Hylton stands by Finsac decisions

McPherse Thompson, Assistant Editor - Business

Patrick Hylton, who ran the Financial Sector Adjustment Company before he was recruited to head one of the banks he sold, says none of the bailed-out institutions were sold to local businesses because those expressing interest were unable to show that they had enough capital to reinvigorate the failed entities.

Hylton, who testified before the enquiry Tuesday and is expected back on the stand today, was also forced to defend his decisions on the treatment of National Commercial Bank (NCB), the institution he now heads as group managing director.

NCB, which was about to collapse under the weight of bad debts, was supported as a going concern on the basis, he said, that the system required at least one large institution in the commercial banking space to compete with and prevent total dominance by Bank of Nova Scotia.

He noted, as he gave evidence, that a lot has been said about the fact that none of the deals for the disposal of the financial institutions were struck with local entities or operators.

criteria met

"While that is true, there was nothing in our philosophy precluding local operators from acquiring any of these entities once they met the criteria established," he said.

"I personally met with and encouraged several business persons to make an offer to buy, say a Union Bank, but they were either unconvinced or did not have the resources."

Hylton said they could not sell the institutions to local entrepreneurs primarily because they were locally based, citing the case of Mexico where such an approach resulted in that country experiencing a crisis twice within a decade.

He said such an approach to sell to locals often ignored the need for purchasers to be fit and proper, with the requisite skills and having the necessary capital.

"This does not lead to a sustainable rehabilitation," said Hylton. "Thus I felt the approach had to be that local entrepreneurs could purchase once they met the necessary criteria."

Asked by Commission Chairman Worrick Bogle if the criteria set made it difficult for locals to purchase the assets, Hylton said he believed "locals were qualified but they were not interested." However, he admitted that the high cost of capital could also have been an effective bar to local businesses.

"There may have been one person who came forward, but said 'I think I like my business better'," said Hylton, noting that others admitted that they could not come up with the capital.

NCB was sold in 2001 to Michael Lee-Chin who eventually recruited Hylton as head of the banking group to replace Aubyn Hill.

Hylton denied suggestions by witnesses who appeared before the Commission that NCB was given preferential treatment during the intervention, and pushed back against those who asked whether the different treatment given to other financial institutions was justified.

In that regard, he was questioned by his attorney, Dave Garcia, as to whether "shareholders lost nothing" in NCB during the intervention as suggested by former chairman of the Eagle Group, Dr Paul Chen-Young, and others.

Hylton said it was not true as minority shareholders had their holding in the bank diluted subsequent to the intervention.

Asked how the management of NCB was dealt with and whether it was different from the management shake-up in other intervened entities, Hylton said that like the others, there were significant changes at NCB, including the hiring five senior managers.

Asked by Bogle whether government and affiliated entities had a lot of loans with NCB at the time of Finsac's involvement, Hylton said at first that he was not aware of any government loan that created a problem. But he added, "I am sure that NCB would have had its fair share of government loans."

The decision to maintain NCB as a going concern was informed by several factors, he said, including the challenge with liquidating an institution of its size. In addition, NCB was entrenched in the economy and considerations had to be given to the fallout on numerous other entities, sectors and large numbers of people.

"This could become extremely difficult and undermine the stability which had been restored to the sector while we worked through the problems," he said.

Hylton said their analysis supported NCB, which was acquired by Lee-Chin's Canadian mutual fund company, AIC Limited, "having greater value as a going concern not only in relation to its intrinsic value, but also in terms of its role as a facilitator of economic growth in the years ahead."

Moreover, he said, NCB would have served as a useful vehicle for further sector consolidation.

"Finsac had to intervene in a number of very small merchant banks, etc, and having determined that these were no longer viable as going concerns it would be easy to transfer their deposit portfolios to NCB and pay NCB with Finsac paper, which was our only recourse," he said.

"Non-Finsac institutions would not have taken Finsac paper as compensation but NCB did."

mcpherse.thompson@gleanerjm.com