Drop in tourism weighs on entire area

The Caribbean was hit hard by the 2008 financial crisis as tourism revenues dropped sharply, undermining local earnings and weighing on lenders in the region.

Canadian banks, such as Bank of Nova Scotia, Royal Bank of Canada and FirstCaribbean, are three of the biggest lenders in the Caribbean.

Other banks have also been pulling out of the Caribbean. RBC sold its Jamaican operations at a loss in 2014 while Bank of America severed ties with banks in Guyana last year.

FirstCaribbean has also faced risks to its reputation by operating in the region following a bribery scandal involving FIFA, the world soccer governing body.

Barbados-based FirstCaribbean was caught up in the FIFA affair after an indictment announced by the U.S. Justice Department in 2015 said an illegal payment was facilitated by an unnamed officer of the bank. FirstCaribbean said at the time it would take steps to ensure the bank is never used for illicit purposes.

FirstCaribbean has around 3,000 staff, over US$12 billion in assets and a market value of $2 billion, according to the bank’s 2017 annual report.

FirstCaribbean said that it made net income of $142 million in the year to Oct. 31, 2017, compared with $143 million the year before.

CIBC has been trying to sell the business, which operates in 17 Caribbean markets, for the last two years but could not find a single buyer for the whole business, the people said. The bank now plans to spin it off in an initial public offering but would still be open to a sale of the whole business, the sources said.

The lender decided that the modest growth prospects offered by the business was not worth the effort to stay in the region, the people said.

CIBC took a hit of $543 million relating to FirstCaribbean in 2014 comprising a goodwill impairment charge of $420 million and loan losses of $123 million. After the writedowns, CIBC cleaned up the business and has been generating a profit in the region.

The bank would rather invest in the United States, which it sees as a growth driver and where it completed a $5-billion acquisition of Chicago-based PrivateBancorp in June, one of the people said.

FirstCaribbean was formed as a joint venture between British lender Barclays Bank PLC and CIBC. CIBC bought out the Barclays stake in 2006 and owns 91.5 per cent of CIBC FirstCaribbean.