Rapid De-Rail

The Governor of the Central Bank is reported to have advised, at his address to the South Trinidad Chamber of Industry & Commerce on 7th April, that the assets of CL Financial (CLF) were fully pledged. <http://guardian.co.tt/business/business/2009/04/08/govt-left-empty-handed-cl-financial-bailout>. This is an outrageous development.

We are told that CLICO, CMMB, CIB and British-American Insurance Company Limited are the 4 CLF companies which were in financial trouble.  Those troubles prompted the request for urgent financial assistance made on 13th January.

That letter remains hidden from our view.  What sound reasons could possibly exist for its concealment?  Lawrence Duprey was interviewed on 12th March by this newspaper and it was reported that “…Speaking about the bailout, Duprey said he could not discuss the proposals that the CL Financial group made to the Government in January…”  Why the secrecy?  http://guardian.co.tt/news/general/2009/03/12/conflict-interest-no-way-says-duprey

This is not, repeat not, private business.  This is an enormous claim, estimated to exceed $10Bn, on our Treasury at a time of ‘belt-tightening’.  The continued secrecy on this matter is inimical to the very investment trust which the bailout is meant to preserve.  The CLF letter of 13th January must be published without further delay.

We are witnessing one of the greatest outrages in the history of our young Republic.  You see, the CLF officials who negotiated with the State must have known that the assets being pledged under the terms of the Memorandum of Understanding (MoU) were already pledged elsewhere.  You cannot sell something twice.  Everybody knows that.  Unless, that is, you trade in lies and fraud.

One of the basic principles of the insurance contract is Uberrima Fides – meaning that the person seeking the cover of an insurance policy must act with utmost good faith.  Failure to disclose important facts to your insurer could have the effect of making your policy in-valid.  It seems that CLF has acted with utmost bad faith in this matter.

CLF does not have, or cannot borrow, enough money to meet its financial obligations.  The plain meaning of the Governor’s statement is that CLF’s liabilities exceed its assets, which means that CLF is insolvent.

On Ash Wednesday, 25th February, the newly-appointed CEO/Managing Director of CLICO, Claude Musaib-Ali, reportedly told employees that the sum of $5.0Bn was missing from the company’s Statutory Fund.  “The people who were here before took the money and put it somewhere. We don’t know where. “We are perplexed…” he told workers, “we don’t know where it has gone.”<http://guardian.co.tt/news/general/2009/03/01/where-money-gone>

I could scarcely believe what I was reading.  If ever there were a case for the expensive expertise of the renowned forensic accountant, Bob Lindquist, this is it.  Mr. Lindquist is now investigating an alleged discrepancy of $20M at the Housing Development Corporation.

The Liquidation process

We also need to consider the liquidation process – what gets sold; to whom; when and at which price.  According to the 30th January MoU, CLF agreed to sell its shareholdings in Republic Bank, Methanol Holdings and CMMB to meet the cost of the bailout.  If the money raised from the sale of those shares was insufficient, CLF also agreed to the sale of “…all or any of their other assets as may be required to achieve the said correction…”.  Yet the Governor was reported to have also said on 7th April – “…because of a slump in real estate and methanol prices the Government would not be able to sell the conglomerate’s vast real estate holdings at present to recover the funds provided to CL Financial to relieve a liquidity problem.

It seems that the decision has been taken to defer the sale of these assets because of the poor returns which would be made at this time.  Why the shift in strategy since 30th January?  The plain meaning of the Governor’s words is that to sell the CLF assets as agreed in the MoU would not yield the required monies.  That, in turn, would lead to a call on ‘all or any’ of the other CLF assets until the State injection of funds were matched.  The likely effect would be to close down CLF.  We are now being given a stupefying rationale for the fact that the implementation of the MoU is being delayed.  I say stupefying because the slump in real estate and methanol prices were already realities on 30th January.  The deferral of the liquidation of these CLF assets has two important consequences –

Firstly, taxpayers would be funding the bailout while waiting for asset prices to recover.

Secondly, CLF, having negotiated in bad faith, are being given a second lease on life, since, when asset prices recover they would be able to settle their indebtedness to the State and continue trading.  The obvious CLF insolvency issue is being forgotten.  Is any interest being charged on the huge sums of money being advanced to fund this business rescue?  Is it proper use of taxpayers’ money to rescue a privately-owned conglomerate?

In my view, the main effect of deferring the liquidation of CLF’s assets would be to transfer the growing costs of the bailout from the CLF balance sheet to the Treasury.  Thus allowing CLF’s shareholders to retain value.

The Minister of Finance and her defenders would have us believe that the MoU does not benefit CLF shareholders.  That would be so if it were being faithfully implemented.  But, as is so often the case, the devil is in the details.

Finally, we come to the burning issue which has occupied so much of the debate taking place overseas.  CLF paid a dividend to its shareholders on 16th January, 3 days after writing to the Central Bank for urgent financial assistance.  What moves are being made to recover those dividends?

SIDEBAR: CLF’s Directors and their responsibility

CLF’s Directors, as listed in their 2007 annual report, were –

Lawrence A. Duprey, CMT (Group Executive Chairman / Executive Director)

Sylvia Baldini-Duprey (Deputy Chairman)

Michael E. Carballo (Group Financial Director)

Roger R. Duprey (Executive Director)

M. Anthony Fifi (Director)

Dr. Bhoendradatt Tewarie (Director)

Dr. Rampersad Motilal (Director)

Clinton Ramberansingh (Director)

Leroy Parris (Director)

Bosworth Monck (Director)

Evan McCordick (Alternate Director)

Director’s liability – In May 2005, the Central Bank published its ‘Fit and Proper’ Guideline (sic) and that document can be found at http://www.central-bank.org.tt/news/releases/2005/mr050510.pdf.  It is a critical part of this discourse since it sets out the official position as to the type of person held to be ‘fit and proper’ to be a Director or Officer of a Financial Institution.

It states –

3.1 In accordance with governing legislation a person is considered to be fit and proper if the person essentially is of good character, competent, honest, financially sound, reputable, reliable and discharges and is likely to discharge his/her responsibilities fairly.

In light of the startling information disclosed in the Governor’s recent speech, how can we regard the CLF officers who conducted the MoU negotiations as ‘fit and proper’?  What action is being proposed to deal with them?

On 12th March Mr. Duprey was interviewed on the conflict of interest issue – here are some interesting quotes from that interview –

  • What conflict of interest? Let’s grow up.
  • …Government came to protect the policyholders. They are not protecting us because I could walk away from Trinidad tomorrow and make a better living…
  • …It does not matter what I am left with. That is irrelevant. What is most important is that the policyholders are protected. I’m not important because I could pick up tomorrow and make a living in Greenland or Alaska or Saudi Arabia…

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