Bank of The Bahamas closes Miami operation
Just over five years after it opened, Bank of The Bahamas has closed its Miami service center, citing “onerous” demands from U.S. authorities that it no longer outsource support functions, and a failure of trade finance-related business to take off at the unit.
Paul McWeeney, Bank of The Bahamas’ (BOB) chairman, told Guardian Business the closure was effective June 30th, 2013.
McWeeney said a cost-benefit analysis determined that the “substantial” resources BOB would need to put into the unit to staff it with the necessary capacity to conduct the compliance, accounting and other functions it had to date relied on its Nassau offices to provide, meant the operation would no longer be viable.
The assessment came after BOB Financial Services Inc. engaged an independent consulting firm in the U.S. in 2012 to assess the ongoing operational requirements given a rapidly evolving regulatory landscape and best practice requirements in the U.S.
The chairman projected it will be Family Island-based BOB customers who would be most impacted by the closure, as it was these customers who primarily relied on the ability to access U.S. dollars at the Miami branch, rather than having to fly to Nassau to access cash on their way to Florida.
“We have attributed over 1,000 new customers to that (the ability to use BOB accounts to access U.S. cash in the United States). There were certain people who used that unit (in Miami) pretty actively. We’re trying to find ways to accommodate them through our corespondent banking relationship.”
McWeeney denied that the closure was attributable to concerns about cost-cutting ahead of plans by the government to implement a new three-percent business license fee that a number of bank executives have suggested will severely impact the sector’s profitability in 2014.
“Our office there was technically a customer service extension of our Nassau-based operations. It was staffed by two people. All the support from the compliance and accounting side came from New Providence.
“We were informed that we can no longer outsource those functions to Nassau and would have required hiring no less than three to five staff there immediately, and they would be non-business staff, so they couldn’t get engaged in the selling of bank services. A cost benefit analysis didn’t justify it,” said the executive.
He added that moving key support functions to the U.S. would have meant storing certain client information outside The Bahamas.
“It could negatively impact the bank’s operations in The Bahamas,” he added.
Meanwhile, the executive stated that the decision to discontinue the Miami service would in no way affect the bank’s operations in The Bahamas.
“Rather, we are currently in the early stages of strategizing the establishment of branches in other Family Islands,” said McWeeney.
Bank of The Bahamas opened its Coral Gables, Florida, operation in March 2008.
Part of the impetus behind the decision to open abroad was the $2.5 billion spent annually by Bahamians in the U.S. on shopping, education, recreation and health services.
Additionally, the bank hoped it might be able to capitalize on the opportunity to provide trade finance.
“When we opened it, we were in the height of an economic boom. It was very, very, profitable and we anticipated a lot of new trade finance business from local commercial clients, but shortly there after the recession hit and that aspect of the business model didn’t really work out.”
As to the future, McWeeney said the bank still maintains its license to operate in Florida and has not closed the door on reopening at a future date.
In its most recent third quarter results, BOB posted a $6 million improvement in operating income and a $5.6 million increase in net interest income. An additional $9 million in loan loss provisioning, however, helped to offset these rises, contributing to a $1.5 million net income loss.
The bank committed to “strengthening its backbone” by eliminating through redemption inorganic debt in the form of $37 million in mortgage-backed securities that have been issued over the years, and adding an additional $31.5 million in Tier 1 capital to its capital base.