This week, I am at last able to answer two queries which have bedeviled this series for some time.
Firstly, several readers have pointed out that there was significant repetition of details in this series. While it is true that that repetition was deliberate on my part, it is also true that there was a growing question…”When are you going to give us some fresh information?”
Secondly, my repeated requests for publication of the initial letter from CL Financial seeking the state’s financial support. It seemed that those calls were being ignored and I did wonder why. On June 11th, in ‘Do what is Right’, I wrote – “Could it be that that letter contains information which reveals too much about the true background to this tangled affair? Madam Minister, what is your interest in further secrecy on this aspect?”.
In the course of researching another aspect of the bailout, I came across the letter about a week ago, so that is the fresh information for presentation this week. Given that the Minister of Finance revealed that information in the first week after signing the Memorandum of Understanding, I was clearly wrong to suggest that she had any intention to conceal the letter.
The Minister of Finance was speaking in Parliament and seeking to rebut the allegations by opposition politicians that she had benefited from insider information. This extract of her statement is taken from page 628 of Hansard of Wednesday 4th February 2009 – this can be found at http://www.ttparliament.org/hansards/hh20090204.pdf
With your leave also, I would like to read into the record of Hansard, a letter from Clico Investment Bank addressed to the Central Bank. That letter is dated January 13, 2009. It is on the letterhead of CL Financial, addressed to Mr. Ewart Williams, the Governor and signed by Lawrence A. Duprey, Group Executive Chairman.
The severe global financial crisis has begun to impact our local and regional markets and is causing strain on liquidity in certain parts of the financial system in Trinidad and Tobago.
CL Financial being a significant part of the financial sector has been disproportionately impacted by these adverse conditions. Many of our customers are also affected and are consequently calling on their reserve cash positions.
Thus far, all our member companies have been able to deal with their commitments. However, we wish to develop a comprehensive contingency plan to meet any further developments, if this trend were to follow a similar pattern to other countries.
As a result, CL Financial is taking urgent and decisive action.
We have conducted a review of the Group’s assets and the projected liquidity needs. While the Group remains strong in terms of the quantum and quality of its assets, these assets are not in a form that can be liquidated in short order without significant loss in value.”
And they gave a table setting out the estimated value, just by sector:
Real estate – $2,505,000,000
Manufacturing Sector – $6,300,000,000
Energy – $7,048,993,014
Financial Services – $8,060,000,000
We are in the process of realigning the asset-liability structure of the Group to better match the current liquidity situation. This is a complex action plan that we are embarking on immediately, including initiatives such as merger of certain entities within the Group with strategic partners and/our sale of certain assets in order to raise liquidity.
As you would appreciate, these initiatives would need some time before they yield the desired results. In the event that the financial crisis deepens in the local market we may need urgent liquidity support to be made available to the group.
In this regard, we would like to discuss the approach of the Central Bank toward supporting the financial sector and by extension the CL Financial Group, if conditions were to deteriorate.
I thank you for your understanding in this matter and look forward to your continued support.”
That letter, as I said, was dated January 13, 2009
CL Financial Consolidated Balance Sheet is at page 23 of their Annual Report 2007 ‘The Next Wave of Growth’ –
That Consolidated balance Sheet discloses Total Assets, as at 31st December 2007, as being $100.666 Bn – those financial statements were published on 18th November 2008.
Given accounting conventions as to intervening events and their reporting, it is startling, to say the least, that this balance sheet should have declined to $24Bn just 12 months and 13 days after their reporting date. Only 56 days after publication. This is an aspect of the fiasco which has not been discussed in public, so far.
We need to hear some accounting of this extraordinary situation. Just to select one item of interest, Loans and Advances are shown as $21.975Bn in the CLF 2007 accounts and yet only $8.0Bn is there at 13th January 2009.
My reading of this is that CL Financial’s assets declined in value from $100.7Bn at the end of 2007 to $23.9Bn at the beginning of 2009. We have now agreed to restore asset value to the shareholders of CL Financial on terms which are as yet unpublished.
SIDEBAR: Out of Africa
The dominant media coverage of the wealthier countries can sometimes mask interesting developments. I had been wondering how other developing countries were handling their own financial crises.
I was struck last week by extensive reporting of the action of the newly-appointed Governor of the Central Bank of Nigeria (CBN) in bailing-out 5 large, publicly-listed banks. There is a widely-held view that Nigeria is one of the most corrupt countries. CBN Governor Lamido Sanusi has taken several bold actions to restore confidence in the banking sector. The main ones were –
- Dismissal of 19 of the top executives of the rescued institutions, deploying seldom-used powers.
- Publishing lists of defaulting borrowers, many of whom are prominent citizens and leading companies, along with a strong warning that all these loans must be repaid now. Those who do not comply will face the Courts.
- Making it clear to shareholders that the bailout funds are not for dividends at all, but to restore banking confidence.
- A special police unit, to deal with Economic and Financial Crimes, is questioning the dismissed executives. Those who are not being questioned are forbidden to leave the country.
This story is in the Wall Street Journal, The Financial Times and Reuters.