CL Financial bailout: What is this campaign?

Clockwise from top right, Norris Gomez and Peter Permell; Ramesh Lawrence maharaj; CLICO Policyholders Group meet; a speaker at CLICO Policyholders meeting. Illustration by NiCam Graphics.We are witness to a second wave of assault on our Treasury.  Let us be sure, those of us who are not in line to benefit directly from the bailout, that the picture is complicated and it contains perils for the entire country.

The original bailout was an unjustifiable and colossal facility granted to the CL Financial Chiefs and the shareholders of that failed, privately-owned, group.  I say facility because the taxpayers’ money in our Treasury was pledged to repay the debts of the CL Financial group.  The deal was hatched in secret and fact is, upon reflection, its terms were never formally debated in our Parliament.  What was debated was a series of amendments to the laws governing distressed Banks and Insurance companies.  A lot was said about the issue and many notable contributions were made to the debate in Parliament, but the agenda item for debate was not the terms of the bailout.

The 30th January 2009 Memorandum of Understanding had already been signed and was on its way to implementation when our Parliament debated and agreed to amend the legislation.  The nation had witnessed a ‘Quiet Coup’ to draw from the title of Professor Simon Johnson’s seminal article (in the May 2009 edition of The Atlantic) on this process in the USA – see http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/7364/.

I have no intention of arguing the legal merits of the case being advanced by the CLICO Policyholders’ Group (CPG), leave that to the learned.  I just note that we are yet to hear the voice of the traditional policyholder in the declarations of this Policyholders’ Group.

The bare facts need to be laid out for consideration, it would be far better to conduct this discussion in a more informed manner, with some of the missing details requested at the close of last week’s column.  But is best to start from where we are.  So, the bare facts –

  • CIB’s insolvency is estimated, according to the winding-up petition being heard in the High Court, to be of the order of $4.7Bn
  • According to the Finance Minister in his budget speech, the combined insolvency of British American and CLICO is of the order of $7.2Bn.  It is not possible to tell from that speech if those estimated figures included the monies already drawn from the Treasury in pursuance of this bailout.
  • The amount said to be spent on the bailout, up to May 2010, was $7.3Bn.
  • The amount being owed to the 225,000 policyholders is estimated to be $6Bn.  That covers traditional insurance products such as pensions, health plans and life insurance – it works out at an average of $26,666 owed to each person.
  • The amount being owed to the 25,000 depositors is estimated to be $12Bn, which works out at an average of $480,000 owed to each person.  But there is another way to look at that information and that is in the sidebar.
  • The Governor of the Central Bank, the very official the CPG is seeking to have affirmed as the proper decision-maker in this matter, in April last year made public statements that all the assets of the group are encumbered.

In the absence of the accounts and operating with the available information, it seems reasonable to believe that the CL Financial group is insolvent and further that our Treasury has swallowed an impossible series of obligations.  Furthermore, there is no obligation on the borrowers – the CL Financial shareholders – to pay one cent of interest. Even worse, Para ‘A’ of the 12th June 2009 CL Financial Shareholders’ Agreement actually obliges the State to protect the interest of the shareholders – see http://wp.me/pBrZN-bP.

Of course this leads to yet another ‘$57,000 question’ – ‘If the CL Financial group is insolvent, then how are we paying for all this?’  Yes, that is the big one.

It seems that the CPG is intent on advancing its sectoral interest and while we know that is how things work, it is even more important to be watchful of our nation’s wealth.  We are actually being asked to put out an additional $12Bn to rescue the 15,000 CPG members, with no reasonable hope of recovering those monies.

For the record, no one from the previous government or the Central Bank, for that matter, has ever even attempted to justify the rotten terms of this bailout.  Not even an attempt to explain the interest-free, unlimited, unsecured loan to that lucky group of 325 CL Financial shareholders.

Even now, with the new terms being hotly debated, please note carefully that no new terms are being announced for the ultimate borrowers, the CL Financial shareholders.

Selwyn Ryan
Selwyn Ryan

Professor Selwyn Ryan of UWI, who was, last year, a strong critic of the bailout process and its glaring conflicts of interest, now appears to have become a leading party in the CPG, calling for that suspect deal to be honoured.  A deep contradiction in terms, I tell you.  How do you honour a rotten deal?  Politics does make strange bedfellows and yes, history is truly rich in irony.

Emmanuel "Manny" Lawrence
Emmanuel "Manny" Lawrence

Even stranger still, is the presence in the CPG of Emmanuel ‘Manny’ Lawrence, former Sales Director of CLICO and now head of one of its sales agencies.  In the three years before the CL Financial group collapsed, all the CLICO agents I knew made intense efforts to get deposits from me.  Not once did these agents even attempt to sell me a life insurance plan or health plan.  These agents consciously and deliberately coaxed many of those people who are now protesting to place all or most their investments in this one instrument.  That is the kind of irresponsible behaviour which led many people to be in breach of the basic investment guideline against over-concentration of risk – to avoid putting all ones eggs in one basket.  That is the kind of biased and unsound advice which no proper professional would render to a client.   It is a decisive factor in this entire scenario.

The ingredients included the requirement for cash by an expanding industrial/commercial group, the resulting lucrative commissions being paid, the trust of the investors and the poor level of general financial literacy.  Those factors all contributed to this appalling picture.  To be fair, despite the titles adopted by some of these salesmen, they were not true Investment Advisers, since they were selling CLICO products.

Also, as to the discussion about the sophistication of the investors, the fact is that even an organisation as large as the National Gas Company, could be seen to have placed undue reliance on the high-interest/high-risk products being offered by the CL Financial group.  At one point, according to its 4th February 2009 Press Release, over 45% of NGC’s funds were in CL Financial – see http://wp.me/pBrZN-ec .

SIDEBAR: The depositors re-examined

I just made the point that the 225,000 ‘traditional, long term policyholders’ are owed an average of $26,666 per policyholder.

Also, that the 25,000 depositors are owed an average of $480,000 per depositor. It is interesting that if you subtract the maximum of $75,000 which would be due to each of the 10,000 ‘small-scale’ depositors, the total owed to the remaining 15,000 depositors is reduced to $11,250,000,000.  That adjustment carries the average amount due to the real protestors in this CPG to no less than $750,000 per depositor.  Yes, that is twenty-eight times the amount due to the traditional policyholders.

Ironically enough, the voice of the traditional policyholders, who outnumber the depositors nine-to-one, is virtually silent in all this.  I am yet to hear anything from the CPG on behalf of those traditional policyholders.  But then again, it is clear that by far the larger amount is owed to the depositors and further, that they appear, on average at least, to be owed about 18 times more than the typical policyholder. Yes, as Growling Tiger did sing “Yuh know very well that Money is King’’.

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12 thoughts on “CL Financial bailout: What is this campaign?

  1. Is the amount owed to policyholders the cash surrender value of their policies or the amount paid into these policies? Because the cash surrender value is always less than the amount paid for a policy, my personal experience.

  2. I noticed that in your calculations leading to $750,000 per POLICYHOLDER, you didn’t first subtract the large amount due to Credit Unions and other institutions and take them out of the 15,000. For that calculation to be valid in its representation of an average per individual policyholder and the picture you are painting, it would be more credible to do so.

    1. Angeli,

      I noticed that also, and I think that it distorts the calculation. This is bad statistics. It would help if the Minister would also separate the depositors by classification; individuals, credit unions etc., as well as indicate the maturity periods as a time line on these EFPAs as I understand that they are short term investments, and not all are due now under normal circumstances. Some sort of graphical representation of deposit weight per class would assist in having a better overview of this mess.

      1. Hello Angeli and Nigel,

        The only reason I left out the impact of the large Credit Union deposits is that we do not know the extent of those – either the true amount or the number of depositors involved. As I pointed out in ‘Disturbing Arrangements’, the reported statements of Diane Joseph from the Credit Union League – see http://guardian.co.tt/news/general/2010/09/17/credit-unions-fear-collapse – were not supportive of the headline or her statements as to the perils to which that group of depositors were exposed. In addition, as I pointed out in later in that article, there were contradictory statements from Esme Rafael of the Credit Finance Facility – “…the credit union movement was under no danger of collapse…” – see http://guardian.co.tt/news/general/2010/09/22/cff-welcomes-move-meet-cu-clico – which only added to the confusion.

        I only work from the published record, hence the omission, which will be dealt with once adequate information available – it is not my intention to suppress or distort any aspect of this very important debate.

        In saying so, it is interesting to consider the question of just how an organisation can purchase an annuity, which is an investment product for an individual. The fact that so many organisations did so, does some damage to the notion that this EFPA was sold in conformity with its true nature.

        All of which brings us back to the basic accounting principle that when one is in doubt in trying to interpret a situation such as this, the correct procedure in that process is to be guided by the substance rather than the form of the transaction. That is the background to my assertion that the EFPA was in fact a deposit.

        Thank you for joining-in – this debate will surely continue.

        Afra

      2. Nigel, they are not “short term investments” but deferred annuities. What people have been referring to as “maturity” is in fact the expiration of the guaranteed interest period during which the policy cannot be surrendered without penalty. A fairly standard feature of deferred annuities.

  3. Important nuggets from an impressive speech by Kamla who it must be said in matters large and small thus far has engaged the population on matters of public concern.

    1. Commission of enquiry. Sorely needed. Tens of billions of dollars cannot be expended without an Uff enquiry style full ventilation and accounting of all pertinent issues.

    2. Individual investors owned $10b out of the $12 billion held in EFPAs. $600m was owned by credit unions and $1.1 billion was owned by corporations. Kamla further states that the rate on these deposits were 8-9% generally reaching to a high of 13% when commensurate commercial bank rates were 2.9-3.1%. Give CL props their scheme was stunningly successful hence the liability to 25,000 depositors being twice the liability to 225,000 traditional policyholders. Additionally, she revealed that 1100 depositors who don’t reside in Trinidad account for $1.2b in deposits – an astounding $10 million plus per account. It is unconscionable that these people’s folly be paid for solely by the taxpayer.

    3. Quite amazingly $7 billion plus has been expended and nobody seems to know how it was expended? who was paid out? why? what was the rationale. Total comess. I would suspect time will reveal that a lot of bigwigs got into the lifeboat before the Titanic sunk a la Ms. Tesheira.

    I want to end on a happy note. I am deeply sceptical of what passes as leadership in T&T but Kamla has impressed me with her openness and transparency thus far. The facts will out. As Manning used to say let the chips fall where they may. As I read her speech, I thought to myself how comprehensively the Manning administration mismanaged the affairs of this country. At this point, this is not even a partisan statement just a recognition of fact.

  4. What I find distressing is that, over the past week or so, the reports in the media supposedly quoting Mr. Permell, together with an article in the Business Guardian, that gives rise to the misconception that the CL Financial assets are (a) worth a lot of money and (b) sitting around, free and unencumbered, doing nothing.

    Suddenly the media reports make no reference to the fact that CLF has massive debt that has come due and will be coming due. Who will pay off this debt to “free up” the CLF assets so that they can be sold to repay the “proper” insurance policy holders? CLF and CLICO do not have the money so the burden will fall on the government thanks to the blank cheque that the previous Minister of Finance so graciously gave them.

    Mr. Permell has made a patently idiotic statement that the income earned from the $100 billion of CLF assets should be allocated to the policyholders. There are a lot of uninformed persons making the rounds on TV shows, etc making false statements. There is no $100 billion in assets. The operations in the Bahamas, Cayman Islands, Belize and BVI have all ceased and are being liquidated. At least 3 of the Florida property developments have been foreclosed on and are lost. The operations in Guyana will now face this same liquidation. The disclosures in CIB shows that there were billions of dollars in non-performing loans.

    What would greatly help is for the government or Central Bank to make a full and proper report to the country as to what has transpired and what remains of CLF and CLICO.

    1. “What would greatly help is for the government or Central Bank to make a full and proper report to the country as to what has transpired and what remains of CLF and CLICO.”

      This is what is missing from the debate. From the mere fact of the CIB Winding-up it is clear that the information is in the hands of the government and the Central Bank. Unless there are legal implications for action being contemplated it is time that the full picture is released.

    2. Nice one, Paulie,

      I see today’s Business Guardian using your material, but not seeing your name in the online version, so I guess you sent it anonymously, eh?

      Good work.

      Afra

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