AT A VIRTUAL public meeting on Thursday, Opposition Leader Kamla Persad-Bissessar returned to what is turning out to be one of the main themes for her 2020 general election campaign: the allegation that there is something 'not right' about NCB Global Finance (NCBGF) receiving mandates to raise what she claims is $2.5 billion for the central government, State companies and State-owned enterprises between 2016 and May 2020.
The CEO of NCBGF is Angus Young, whose brother, Stuart Young, sits in the Cabinet of the current administration as the Minister of National Security and Minister in the Office of the Prime Minister.
Mrs Persad-Bissessar renewed her attacks on the Young brothers on Thursday evening when she held up a Cabinet Note number 872, Finance Note 20-165, dated May 21, 2020. That Note pertains to the proposed award of a mandate to raise $125 million for the Government to refinance one tranche of a three-tranche loan to WASA. The tranche, is due for the bullet payment of $125 million today, June 3, 2020.
The context in which Mrs Persad-Bissessar raised her “concerns” about Stuart and Angus Young was this: “Too many have lost their jobs. Too many are suffering. And you know, I want to share something with you that is really, really shocking to me. Because today I discovered that while you cannot get a hamper, cannot get the salary relief grants, they cannot get the rental relief, the small business loans, cannot help the ordinary people of this country, the friends and the family and the financiers are the one who are benefitting.
“Since this Government has come into power, NCB Global Finance has become the banker of choice for the Government. Above and beyond the normal banking sector, above and beyond the institutional traders in the financial sector, NCB has jumped and leaped from an asset base of $83 million in 2015, they have loaned to the Government about $2.5 billion.”
So, it seems to me, that Mrs Persad-Bissessar's narrative is that while many people in this country are suffering—having lost their jobs and being unable to access the various relief grants from the Government—the friends, family and the financiers of the ruling party are continuing to benefit from the State's largesse.
She substantiates that claim by alleging that NCBGF “has become the banker of choice” for the Government, having loaned central government $2.5 billion between 2016 and May 2020.
Now, between the budget for 2016 and the budget for 2020, the central government has raised, or budgeted to raise, $28.43 billion in financing to address its fiscal deficits for that period. That information can be found in appendix 22 of the 2019 Review of the Economy and in Minister of Finance Colm Imbert's 2020 budget.
That $28.43 billion is likely to increase by a minimum of $6 billion of un-budgeted spending by the September 30, 2020 close of the 2020 fiscal year, according to Mr Imbert. That would take central government’s financing of its budget deficit for the five fiscal years from 2016 to 2020 to $34.43 billion. And it could be more.
The $2.5 billion the Leader of the Opposition says was sourced by NCBGF is less than ten per cent of Government's total financing.
Does less that ten per cent of central government's total financing needs for five years make NCBGF the Government's “banker of choice?”
And that does not include the borrowings by State enterprises-such as Trinidad Petroleum Holdings Ltd, Caribbean Airlines, UDecott, HDC and others.
Is interest profit?
In my journalistic, layman's view, Mrs Persad- Bissessar then proceeded to describe the interest payments on a loan or bond as though interest is a synonym for profit.
Here is what she said:
“You know what is the interest rate? Through the life of this particular loan from NCB, they will receive $60.8 million in interest. And that interest is what? It is pure profit. That is profit. That's just for this one in May 2020. So whilst you are battling here for a hamper, for relief grants, rental grant and small business loans, $60 million will be this man's interest.
“But that's not the end of it because the total, thus far I am saying, from all the loans that I had shared before, this (WASA loan) being the latest one. They have loaned to the Government about $2.5 billion from 2016 to May this year. And do you know how much profits they are going to make through interest? Over $2 billion. Over the life of the various loans, they are going to get at the end of this $2 billion.
“That's your money. That is not Government money.That is taxpayers’ dollars that this company—the brother of Stuart Young, Angus Young is the CEO-$2 billion in profits...."
So Mrs Persad-Bissessar, who served as prime minister of this country for five years and four months, thinks NCBGF will earn $2 billion in profits, "over the life of the various loans,” for lending the Government $2.5 billion.
Does she not know there is a difference between interest on a loan (or bond) and the profits from that loan or bond? Interest is defined as the money that is charged by a bank or other financial institution for borrowing money. Profit is the money that is earned in trade or business after paying the costs of producing and selling goods and services.
In very simplistic terms, profit is revenue minus expenses.
In the case of the WASA refinancing loan, NCBGF proposed to lend the Gov ernment $125 million at a fixed rate of 6 per cent for eight years with a bullet payment at the end of the loan, according to the Cabinet Note that Mrs Persad-Bissessar held up.
So that works out to be INTEREST of $7.5 million a year for eight years, which amounts to $60 million for the period of the loan.
But is that $7.5 million in INTEREST a year the PROFIT that is going to the lender?
Well, no. Of course not. The bank has to pay employee costs, pension costs, technology costs, security costs, the cost associated with deposits and taxes etc BEFORE they get to PROFIT.
An investment bank like NCBGF sources the funds for the loans or bonds it arranges in two ways; from its fixed deposit base and by selling the loan or bond to other financial institutions.
At NCBGF, fixed deposits of over $1 million earn the depositor 2.6 per cent for 3 years and 3 per cent for five years, according to its website. Those deposits constitute the bank's cost of funds.
On Monday morning, an astute friend of mine asked me a most insightful question: Why does the Ministry of Finance, time and again, choose the same company, where the CEO is the brother of a high-powered minister?
The answer may be as simple as NCBGF has won mandates because it has consistently delivered the most competitive rates for Government loans/bonds because its accepts smaller profit margins.
A good example is the WASA bond for $125 million. The Ministry of Finance invited 11 bidders. Four financial institutions responded to the Request for Proposals. Republic Bank and Scotiabank indicated they were not in a position to provide the financing structure outlined in the RFP.
That left two financial institutions: NCBGF and ANSA Merchant. NCBGF submitted a fixed rate bid of 6 per cent over eight years. ANSA Merchant's fixed rate bid was 7.2 per cent.
Who would you choose?
Anthony Wilson is the head of the Multimedia Business Desk at One Caribbean Media