Leader of the Opposition Godwin Friday says that if selling 31 per cent of the Bank of St. Vincent and the Grenadines makes it stronger, why didn’t its parent company, Eastern Caribbean Financial Holdings (ECFH), resell to the Ralph Gonsalves government the full 51 per cent it purchased in 2010.
The Unity Labour Party administration has decided to repurchase 31 per cent of the shares, seven years after it sold 51 per cent of the then National Commercial Bank to ECFH.
Prime Minister Ralph Gonsalves said that the EC$32.4 million transaction would strengthen the Bank of SVG, even as Bank of St. Lucia, which is also owned by ECFH is losing money.
“If selling 31 per cent strengthens Bank of St. Vincent and the Grenadines, we must assume that 51 per cent strengthens it even more,” Friday said.
He, however, said that he understands the sensitivity of matters relating to financial institutions, adding that his New Democratic Party will not pursue short-term advantage by destroying people’s lives but will do what is responsible, and support the bill.
Gonsalves, who is also Minister of Finance, first announced the repurchase earlier this month.
Friday said he welcomed the prime minister’s explanation in Parliament on Thursday of the reasons why his government has decided to repurchase the shares.
The opposition leader, however, said he can’t say he is “fully clear or perhaps never will be with respect to the motivation that was driving the Bank of St. Lucia to resell and entirely the motivation of our government in buying”.
The opposition leader said he understands the vulnerability of regional banks, especially stand-alone commercial banks.
“In the global financial system, they are like the proverbial small fish swimming in deep waters with sharks all around,” Friday said.
He said the advice of the Eastern Caribbean Central Bank that regional banks seek to strengthen themselves by amalgamation seemed like good advice at the time and probably still is.
When in 2010, the then NCB sold 51 per cent of the shares to ECFH, it was part of an arrangement that emerged at the same time and triggered by an EC$100 million loan the government had taken from the Caribbean Development Bank to consolidate loans at NCB.
The CDB had urged that majority shareholding be moved out of the hands of the government, Friday pointed out.
He told lawmakers that at the time there was a lot of politics and public bravado about the transaction.
He noted that NCB was a national institution set up in 1977, adding that many citizens regarded it as a national icon and treasure, irrespective of the underlying challenges of operating in the current economic circumstances.
“So there was a lot of talk about how good it was for the bank and the citing of the advice of the Eastern Caribbean Central Bank.
“So at that time, amalgamation strengthened the bank and we are being told now that delinking is achieving that same objective of strengthening the Bank of St. Vincent and the Grenadines going forward.”
Friday said that the prime minister, in his public statement earlier this month urged the public not to view the delinking as a retreat from the amalgamation strategy but as something that is in the best interest of the Bank of St. Vincent and the Grenadines.
“… from the explanation this morning, it seems that the relationship was never quite consummated although the holding company essentially owned majority controlling interest in the bank of St. Vincent and the Grenadines, they never merged with the Bank of St. Lucia, in terms of their operations. They still operate separately.
“And, under that relationship, we are told, the bank of SVG was doing quite well, was better than the bank of St. Lucia,” he said, adding that ECFH essentially sold off 31 per cent shareholding of its better asset.
“Why 31? Why not the whole thing? Why not the whole 51 per cent? Why did you not simply say, ‘OK, we are delinking; let’s delink.
“And if 31 per cent shares strengthen bank of St. Vincent and the Grenadines, then we must feel that 51 per cent would strengthen it even more at this current time.
“These are some of the questions that are raised.”
Friday said that the point is that there is a certain time when one has to describe something as it is.
He said what has happened is that the government was a third party in negotiations that included a regional financial institution.
Efforts were made to get that regional financial institution to buy the shares, but it made an offer that Gonsalves said was “derisory” and the government decided to repurchase the shares.
Friday noted that with the repurchase of the 31 per cent of the shares, added to what is owned by the National Insurance Services, essentially gives government and government institutions, 63 per cent shareholding in the bank.
“So between them, they can determine who we wish to get in bed with later on. It is not under the control anymore of the financial institution in St. Lucia,” Friday said.
“That, it seems to me, is one of the motivations underlying the transaction.
“Whatever it is, Mr. Speaker, we have to be clear to the people of the country. We have to tell them that we had hoped that in having the merger back in 2010 that the strategy of amalgamating stand alone national commercial banks would go forward from then on and these institutions would become much more viable going forward, that that is still a desirable and preferred strategy – as the prime minister said, he hopes in two to three years to sell the interest that has been acquired. But that is assuming that you can find suitable buyers and a suitable match to make this work.”
Friday said he would think this would require the participation of a large financial institution and not just private citizens because a strategic partner will be needed to enhance the viability of the Bank of St. Vincent and the Grenadines going forward.
This is not an easy thing, because the government tried it before deciding to repurchase the shares, adding that they are being repurchased at a higher value than they were sold for and the repurchase is being financed using borrowed money, Friday said.
The government is repurchasing 31 per cent of the shares for EC$32.4 million, seven years after it sold 51 per cent for EC$42 million.
“Mr. Speaker, I understand the sensitivity of matters related to financial institutions and we, on this side, have always said we are not going to gain short term political advantage by destroying people’s lives and livelihoods and investments and savings. We will do what is responsible and this is why we have been cautious, even when there have been questions about the transaction that require answers, we have been cautious in our public remarks and we will remain so.
“But let it not be understood or be thought, Mr. Speaker, that any wool is being pulled over our eyes. We are not that naive, inexperienced or unaware of the context or the motivation driving these sorts of transactions. We have a lot of experience on this side,” he said, adding that Members of Parliament for Central and East Kingstown, St. Clair Leacock and Arnhim Eustace, as well as Sen. Jules Ferdinand are versed in financial matters.
“I have studied, Mr. Speaker, not as a specialist, but I am not an idiot. I understand what is going on.”
Friday said that the opposition hopes that the seriousness and business calculations would be put into the transaction.
“That all the public posturing, the politics, be taken out of this so that the matter can proceed as a purely commercial venture because that is the only way that you will protect the shareholders of the bank… because when you look after the interest of the shareholders, it strengthens the institution and puts it in a better position to achieve any sort of social function we may wish to see it perform in St. Vincent and the Grenadines,” the opposition leader told Parliament.