CL Financial bailout – The House on the Corner

Some insights into CIB

CIB head office - The House on the Corner
CIB head office - The House on the Corner

I am starting to look at the CLICO Investment Bank (CIB) and its operations, as revealed by the ongoing bailout.

CIB is a very interesting part of the saga, because even prior to the collapse of the CL Financial group there was a widely-held view that CLICO and CIB were parts of the group which were responsible for raising finance for their ambitious plans.  Even though the interest rates offered by CLICO and CIB were incredibly high – about twice the average offered by others – it would have been much more expensive for the CLF group to borrow those funds via loans.  The view was that the CLF group had a legitimate method of harvesting funds on terms advantageous to them.

In April this year the Central Bank applied to the High Court to have CIB ‘wound-up’, due to its insolvency, estimated in that submission to be of the order of $4.7Bn.  (See https://afraraymond.files.wordpress.com/2010/09/cibcbtt2.pdf) That application to wind-up is being opposed by the NGC and the National Insurance Board (NIB).  Those matters are still before the Courts, which I only mention because the documents filed there give a disturbing insight into the CIB mystery.

We were also being fed some lyrics that the CL Financial group in general and CIB in particular were all healthy/strong companies with good assets, fallen victim of the global financial crisis.  Despite the natural doubts on that one, I had some trust in those people who were speaking to me.  The mystery remained – Was CL Financial and CIB an audacious, well-run operation which had become a victim of a declining market or, even worse, a sinister conspiracy?  Or was it a much less glamorous story of the Caribbean’s largest-ever business conglomerate actually being some kind of Naipaullian ‘Thing without a name‘?

I have read some of the affidavits in this case and the contents will be severely disturbing to any right-thinking reader, even you are not a financial expert.  This week I am looking at two affidavits of the Inspector of Financial Institutions, Carl Hiralal. The affidavits are available to read at https://afraraymond.files.wordpress.com/2010/09/cibey1.pdf and https://afraraymond.files.wordpress.com/2010/09/cibcbtt1.pdf.

Carl Hiralal
Carl Hiralal, Inspector of Financial Institutions

There is a way that the entire reading is surreal, since the very person who was supposed to safeguard us from extensive wrongdoing and risk-taking, now has to swear to the Court that the institution has failed so badly it needs to be wound-up.

The main points were –

  • The initial meeting – At para 5 he states “…On January 15th 2009 as part of its normal regulatory process, the Central Bank held a meeting with officials from the Petitioner…” (CIB).  Now that is literally an unbelievable sentence.  Hiralal is swearing that this was a routine meeting.  We are being asked to forget that the then Minister of Finance told the Parliament on 4th February 2009 that

    “…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…

    see page 628 of http://www.ttparliament.org/hansards/hh20090204.pdf.  I am forming the impression that Hiralal does not want to have the ‘bailout letter’ cited in this Court matter at all, for whatever reason.  You see, if it were cited, the Central Bank would have been forced to file a true copy, which anyone would have been able to access.  Neither of my Freedom of Information applications for that ‘bailout letter’ – to Nunez-Tesheira or Dookeran – have been fruitful.  So we have this incredible statement for starters.  We are being asked to believe that Lawrence Duprey’s letter requesting urgent, massive financial assistance and the meeting two days later were unconnected.

  • Reasons for winding-up – At paras 9 c. and 10 g. he states “…the Petitioner (CIB) was not maintaining high standards of financial probity and sound business practices…”  Stunning, and in a sworn affidavit from the chief regulator.  This is the high official responsible for maintaining good order of the players in the financial system.  Those Directors, Auditors and Officers of CIB, the ones who presided over this situation, do you still consider them to be ‘fit and proper’, Mr. Hiralal?  Yes or no?  If Yes’, how come?  If ‘No’, what are you going to do about it?  And when?  But there is more.
  • Board of Inland Revenue – At para 23 he states “…With respect to the Creditors of the Petitioner, the Petitioner has met the statutory obligations for the Board of Inland Revenue (except for Corporation Tax Returns for 2007, 2008 and 2009 which are being prepared and remain outstanding)…”  I spoke with a very experienced accountant and a corporate attorney before writing this and the common view is that the meaning of that statement is that the Corporation Tax owed by CIB is unpaid for 2007-2009.  If they owe those taxes we dealing with people who do not pay their taxes, yet expect the taxpayer to assist them in times of need.  Even if the taxes are paid-up in full, there is still the elementary and inescapable governance question of how and why CIB failed to file a tax return?  Did PwC report on this in either their audit or management letter?  Was Hiralal aware of CIB’s failure to file before he was forced by the procedural requirements of the winding-up petition to declare his hand?  Did the Board of Directors know?  Have penalties been applied?
  • Statement of Affairs – This is at para 12 and appears to contradict the prior statement in that it does not show any amount for either ‘Taxation Recoverable’ or ‘Taxation Payable’.  There needs to be an explanation on this.
  • Auditors – CIB’s auditors were PricewaterhouseCoopers (PwC), who were featured last week.
  • Lucie-Smith’s view – William Lucie-Smith, former Managing Partner of PwC, responding to bloggers on his Express article ‘CL Financial: A new strategy required’ – see http://www.trinidadexpress.com/commentaries/CL_Financial_A_new_strategy_required_.html – replied on Friday 20th August, like this “…Indeed I dont (sic) know why anyone assumes the books were wer (sic) wrong at any time and did not reflect accurately what was happening…”  Just my first read of those affidavits made me question the reliability of the accounts.

Next, I will be going into some more detail on how CIB actually worked, based on sworn affidavits.

The Concentric Circles

Concentric circlesFor the purposes of this article, CIB is at the centre of the page, with its Directors and Officers being in charge of its strategy and management.  They bear primary responsibility for the company’s affairs on behalf of the shareholders and other stakeholders.

The second ring is the auditors, usually a leading firm of Chartered Accountants, who examine the accounts prepared by the company to report whether those accounts offer a true and correct picture of the company’s financial health.  The auditors use international accounting standards as a benchmark for quality and comparability of figures, if there are material divergences from those standards, the auditor’s opinion can be qualified, which is when the divergences are specified.

The third, outer ring is the financial sector regulators, whose job is to ensure that the companies within the industries comply with the law and other guidelines created by the regulators.  The regulators examine the audited accounts and other information from the companies in order to determine the extent to which the rules are being followed.

We, the saving and investing public, are outside of that series of concentric circles and once there are no alarm bells, we will place our savings with these approved financial institutions.

The reason for all that is to preserve the most fragile and vital ingredient of the capitalist system.  Yes, I am speaking about trust, which is also an important aspect of the wider society.

The society relies on the people in these three concentric circles to act in a ‘fit and proper’ fashion in the execution of their duties, with proper penalties in place for improper or illegal behaviour.  The idea being that there is a minimum standard of conduct and risk-taking which avoids nasty surprises in the course of normal savings and investment.

There are real questions as to what levels of risk-taking and innovation are healthy or desirable to maintain some balance between profit-levels and stability.  That is a fascinating aspect of the financial industry to be expanded on.

The Regulator

The chief Regulator at the Central Bank, with responsibility for both Banks and Insurance companies, is the Inspector of Financial Institutions.  That office is held by Carl Hiralal, who was appointed on 1st January 2007.  Hiralal is a well-qualified, highly-experienced professional and that only makes the contents of his affidavits all the more disturbing.

For more details, see – http://www.ttaifa.com/downloads/2009CarlHiralalBio.pdf

The CIB Directors

At the time of the collapse, the Board of Directors of CLICO Investment Bank comprised –

Mervyn Assam (Chairman)
Amjad Ali
Anthony Rahael
Maria Thorne
Michael Callender
Faris Al Rawi

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9 thoughts on “CL Financial bailout – The House on the Corner

  1. Afra,

    You are doing a fantastic job of highlighting the issues and concerns surrounding the bailout that was given to CL Financial. With respect to CIB, could you perhaps highlight the plight of the 100 staff members who have been disenfranchised (just like the third party depositors and creditors)? To date, no one has received any severance (or hope thereof) for the many years of service they rendered to the institution.

    Thank you.

  2. Afra,… the reality is persons in the circles knew since 2004 that CIB was a ticking time bomb.

    And as for the staff members… some of us with degrees and experience elsewhere,… CFA… ethics… the reality is…
    It was being done on a global scale…

    It’s called greed. When bonuses are four times your monthly salary and four star hotels are part of the package… it… well

    The game is hot potato and ask no question be told no lies.

    Get real.

  3. V, whoever you really are….

    There is no doubt that many people knew what the game was, the questions remain how can they have carried on seeking investments in what they all knew was a shaky company. Lawrence Duprey having written to the Central Bank to seek urgent financial assistance on 13th January 2009 and, according to Carl Hiralal’s affidavits, Ms. Mooleedhar having directly told him on 15th January of CIB’s severe liquidity difficulties. I have had reliable accounts of CIB seeking investors’ deposits on the evening of Thursday 29th January 2009, yes, up to the very night before the bailout and hosting an Investment Seminar on the evening of Thursday 22nd January 2009 – I should know, having been an invited speaker at the latter event.

    Yes, the game is greed and we need to see that those who broke the law and good ethical standards should be named and, at the very least, banished into obscurity. In an ideal world their assets would be sold and they would be facing serious jail-time – I know the world is not ideal, but that is the work we have to do to create new possibilities.

    That is my version of ‘getting real’.

    Afra

  4. Time to blow shit out of water!!! CL Financial payments. God alone know what other payments were made that we don’t know about???

    TT$40M paid to Dalco Capital Management Limited – Lawrence Duprey’s company. Owned in part also by Geoffrey Leid – now also the CEO of Primera Oil Field Resources. Leid also got paid millions from the various companies in the cl financial group.

    TT$10.9M paid to Corporate Consultants Limited -Gita Sakal company.

    TT$378k paid to Stone Street Capital – Andre Monteil company – when is a forensic investigation going to be done on Stone Street Capital and the man still in control of many people at the company?

    TT$14M paid to Andre Monteil separate payment.

    TT$6.3M paid to Monteil – can u imagine what other payments to Monteil was made ??? Monteil has his links still to the company – he knows how to get what he wants.

    TT4.7M paid to Gita Sakal and another 5M TT paid to Gita Sakal – all checks signed by Gita Sakal and made out to herself, authorized by herself. Over 2008 alone Sakal got over 20M TT.

    Now the Government and the people of TT has to suffer and may money to the policy holders who have to wait over 20 years to get anything while these people live in riches and watch the poor people of TT suffer

  5. So what is happenning with the employees of CIB who were just doing a job and taking direction. Most employees did not have a clue as to the “goings-on” of their bosses, and the things that they new, when they raised their voices they were punished. In the interest of keeping their jobs (jobs were hard to get) they shut up and prayed that things will change, and that the CBTT would step in and force the Management to comply with standards, because the CBTT knew what was going on, but some of them were friends with the “big wigs”.

    These employees have not been paid any severance and all other employees of the group who were severed got their severance. Clico employees are being sent home at the end of the year and are being paid off. Some of them will be re-hired. Have you any idea how depressing it is to read all those bad things about the company and the persons responsible are sitting pretty (and given time to hide their investments in relatives’ names) while the former employees are scrunting. Yes, some of the younger ones got good jobs. What about those who were with the bank since its early days? Some with deposits in the bank. One person I know lost all her deposits in CIB, with the Islamic Bank and her Annuities in Clico were not paid out, because she was promoted to Vice President just a few months before the debacle. Another who had deposits jointly with her parents (their retirement and investment funds) these funds were not paid out, because she was promoted to Vice President a few months before. These promotions were part of a restructuring exercise to try to fix CIB since the “looters” had left. Another man died from a massive stroke which might have been because his mother’s funds which were held jointly with him, were not paid. The mother has since died too. An Attorney is asking for hefty sums to take on the cases, but where will they get the funds from? Some are not taking the cases since they are afraid to fight the Gov’t as they feel they will not get government briefs.

    Joanne

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