CL Financial bailout – The Governor speaks

Ewart Williams, Governor of the Central Bank TT. Photo courtesy Trinidad Guardian.
Ewart Williams, Governor of the Central Bank TT

My last column on this important matter was published on 31st December, almost a month ago, with several major developments since then.  The main development in my view is that we had some truly remarkable statements from the Governor of the Central Bank.

The messages on the CL Financial group are now so confused that the most charitable phrase possible, is that the public is getting ‘mixed messages’.

  • The Top-level resignations – The group CEO, Steve Bideshi – a former senior manager at Citigroup – was reported on 12th January to have tendered his resignation, effective 31st January.  See – http://guardian.co.tt/news/general/2010/01/13/bideshi-quits-cl-after-6-months or http://www.trinidadexpress.com/index.pl/article?id=161581443.  We are told that his reason for resigning is the breakdown of negotiations for his compensation package.  Our governments have a serious track-record of agreeing and then secreting the terms of compensation for its high-fliers. Just think of Caribbean Airlines, PetroTrin and UdeCOTT. It is unbelievable that government was unable to agree terms with this one CEO. Arguably, Mr. Bideshi was heading the largest and most complex group within the State’s control.

    On 19th January, we were told that Michael Carballo, the group Finance Director, was resigning, also effective 31st January.  See – http://guardian.co.tt/business/business/2010/01/20/another-exec-leaves-cl-financial or http://www.trinidadexpress.com/index.pl/article?id=161584620. Carballo had the unique position of being the only senior executive to survive the crisis at the group and keep his position.  We were not given any reason for his departure, but we were told that Carballo is to continue acting as a Director on CL Financial’s Board.

    Bideshi and Carballo were the two top executives at CL Financial.  What is going on?

    To date there has been no proper explanation as to the causes of these major resignations or clear statement on the way forward. To have both the group CEO and Finance Director resign within a week of each other, effective within less than a month, speaks of turmoil and jostling. That kind of thing would not happen if the situation was stable. The purpose of this bailout was said to be the avoidance of systemic risk and the maintenance of confidence in our financial system. The official silence on this startling development only adds to the impression of ‘more in the mortar than just the pestle’.

    An absolutely fundamental clash of ideas seems to be emerging, but that is beyond the scope of this week’s column.  One week ago, I appeared for the first time on the electronic media (CNMG/91.1FM) to discuss these issues.  It seems that there is a ‘Code of Silence’ on this issue with the political parties all having agreed to not discuss it in any sustained or meaningful way.  Our civic bodies are little better, with a remarkable silence from our professional bodies (most notably, the Institute of Chartered Accountants of T&T), trade unions and institutes of higher learning.

    Early on in the bailout process, on 13th February 2009, the Governor of the Central Bank had promised regular updates to the media – see http://www.central-bank.org.tt/news/speeches/2009/sp090213.pdf.  For whatever reason, those have not been as regular as hoped for or as informative as the first.  Given that various teams of accountants have been working on the group’s books since the first MoU was signed, that is disappointing in terms of quality and quantity of information.  I was therefore very pleased to note that the Governor made certain statements on CL Financial later that same morning, Thursday 21st January.  See http://guardian.co.tt/business/business/2010/01/22/governor-promises-action-cl-financial-audit or http://www.trinidadexpress.com/index.pl/article?id=161585448.

  • The question of wrong-doing – The Governor is reported to have expressed his frustration at the slow pace of the ongoing forensic audits into the group’s financial affairs.  He went so far as to promise to act if wrongdoing is revealed.  The first point to be made is that we need the audited accounts as at 31st December 2008 and that will light up many of the darker areas of this series of issues.  The second point is that wrong-doing has already been exposed in two substantive respects –
    1. CL Financial dividends – The group paid dividends to its shareholders three days after writing the same Governor for urgent financial assistance.  Is it the Governor’s view that it was legal and prudent to pay dividends in that situation of virtual insolvency?
    2. Directors’ legal responsibility – Under the Companies Act, Directors can be held liable for mismanagement.  They have a legal liability to properly manage the affairs of the companies under their direction.  Speaking on 10th November 2009 at a conference on “The Global Financial Crisis: Institutional Management and Regional Opportunities” – see http://www.central-bank.org.tt/news/speeches/2009/sp091110.pdf – the Governor, in his closing remarks, said –

      “I prefer, however, to focus on the governance issues because, without doubt, the failure of Clico was a failure of Governance … it was absence of controls from the Board of Directors.  Clico shows what damage could occur when prudence is clouded by unbridled ambition.   Clico shows what can happen in the virtual absence of a risk management framework and the absence of internal controls.  Clico shows that we need to rethink corporate governance … not only in Trinidad and Tobago but in the region as a whole.”  (Please note that the emphasis is the Governor’s.)

      If one is unable or unwilling to pick the ‘low-hanging fruit‘, which are well within grasp, why should we believe you will take action in more complicated and contested cases?

  • The financing mechanism…Are assets being sold, or not? – The other aspect the Governor spoke on was the difficulty in getting payouts for a significant number of depositors and policyholders.  That has been widely reported in the press according to this newspaper’s reports on the Governor’s statement – “He said some of the payouts to CL Financial stakeholders were taking longer than the authorities had anticipated because the company was facing a liquidity problem and the pace of disposing of the assets to cover the payouts was going very slowly.”Up until now, I had assumed that the payouts were being funded by the Treasury via the Central Bank and that those monies would be recovered by sale of CL Financial assets – all in accordance with the MoU.  We are now getting a top-level statement that if assets are not sold, the payouts cannot proceed.  Is this another way of saying that the Treasury support has reached its limits or is it a sign of deeper conflict?

    On Thursday 15th October 2009, Mariano Browne, Minister in the Ministry of Finance, spoke at the post-Cabinet press briefing – see http://guardian.co.tt/business/business/2009/10/16/browne-no-plans-govt-increase-shares-rbl – and his reported statement was very clear – ‘Browne also said government had no intention of selling any of the assets of Clico, one of the three CL Financial-owned companies that was being bailed out. “One needs to be judicious in terms of the managing of the assets at CL Financial Group, given the depressed state of the market both here and internationally. There is certainly no intentions (sic) of selling the assets. The position is to manage them and manage them well,” he said.

    It is either that there has been an unannounced, significant shift in policy on this important matter or there really is a scene with ‘turmoil and jostling’.  Both statements cannot be true.

    We were told in the 2010 Budget that the monies allocated to the CL Financial bailout were some $5.1Bn, which is a huge amount of money.  I am beginning to wonder what is the total amount of money really allocated to this bailout and if we are ever going to recover it.  Just to make 2 examples, we have had the British-American Insurance Company’s insolvency, announced in November 2009, and the government’s subsequent commitment to put $50M USD towards that regional effort to construct a new company.  Also, on Christmas Eve we heard of the $400M commitment to pay CLICO pensions due to ex-Caroni workers.  What are the real totals?

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