ON Friday last week, Canadian banking took a big jump out of the Caribbean.
CIBC—Canadian Imperial Bank of Commerce—announced the sale of just over two-thirds of its First Caribbean International Bank to a company controlled by Colombian billionaire Jaime Gilinski for close to US$800 million.
Based in Barbados, First Caribbean is not a trip-off-the-tongue name in T&T, though they do have a presence. But they’re big in the rest of the region, with assets of US$11 billion, about the same as Republic Bank, mainly in the Bahamas, Barbados, Jamaica and the Eastern Caribbean. CIBC itself operated in T&T as Bank of Commerce until it was bought out by Republic in the 1990s.
CIBC will hold onto almost a quarter of First Caribbean, with a slice also for minority shareholders. But the dominant players will be the Colombians.
It feels like the end of an era. Three of Canada’s big five banks—CIBC, Scotia, and RBC—have a huge historic footprint in the region.
CIBC has been in the Caribbean for almost a century, since 1920. Scotia came in 1889—they had a branch in Kingston before they had a presence in Toronto. RBC was in Bermuda from 1882 and Port of Spain from 1910.
Canada’s traditionally strong regulation saw its financial sector through the banking crisis of 2008 with remarkably little trouble, to the benefit also of the Caribbean.
Why are the Canadians pulling out?
Because it’s not just CIBC. Scotia this month sold its Eastern Caribbean and Barbados operations, not to exotic Colombians but to T&T’s Republic Bank.
RBC sold its Suriname operations to Republic in 2015, and its Jamaica affiliates to Sagicor a year earlier.
CIBC is selling out at a low price.
The sale values First Caribbean at US$1.2 billion. That’s down from US$2.8 billion in 2006, when CIBC bought out its former partner, London’s Barclays Bank. Barclays did well to get out when they did.
And it’s lower than the US$2.1 billion value of the bank’s shares at current stock market prices. From the US$800 million sale price, CIBC get just US$200 million in up-front cash.
They’ve been trying to sell for at least a couple of years. CIBC tried unsuccessfully last year to raise US$240 million by selling a slice of First Caribbean through US stock markets.
Why are they so keen to get out?
Caribbean banking carries risks. Economic growth has been lacklustre. Jamaica is celebrating its successful IMF programme with projected 0.75 per cent growth.
Financial institutions in Barbados lost out heavily from debt restructuring this year and last, as did their Jamaican counterparts twice in the past decade. I’ve lost count of how many times Belize gave its creditors a haircut.
The Bahamas has been by far FCIB’s most profitable market. But Grand Bahama and Abaco were knocked out in August by Hurricane Dorian. Insurance payouts are expected to total up to US$2 billion. And the Bahamian deputy prime minister Peter Turnquest now estimates that 80 per cent of the damage was uninsured.
Two years ago, Maria and Irma devastated Dominica, St Martin and nearby islands. The climate crisis will not go away. Nor will the region’s earthquake and volcano hazards.
Lurking in the background, there’s always the reputational risk of big customers with a shady side. Remember Allen Stanford? The Texan with an Antiguan passport who all but wrecked his adoptive country’s economy when his Ponzi scheme collapsed ten years ago, and is now serving a 110-year prison sentence?
On Friday last week, Antigua finally extradited its former financial services regulator Leroy King to face US charges stemming from that gigantic mess-up.
We know the Canadians well. But who are the Colombians?
The big man is Jaime Galinski Bacal. He’s now 61, and lives in London. He has houses also in New York, Miami, Panama and Colombia. His net worth is around US$3.9 billion. That’s a bit more than the GDP of Guyana, and makes him Colombia’s second-richest man.
His grandparents were originally from the Jewish community in Lithuania in eastern Europe, and migrated to Barranquilla on Colombia’s Caribbean coast in the 1920s. His father is Colombia’s ambassador to Israel.
He’s a graduate of Harvard Business School. He acquired the Colombian assets of Bank of Credit and Commerce International, a shady outfit owned mainly by the Sultan of Abu Dhabi which had branches in 78 countries including T&T, and was shut down in 1991 amidst reports of money laundering and criminal connections.
He transformed that unpromising material into the well-regarded Banco Andino. His family then bought the privatised Banco de Colombia, alongside partners such as Morgan Stanley and George Soros. Both of these investments were later sold, with a substantial capital gain.
Galinski in 2003 acquired two banks which he merged as GNB Sudameris, which in 2012 bought British bank HSBC’s operations in Colombia, Peru and Panama. He is the largest shareholder in Spain’s fifth-largest bank, Banco Sabadell.
Will the Colombian takeover make a difference to First Caribbean’s cautiously Canadian banking style and the region’s financial culture? Check back in a year or two, and we may have some answers.