Regulators in the financial sector, specifically the Central Bank of the Bahamas and the Securities Commission are being roundly criticized for allowing shareholders in CIBC Bahamas to lose millions of dollars.
This happened with the merger of CIBC and Barclays Bank and the establishment of FirstCaribbean International Bank. The new bank was allowed to discount the value of its shares to the detriment of the public, the Bahama Journal has learnt.
After CIBC purchased the business of Barclays, the new entity, FirstCaribbean, had a Rights Issue – which allowed all of the shareholders of FirstCaribbean the right to buy new shares to avoid dilution at the fixed price.
Before the transaction, CIBC shares were trading on the Bahamas International Securities Exchange for $10.70. When the Rights Issue was announced, the share price was $6.10. This had the effect of reducing the price from $10.70 to $6.70.
Immediately, the Bahamian shareholder lost $4.60 per share.
Pension plans and international investors who had a significant portion of their funds in CIBC shares lost millions of dollars in share value, according to one source.
The shares represented the largest market capitalization on BISX. One pension plan reportedly lost some $2 million in market price as a result of the Rights Issue.
Sources say the earnings per share of the combined business was lower than the earnings per share of CIBC before the transaction. One analyst suggests that this occurred because CIBC paid Barclays too much money for the business.
The Bahamian minority shareholders have reportedly suffered a decline in market value of more than $15 million as a result of the drop in CIBC shares.
The major complaint against the regulators is that they allowed the Rights Issue to be based on a very substantial discount, knowing that this would affect the market value of the shares.
FirstCaribbean’s Director of Retail Banking Terry Hilts told a reporter this week that, “This transaction involved the transfer of some 52 million shares and I’m sure you would appreciate that on a transaction of this size, it would be unrealistic to use the market price…In fairness to our existing shareholders, we indicated that through a Rights Offer we would give them the opportunity to acquire additional shares, at the same price used for the Barclays transaction, that is $6.10 a share.”
Mr. Hilts also reportedly said he expects the value of the shares to eventually increase.
The Bahama Journal
