CL Financial bailout – Bitter Brew

CORRECTION: On the issue of interest due on Public Money advanced for the CL Financial bailout

I have been stating that the Public Money advanced for this CL Financial bailout has been interest-free and that was a clear indication of the most-favoured status of the borrowers. With apologies to my readers, I now accept that 4.75% was charged on the first tranche of $5Bn which was lent in 2009, so my prior claim needs to be withdrawn – see comments below. Yes, interest was charged on the bailout monies but at such a paltry rate as to leave my fundamental point undisturbed, as explained below.

The Weighted Average Cost of Capital (WACC) is a metric used to show what is the average cost of the capital raised by a company. It is a vital tool in strategic management and allows the company’s leaders to make effective borrowing decisions. For example, a company which had borrowed half of its capital at 10% and the other half at 14%, would have a WACC of 12%.

If we apply this approach to the CL Financial bailout the answer is instructive. So, we can assume that the total advanced is $25Bn – there are many estimates floating out there, but $25Bn is recurs quite frequently – with only 4.75% being charged on the first $5Bn and no interest on any more of the Public Money advanced to CLF. According to my calculations, given that only 20% of the CLF bailout pays interest at 4.75% and the other 80% is at zero-percent, the WACC is .95%, less than 1% is the interest due from the CL Financial chiefs for this epic loan. I tell you. It really looks like those insurance and investment gurus had it right, eh…party political investment is really the best insurance policy.

Having said that, the two questions arising are still of high importance –

  1. firstly, why was no interest charged on the rest of the Public Money advanced?
  2. Secondly, why was the low rate of 4.75% charged on that first tranche?

That rate is significantly less than the mortgage rate at that time, so how and why did a distressed borrower qualify for that kind of favour?

Lawrence Duprey. Photo courtesy the T&T Review

The return of Lawrence Duprey was the Sunday Express lead story on 15th January 2017 – ‘Rebirth of Duprey‘. This is one of those times when one is really sorry that an original suspicion was true.

We seem to be striding straight toward a precipice with no clear information at all about why, or how. The largest-ever special interest deal now seems set to return CL Financial to Lawrence Duprey and his cohort, which will be hugely detrimental to the public interest.

These bailout conditions in no way resemble the Wall St examples, despite the comical claims of its defenders that it was the same thing. There are three important differences –

  1. the CL shareholders kept their shares;
  2. the massive loan of over $20 Billion to the Caribbean’s wealthiest individual was made at a zero interest rate, that’s right, zero;
  3. the CL Financial chiefs were never required to give a public explanation of what caused this massive collapse.

Those terms were agreed by the Cabinet in January 2009. It is a real ‘sweetheart deal’ to assist Mr Duprey and his cohorts to a soft recovery so they could get back control of the companies when things improved. We are now reaping what our rulers sowed, hence the title of this article.

The Central Bank has the duty to use its ‘fit and proper regulations‘ to prevent certain persons from taking positions of responsibility in our financial system. Those regulations apply to Directors, Officers, Shareholders and Actuaries of Financial Institutions. The Central Bank therefore has a serious duty of oversight for our financial system, beyond monetary policy and operations. It is unacceptable that the Central Bank has never applied the ‘Fit and Proper’ regulations to disbar the CL Financial chiefs from participating in our financial system. That unexplained failure to apply the rules has opened the door for today’s re-emergence of the responsible parties.

As then Executive Chairman of the CLF group and signatory of the fateful 13th January 2009 request for the bailout, Lawrence Duprey cannot escape the conclusion that he is not fit and proper to be in control of a financial institution. Also consider these items –

  • On 7 June 2011, the Central Bank started a serious lawsuit against Lawrence Duprey, Andre Monteil and other elements previously in control of the CLF group. The Central Bank press release is sobering as it states some of the alleged actions of these persons –
    • subordination of the interests of CLICO, its policyholders and mutual-fund investors to the private interests of Mr Duprey, Mr Monteil and their companies;
    • the lack of proper governance and serial mismanagement;
    • improper dealings with CLICO’s assets and the funds of policyholders and mutual fund unitholders.
  • Dr Keith Rowley’s scathing remarks to Parliament on 1 July 2016 about the conduct of the responsible parties at CLF, referring to the Colman Report – “…a number of adverse findings of criminal misconduct of a kleptocratic nature were found…” pg 42.

Also, the role of PWC is reportedly to have prepared an exit proposal to return the CL Financial group to its shareholders, with phased repayment of the monies advanced in the bailout. PWC were CLF’s auditors up to the time of the group’s collapse, so the continuing role of that firm is a striking part of the record in this sorry affair. In any case, how does one prepare such a plan in the absence of audited accounts?

At this point there is no clear idea as to just how much money has been advanced in this huge and unprecedented bailout. The cost of the bailout has escalated from an estimated $5.0 Billion in January 2009 to over $25 Billion in some official estimates. We are now hearing a figure of $19.3 Billion, but we are being deliberately deprived of details. That is to the detriment of the public interest. What is more, that official reluctance to give details does little for the carefully-concocted image of rectitude with which our politicians clothe themselves from time to time. Sometimes I wonder if they imagine a public which cannot see through their disguises.

On 28 April 2016, Finance Minister Imbert explained at the post-Cabinet briefing on Thursday 28 April 2016 that the gross differences in the stated amounts paid in the course of the bailout had so concerned him that he had decided to proceed with a forensic audit. That audit was to have been ready in a few weeks time, so where is the report?

My lawsuit against the Ministry of Finance to get the details of the bailout was successful on 22nd July 2015, but the then Minister appealed immediately. I have just received the appeal submissions filed by that Ministry on the last working day of 2016, Friday 30th December. I have been advised not to make the arguments here, but the Ministry of Finance is determined to oppose publication of the bailout details, even going so far as to raise fresh arguments not raised in the High Court.

This is where we are.

SIDEBAR: The Wall Street Hoax

This is our ‘St Vincent St problem‘, because in January 2009, the issues spanned from the Central Bank to the Ministry of Finance; from the very Red House to the CID opposite; from the CL Financial Headquarters opposite Knox St, winking at the Hall of Justice, shyly standing to the east…yes, all of those were on St Vincent Street…

COMPARISON OF BAILOUTS BETWEEN WALL AND ST VINCENT STREETS

ITEM WALL STREET ST VINCENT STREET
How big was the bailout? Estimated at about 1% of USA’s GDP Estimated at about 10-13% of T&T’s GDP
Was interest paid on the Public Money? Punitive rates were charged – AIG was charged 11.5% when base rates were 3% ZERO-Percent interest
Was there a loss of Shareholding? AIG shareholders lost 80% of their equity. No loss of shares.
Did the responsible parties give a Public explanation? Financial chiefs and Regulators were extensively interviewed in televised Senate hearings. CLF Chiefs refused to give explanation at Colman Enquiry, or anywhere for that matter.
What Public accounting was there for the Bailout? Detailed monthly accounts are published. Strong litigation to prevent publication of details.
Reporting of Official Enquiry? FCIC Report published upon completion – available free online or for $14.99 USD for the hardcopy. Colman Report suppressed, supposedly because of concerns by the DPP.
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5 thoughts on “CL Financial bailout – Bitter Brew

  1. This is ridiculous. That table really spells it out. Bleak times in this political mess. The political institutions, culture and human capital are simply not up to the task. We need changes at the top and real leadership. Thanks for speaking clearly on this and providing information. Solidarity

  2. Correction: in 2009 Gov’t invested TTD 5 billion in CLICO as preference shares accruing 4.75% per annum (note 19 of CLICO’s 2015 online audited accounts reflect the pref shares as debt). The interest has been accrued and is reflected under accounts payable (note 22).

    Under the Dookeran plan, Govt issued a combination of bonds and units in the CIF to policyholders/mutual fund holders who accepted its offer. Govt then took over those clients’ rights to the CLICO Statutory Fund and its other assets. This is origin of the zero interest problem (as it relates to CLICO; not sure about the rest of the group) as Govt officials drafted an agreement stating that no further interest would accrue on those policies/contracts (notes 17 and 21 refer). Those policies/contracts total more than TTD 11 billion.

    Funding was also given to BA and CIB. The terms of those advances are unknown to this contributor.

    1. Hi David,

      Thanks for this information – a similar point was made previously by my ertswhile colleague, Anthony Wilson.

      Yes, I need to correct that statement to reflect that 4.75% interest is payable on the first $5Bn since 2009. Having said that, the two questions arising are still of high importance – firstly, why was no interest charged on the rest of the Public Money advanced? Secondly, why was the low rate of 4.75% charged on that first tranche? That rate is significantly less than the mortgage rate at that time, so how and why did a distressed borrower qualify for that kind of favour?

      Thanks for joining-in.

      Afra

  3. Could we as civic citizens , if we are led by an anti corruption group like Transparency International (CPI) …we could initiatie legal action against perpetrators- certainly breaches of fiscal duty & law of tort negligence issues as well as company law fidciary duties have been breached and join with cenetral bank action….

    so both minister of finance/ the treasury and corooration sole must be help accountable and culpable. as per Colman report ( still awaitibng its bieng made public!!( .this is the biggest white collar crime in the region.. as CLICO affected many others in Caribbean

    even if we have to fund it with all inclusive ” fight clico & govt cover up ie ( CPI) fete ”
    pb
    PAST TTTI director

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