One of the abiding questions on the CL Financial issue is – ‘What main event/s caused the group to fail?‘
One of the main rumours making the rounds at the time of the bailout was that the State-owned National Gas Company had made heavy withdrawals from CLICO Investment Bank. Those withdrawals and the requests for the return of further deposits were said to have triggered the ‘crash’ within the CL Financial group.
Another major issue which was raised in the Parliament by the current leader of the opposition was the allegation that the Minister of Finance and Governor of the Central Bank had used ‘insider information’ to withdraw their own deposits from CIB. Despite the explanations by these officials, which form part of this article, those perceptions persist among the population.
Ultimately, the questions have to be ‘What did they know?‘ and ‘When did they know it?‘ This article will delve into some of those issues, using the published record, as is my practice.
The main points are –
The NGC press release – This was published in the daily newspapers on 4 February 2009, as a corrective to the widespread and potentially-damaging rumours. It was issued under the hand of the NGC President, Frank Look Kin – it is the penultimate item on its publications page, under the title ‘Press Release- NGC’s Management of Its Financial Investments‘. Due to its huge revenues (stated to be $14.0Bn in 2008), over 90% of which are in US dollars, the NGC has established a policy for the management of its large-scale, short-term investments. According to the press release, those funds are placed in either approved financial institutions or investment-grade rated foreign banks. The placement of those deposits is guided by limits for the percentage of funds allocated to a financial institution or group of financial institutions. The selection of deposit-taking institutions and the establishment of placement limits are both good financial practice in terms of risk management.
- NGC’s placement limits – These were not disclosed in the NGC press release, but we are told that at the start of 2008, the CL Financial group was allocated 40% of the NGC’s deposits, which by the end of 2008 had been slightly reduced to 37%. At another point we are told that in 2008, NGC withdrew an average of $151M USD per quarter, with CL Financial’s portion of that being 45.7% – more than the 2008 allocations stated earlier.The silence on the actual placement limits means that we cannot determine whether the 2008 deposits in the CL Financial group complied with that policy. The only deposits for which we are told ‘…the deposits were within the maximum percentage limits…’ were CIB deposits in 2001, but no percentages were given in that case.We are also told that “…In the 4th quarter of 2008, deposits were recalled upon maturity from…seven financial institutions in Trinidad & Tobago and the USA…” Even if we only count the local ones, there are 6 large banks and 19 other approved financial institutions available to accept deposits under NGC’s policy. It is passing strange that up to 45.7% of NGC’s funds could be allocated to a single group. If that allocation of funds in 2008 was in conformity with NGC’s deposit placement policy, it is indicative of a tremendous measure of confidence in the CL Financial group, to put it in its best possible light. Even if CL Financial were a ‘blue-chip’ group, which they were not, such an allocation of deposits could be viewed as reckless behaviour by the responsible parties.Despite its claims of a policy to manage the risks associated with being responsible for such huge, short-term investments, it seems that the NGC may have yielded to the temptation of the unrealistically high interest rates offered by the CL Financial group. Again, on a governance note, one has to ask – ‘What good is a prudent policy, if it is violated in practice?’It seems that we may need to examine more closely how our energy revenues are invested.
- November 2008 – We are also told in that press release that “…In November 2008 CIB failed to return the principal and interest upon the maturity of an NGC deposit (US$10 million). This deposit, plus interest, was paid in two amounts during the first week of December 2008…” From that statement it seems certain that CIB’s inability to repay was known to NGC, a huge, State-owned corporation. It is difficult to imagine that news of that importance would not have traveled to the very highest levels. Indeed, one could argue that proper management of the State’s financial resources would have required such a piece of news to be formally reported to the relevant officials.When one juxtaposes the fact that CIB “…failed to return…” $10M USD to NGC with the measure of confidence one can infer from the extent of their dealings, it is impossible to imagine such an episode passing off quietly.
- The Governor’s response – Ewart Williams’ written response to the allegations was unequivocal and made the very same day – it can be viewed at http://www.central-bank.org.tt/news/releases/2009/mr090204.pdf.
- The Minister’s response – That was a statement in Parliament on the very day and it is at pages 626 to 631 of http://www.finance.gov.tt/documents/news/spF82F5F.pdf. At the time of the CL Financial collapse, the Governor was clear in identifying the prime cause to be “…excessive related-party transactions…” and this NGC/CIB situation bears a strange resemblance.We need to strive for better norms of governance and prudence if we are to avoid a recurrence.History is said to be rich in irony, never more so than in this situation, since the defensive statements by both officials were made on the very day the NGC published its own defence. Wednesday 4 February 2009.
Approved Financial Institutions
Those are taken to mean the 25 companies licenced under the Financial Institutions Act 2008. Those companies are all required to be members of the Deposit Insurance fund and their names can be viewed at http://www.dictt.org/deposit_insurance/index.php?pid=2006. There are 6 main banks on the list – Citibank, First Caribbean, First Citizens’, RBTT, Republic Bank and Scotiabank. Two smaller banks on the list are Intercommercial Bank and Bank of Baroda.
A continuing concern, in light of the growing challenges to the old order of the commercial and financial world, is the role of inter-locking Directorships. That is the situation in which a very small group of people control most of the major companies and activities in a society.
Critics of that situation would say that such situations are a recipe for corruption and self-serving behaviour. The small group of people can enrich themselves, leaving the leftovers for everyone else. Those who support that situation would say that the emergence of such a small group of leaders is natural, particularly in a small society such as ours, and the real challenge is to develop rules and norms which limit the possible negatives.
This is an issue which I am exploring in the ongoing series to examine the governance implications of the UDeCOTT fiasco. It is not surprising that it is also a feature of the CL Financial collapse and there is an example of that in the case of NGC and CIB.
The CIB Directors
At the time of the collapse, the Board of Directors of CLICO Investment Bank comprised –
Mervyn Assam (Chairman)
Faris Al Rawi
The NGC Executive
At that time, the National Gas Corporation’s executive management included –
Ms. Olave Maria Thorne, Vice President, Legal and Corporate Management and Company Secretary – see http://www.ngc.co.tt/About/executive.htm. Yes, same person.