Did CMMB collapse or not?

KSBM directors, Brent Salvary, Ramcharan Kalicharan, Robert Balgobin and Robert Mayers

The headline was an arresting one – ‘Investment pros set up new business‘ at page 10 of the Business Guardian of 9th December.  It was reported that a new investment house, KSBM, was launched and it seemed that they were profiling.

Given that all four of KSBM’s Executive Directors are ex-CMMB chiefs, there is an inescapable question… Did CMMB collapse, or did they not?

Our society’s level of development will be limited by our capacity to reason and learn from that reasoning.  The Code of Silence must be destroyed if we are to progress. It is necessary to probe this question most soberly and this is my attempt.

As is my practice, I am proceeding from the published record –

If we refer to the MoU signed on 30th January 2009 there are only two references to CMMB, in which, at clauses 1 c) and 6 b), the CL Financial group agrees to sell its shares in CMMB, along with a list of other assets.

Also at CNews of 30th January 2009

…Today, the Government, the Central Bank of Trinidad and Tobago, and First Citizens Bank (FCB) became part of a bail-out package for CLICO Investment Bank, CLICO and British American Insurance and Caribbean Money Market Brokers (CMMB)…

The Governor’s statement made that day goes a little further, by referring to the transfer of third-party assets and liabilities of CIB and CMMB to First Citizens’ Bank.

The third reference to CMMB was at the first press conference held by the Central Bank Governor on this matter, 13th March 2009, his opening sentence was:

…This is the first in a series of media conferences that the Central Bank intends to schedule to update the national community about progress with respect to resolving the financial difficulties in CLICO, CIB and CMMB…

It is reasonable to ask why it became necessary to transfer CMMB’s third-party assets and liabilities (which would have included depositors) to another financial institution.  More to the point, it would seem from the events that only a State-owned financial institution was willing to partake.  In my view, if CMMB were healthy and whole, it would never have been even mentioned in all of this.

But, wait, there were conditions –

The fourth reference of course was the revelation that the previous administration had created a $1.8Bn guarantee to cover CMMB’s advances to its parent company, CL Financial.  First Citizen’s Bank had made that guarantee a condition of its acquiring CMMB.

On 1st October, 2010, which was the fateful Friday on which our Prime Minister discussed the CL Financial matter at length in Parliament, First Citizen’s Bank wrote to the Minister of Finance to get confirmation that that guarantee was properly in place.

According to a report in Newsday of October 2nd 2010 – see  – under the headline: ‘First Citizens: Honour $1.8B CMMB deal

Larry Howai, First Citizens CEO
Larry Howai, First Citizens CEO

…First Citizens Bank CEO Larry Howai yesterday confirmed the bank’s request and revealed that it was made in relation to the bank’s acquisition of Caribbean Money Market Brokers (CMMB) under the terms of a supplemental agreement drawn up subsequent to the Memorandum of Understanding (MOU) of January 30, 2009. CMMB had racked up a substantial debt due to loans to parent company CL Financial.

“What happened is when we acquired CMMB, CMMB was owed money by the CL Financial Group,” Howai said. “We had told the government at the time that we would only acquire CMMB if they guaranteed the debts…

It seems to me that the guarantee First Citizen’s Bank was confirming had been made in conditions of great privacy, for it was the first time I was reading about it.  A Supplemental Agreement to the published MoU – one can only wonder when that is to be published.

Finally, the Terms of Reference of the Colman Commission were specified as

…The terms of reference of the Commission of Enquiry include looking into the causes, reasons, and circumstances leading to the deterioration of the financial conditions at CLICO, CLICO Investment Bank Ltd, British American Insurance Company (Trinidad) Ltd and Caribbean Money Market Brokers and HCU which threatened the interest of depositors, investors, policyholders, creditors and shareholders and the circumstances, factors, causes and reasons leading to the January 2009 intervention by the Government for the rehabilitation of the companies…

Some other views have been put to me, most notably by the editor of a leading newspaper, to challenge my assertions on CMMB, so one needs to go further.

Yes, it is now time to consider First Citizens’ Bank’s (FCB) 2009 Annual Report.

As to the post-bailout events, I am considering page 77 of FCB’s 2009 annual report and Note 1 to the accounts ‘General Information’ is giving me pause – the relevant paras are cited –

cmmb_logo…The CMMB Group comprises CMMB Limited, CMMB Trincity and CMMB Barbados…Effective 2 February, 2009, the Bank assumed control of CMMB Securities and Asset Management Limited (CSAM)…

The meaning of that series of statements is unclear to me…FCB assumed control of the CMMB Group (which we are told has 3 parts) on 2nd February 2009.  Ditto for CMMB Securities and Asset Management (CSAM)…is that part of the CMMB group or not?  I am not at all clear on what, if any, is the difference in these companies.

But, apart from that note, the real meat of the matter is found at Note 39 on page 131 – ‘Business Combination’ – the opening para of which, in reference to CMMB, reads –

…The acquired business contributed revenues of $369.9 million and net profit of $91.9 million to the group for the period from 2 February 2009 to 30 September 2009…

The acquired business is obviously CMMB and that profit rate, at just about 25% of turnover, is below FCB’s overall 45.5% profit rate disclosed at page 73, in the Consolidated Income Statement.

The CSAM performance, disclosed on the next page of the same note, is less impressive –

…The acquired business contributed revenues of $3 million and net loss of $0.16 million to the group…

But the body of that Note is contained in its details of Net Asset Values, to quote –

…The details of the fair value of the assets acquired and arising from the acquisition are as follows…

The Fair Value of Net Assets for the two acquisitions is disclosed as being:

CMMB Fair Value CMMB Carrying Value CSAM Fair Value CSAM Carrying Value
($187,444,000) $74,949,000 $14,219,000 ($14,218,000)

I abbreviated the table to show its headings and totals only.

  • Fair Value is the estimated market value of the assets and liabilities, with an adjustment for any ‘special purchaser’ advantages or disadvantages.
  • Carrying Value is what used to be called ‘Book Value’ – i.e. acquisition cost less any depreciation.

The largest negative entry in that accounting is Other Funding Instruments, disclosed at $5.464Bn.  What were these?

Point being, that, even if we ‘net-off’ the two companies, these figures disclose a negative Net Asset Value of about $173M.

More to the point – which was CMMB’s state at the date of the bailout – the table in Note 39 also discloses CMMB’s cash and cash equivalents to be NIL at the time of the bailout.  CSAM’s are disclosed to have been about $7.3M.

Here I am trying to make sense of a statement in the ‘Director’s Report for the year ending 30th September 2009’, at ‘Results and Dividends – see  at page 18.

….The Group’s total assets were $27.8 billion as at the end of September, 2009 up $11.9 billion or 75%. This increase was mainly as a result of the acquisition of CMMB which accounted for just over $7.6 billion of the Group’s total assets…

I am unable to reconcile the contents of Note 39, which specify a negative Net Asset Value of at least $173M, with this statement as to the additional $7.6Bn in total assets.

The conflict in the narrative is evident even in the very CEO’s statement –

At page 13, we read –

…During the year, the most significant event for the Group was the acquisition of Caribbean Money Market Brokers (CMMB), the largest brokerage house in Trinidad and Tobago. The acquisition contributed to growth in assets, profits and funding…

Then, at page 14…

…we were called upon by the Central Bank to assist with the payments to depositors of CLICO Investment Bank (CIB) and to acquire CMMB, both of whose customers were seriously affected by the necessary interventions made by the authorities to stabilize the system…

How were the CMMB customers ‘seriously affected by the necessary interventions’?

Nothing in FCB’s 2009 Annual Report leads me to doubt my original conclusion as to CMMB’s collapse.  I am sure more details will emerge during the Colman Commission, the Terms of Reference for which were again requested from the AG’s office this week.

But in fact more details emerge in the Business Guardian column of 16th December ‘First Citizens profits from Duprey’s CMMB‘. Two quotes from the First Citizens CEO will suffice –

  • As far as First Citizens chief executive officer, Larry Howai, is concerned, the bank and the government together saved CMMB – ‘They would not have been able to continue in business much longer’
  • CMMB had serious impairment of between $1.6 and $1.8billion which would have had to to have been written off or provided for in some other way

It would really be refreshing to have one of those CMMB chiefs (Ram Ramesh or Robert Mayers, maybe?) assist us in gaining a clearer picture of the events.

In summary, we have CMMB

  1. reportedly with NIL cash balances as at the bailout
  2. reportedly with a negative Net Asset Value
  3. with its customers stated to be ‘seriously affected’
  4. acquired by the State-owned bank
  5. The terms of which acquisition include a secret guarantee for $1.8BN of presumably irrecoverable advances to its parent company
  6. The subject of the oncoming Colman Commission

The big question for me is how come the chiefs of CMMB, a financial institution which is known to have failed on this scale, can be permitted to open another one? We are acting as if we have no capacity to learn from our errors. Just carrying on as though nothing happened. What is the role of the SEC and the Central Bank in all this? Have we learned nothing?

I certainly hope that my colleagues in the press are going to be as insistent and detailed on this matter as the circumstances demand.


6 thoughts on “Did CMMB collapse or not?

  1. I presume you’re not addressing Ramcharan Kalicharan’s comments in an effort to provoke discussion. He argues that any problems with CMMB arose out of withdrawals arising from the announcement of the CL Financial bailout. My own observation is that the guarantee is for only $1.8 billion out of an asset base, by FCB’s own reckoning, of approximately $7 billion. That was in respect of CL Financial indebtedness. There were evidently other assets.

    I don’t think that CMMB was broke at the time of the bailout.

    1. Hey Choko,

      Good for you to re-join us again, I think CMMB was broke at the time of the bailout and will be publishing a commentary on their accounts to back-up the preliminary points made in this piece.

      As someone with a legal bent, just ask yourself why, if all was well, was CMMB included in the Terms of Reference for the Colman Commission? As you well know, that sort of decision is not taken lightly or capriciously.

      Kalicharan’s explanation of the liquidity problem is risible, as he attempts to blame CMMB’s ‘run’ on the CL Financial bailout – the reason that is literally unbelievable is that CMMB was acquired by FCB on 2nd February 2009 – 3 days after the bailout was announced on 30th January. As noted in this piece, CMMB was ‘named’ on the very bailout day, as one of the troubled institutions. To me it is perturbing that Kalicharan should have been allowed to make that kind of statement, without challenge, in the country’s leading business paper. But you can be sure I will be making the point in those pages.

      Thanks again and have a great holiday, Choko.


  2. In the first Gulf War, Saddam Hussein had an information spokesman “Baghdad Bob” who would make the most outrageous claims, we are shooting down the American planes out of the skies, the Americans taking massive casualties etc. He quickly became a laughing stock throughout the world. Yet in this Clico saga I hear people make similarly laughable statements with a straight face. Peter Permell is the king but Anthony Wilson is closely contesting the position. How can there be a serious debate about whether CMMB collapsed? The facts are simple:

    1. The Bank had a receivable of $1.8b due from Clico. This became irrecoverable due to Clico’s insolvency.
    2. I have not seen CMMB’s accounts but the figure quoted here is that its asset base was $7.2b. Consequently, 25% of CMMB’s asset base was worthless.

    There is not a financial company in the world that can withstand that and the inevitable run triggered by that event. How is that not a collapse? Kallicharan comments that there was a run consequent to the CL bailout highlights the nuts and bolts difference between a liquidity problem and an insolvency one. A liquidity problem is when there is a run caused by rumours that turn out not to be true, insolvency is when it is true. A $1.8b writeoff is quite the insolvency problem. It would be interesting to find out these guys compensation levels. This may go a long way in explaining how these gentlemen could have so flouted their most basic duty to their clients by running a diversified portfolio and reducing their risk of loss. So yes, there was a backdoor bailout of the depositors and clients of CMMB through the govt. assumption of that debt. Plain and simple.

    Afra, I thank you again for the work that you are doing. What is most important is that you are calling individual people to account. Mr. Mayers particularly has been scathing in his commentary of politicians yet when he jumps off the Titantic before it goes down he is silent. Take care and keep up the good work.

  3. The objective of this blog is creditworthy in that it seeks to expose issues of importance and maybe controversy that seem to go into oblivion without a trace. However, this noble effort requires a sufficient level of responsibility in that it requires the author to hold some reasonable knowledge of the topics brought to light. It is quite clear the the author of this blog has very little knowledge of financial matters and ends up misleading his readers, the numbers of which look rather unimpressive. Therefore armed with a clear lack of knowledge this author must surely apply faulty logic to his argument leading to inaccurate conclusions and sometimes the making of dangerous and unfounded accusations. I would therefore like to recommend to the author that before he so distinguishly displays his ignorance he should at least take a short course in accounting or speak to people who may be more familar with the subject, maybe any 10 yr old would do here, and resist spewing absolute garbage leading other uninformed persons to form wrong conclusions.

    1. Hello, ‘Unimpresssed’, whoever you really are…

      Your anonymous recommendations have been filed in the appropriate place.

      Nonetheless, having published your post, it would be interesting to have some further note from you of what exactly are the correct conclusions arising from the material.

      That would count as a contribution.

      Please do join-in again.


  4. It’s unfortunate that “Unimpressed” decided to resort to insults in an attempt to refute the information above. Oh come on, nobody needs to be an accountant to realize that those figures paint an AWFUL picture about what was happening at CMMB and what led to its demise.
    Indeed, the fact that CMMB was included in the Colman Commisssion of Enquiry is ample proof that something horribly wrong happened to them. What is truly scary is that the people at the top of CMMB are bouncing around happily, setting up shop once again without accounting for what happened to the company they headed…once again – where are the Financial Regulators?
    Do we never learn?

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