The Meaning of Things

Many friends tried to correct me on the title of this article by saying that CLICO was being bailed out, along with British-American Insurance, CLICO Investment Bank (CIB) and Caribbean Money Market Brokers (CMMB).  They went on to assure me that CL Financial (CLF) is fine now that the bailout of those four subsidiaries has taken place.

At the post-Cabinet press briefing on Thursday 12th, PNM Chairman and Minister of Energy, Conrad Enill called for a focus on the ‘Bigger Picture’ and a reduced emphasis on the Minister of Finance.  I could not agree more.  As shocking as the story of the Minister’s shareholding etc. might be, it is easily outweighed by ‘The Bigger Picture’.

CLF wrote to the Central Bank on 13th January to seek urgent financial support from the State and we need to ask why.  In the absence of the CLF letter, the stage is set for speculation.  Given that we are contemplating a bail-out in excess of $10Bn, according to the last statement from the Central Bank Governor, the publication of that letter should not be delayed.

CLF’s 2007 Annual report is available online at http://www.clico.com/pdf/AR07/CL%20Financial%20Annual%20Report%202009.pdf and it tells of a group comprising over 65 companies in 40 countries worldwide.  Even after a decline, profit (after tax) for the year ending 31st December 2007 was stated at $1.74Billion.  Why would a healthy and thriving group like CLF need to seek State intervention to provide urgent financial support for 4 of its subsidiaries?  Was it a case of the looming liabilities being of a scale to eclipse the entire group’s assets?  If there was still equity available within the group’s portfolio, why could they not cover the liabilities by borrowing in the private market?  Was it merely a case of temporary illiquidity – a sort of technical insolvency – needing to be relieved by State intervention?  Even if the answer to this last is positive, we still do not know why they could not borrow on the open market.  It cannot have been easy to decide to go to seek State support and my interpretation is that the group had no other choice.

When we consider the recent revelations that the Minister of Finance holds substantial shares in CLF, which paid its shareholders dividends in January 2009, things become turbid.  Bear with me here, but we are looking at the period between CLF’s auditors publishing their 2007 accounts –18th November 2008 – and CLF’s Executive Chairman writing to the Central Bank on 13th January 2009.  By my count, that is only 55 days.

In that period the CLF Board of Directors did 2 critical and fundamentally opposed things-

  1. Declaring and paying a Dividend – At page 20 of CLF’s Annual Report 2007, we are told, in respect of Dividends, that “…In 2008, a dividend of $3.00 was declared by the Board in respect of the Financial year ended 31 December 2007…”.  The CLF Board could only have declared a dividend when the accounts were completed.  This newspaper published an uncontested report on Tuesday 10th March that those CLF dividend cheques were mailed out on 16th January, in advance of the AGM at Trinidad Hilton on 23rd January.
  2. Writing to the Central Bank to seek urgent financial support – CLF wrote on 13th January and that letter must have been the subject of some serious and prolonged board discussion.  Please consider that the same Directors who declared a dividend in the last forty-three days of 2008 also decided to write to the Central Bank in the first twelve days of 2009.  Imagine that.

Can we ever reconcile those two acts?  How does one write to say that one does not have enough money, then, only three days later, prepare dividend cheques which would have totaled over $20M?  What manner of man behaves in this fashion?  Was the Central Bank ever told that the declared dividend had been paid on January 16th?  We all know that the Minister of Finance knew.  Her statements to the Parliament to ‘clear the air’ were anything but.  Mamaguy for so.  Thursday’s headline in this paper made me smile ‘Duprey backs Karen’.  One can only wonder how long would a trusted executive at CLF last if that level of divided loyalties had been unearthed.  Mr. Duprey, for one, would know how expensive divided loyalties can be.

Is it legal to write cheques for dividends from a group which is unable to meet its liabilities?  Are these CLF Directors fit and proper people to sit as company Directors in our Republic?  Is theirs prudent and responsible behaviour?  Do we as taxpayers want to fund and endorse that kind of double-standard?  I, for one, do not.

On Carnival Tuesday, I saw in a notice that the High Court had granted an injunction to prevent CLF from diluting or disposing of its assets and also an order that they should produce a sworn affidavit detailing their assets.  That injunction has since been challenged by CLF’s attorneys and we recently learned that the parties are now discussing the matter privately before returning to Court.  Cool so.  On one side we have CLF and its advisers, who would obviously be trying to minimize the impact these events would have on their group.  On the other side we have the Central Bank, which is an organ of the Ministry of Finance, seeking compliance with the Court Orders they obtained on Carnival Sunday (February 22nd).  It seems that CLF has moved, rapidly, from seeking urgent financial assistance to being coy over the details of its assets.  It is almost beyond belief, but beat that.

It also seems that no lenders were willing to advance funds to CLF, since the State is the lender of last resort.  Given that CLF controls Republic Bank, CLICO Investment Bank and Barbados National Bank, this is a sobering insight into just how serious the cash flow crunch must have been.

To summarise – keeping our focus on the Big Picture – is CLF just suffering from a momentary bout of illiquidity or is the group actually insolvent?  If the former, why not just borrow the required monies from a private source?  If the latter, then just who is the State conducting private negotiations with?  Why?  Who are we, the taxpayers, bailing out?

The more I think about it, the more it seems that this title is just right.  The CL Financial bailout.

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