited for US $797 million.
Antigua and Barbuda Finance and Banking
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De-Risking in Jeopardy 3 concluded at the stage when the Canadian Imperial Bank of Commerce (CIBC) had reached an agreement with the Gilinski Group, Colombia, to purchase FirstCaribbean International Bank Limited for US $797 million.

At the time, eyebrows were raised, but because of the involvement of CIBC, proceedings developed and optimism of a successful outcome of the transaction was presumed.

Long-standing observers of banking and financial matters in the region did not share the view and many were alarmed.

That was 2019 and, whilst it is not unusual for sales or amalgamations of major entities to take several years to reach a conclusion, it is especially surprising that those involving banks should end in failure.

Nevertheless, early in 2021, CIBC disclosed that the proposed sale of the majority of FirstCaribbean International Bank's ownership to GNB Financial Group has fallen through.

The reason for this change in plans has been given as lack of support by the region's regulators.

Spawned in 2002, FirstCaribbean International Bank Limited is a relatively new bank by international banking standards.

It was born of arrangements between Barclays Bank PLC and Canadian Imperial Bank of Commerce, both of which were very long-standing institutions operating in the Caribbean.

It took several years of preparation for the banking clients of both Barclays and CIBC to be transferred to a single entity, known as CIBC Caribbean Limited and then broken off into the first appearance of FirstCaribbean International Bank Limited.

However, by 2006, Barclays decided to withdraw entirely from its Caribbean risks and CIBC became the sole owner of the FirstCaribbean International Bank Limited, despite the Caribbean being internationally recognised as a high-risk environment.

In 2011, CIBC announced that it was joint branding with FirstCaribbean International Bank Limited.

2018 saw CIBC deciding to try to mitigate its risks with an Initial Public Offering (IPO) in the United States for FirstCaribbean International Bank Limited.

The attempt was unsuccessful and CIBC had to withdraw its Proposal.

Nevertheless, the Prospectus registered with the Securities and Exchange Commission distanced CIBC from FirstCaribbean International Bank Limited by stressing that it was an indirect owner of the Caribbean-managed operation, while at the same time confirming that First Caribbean International Bank (Barbados) Limited was a subsidiary of First Caribbean International Bank Limited.

This is especially significant because FirstCaribbean International Bank (Barbados) Limited was originally named CIBC Caribbean Limited -- the company which absorbed the business of Barclays Bank PLC when the latter decided to become involved with CIBC in the creation of FirstCaribbean International Bank Limited in 2002.

The official documentation dated 10 April 2018 also confirmed in its SEC oath-binding declaration that FirstCaribbean International Bank Limited was an indirect subsidiary of its parent, Canadian Imperial Bank ("CIBC"). (Page 25 of the 389-page Preliminary Prospectus - Overview - Our Relationship with CIBC).

Currently, FirstCaribbean International Bank Limited and its subsidiary FirstCaribbean International Bank (Barbados) Limited are incorporated in Barbados. Both are licensed and regulated by the Central Bank of Barbados. (Page 164 of the Prospectus shows structure).

The Eastern Caribbean Central Bank also oversees bank branches operating in many of the Caribbean countries in the region, including Antigua & Barbuda, where FirstCaribbean International Bank (Barbados) Limited has a branch presence.

Turning once more to the most recent failed sell-off, it is unimaginable that local regulators would not have been approached to signal advance approval of a forthcoming sale.

Therefore, it is bizarre that they now appear to have rejected the transaction without outside direction because they had issued the licences to the institutions involved.

Meanwhile, both of the FirstCaribbean entities continue doing business in the Caribbean.

CIBC has recently stated that it is now pleased to confirm that its Caribbean business is managed locally. Whilst, at first glance, this might give the impression that it has successfully distanced itself from Caribbean banking practices, while remaining confident of proper management and group responsibility, an alternative view is that it has either lost control or would like to pretend that the very real risks pose no threat to its brand.

The reality is that FirstCaribbean International Bank Limited and its subsidiaries are viewed as extremely high risk. Such high risk that, should it fall into the hands reaching out for ownership, it is likely to further augment the basis for the universal negative perception of the financial sector operating in the Caribbean.

Antigua & Barbuda's financial reputation is unenviable.

If we just look at recent banking history in Antigua & Barbuda, there is Stanford International Bank that prospered through correspondent banking links to Toronto-Dominion Bank, Societe Generale Private Bank S.A., HSBC Bank PLC, Trustmark National Bank and Independent Bank (known previously as the Bank of Houston).

The former owner of the Stanford empire and chairman of the Stanford Financial Group, R. Allen Stanford, still has 110 years to serve on his sentence in a US federal prison.

Then, there is the Odebrecht scandal, which resulted in Operation Car Wash that had very clear, strong links to Antigua & Barbuda via Antigua Overseas Bank and Meinl Bank (Antigua), a subsidiary of Meinl Bank AG, Austria.

The failure of the Antigua Barbuda Investment Bank and its assimilation into the Eastern Caribbean Investment Bank is a matter no longer discussed but not forgotten.

There is also the case of Leroy King, the disgraced, corrupt head of Antigua's Financial Services Regulatory Commission, who began serving his sentence of 10 years in a US federal prison, only last month, after evading extradition and justice for well over a decade.

Setting aside the history of unpaid and forgiven international debt, its growing indebtedness to and reliance on the Chinese government continues to increase the influence that the Chinese communist form of government has over Antigua, and the frequency and strength of actions taken by the Antigun Government against its own citizens to benefit Chinese interests.

For example, it has developed a habit of taking private property, and supplying ownership of large parcels of land so "acquired" to a variety of Chinese entities, ostensibly for industrial development, and to other international companies for tourist and local development.

The 99 year "lease" of hundreds of acres of Barbuda, to various resort-planning projects, with contracts to transfer them into freehold, as soon as the laws are changed, is a glaring example of such activity. The clearing of small privately-owned houses surrounding the quays of St. John's into an assembly of land for Global Ports to develop as it chooses, as part of its contract for management of the sole Antiguan port, is another.

Earlier readers and observers will be aware that this behaviour received its first international attention with the Government's expropriation of the Half Moon Bay Resort at the beginning of this century and its subsequent sale, in 2015, to a buyer of choice before paying the dispossessed owners the compensation for the Government's "forced acquisition" as set out by Order of Her Majesty's Privy Council, which is Antigua's highest court of justice.

For the record, this matter is still in the courts. It is also one in which FirstCaribbean International Bank (Barbados) Limited chose to become embroiled, further attracting attention to valuations of its corporate integrity and management style of doing business.

Antigua & Barbuda has a long history of persecuting journalists, generally accepted media repression, as well as links to arms, drugs and human trafficking, in addition to other criminal activity involving serious international money laundering.

Altogether, it is hardly surprising to witness the exit of financial entities concerned with their own safety and reputation.

The Bank of Nova Scotia's efforts to divest itself of its Caribbean sector have been reported in previous "de-risking" articles.

In November 2018, Republic Financial Holdings Limited, Trinidad announced that it was seeking to acquire the Scotia bank operations in Angela, Antigua & Barbuda, Dominica, Grenada, Guyana, St. Kitts & Nevis, St. Lucia, St. Marten and St. Vincent & the Grenadines.

The announcement received a hostile response from Antigua & Barbuda's Prime Minister, Gaston Browne, demanding that the Scotiabank operation should be offered for sale to local entities and specifically to his Government.

Guyana was the only other government that blocked the sale in their country.

In August 2019, Scotiabank warned that it might consider options to simply close its branches in Antigua & Barbuda. This received a further hostile response from Browne.

Subsequently, in October 2020, the Bank of Nova Scotia advised that it had made arrangements to sell its two branches in Antigua & Barbuda to the locally-based Eastern Caribbean Amalgamated Bank Limited. The Antiguan Government is the largest single shareholder in this amalgamated bank. No details were released.

Elsewhere, in seven of the nine countries, Scotiabank has sold its businesses to Republic Financial Holdings Limited.

It will be interesting to see if the shareholders and regulators in Canada and the regulators in the Caribbean approve the sale to Antigua's Eastern Caribbean Amalgamated Bank Limited, a bank that lacks the standing and longevity of Republic Financial Holdings Limited.

Now, yet another bank is exiting the Caribbean. This time it is Royal Bank of Canada.

On 12 December, 2018, Royal Bank of Canada, the largest bank in Canada and a major world player, announced it had agreed to sell its banking operations in the Eastern Caribbean banking community to a consortium of indigenous banks within the region, comprising 1st National Bank of St. Lucia, Antigua Commercial Bank Ltd., National Bank of Dominica Ltd., the Bank of Montserrat and Bank of Nevis Ltd.

The sale encompasses the branches of Royal Bank of Canada in Antigua, Dominica, Montserrat, St. Lucia and St. Kitts & Nevis and also, RBC Royal Bank Holdings (EC) Limited in Nevis, Grenada and St. Vincent and the Grenadines.

It now seems that these arrangements have been finalised and it brings to an end over 100 years of RBC operations in the Caribbean. Account transfers are reported to be in place.

Time will tell whether this agreement holds.

De-risking operations will continue, regardless.

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