What is the impact of the VI Community Bank buyout of Chase Bank's Virgin Islands operations? Is it good or bad news for the people of the Virgin Islands?
My initial reaction to the announced VICB buyout of chase was at best a non-reaction. VICB, a small, local bank, based on St. Croix, will become a significant force in the financial fortunes of the Virgin Islands. Banks have the right to acquire other banks, as long as the deal meets the public interest threshold set by the Federal Securities and Exchange Commission and the local Banking Board.
The loss of Chase Manhattan Bank, however, one of the largest and most recognized banking institutions in the United States, will be a significant setback to the financial stability of the territory. Chase is a welcomed site to potential investors to the territory. Even those of us who thought their service left something to be desired will certainly miss their departure from the region. They were another banking option; we need more not less banking options.
The VI Community Bank acquisition will result in some level of reduction of the territory's workforce. VICB and Chase both have branches in Christiansted. At least one of these Christiansted branches and probably others territory wide will be closed down. This is bad news for the already economic depressed town of Christiansted. There will be some duplication in both the management and the operations sections of the banks due to the consolidation. As a result of this duplication several employment positions throughout the territory will have to be eliminated. Some existing Chase Bank customers will move their business to other banks for a host of reasons; this will translate into more downsizing. The acquisition will realistically cost the Virgin Islands between fifty and a hundred jobs.
An equally significant adverse impact of this buyout to the territory will be the millions of dollars of tax revenue paid to the Virgin Islands treasury by Chase Bank. Chase Bank does more than just commercial and retail banking in the territory. The entity, Chase Trade, manages lucrative FSCs (Foreign Sales Corporations) registered in the territory. This activities of Chase Trade has very little to do with traditional banking. The on-line newspaper, the St. Thomas Source, quoting an inside source, reported that the Virgin Islands Government collected $6 million in 96, $7.5 million in 97 and $6.5 million in tax revenues from Chase Bank. Though the new entity will be more profitable than the existing Chase operations because of the consolidation, the government will lose this revenue because VI Community Bank is exempt from paying taxes due to their unique IDC beneficiary status. (VI Community Bank is the only bank in the entire United States that is exempt from paying taxes!)
To make up for this loss in revenue, especially at a time when we can ill afford this luxury, the cash strapped Government of the Virgin Islands will have to cut salaries a little more than they had planned to, and shift the additional weight of Mr. Prosser's newly acquired benefits onto the backs of the small, tax paying business, and working men and women of the territory.
The loss to the territory of Seven million tax dollars per year, plus fifty to one hundred Jobs is simply bad news for the people and the government of the Virgin Islands. (If you think that this bad news is really bad, imagine if we had gone along with Chucky, Bert and other six senators, and had given Mr. Prosser a free ride to buy or establish any company or business in the Virgin Islands and take them all off the government tax rolls, for thirty years! Mr. Prosser has acquires quite an appetite for the rare delicacy known to us as "Virgin Islands Taxpayers Dollars!" Clearly the ill conceived, short sighted, original ten year tax free ride, granted to the VI Community Bank by the IDC, did not have the acquisition of the other territory's banks in mind. The then IDC commission justified the granting of IDC benefits to VI Community Bank because of the need to increase the number of banks operating in the territory. How ironic!
The short-term solution to this dilemma is simple. Since the 1974 IDC statute does not address this type of situation, the solution would be to have the VI legislature special order, at once, simple legislation which clearly states that acquisitions are not covered by existing IDC certificates. This legislation needs to be on the books prior to the regulatory approval of this deal. If VICB wants to extend benefits to the Chase buyout they can simply reapply.
The long-term solution to our problems is more complex. The governor can start playing catch up by being more pro active. His mode of operation seems to be to wait for a public outcry to motivate him. "Governor, we need leadership that can mold public opinion! The IDC and the Department of Tourism are the two entities that can get us out of this economic fix we are in. These departments need strong, high-powered leaders with access to the entire government. We need to revise the antiquated 1974 IDC statute to be more investor friendly and less ambiguous about the types of activity benefits can cover. Thirty, sixty or ninety days, YES or NO! Please come and invest, or we don't want you here! Simple!" We certainly need a new, accountable, part time V.I. legislature, especially here on St. Croix. If we expect this current crop of senators to get us out of this mess, then we are in deeper trouble than we can imagine. And last but not least, the public needs to get involved. We need to hold our leaders accountable three hundred and sixty five days, every year. Not every other November, or once every four years.
So is the VI Community Bank buyout of Chase Bank good news for the V.I.? What do you think?
If you want to let us know what you think direct inquires to source@viaccess.net.
Editors' note: Sam Raphael is a St. Croix businessman and land developer.
