CL Financial bailout – Marking Time

On Friday 30th January 2009, the CL Financial (CLF) bailout started, so today – 30th January 2019 – is the ten-year anniversary of that fateful decision to commit Public Money to bailout the Caribbean’s largest conglomerate. The companies which were to be bailed-out were: CL Financial Ltd (CLF); Colonial Life Insurance Company Ltd (CLICO); Caribbean Money Market Brokers Ltd (CMMB); Clico Investment Bank (CIB) and British American Insurance Company (Trinidad) Ltd (BAICO).

clf-bailout

The mismanagement of this bailout has exceeded any mismanagement which led to the collapse of CLF, that is my view.

karen-dupreyThe bailout proceeded between 30th January 2009 and 12th June 2009, with over $5.0 Billion in Public Money paid to CLF in that period, under the terms of the Memorandum of Understanding (MoU) signed between then Finance Minister, Karen Nunez-Tesheira, and Lawrence Duprey, then CLF’s Executive Chairman. That MoU governed the expenditure of this vast sum of Public Money before the 12th June signing of the CLF Shareholders’ Agreement. All of which calls into question the continued claims, in relation to the Tobago Sandals project, that MoU’s are non-binding. As we say here, is according.

There has been an incredible escalation in the cost of this bailout, from the initial estimate of $5.0 Billion, to the present expenditure exceeding $25.0 Billion. This has been a source of serious concern as priority was given to pay the claims of the CLF creditors over other urgent, public needs.

The key areas of concern are set out here –

Bailout terms

wall-street-bailout-bigThe bailout terms have been described as a loan to a distressed company along the lines of the Wall Street bailout in the USA and nothing could be further from the truth. The CLF bailout contained no provisions for the length of time before the money was to be repaid and no mention of interest. Interest was only charged on the first $5.0 Billion, which was advanced to CLICO as preference shares at 4.75%.

When one considers that the stated interest and financing cost of the CLF bailout was confirmed by the Finance Ministry to be over $4.83 Billion, it is clear that the citizens of this country have been taken for a long, hard ride.

The American companies which were bailed-out by the USA Treasury all paid very high rates of interest, in the case of AIG almost four times more than the ‘base rate’.

Central Bank’s 2011 lawsuit

cb_release-20110607On 7th June 2011 the Central Bank started a private lawsuit against the CLF principals, Lawrence Duprey and Andre Monteil and the investment companies in their control. The CBTT Press Release of that date made these statements on 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.“

There has been no further update in that lawsuit and both sides appear to have maintained the ‘Code of Silence’. We have had no news of any arrests or pending criminal prosecutions.

Ewart Williams

Ewart Williams, Governor of the Central Bank TT. Photo courtesy Trinidad Guardian.
Ewart Williams, former Governor of the Central Bank TT

Mr Williams served as Central Bank Governor in the decade 2002-2012. The Governor’s prepared statement to the 30th January 2009 Media Conference to announce the CLF bailout, specified the causes of the collapse and then –

“…In our regular monitoring of CIB, and of Clico since 2004 (when insurance supervision was transferred from the Ministry of Finance), the Central Bank has consistently focused on these deficiencies but have been stymied by the inevitable challenge of change and by inadequacies in the legislative framework which do not give the Bank the authority to demand these changes…”

That could only mean that the Central Bank was aware of the fatal deficiencies for five years before the fateful collapse of CLF. It was later confirmed that Governor Williams held investments with the group at the time of the collapse.

On July 18, 2013, Williams, Chairman of the University of the West Indies (UWI) St. Augustine Campus Council, was conferred the title of Distinguished Fellow in the Department of Economics of the Faculty of Social Sciences by the University Appointments Committee for the period August 1, 2013 – July 31, 2016. Mr Williams is also Director of the T&T International Financial Centre Ltd., has served as adviser to the Minister of Finance and was awarded our country’s second-highest national honour, the Chaconia Medal (Gold) on Republic Day 2018.

Newsday’s article on Williams’ national award was ‘Former Central Bank Gov: Don’t expect good times‘ and the opening paragraph was rich in irony –

“…FORMER Central Bank governor Ewart Williams says citizens should not expect “good times” economically with the country still facing so much debt…”

Well I tell you.

The role of the UWI

uwiThe USA bailout was estimated to cost about 1% of GDP and the CLF bailout cost between 10-13% of our GDP. Given the size of this collapse, it is staggering that the UWI or its Business Schools have not produced a serious study into the collapse and subsequent bailout as has been the case in the other countries we aspire to emulate.

The Echo in the Bone

Finally, can this happen again? Can another offer emerge for terrific returns with little or no risk? If that happened, do we in the investing public understand enough to avoid those over-risky situations? Have we learned enough from the CLF collapse and bailout or put new rules in place to prevent a recurrence of these terrible losses?

Well, as so often in T&T, the answer is both ‘yes and no’. Yes, it could all happen again and no, we do not have new rules in place to stop a recurrence.

actonOn 12th March 2015 the T&T Securities and Exchange Commission published its Investor Alert to the Public on Acton Valley Investments. That document makes amazing reading as it warns the public against promised ‘Investment Opportunities’ in which they “stand to make up to 10x the investment capital within a Period of 14 days” and that there was “no risk involved”. Acton Valley Investment also indicated that it specializes in, inter alia, “Foreign Exchange (“Forex”) brokerage.”

Given the high levels of cupidity which fuelled the CLF crisis on all sides, there is literally no telling how much money was scooped-up by Acton Valley Investments before those advertisements stopped.

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5 thoughts on “CL Financial bailout – Marking Time

  1. Like the lotto, play way and other such legal frauds, greed fed citizens are urged to gamble and invest precariously rather than to educate themselves into becoming independent. Who am I fooling? This nation has been on a downward spiral out of sustainability since the 1980s )despite Lloyd Best and Dennis Pantin and others’ warnings) and the billions being borrowed by successful administrators speak to gambling with fate to keep us afloat. We are indeed marking time. Our children will not know what hit them.

  2. Mr Raymond.
    You are truly a loyal citizen. No other citizen of this twin island is concerned about this and other matters affecting our economy. I am shocked that the opposition parties are not highlighting this fraud on the people of TT. Where is Transparency International, Fixing TT, Civil leaders etc? People who invested in CLICO was running for higher interest (12-15%) while the normal rate in the banks etc was 6-7%. It is a universal truth that higher the returns higher the risk. These people took a gamble and nearly lost thanks to the people of Trinidad and Tobago who paid back their money. We saved them!!!! Some individuals invested millions and hundreds of millions in CLICO. It was an open secret that CLICO was in trouble. When I was asked if someone should invest in CLICO, I would say that “once you put money in that company, it is not yours”. The government ministers and high civil servants should be held accountable for this crime.
    The Inland revenue lost a great opportunity to question the depositor in the Executive Plan as to the source of their wealth and if they had paid taxes on the earnings. Such government incompetence.
    After all this evidence of fraud and mismanagement in the insurance sector the government of the day has not proclaimed the new insurance act. Why, Why!!!!! Are they waiting bail out another insurance or finance company? What is the reason for the delay? Is it because the big wigs in the insurance sector have inside contact with the government thereby delaying this important legislation? It is known that lots of people in the insurance sector are not too happy to be held accountable for running their companies in the interest of the public and policy holders.

    The people of Trinidad and Tobago are waiting for justice. Implement the Insurance Act now.

  3. To Observer
    Many of us here and elsewhere are actively concerned and avidly support Afra’s individual effort to bring an active rather than a passive moral stance to our collective as leaders and followers. The named and implied others play it safe and there is some wisdom to their actions. We do not have to look further than Venezuela to see the strife endured by the masses if they do not kowtow to the violent vagaries of capitalism. Haiti, Cuba, Guyana, Jamaica and most others to varying degrees attempt to parry the indignities of economic oppression, in similar fashion to the enslaved Africans of yesteryear. The ‘Too Big to Fail’ syndrome has been legalised and I invite you to read Henry George’s Progress and Poverty (1879). The audio link is here: https://www.youtube.com/watch?v=cd0EA0Czpjo and transcripts are available in a variety of formats.
    Henry George and Lloyd Best are among so many others of Afra’s ilk whose weapons of mass destruction fail to penetrate the walls of ignorance built at unimaginable costs. Like Christ’s words, they are manipulated to suit the climate of greed and power we all interpret at our convenience.
    I live in hope knowing that the Singularity of science will ironically polarize the haves from the havenots. I wait for substantial proof that I am wrong.

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