It could perhaps be safely described as the biggest acquisition deal of this era, or in recent times in the Caribbean region — the recently announced deal by Republic Financial Holdings to acquire Scotiabank’s operations in nine Caribbean countries, including Guyana. Soon after this announcement was made, the Prime Minister of one of the said islands announced that that Government would not approve the takeover in light of regulatory and other macroeconomic concerns as regards the financial sector of that country. In Guyana, the Ministry of Finance and the regulatory authority did not hesitate to announce their concerns in this regard as well, and expressed that they would have to undertake careful due diligence and assessment before any approval is given, so that the deal can go forward. It should be mentioned, too, that the Opposition Leader expressed his concerns on this matter by stating that it would be unhealthy for Guyana to have one bank controlling just over 50 per cent of the assets; he even cited that the deal might perhaps be illegal.
The legality of the transaction shall now firstly be examined within the legislative and regulatory framework that governs the sector, and which speaks specifically to the acquisition and control of financial institutions; that is, the Financial Institutions Act 1995 (FIA). This is the framework by which the Central Bank would have to be guided. Now, the Act does not explicitly state whether one financial institution’s acquisition of another’s assets, leading to having a dominant control of the sector, is restricted per se; but the Act does empower the Central Bank to approve such deals, given the implications to the financial sector. This means that, before this deal was finalised, Republic Bank Financial Holdings and Scotiabank ought to have sought written approval, as mandated by the FIA for such transactions.
This obviously did not happen, but it is not a case in which the banks were unaware of the legal ramifications. It can be safely deduced, therefore, that this was a carefully thought out strategic move by the parties involved, given the magnitude and size of the deal. However, it would be very difficult for the Central Bank not to approve the deal; because, given that these are two powerful regional and international institutions, any disapproval would very likely turn into an unprecedented legal challenge by the parties involved – Republic & Scotiabank — against the authorities. And the reason for this is because the manner in which the deal was done, if one reads into the numbers well, it was done in a very strategically shrewd manner; and, again, was well thought out.
The aforementioned inference is drawn from the fact that, when you look at the purchase price of this very huge acquisition deal — based on information that is publicly announced, the purchase price is US$123 million, which represents US$25 million consideration for total shareholding in Anguilla Limited, and a premium of US$98 million over net asset value for operations in the other eight countries — Republic Bank is not buying over all of the assets of Scotia; rather, it is only buying over Scotia’s portfolio – that is, its loan and deposit portfolio alone. As such, the financial laws and regulations of none of these countries can pre-empt another institution from buying out the portfolio of another; and it is this that makes this development so very interesting.
This also, unfortunately, means that all the employees of Scotia are now in a sea of uncertainty in regard to their future careers, because there is really no guarantee that they would be offered employment with the new owner. It is very likely that the new owner may not be in a position to accommodate these employees, given it is only a takeover of the bank’s customer portfolio.
Turning to Guyana, for example, Republic Bank has a wider branch coverage throughout Guyana than Scotiabank Guyana has. This means that Republic would absolutely have neither need nor space to take over the employees of Scotiabank. To this end, the Government needs to intervene in order to protect the rights of Scotia’s employees, and Government should push for Scotia to offer them severance payment up to this point in time, and they should re-offer themselves for employment with Republic. If this route is not activated in the interest of the employees, they would all be in serious jeopardy.
So this is one major issue of concern in regard to this acquisition deal. Of course the dominance and control of the market is another important factor. This would mean one institution controlling pricing in the market, and largely controlling the allocation of financial resources in the economy. It is this that is not healthy for the well-being of an economy, especially Guyana’s.
However, there are some opportunities. The opportunity that the Ministry of Finance and the regulator now need to start opening up to is to be accommodative of another international bank entering the market. With this takeover by Republic and exit of Scotia from the market, it means that the sector would become more contestable to accommodate new international players; because, with the exit of international players from the region, and against the background of de-risking, financial transactions would inevitably become more costly, particularly cross-border transactions.