Editorial: Apparently, it will not be that easy

An interesting stew is brewing after the announcement that the Bank of Nova Scotia, also known as Scotiabank, is divesting its interests in several territories in the Caribbean including Anguilla, Antigua and Barbuda, Dominica, Guyana, St. Kitts / Nevis, and St. Vincent and the Grenadines.  As well, Scotiabank announced that its subsidiaries in Jamaica and Trinidad and Tobago would be selling their insurance operations.

On the banking side, the “non-core” banking business would be sold to Republic Financial Holdings Ltd. for an undisclosed amount and the insurance businesses to Barbados-based Sagicor Financial Corporation Ltd. The latter deal is apparently contingent on Sagicor being acquired by a Toronto-based special purpose acquisition corporation.   Anyway,

that was the plan.  We say “was” because the surprise announcement has angered Prime Minister Gaston Browne and he is strongly objecting to the sale and the process adopted thus far.

In a letter to the General Manager of Scotiabank Antigua, the PM lets the GM know how “deeply disappointed” he is to learn that the authorities of the bank decided to sell the operations in Antigua and Barbuda without any form of consultation with the regulators and Finance Minister.  It is a point that is hard to argue as one would expect some basic level of respect and communication in a matter such as this.  We completely understand the need for confidentiality in deals such as this, but at the same time, the PM has a point; the bank cannot keep everything in the dark and expect smooth sailing after making the announcement.

The PM flexed his muscles and made it clear that the situation was “unacceptable” and that the law requires agreement and authority for the sale to go through.  But that was not all on the PM’s mind, as he informed the GM that the bank should first seek to sell

locally before seeking an alternative outside. He

ended his missive by informing the bank that he would be expecting a “formal application” that would allow “time to identify new local owners.”

The PM upped the ante a day later with a letter to the Eastern Caribbean Central Bank (ECCB) informing the institution that “the Government of Antigua and Barbuda has concluded that the divestment announced by the Bank of Nova Scotia is not in the overall interest of our country and our people.”  Further, “until other options for divestment are explored, particularly providing a consortium of local banks the right of first refusal … the Government of Antigua and Barbuda will not issue a vesting order.”

No doubt, “them there fightin’ words,” but will the strong, knee-jerk reaction turn into nothing more than bluster?  Where we see some holes in the argument start with the Constitution, continue into CARICOM and enter the arena of common business practices.  The Constitution protects the ownership and enjoyment of property.  Telling someone who they can sell their property to is an infringement of their rights.  Now, financial institutions fall into a highly regulated category, but as long as the buyer fulfills the requirements of the regulations, it would be hard to deny the seller and buyer the right to transact business.   

Then there is the fact that the operations are being bought by a Caribbean business.  In this case, a reputable financial organisation from Trinidad and Tobago.  With all the talk of greater integration and the obligations to CARICOM, can we block our CARICOM brothers and sisters from expanding their regional footprint into our yard?  

The structure of the companies and the deal must also be considered.  Scotiabank is very likely uninterested in selling their operations in a piecemeal way.  They would want to deal with a single buyer to extract the greatest value.  The same is true for Republic.  The value is in the ‘overnight’ expansion.  The whole, as they say, is greater than the sum of its parts.  The deal would likely fall apart if each country took the approach promoted by the PM.  Plus, what is the structure of the banking operations?  At what level is ownership changing?  This is where the legal teams will make their money.  If these operations are being sold multiple levels up the chain of ownership, are the local operations changing ownership?  We can hear the legal fees adding up.

It is kind of ironic from our perspective, because in the world of banking, knowing your customer is paramount to operations in today’s world.  We just wonder how well the governments know their banking operators and the legal framework in which they operate.  We suspect that in the next short while, we will find out.

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