24 October, 2009


National Bank of Anguilla and Caribbean Commercial Bank are being forced to merge together.  Yes, I want to come back to this topic.  The Chief Minister, and Chairman of the Board of the Caribbean Commercial Bank, has told us at one of his press conferences that the Eastern Caribbean Central Bank is demanding amalgamation.  I want to focus on that aspect of the issue.  The Central Bank is the regulator of the two banks.  The banks are helpless to resist the pressure coming from such a quarter, regardless of how mindless it is.  Refusal appears to be out of the question.  The two banks are apparently working to put the plan into effect without further delay.

In order to have an idea of what a merger would mean in financial terms, I searched the internet for financial data on the two banks.  NBA was not difficult to find.  The 2008 Report and Accounts are on the NBA website.  The balance sheet at page 23 reveals that the total assets of that bank at the time were EC$1.13 billion, deposits were EC$928 million, and shareholders equity amounted to EC$131 million.  I searched for any Annual Report for CCB to see how much they would bring to the marriage.  I found their website easily enough.  There is no financial information on it that I could locate.  I know that as a private bank they are not obliged to make their balance sheets publicly available.  I realise that the data is not secret.  It is given to the Central Bank on at least a quarterly basis.  It is also published in the Official Gazette.  However, neither of these sources is online, and CCB’s financial data is therefore essentially unavailable.

We cannot imagine that the figures for CCB can be any greater than those for NBA.  Even if CCB brought in the region of EC$1 billion to the table, we are still talking of total assets and liabilities of the merged entities of about EC$2 billion.  US$100 equals EC$270.  That means that the merged assets will be in the region of US$571 million.

Apparently, the Central Bank has convinced itself that the two local banks are too small to stand on their own.  The argument being advanced is probably that the two will become stronger and better able to resist the present economic downturn if they amalgamate.  That just does not make sense.  In international banking terms, both local institutions are tiny.  Why would any regulator be so deluded as to believe that two minnows coming together will be anything else but one minnow with indigestion?

A search of the internet for bank failures in the USA during 2009 is revealing.  Of the 10 largest bank failures, the deposits of Colonial Bank exceeded US$20 billion.  The smallest, New Frontier Bank, had deposits in excess of US$2 billion.  The complete list, for those interested, can be checked here.  Our two banks are miniscule in comparison to these US banking failures.  What conceivable safety could their amalgamation provide when much larger US and UK banks are much more likely to fail than ours are?

 Heaven alone knows what arguments the ECCB has produced to justify such a dangerous and destructive move.  Based on what the Chief Minister said publicly a few days ago, the principle argument appears to be that amalgamation will make it easier for our two banks merged into one to compete!  Could it be that all it really amounts to is making life easier for the Central Bank?  It gives them one less entity to regulate.

As a shareholder in NBA, I have been provided with no information as to why this dismal step is being even considered.  That distresses me.  It makes me feel sad and dispirited.  It discourages me.  It fills me with foreboding.

What is more upsetting is that the plan to amalgamate is being put into effect in secret, by order of the directors, and without consulting the shareholders.  Are we the shareholders and depositors not to be told anything until it is a fait accomplis?

Amalgamation for commercial reasons is one thing.  Amalgamation at the whim of a regulator is entirely another.

The other result of amalgamation will be that, when the economy rebounds in a few years' time, we the consumers of banking services will no longer have our two most efficient banking service providers competing with each other to our benefit.  We shall be left with expensive, inefficient, unfriendly banking services.

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  1. Are you saying that the authority of The Central Bank actually supersedes that of the stockholders? I can certainly understand pressure (is it really less expensive to regulate one bank than two?) but that the stockholders of a public company are entirely neglected is another attitude altogether.
    It certainly raises the question what a stockholder is under Anguillian law...I'd fight this if I were you...

  2. Don, the shareholders will do all right in an amalgamation. What about the depositors?

    Incidentally, I agree with this comment:
    .....Mitch--the sad state of the "news" business being what it is, is what makes your blog so much more important. Fortunately, you are doing the "lord's work"; keep it up......

  3. Don - sometimes you just don't do your research - in this case you didn't even read your own source material. Most of the 106 banks failing so far this year in the US were smaller than than the two banks combined and many were under $100 million (smaller than either NBA or CCB). While some small banks in the US survive and prosper, it is also true that many smaller banks are finding it increasingly more difficult to succeed financially and compete with larger banking competitors.

    I have no opinion about the merits of a specific merger between NBA and CCB, or what circumstances may have led the Eastern Caribbean Central Bank to apparently pressure them to do so. It may or may not be in the best interests of you and other stockholders of NBA.

    However, combining the two local banks may well make sense, as there would certainly be considerable economies of scale (no need for four banking offices, two sets of executive staff, two data processing systems, reduced marketing expense, etc.). The expense savings could enable a combined local bank to offer more attractive rates, lower fees and/or improved service. Anguilla would still have banking competition with offices of Scotiabank and FirstCaribbean International Bank present on the island.

  4. I think the point is that combining the two banks does not in any meaningful way make them any bigger. They could reduce costs by laying off more staff, as they are entitled to do in this time of economic downturn. They should cut expensive perks to directors, which have got out of hand in recent years.

    Anyone who thinks that Scotiabank and FirsCaribbean provide competitive banking services does not have an account with either of them.

  5. As a preface, I have no idea how the Anguillian regulatory process works. That said, I am familiar with the regulatory process in America. A regulatory prompted merger between two institutions would be motivated by a potentially fatal weakness in one institution's operations. I have never heard of two institutions being merged to simply gain size for competitive advantage. Those decisions are left to market forces. Regulators are primarily concerned with the safety and soundness of an institution. Shareholder rights are secondary to the protection of depositors.

  6. Anguilla, being Anguilla, will there REALLY be ANY savings? How many of the executive officer types will be fired? What will happen to the big, fancy buildings that each bank currently owns? All I forsee is a long, bitter struggle to see which one dominates the other. Will shareholders or customers benefit? Do the board of directors or the bank regulators even care? Doesn't really matter...neither can do anything anyway...

    I do like the comment about 2 minnows becoming 1 minnow with indigestion. I think that about sums up the whole situation: one minnow with indigestion ready to feed the next big fish that swims by...

  7. Don, when you say that we shall be left with inefficient, unfriendly banking services, please don't tell me you mean Scotia and First Caribbean. We moved our money out of NBA, they were so tiresome and slow. And any bank offering 6%? It's time to move your money. Any serious international banker will tell you that's a risky bank.

  8. Don I think you are missing the point here .. as usual?? The OECS Governments and the ECCB have all agreed that ALL indigenous banks should be amalgamated, that is all the CCB's and NBA's in Anguilla, St. Kitts, Nevis, Antigua, Dominica, St. Vincent, Montserrat, Grenada and St. Lucia. The CM has only been trying to bring the subject home to us. Its not about NBA and CCB as you suggest. Whether this actually happens is a lot farther away than you suggest.

    On another point, your last post seems to suggest that First Caribean and Scotia offer better service etc. Oh please!

  9. It would appear that our anonymous contributor above has some useful new information. I did a Google search and came up with the following. The communiqué from the 6th meeting of the Monetary Council [Ministers of Finance] of the Eastern Caribbean Central Bank on 18 September 2009 is published on the Central Bank’s website.

    From these minutes, it would appear that the Monetary Council at its September meeting considered a proposal put forward by the indigenous banks for greater cooperation and consolidation. We are familiar with this proposal. It was shared by the Board of NBA with the shareholders at the last general meeting earlier this year. The shareholders approved the proposal. What they agreed to was an increase in capital that would dilute their shareholding. The purpose of the increase in capital was to permit other regional banks to invest in NBA. The proposal of the indigenous banks did not involve compulsory amalgamation at the behest of the Central Bank or its political organs.

    It is the Central Bank and its various committees and technocrats that are pushing NBA and CCB into forced amalgamation. The revelation that they are doing the same elsewhere does not diminish the damage it will do to banking services. It only serves to reveal how much bigger the damage will be. It will be regional, not limited to Anguilla.


  10. J. Pierpont Morgan used to complain bitterly, all the time, about "ruinous competition".

    The Great Almalgamator was wrong then, it's wrong now, and, as we see here, and in the U.S. medical markets, the forced monopolization of anything these days is primarily the province of college professors, the punditocracy, beaucratic oligarchs of various flavors, reform politicians, and other rent-seeking parasites.


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