Category: CL Financial Bailout

2010 Review

This is the time to reflect on the changes we have witnessed in the last year and the several challenges arising from those. This column will attempt to combine the ‘Property Matters’ concerns with the ongoing examination of the CL Financial fiasco.

The Uff Report

Professor John Uff. Photo courtesy Trinidad Guardian
Professor John Uff

For me, the largest single event this year was the completion of the work of the Uff Commission of Enquiry into the Public Sector Construction Industry, with particular reference to UDeCOTT and the HDC.  The controversial Commission of Enquiry was at the centre of widespread public concerns as to the level of corruption in the State construction sector.  To his credit, the Enquiry Chairman, Professor John Uff QC, PhD, insisted that the proceedings be televised and the results of each day’s hearings were also posted to its website.

The Uff Report made history in this country, since it is the first time that a government has published the Report of a Commission of Enquiry.  That is no small accomplishment and despite the fact that these massive wrongdoings took place under the last PNM administration, the act of publication has to be welcomed.

But there are still challenges, because, for whatever reason, the Uff Commission’s website, www.constructionenquiry.gov.tt has now been shut down, which is a real pity, since it contains the important testimony of many witnesses on the issues in this area.  That website needs to be re-opened and I am calling on the Attorney General, under whose Ministry the Enquiry was operated, to ensure that takes place.  It is no large expense to have these important documents made available to the public.  In light of their educative content, I would suggest that the actual documents be housed at UWI, as they have a direct bearing on the deliberations of the Engineering and Social Sciences Faculties.

Of course we had the sight of a fleeing Calder Hart and a defeated Patrick Manning, his PNM cohorts drinking  bitter tea for his fever, all attributable in my view to the groundbreaking Uff Commission.

Looking forward, we have the fact that the 91 recommendations of the Uff Report were adopted by the Peoples Partnership in the run-up to the 24th May General Election.  We have now been promised that those are to be implemented by Minister of Justice, Herbert Volney.  We await Volney’s early report as to the implementation.

In that connection and taking from the PNM example, I am, once again, calling for the publication of the report of the Commission of Enquiry into the Piarco Airport project.  The Bernard Report must be published now.

CL Financial bailout
A Bailout Cheque payed by taxpayers to CLICO was stoppedThe other huge event of the year was the budget speech on 8th September 2010, in which Finance Minister, Winston Dookeran, disclosed publicly that he was revising the terms of the CL Financial bailout.  That bailout was a hugely suspect act, the largest financial commitment ever undertaken in this country, without proper due diligence or even any proper ventilation in the Parliament.  Our Republic had never been so financially violated and in broad daylight.  It was encouraging to see the Finance Minister take the point to its logical conclusion and of course that brought about the large-scale organisation of various aggrieved groups to put their point.

That series of organisations, committed to the doubtful mantra of the guaranteed investment – whatever that is – took on a series of bizarre and increasingly combative stances.  The signature theme being that ‘We are not responsible for our decision’.  We were being treated to a spectacle worthy of any of the ‘Ole Mas’ presentations of yore, in which successful investors – on average at least $700,000 was invested by each of these ‘protestors’ – having benefited from the operation of the capitalist system were seeking 100% redemption from the State.

The entry of the Prime Minister into this debate on 1st October was in my view a turning-point in our development.  For the first time in my memory a politician, who had the majority, to achieve the significant changes which had been tabled, stepped back from that act of sheer power to attempt an act of persuasion.  It was a signal lesson in the reality of possibility in our lifetime.  Even if one is amongst the Clico Policyholders’ Group (CPG) and feeling aggrieved, the calm audacity of the Prime Minister’s decision must be respected.

Most importantly, we now have a one-man Commission of Enquiry established with the eminent UK jurist, Sir John Colman QC sworn in.  That Commission is to examine the causes of the CL Financial and Hindu Credit Union collapses.  The Colman Commission is expected to start sittings in January 2011 and the Attorney General has directed that its report be delivered in 6 months’ time.

The Manning Factor

Patrick Manning
Patrick Manning

The most comical event of the year is the bold-faced attempt by the former Prime Minister, Patrick Manning, to shift attention away from the PP’s revelations as to the illegal spying activities of various State agencies.  Manning, the original PM, attempted to show-up the Prime Minister, Kamla Persad-Bissessar, with a series of allegations on the status of a house being built with private funds on private lands for a private purpose.  The Prime Minister effectively dismissed Manning’s concocted concerns with the telling observation that all the refutations she quoted were available from the public record, if the accuser had ever been interested in examining that open source.

Having stirred to life and found his voice, it is important to note the several matters on which Manning maintains a stony silence –

  • Calder Hart – Where is Calder Hart?  The nation was told solemnly by Manning that he knewCalder Hart’s whereabouts and further, that Hart was not a fugitive.  We are now told that Calder Hart cannot be located and Manning needs to speak on this.  Is it true that Hart gave Manning his location?  Has Hart changed locations?  Or is it that Manning has not shared that information with the correct authorities?
  • Election rationale – What, if any, was his rationale for calling the general election at mid-term?  I am not sure that anyone knows the answer to this one, but it is surely of continuing interest.
  • Guanapo Church – What is the truth behind the ill-fated Guanapo Church?  It is not my habit to wax scriptural, but that was a ‘house built on sand’ if ever we saw one. The reason for the State Grant of this land and the rapid grant of full planning permission – a record of only one month between the date of application and the grant – remains unexplained.  As for the architect’s plans for this huge church in the grounds of the PM’s residence, the mind boggles.  Where is Pastor Pena? We need to insist that Manning tells us more about this miraculous church.
  • Cleaver Heights – Another area is the wild allegation Manning made, at the close of the 2008 budget debate, as to a ‘missing’ $10M at an HDC project at Cleaver Heights in Arima.  Or was it $20M?  After inserting that case into the ongoing Uff Commission and having the embarrassment of having the allegation evaporate under cross-examination, Manning needs to tell us just how he came to learn of this allegedly missing money.
  • CL Financial bailout – Manning’s conduct in this matter has been the crowning-point of his administration, in my view.  The then Minister of Finance, Karen Nunez-Teshiera, was accused of using ‘inside information’ to make early withdrawals of her own funds from the CL Financial Group and to compound the mischief, being a shareholder of the CL Financial group in the sum of over $10M.  Manning’s steadfast defense of his beleaguered Minister of Finance was a display of loyalty which is seldom seen in higher political circles.  We need to know if the Minister told her colleagues that she was indeed a shareholder of the troubled group.  Did she or did she not recuse herself from the Cabinet’s deliberations?  My reading of the events, as told by the very Minister, is that she did not.

For Manning to fail to come clean on these questions, he would run the risk of damaging his hard-won reputation for upstanding values and leadership.

White Collar Crime
white-collar-cartoonThe obvious connection between these various events is the fact that White Collar Crime – which is sometimes, mistakenly, called victim-less crime – is  afflicting our country in a big way.

The year ahead holds significant challenges as we try to go forward in this morass, to escape the conspiracy which I have titled The Code of Silence.

The only way political rulers can carry on as they do, wasting the country’s money for the benefit of their friends and family, is because they are sure of each other’s silence.  The people in the private sector who were responsible for the financial collapse are no different.  The financial collapse is not, as some have falsely claimed, in any way connected with the Wall Street crisis.  That is only a handy coincidence.  If our regulators and politicians were doing their jobs we would not be in this position.

Please remember that the alarm bells on CL Financial were sounded by Trevor Sudama, since the 1999 budget debate.  More to the point, many of the people who still inhabit the Parliament were there at the time.  Again, I give this administration credit for appointing a Commission of Enquiry into this sordid affair.

Also, please remember that both UDeCOTT and the HDC failed to file accounts for years, in breach of the law and State guidelines.  That failure was not remarked upon by members of the then Opposition.  More to the point, we have now had a change in administration, with no word on the UDeCOTT accounts.  I do acknowledge that certain HDC accounts have now been published and that is to be the subject of upcoming commentary.

The Code of Silence must be broken if we are to progress.

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.

CL Financial bailout – Testing the Code of Silence

The Code of Silence has formed the subject of several columns in this series.

I am referring to the unwritten agreement amongst the leadership group in our society to maintain silence in matters of white-collar crime.  The guiding principle of the Code being that the members of that group must never be exposed to the same scrutiny and penalties as the common criminal.

That Code of Silence is poisonous to the progressive development of our society.  Unless we can bury the notion that white-collar crime pays, our society is doomed to lurch from crisis to crisis.  White-collar crime will never be truly challenged until the Code of Silence is tested to destruction.  I welcome anything which would dismantle the Code of Silence.  Literally anything.

The Commission of Enquiry into the various financial collapses which have beset us – Clico, British-American, Clico Investment Bank, Caribbean Money Market Brokers, the CL Financial group and the Hindu Credit Union – was announced by the Prime Minister in her 1st October address to Parliament.

On 17th November, Sir Anthony Colman QC was sworn in as the new sole Commissioner – he replaced the original choice – Sir Gavin Lightman QC, who had an apparent conflict of interest.  The Secretary to the Colman Commission is Judith Gonsalves, who served the Uff Commission in that role.  It is reported that Colman intends to hold open hearings and that those should start sometime in this month.

So, we are seeing three powerful channels emerging –

  • CIB winding-up action – ongoing litigation from National Insurance Board and National Gas Company to stop the Central Bank’s winding-up action.  Those court actions have been set for hearing in April and the sum of money at stake is an estimated $1.8Bn.
  • Policyholders challenges – The various policyholders’ groups have now declared their intention to take legal action to recover the monies they feel are owed to them.  The sum of money at stake in that series of actions is estimated to be $12Bn.
  • The Colman Enquiry – This is an overall, public investigation into the causes of the large-scale financial collapse as listed above.  Given the continuing failure to produce the accounts, the total sums of money involved are unknown.

So, what is the likely effect of these lawsuits and the oncoming Colman Commission of Enquiry on the entrenched Code of Silence in our society?

To begin with, I expect a series of legal challenges to the very hearings of the Commission, with the likely grounds being the long-established principle that no person should suffer ‘double jeopardy’, in terms of two sets of charges to be answered.  It will be an attempt to completely derail the entire Commission of Enquiry.

I would not be very surprised if certain state agencies also sought to shut the enquiry down.  That would be a repeat of the unprecedented recent situation in which UDeCOTT went to court to challenge the Uff Commission.

The beneficiaries of the Code of Silence will make great efforts to avoid any deep examination of its members and the public needs to be alert to this point.  There is absolutely no shame in that group and we should also prepare ourselves mentally for the ‘memory loss’ defence of the kind we saw from Hafeez Karamath in the recent Uff Commission.

After generations of operating unexamined, the very bowels of the society’s leaders are about to be opened up to a disgusted and skeptical public.  The motivations, links and payoffs between these leaders are to be exposed to view.  The exposure is going to be critical.  Given the speed with which our legal system operates, the exposure is likely to be lengthy.  Given the range of active media in our society, the details are going to be all over the place.

So, what is at stake here?  What else can we expect, apart from legal challenges?

To begin with, I believe that the sums of money involved are several times more than in the Uff Commission.  In addition, the slowing economy and the pattern of behaviour have set the public into a very critical mood.

In my view, these are some of the people we would see publicly cross-examined in the Commission of Enquiry and various lawsuits –

  • Lawrence Duprey. Photo courtesy the T&T Review
    Lawrence Duprey

    Most important of all, the Chief of Chiefs, Lawrence Duprey – Will he or won’t he show up for the many hearings?  What can we expect to hear?  Can Duprey offer an explanation for the shocking discrepancy between the $100BN+ asset valuation as at the end of 2007 and the $23.9Bn asset value he specified in his letter of 13th January 2009 to Ewart Williams? A mere 56 days separate the publication of those 2007 accounts – on 18th November 2008 – from Duprey’s letter, which has been hidden from view, despite my two Freedom of  Information applications.  The only reason we have some idea of this discrepancy – no…that is the wrong word, maybe staggering decline is better – is the anxiety of the then Minister of Finance to clear her name from allegations of Insider Dealing.  That anxiety led the Minister to read this letter into Hansard on 4th February 2009.

  • Andre Monteil
    Andre Monteil

    Second most important of all, the Chair of Chairs, Andre Monteil – Monteil is now in retirement as a farmer and his testimony is surely one of the most awaited in recent times.  As former PNM Treasurer, CL Financial Group Finance Director, Chairman of Education Facilities Company, National Housing Authority, then Housing Development Corporation and Clico Investment Bank, it is difficult to imagine a player who was more central.  It is almost like a spy movie called ‘The Man who knew Too Much’.

  • Patrick Manning
    Patrick Manning

    Patrick Manning – When one considers the huge donations reportedly made by CL Financial to the PNM and the tangled web of this entire affair, it is difficult to see how Manning can escape serious, hard questions on many aspects. For instance, his 2002 decision to stop  enquiries into HCU by then Minister in the Ministry of Finance, Conrad Enill, will surely be open to question.  Manning’s recent bizarre behaviour might well be the beginnings of a defence.  We will see.

  • Karen Nunez- Tesheira
    Karen Nunez- Tesheira

    Karen Nunez-Teshiera – The Minister of Finance who had to go to Parliament twice to attempt to clear her name in this matter.  Firstly, from allegations that she withdrew her money from CIB early, having had inside information.  Secondly, from allegations that as a CL Financial shareholder, she was biased in her dealings with the bailout, having failed to recuse herself from the discussions.  Not one person I know, even blindly-loyal PNM-ites, is willing to openly defend the behaviour of Nunez-Teshiera. Not one.  Imagine that.  I think the phrase is “…A jury of one’s peers…”  I wonder whether her Cabinet colleagues knew that the Minister was a shareholder?  We won’t have to wait long.

  • Carl Hiralal
    Carl Hiralal

    The Regulators – from both the Supervisor of Insurance, and the Inspector of Financial Institutions, Carl Hiralal.  Just imagine the Supervisor explaining how Clico kept its licence all those years its statutory fund in serious shortfall.  Or the Inspector justifying how CIB can fail to file its tax return and yet keep its licence.  Mr. Hiralal must be considering his position most carefully at this point.

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

    Central Bank Governor – Imagine Ewart Williams reconciling his several statements on Clico being a problem case since 2004, with his having two fixed deposits at CIB.  Williams must also be having a few reflective moments.

  • The Directors – What is to be the position of the Directors of these failed companies?  According to an affidavits filed in the Central Bank’s winding-up action, CIB made an undocumented loan with no interest rate or repayment period agreed.  That loan was in the sum of $162M USD – yes, about $1.03Bn of depositors’ funds were lent to Angostura (a related party) with no documentation.  It would be interesting to hear the Directors explain the degree to which that sort of advance is compatible with their fiduciary duty.  It is important to note that the phrase fiduciary duty in this case refers to the obligation of those CIB Directors to act with the depositors’ interest as their first priority.  But remember that CIB was wholly-owned by CL Financial.  So, can one properly reconcile the fiduciary duties owed to depositors with those owed to the sole shareholder?  It is a veritable conflict to be loaning depositors’ monies to the main shareholder, but that is why the loan agreements and credit committees exist.  So as to provide safeguards against incautious loans, which can jeopardise depositors’ funds, so as to ultimately destabilize the bank itself, as in this case.  There was no agreement.  None at all.  For a loan exceeding one billion dollars.  All of the safeguards to balance the several duties of the prudent Director seem to have been ignored in this situation.  Just imagine the Chairman who presided over the meeting of CIB’s Board which approved that loan, answering a series of critical questions, explaining just what they were doing dispensing with depositors’ funds in that loose fashion.  I can scarcely wait.
  • The Auditors – The various PWC professionals who prepared and signed those audits.  Will we see the release of the hidden accounts?  How much longer can they remain concealed?  There must be some quiet desperation creeping into Balisier House and PWC, just edging forward, along Victoria Avenue.
  • Robert Mayers
    Robert Mayers

    Robert Mayers – When he retired on 7th December 2008, did he or did he not know that Caribbean Money Market Brokers (CMMB) was heading for a financial collapse?  Of course, we now know from the official statements that CMMB collapsed a mere 7 weeks after Mayers left office as its Managing Director.  So, which is it to be?  Is it that the collapse came like a bolt of lightening from a clear blue sky?  Were there any warning signs?  Do CMMB’s accounts give any clues?

  • Dr. Bhoendradatt Tewarie
    Dr. Bhoendradatt Tewarie

    Dr. Bhoendradatt Tewarie – He is former principal of UWI’s St. Augustine campus and now heads UWI’s Institute for Critical Thinking.  Dr. Tewarie was a Board Director of the parent company, CL Financial, at the time of the collapse.  Was he aware of Duprey’s letter to the Central Bank Governor, a mere 3 days before that Board authorized payment of a dividend to CL Financial’s shareholders?

  • The same characters and many of the same questions are in the HCU part of the story.

The members of that Code of Silence are probably considering how best to escape the consequences of their actions and inactions.  It will be a truly unique Christmas season for some of them.  There are probably not enough lawyers in the country to handle this tidal-wave of legal actions.

The stakes are huge and the burning question for me is – Can this be the first time that prominent people go to jail?  Serious sentencing?  Will any stolen monies be recovered?

Can the Code of Silence survive this challenge?

The Code of Silence must be destroyed if we are to progress.

SIDEBAR: Who is Anthony Colman?

Sir Anthony Colman
Sir Anthony Colman

Take a read at his comprehensive website including his CV. http://www.siranthonycolman.com/

CL Financial bailout – Amazing scenes

Winston Dookeran vs Peter Permell. Original photo courtesy Trinidad Guardian. Illustration by NiCam GraphicsThe new situation is charged with peril and one is reminded of Naipaul’s father, the intrepid journalist from A House for Mr. Biswas whose favourite tagline was “…amazing scenes were witnessed…”

Finance Minister, Winston Dookeran, addressed Parliament on the Finance Bill (No. 2) 2010 on Wednesday 24th November.  It was a lengthy and detailed statement, which put things into a necessary perspective.  For me, it was important that Dookeran gave priority to the claims of the contractors and of course, the last item being the claims being made by the various groups representing Clico policyholders.

The Finance Minister held his position as set out in the 2011 budget, which was no surprise when one considers his statement that the various submissions received from the policyholders’ groups did not withstand scrutiny.  I only had two significant concerns in terms of outstanding items which require proper attention.

  1. The first of those was the continuing failure to produce the audited accounts for the CL Financial group – by now the 2008 and 2009 accounts are long overdue.  The absence of those important figures means that the many heated discussions taking place, in the media and privately, are all uninformed.  The questions are simple – Are the 2008 and 2009 audits for the CL Financial group completed or not?  Yes or no?  If they are, when are they to be published?  If not, what is the problem with completing these?After all, as I wrote about the 12th June 2009 CL Financial Shareholders’ Agreement in this space on 1st April 2010 –

    …Clauses 2.3.3 and 2.3.4. of the SA, require the outgoing CL Financial chiefs to render all assistance to the incoming Board and Management in terms of all records and accounts etc.  The question here is ‘Have the new Board and management been receiving the full assistance of the previous CLF chiefs?’  If not, what is being done about it?…

  2. The second concern I had was with the special window being opened to assist the Credit Unions, some of whom had invested in excess of 10% of their funds in the EFPA, an annuity approved for individual investors.  We need to know just which Credit Unions took those imprudent investment decisions.  There is no way we can merely legislate or pay our way out of this crisis, the problem runs deeper, into fundamental matters such as the attitudes of the leadership group in the society.  Some of those details might emerge during the upcoming Commission of Enquiry, but it would be to Dookeran’s credit if he released the names of those Credit Unions and the amounts to be refunded.

The immediate statements of the Clico Policyholders’ Group (CPG), which targeted Dookeran, are a perturbing sign.  For whatever reason, the CPG is ignoring the settled principle of Cabinet’s collective responsibility.  That stance seems to be detrimental to effective negotiation and I am beginning to wonder if some person or persons in the Cabinet is ‘giving them basket’.

The threatening statements from the CPG as to the damage their proposed lawsuit can do to our country’s economy are nothing less than scandalous.  We are now witness to a grim game of brinksmanship.

We have all heard the arguments and rumours surrounding this bailout, so no point repeating those.  It certainly seems that those are going to be ventilated in a high-profile series of lawsuits.  I only hope that the hearings remain open and do not take place in a sealed Court.  That is what happened in the very first lawsuit after the bailout, in which the Central Bank was attempting to get CL Financial to comply with the terms of the bailout.  The stakes are too high now for any concept of privacy to prevail in this matter.

The Minister of Finance also announced that the conditions under which the financial relief would be offered were being considered and it is good to know that there is to be no unconditional relief at our collective expense.

My thoughts on that aspect are that the State must conduct itself in an exemplary fashion and not be placed at any further disadvantage, having already shouldered this enormous, exceptional payout.

There are now anti money-laundering (AML) laws which require depositors to make declarations as to the Source of Funds, all in an effort to prevent the proceeds of crime from entering the legitimate economy.  In my view it is necessary for the government to be satisfied that the various sums being claimed by these policyholders were properly declared under the AML laws.  We have had shocking reports about the elementary management controls which were either absent or awry in the CL Financial group, so it would not surprise me if their AML-compliance was lax.  That needs to be thoroughly checked.  It would not be acceptable for our taxpayers’ monies to be used to rinse ‘dirty money’.

Also, the claimants who owe on their taxes – VAT, PAYE, Corporation Tax, Income Tax and so on – should not be refunded.  As Dookeran said in that address, if everyone paid the taxes due, our budget would not be in deficit.  We cannot go deeper into deficit without these elementary precautions being taken.

Finally, there is the issue of the many borrowers from Clico, British-American, Clico Investment Bank (CIB).  In the case of CIB alone, we are told that about $1.0Bn of those loans are ‘non-performing’ – which means that the borrowers are not repaying their loans.  It would be perverse for some of those non-performing borrowers to receive refunds from the State.  This is a live part of this situation, since in the case of CIB itself, the very Inspector of Financial Institutions swore in his affidavit filed in the winding-up action for that failed bank –

…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)…

That is a glaring example of the kind of wanton wrongdoing at the heart of this mess.  CIB fails to file its Corporation Tax returns for three years, yet keep their banking licence and arrange for the taxpayer to bail them out when it all goes sour.

Some claimants may try to invoke the ‘corporate veil’ to shield themselves from various breaches committed by their companies, but this is an exceptional situation in which the State is making an offer.  In my view, the corporate veil ought properly to be ignored, so that the long-standing commercial principle of ‘set-off’ can be applied to the claimants.

The Colman Commission of Enquiry and its effects on the Code of Silence will be my next topic.

CL Financial bailout: A Season of Unreason

We are now entering a bizarre endgame in this rounds of musical chairs.  The children’s game has returned for us adults, but with a vengeance.

As I wrote on 10th September in this space, the real question is ‘When exactly did the CL Financial group collapse?’.

To understand this huge matter we need to put things in the correct order –

  1. Firstly, the CL Financial chiefs left others holding the risks.  Some dates and names, to support the theory –
    •  L.A. Monteil – retired at the end of March 2008
    • M.A. Fifi – retired in August 2008
    • Robert Mayers – retired in December 2008.

    What did they know and when did they know it?

  2. Secondly, there was a series of large-scale, rapid withdrawals of funds which preceded the start of the bailout.  That pattern of activity would have speeded-up the collapse.  It would be very interesting to see details of who broke their deposits and failed to ‘roll-over’ in that crucial final stage.
  3. Thirdly, post-January 2009, we have the massive payout of State funds, as detailed in the Guardian editorial of 25th October.  Who was the recipient of those funds?  Who benefited?  On 1st October, the Prime Minister promised to publish that list and we await with interest.
  4. Now, with the PP government taking the decision to review the bailout process, we have entered a truly bizarre stage of this matter.  This is the part where all those trusting people who were told to wait and have faith, are realizing that the people in the know have already withdrawn and secured themselves.  Some of those people in the know were the same ones who were telling the faithful to keep on waiting.  What a thing.

There now appear to be at least four groups representing these investors –

  •  The Clico Policyholders’ Group (CPG) – which is the most visible one with Peter Permell, Manny Lawrence and Norris Gomez etc.
  •  The Clico Policyholders’ Protection Association (CPPA), which is the one with Harold Sookhan and Ramesh Lawrence Maharaj.
  •  South Action Group – with Solomon Hem Lee
  •  Denbow Group – a small number of Clico investors who are being represented by Dr. Claude Denbow SC.

Some of the positions being taken by the various groups are indicative of the degree of desperation of the parties, hence the title of this article. The general view emerging from these groups seems to be that the CL Financial group is basically healthy and profitable, so there should be no issue about returning their investment. 

I do not know what those views are based on and it is impractical to continue basing our discussions on the series of rumours and draft reports and suchlike.  We need good quality information to make a quality decision and that is not negotiable.  We need to insist on that as a minimum.

After the first round of organizing and attorneys’ letters, followed by the Prime Minister’s important address on 1st October, we are now into what appears to be an even stranger place.

Two of the stranger proposals emerging from the CPG’s Port-of-Spain meeting on 24th October were –

  •  Prem Beharry of the CPG was reported in the Trinidad Guardian to have said – “…Ryan ALM are saying they would take US$600 million and would convert it to the best debt instrument in the world which is US Treasury Bills,” Beharry said.
    “The Ryan ALM group is saying, within three months if they are engaged, they would be able to sell those bonds and get in cash of US$1.8 billion which is equal to the debt of TT$10.5 billion—that money would be used to pay all the policyholders…” That is literally too good to be true.  It is the same approach that created this mess in the first place – both at the CL Financial group and Hindu Credit Union.  It seemed to me that the CPG was recommending that the government put $600M USD of our taxpayers’ money into this scheme.  Yes, I said scheme.  Maybe if it was really so good they should have just accepted the discounted rates being offered in the budget and invested those funds with Ryan ALM.  After one time is really two times, yes.  I recently read that one Prem Beharry was appointed to the National Gas Company Board. 
  •  Another proposal, this one reportedly stated by Peter Permell, the CPG’s most prominent spokesperson was for the state to pay 40% immediately with the balance being payable in 5 to 7 years.  The persons waiting for delayed payments would earn interest of 4-4.5% on those unpaid balances and also be entitled to a 51% share of any uplift in the value of sold assets.  No, there was no proposal for those CPG members to share in any losses if assets had declined in value.

It may all just be a series of negotiating positions, but it seems pretty clear that no one from these various investors’ groups intends to take a discount or ‘haircut’ on the monies owed to them.  The unstated assumption is that if someone has to stand the bounce or take a haircut, that someone must be the taxpayer.  That could never be the correct position.  So, we need the facts.

The most startling development is the Central Bank’s full page adverts on Thursday 28th October, repudiating the claims that it had offered any guarantees in this situation.  The reaction was immediate, with the CPPA publishing large adverts in opposition the next day and a new anti-bailout group emerging for the first time – at last!  The CPG’s response was a nadir in their campaign, with the Trinidad Guardian reporting that – “…Permell went on to say that they do not care where the Central Bank gets the money from once they guarantee the policyholders’ contracts…” – I could scarcely believe what was on the page before me.  Even the most militant Trade Unionists use more reasonable language.

Which brings us right to the meat of the matter, the order of things.  What is the reason that the investors’ groups are now at the front of the line for assistance from this government?  I could be wrong, but it is easy to get that impression when one hears of Cabinet discussing the matter twice in one week, certain groups giving threatening timetables and so on.  I do not know if our Cabinet – PNM, UNC or PP – has ever given such a total priority to any matter in the past.

There are other claims on the limited monies available to the State.  All of those claims existed before these investors groups.  All.

Many people have poor water supply.  Outstanding payments to contractors and suppliers are in excess of $7.0Bn, according to Central Bank estimates. Insufficient money for OPVs – the estimated cost of $3.0Bn is too much for the country to bear, so national security is falling behind.  More guns and drugs entering our homeland.  Public Servants claims are about $3Bn and that is also a strain on the Treasury.  Not enough police cars.  Sad situation in the public hospitals.

The CPG issued a 2 page advert in the Guardian on Thursday 4th November and it deserves careful reading.  It was good to see their call for the publication of the correct financial information before making a decision.  They set out their proposals for the relief of CPG members – those are the latter of the two above, with the added condition that they be given two seats on the boards of CL Financial and Clico.

The CPG claims that its proposals place no additional burden on the taxpayers, which is a good thing, if that is truly so.  The CPG’s proposals are silent as to how the monies already spent are to be recovered.

The real test will be if the accounts and asset valuations reveal the group to be insolvent.  Will the various investors’ groups accept that or are we in for a long, bitter fight?

SIDEBAR: The Commission of Enquiry

The Attorney General recently announced that he had withdrawn Sir Gavin Lightman QC as the sole Commissioner, due to an apparent conflict of interest.  Lightman had appeared for Clico in a 1991 court case and the PNM did well to have stopped this before it went too far.

Two important further points, though –

  1. Firstly, this is the second such occasion.  In the first case, the Commission of Enquiry into 1990 was announced with retired Appeal Court Judge Mustapha Ibrahim as its chair, until he pointed out that he too had a conflict of interest.  There needs to be some more care taken on this count.
  2. Secondly, the terms of reference need to be qualified, since the AG was reported to have said that “…The COI, he said, covers CL Financial, Colonial Life Insurance Company (Clico), Clico Investment Bank, British American Insurance Company and the HCU…” Having been frustrated in my efforts for the past fortnight to get confirmation of the Terms of Reference from the AG’s Ministry, I am forced to rely on press reports.  Question being, why is CMMB being omitted?

CL Financial bailout: These Turbid Times

Last week I wrote about the Code of Silence observed by our ruling class.  I gave examples to support my idea, but there was not enough space to mention everyone.

The Bankers Association of Trinidad & Tobago (BATT) and the Association of Trinidad & Tobago Insurance Companies (ATTIC) are also part of the situation.

We have a long history of our rulers making huge, stupid, destructive decisions without any commitment to transparency or accountability.  That lack of transparency is what allows corrupt to flourish.  We can never eliminate corruption, but if we are serious about reducing it, we need to proceed differently.

Maybe, just maybe, this is the kind of colossal event which could force some of us to drastically change our ways, despite the positions we now assume.  This is a moment of national peril and the continued observance of the Code of Silence is going to cost our country plenty money.

lawrence dupreyAs it is, we already have been bound to a rotten bailout of the wealthiest individual in the Caribbean by our Treasury at ZERO interest.  Anybody looking to set up a small business has to face the bank and pay interest. None of that for Lawrence Duprey and the CL Financial chiefs.  They have been able to enrich themselves and when the entire thing went wrong, they were able to negotiate a handsome handshake for themselves and then leave the mess for our government to clean-up.

That is the plain meaning of the bailout.  Is not policyholders we bailing-out, is the richest, smartest characters in the country.  The bailout script is unfolding so well that almost the entire discussion is now about the fairness/unfairness of the government’s position with respect to retired policyholders etc.

Real Anansi antics.

The CLICO Policyholders Group (CPG)
Competing agendas?There was an EFPA group and a CLICO Policyholders group formed just after the budget on 8th September, but they soon merged under the latter name.  I am now seeing what appears to be a substantial split with 2 competing meetings being organised for 10am today – one in Port-of-Spain and the other in San Fernando.

The CPG group has been very successful at getting their views known and making the media circuit, with the eventual meetings with the advisory group set up by the PM.

The main concern being advanced by the CPG is for the recovery of the funds deposited with CLICO and there has been no reply whatsoever to the point that, despite its labelling, the EFPA was largely sold and understood as a deposit.  The accounting rule of thumb as to ‘substance over form‘ in interpretation is an irrefutable part of the debate on this, but CPG have been silent on this point.

Almost all the many people with whom I have discussed this issue, have been very plain in their language – ‘I had my money deposit with CLICO‘ and so on.  But the word Policyholder is more likely to attract sympathy, so the games continue.

We already spent $7.3Bn in cash since the bailout was announced.  Please note that nobody is even talking about how the State is going to recover that loan.  The only talk is about how are they, the depositors, going to recover their monies.

There is a real principle of financial equity being shredded to pieces in the conduct of this bailout and it was disappointing that Mr. Dookeran, as an Educator in the field, did not take the opportunity to expand on this.

The intent is plainly to deprive the Treasury of its limited funds so that the assets of 15,000 people can be preserved.

So, What about those negotiations?

Sen. Vasant Bharath
Sen. Vasant Bharath

When the Prime Minister spoke on 1st October, she created an advisory group (headed by Minister of Food Production, Vasant Bharath)  to meet with the policyholders to seek other options.

The Prime Minister was to meet with concerned persons and activists on Wednesday 7th October in Chaguanas, but that meeting was cancelled at short notice, with no alternative dates given.

What we are left with is lengthy, secret meetings to discuss the review of the bailout terms, with no concrete information emerging.  That secrecy is totally unsatisfactory.  It smacks of secret deal-making and does nothing to inspire the confidence which is supposedly the very purpose of this exercise.

The last regime, with all of their noble intentions and devout Ministers, lost their way in a morass of muddled purposes, secret deals, mixed-up with misleading and false public statements from the highest office in the land.  We all know how that ended.  The question is whether we have learned anything from that bitter experience.  The Peoples’ Partnership were the main beneficiaries of those PNM errors, have they learned from that?

Our money is being spent on this massive exercise and it is not good enough to emerge from these closed meetings with agreed phrases like ‘constructive or meaningful’.  This emerging pattern speaks of disrespect for the acumen of our people.

To re-state my equation:

Expenditure of Public Money – Accountability and Transparency = CORRUPTION

Imagine these bold-faced people declaring that when they are done and settled, the terms will be announced to us who paying for the whole thing.  The first sign of a bad marriage is when the husband is the last to know – some say, the wife.  But the main point is that the public cannot be the last to know.

The simple and painful fact is that public confidence in our leaders is at an all-time low.  The time-honoured notion that a leader is someone wiser, more mature, less reckless and  of overall higher ideals has been tested to destruction by events.  In this particular case, it is easy to understand the charged atmosphere, hence the need for extra ventilation and transparency.

I was recently emailed by a well-meaning group asking that I start setting out some ideas of how CLICO might be rescued and I had to remind them that without basic information, all we can do is argue emptily with each other.  All to the amusement of the masterminds of this, the greatest economic crime in our nation’s history.

I was even ‘phoned, while writing this, by an acquaintance who is a leading member of the CPG to join him and an un-named UK guest in a TV studio on Monday morning to discuss all this.  Yes, I dismissed the request – too much secret-thing for my taste – and challenged the caller to name the person, supposedly a top UK expert.

What would be ‘constructive and meaningful’ would be to publish these long-outstanding reports so that we in the public can inform ourselves on the vital issues –

  • The original Duprey letter of 13th January 2009.
  • The audited accounts of the CL Financial group for the years ending 31st December 2008 and 2009 – Have PwC completed that?  When are they to be published?
  • Wendell Mottley, Colin Soo Ping Chow, Steve BideshiThe Mottley Report – There was a team of three advisers – Wendell Mottley, Colin Soo Ping Chow and Steve Bideshi – appointed to examine the CL Financial group and we need to know what were the findings of this group.
  • Given that we are being asked to bailout and clean-up Mr. Duprey’s crisis, I feel we need to be told  the names and details of those who benefitted from the $7.3Bn paid out so far, as well as those details for the borrowers of the $1.0Bn of ‘non-performing loans’ in CIB’s portfolio.
  • Finally, we also need to have the position of the CLICO Policyholders’ Group published.  What exactly are they claiming?

We have seen reports in the press about the very long Cabinet meeting on Thursday 21st at which the CLICO issue was said to be part of that agenda.

It would be totally unacceptable for a deal to be sealed without properly informing us, the taxpaying public, as to the true background.

The People’s Partnership has already distinguished itself, positively, by announcing Commissions of Enquiry into the attempted coup in 1990 and the Financial collapse (CL Financial and HCU).  This is no time to get diverted into back-room deals.

I am working for betterment and from you, our elected rulers, I expect better.

Barbados Free Press spreads the word for AfraRaymond.com


Code of Silence was an article in two parts – the first dealing with the agents and effects of that Code and the second dealing with the unfolding case of AIC.

As usual, I sent the article to my main blogging-collaborator Barbados Free Press (BFP) who split it apart into those halves. Maybe they felt that the bond default by AIC Barbados in the second half deserved a separate focus for their readers – who knows?

So, BFP published Code of Silence surrounds CL Financial bailout on Saturday 16th and Michael Lee-Chin’s AIC Finance – Another CL Financial CLICO situation in progress? on Monday 18th.

Later that day, the AIC story was picked-up by Forbes.com and that story is here, Forbes picks up Barbados Free Press news feed!

CL Financial bailout: The Code of Silence

Throughout this series of articles on the CL Financial bailout I have touched on the existence and effect of a Code of Silence amongst our ruling elite.

This is sometimes called the Information Age, with the latest news and ideas being ‘pinged’ or ‘tweeted’ across the Social Networks.  The new reality demands a complete shift in our attitudes to information.  Our leadership class has blatantly refused to share their information and insights at moments of crisis, which shows the challenge facing us if we are to progress.  Just to give two examples, think of the many secret reports from all the Commissions of Enquiry before the Uff Commission and the steadfast refusal of our political leaders, for many years, to even consider a Commission of Enquiry into the Coup.  It is widespread and literally sickening to all right-thinking people.

We have had a new start and some reason to hope for change, by the PP government’s appointment of Commissions of Enquiry into the 1990 Coup and the financial collapse (CL Financial and Hindu Credit Union).

Even now, alongside those hopes, the new government has still not published the Bernard Report into the Piarco Airport Project.

Despite the progress, we cannot be complacent, the slope is slippery and the stakes are high.

The Code of Silence is deep and powerful in the case of the CL Financial bailout.

On 3rd October, I set out a few of the failures on the part of the regulators.  Those failings are real and serious, but sometimes a shift in focus can be beneficial.

If we look beyond the legally-empowered regulators, there are other informal ‘regulators’ upon whom society relies to make decisions.  Those would include Civic Society Organisations, Trade Unions, Institutions of Higher Learning and Professional Bodies.  Society has been able to rely on these because they are seen to represent collective knowledge and insight, rising above individual interests to attain broader perspectives.

Those bodies, with one notable exception, have been silent throughout this CL Financial fiasco and have failed the broader society in this colossal matter.  I am being forced by these events to re-examine my fundamental assumptions on the degree of our reliance on these bodies.  This is the real nadir of corruption, when we seem to have lost our way in the long grass and we not even talking about the politicians and so on.  This one is not about them.  It is about us and our feet of clay.

Let me explain –

  • Law Association – This is one of the leading Professional Bodies and their silence has been deafening.  The President of the Law Association is former Independent Senator, Sunday Express columnist and eminent Senior Counsel, Martin Daly.  Daly is widely regarded as a fearless and irreproachable voice on many matters.

    The tangled web in this CL Financial bailout has included early withdrawals, overlapping Directorships between depositors and bankers, payment of dividends after asking for state financial assistance, misleading negotiating positions taken by the CL Financial chiefs, a huge zero-interest payout to the CL Financial chiefs which left their shareholdings intact, attempts to sell assets in breach of the MoU.  Most of all, the serious and inescapable conflict of interest of the then Minister of Finance, who is an attorney – every single attorney I have spoken with agrees that this was a clear case of conflict of interest.

    Yet, not a word from the Law Association.  Am I alone in expecting any better?

    •  

  • Institute of Chartered Accountants of Trinidad & Tobago (ICATT) – The entire collapse is shot through with a failure of accountants at several levels and yet this professional body has been silent on all this.  After ignoring my open letter and other attempts to start some dialogue on this, Anthony Pierre, ICATT’s President, agreed to appear on a TV interview with me on CNMG.  That interview was broadcast on Sunday 26th September 2010 – it can be viewed at http://wp.me/pBrZN-qW – in the ‘Sunday Morning Politics’ slot.  When I put the question to him as to the errors and/or omissions of the professional accountants in this huge collapse, Pierre took the position that there was no cause for concern. I do not accept that position, but of course the Commission of Enquiry and hopefully the publication of those long-overdue accounts will shed some more light.

    •  

  • University of the West Indies (UWI) – There has been very limited engagement from UWI on this matter, which is a pity when one considers that the areas of study there include economics, finance, law, business management and accounting.

    Of course, the former Campus Principal and now Director of UWI’s Institute of Critical Thinking is Dr Bhoendratt Tewarie, who was also a member of CL Financial’s pre-collapse Board.  That is the same Board which approved payment of a dividend 3 days after CL Financial’s Executive Chairman wrote to the Central Bank for urgent financial assistance.  Dr Tewarie is also reported to have been at the final Annual General Meeting of CL Financial, held at Trinidad Hilton on 23rd January 2009.  The timing couldn’t be better for a report to shareholders – after all, the Central Bank had been written to 10 days before, the dividends approved a week before and the bailout itself was just 7 days away.  So what happened at that AGM?  Were shareholders given an honest report from the custodians of their capital?

    The late Professor Dennis Pantin did write several times on the CL Financial collapse and bailout in his Sunday Guardian column.  Dennis made the early call for a Commission of Enquiry into this entire mess and that has now been acted upon.

    Sen. Patrick Watson
    Sen. Dr. Patrick Watson
    Another UWI figure in the whole mess is Dr. Patrick Watson, who is Professor of Economics and Director of the Sir Arthur Lewis Institute for Social and Economic Studies (SALISES).  Professor Watson is a government Senator in the current Parliament, who after maintaining his silence on this economic catastrophe since January 2009, has now become most vocal since the budget speech.

    Is a straight case of nearer to Church further from God.

    •  

  • Trade Unions – The two groups which one can normally expect to have a public position on these long-term, large-scale issues are the Oilfields Workers’ Trade Union (OWTU) and of course, the Federation of Independent Trade Unions and NGOs (FITUN).  Neither of those bodies rose to the challenge and we are the poorer for it.

    •  

  • Trinidad & Tobago Transparency Institute (TTTI) – Yes, the TTTI did make a strong statement calling for improved accountability in the bailout process.  That is a Civic Society body doing its job.

What really happened?
But apart from us in the Civil Society, there is another level of the Code of Silence being practiced in that some of the very people who were in charge of this huge crash have rejoined public life, saying nothing about the crash.

They have been recycled.  Yes, I know that recycling is good, but this one is toxic.

Caribbean Money Market Brokers (CMMB) – Robert MayersRobert Mayers was the former Managing Director of CMMB, who retired on 8th December 2008 – see http://legacy.guardian.co.tt/archives/2008-12-09/business2.html – which is less than two months before that company collapsed.  Mayers is a most articulate and willing public speaker, who was recently discussing the national budget on the electronic media.

We have heard nothing from Mayers on how the collapse presented itself and there is no concerted attempt to pass on any lessons learned to a younger generation of citizen.

Clico Investment Bank (CIB) – Faris Al-Rawi and Mervyn AssamCIB was chaired by Mervyn Assam, recently appointed as a Special Ambassador with responsibility for Trade and Industry.  Faris Al-Rawi, attorney-at-law, was a Director on that Board and he is now a PNM Senator.

Neither man has made any attempt to publicly explain CIB’s shocking insolvency, which was estimated by the Central bank to be of the order of $4.7Bn.

All those people appear to have been anointed, in what must have been a private ceremony, then re-presented as ready to serve.  We deserve no less than a proper explanation from these Directors and Officers and I was pleased to see PNM Senator Penelope Beckles recently joining me in calling for them to be questioned publicly.

The case of AIC Finance
Ian Narine, writing in the Business Guardian on Thursday 14th October – http://guardian.co.tt/business/business-guardian/2010/10/14/there-enough-everyone – attempted to point out the way he had tried to warn the investing public on the perils of CL Financial.  That column made interesting reading, but what would be the position of the press if any such situation were unfolding right now?

Just as an example, AIC Finance is owned and run by the Jamaican billionaire, Michael Lee-Chin, who came in for mention in Anthony Wilson’s 15th October 2009 BG View ‘Will Lee-Chin avoid Duprey’s fate?’ – see http://guardian.co.tt/business/business-guardian/2009/10/15/will-lee-chin-avoid-duprey-s-fate.  I commented on that in the Trinidad & Tobago Review of 2nd November 2009 in ‘Duprey’s fate’ – see http://wp.me/pBrZN-43 or http://www.tntreview.com/?p=887 and the points are once again pertinent.

AIC Barbados, the regional holding company for the group, defaulted on a USD bond in 2009 – in other words, they were unable to pay their debts – see http://guardian.co.tt/business/business/2009/06/06/lee-chin-late-us47m-bond-payment or http://www.jamaica-gleaner.com/gleaner/20100818/business/business1.html.

AIC advertIn the last part of September, AIC Finance has been advertising surprisingly high rates of interest in daily newspaper adverts which also offer ‘Preferential rates to Trinidad & Tobago Association of Responsible Persons (TTARP) members’.

COMPARISON TABLE for 12-month fixed deposit rates for amounts up to $500,000 as at 30th September 2010

Financial Institution Range of interest rates
First Citizens’ Bank 1.25% to 2.1%
RBTT 0.2% to 1.45%
Scotiabank Up to 0.75%
Republic Bank 0.30% to 0.75%
Unit Trust Corporation (Money Market Fund) 2.15%
First Citizens’ Bank Abercrombie Fund 1.90%
Fidelity Finance (part of the Maritime group) 1.8%
AIC Finance 4.25%

If CL Financial could not sustain this strategy, how can AIC continue to offer these rates in today’s market?

That is the question.

According to recent press advertisements, the Board of Directors of AIC Finance Limited comprises –
Michael Montrichard
Krishna Narwani
Clarry Benn
Robert Almeida
Hugh Williams
Myrnelle Akan
Hugh Edwards

Further details are at http://www.aic.tt/page.asp?page=Board+of+Directors

A version of this commentary appeared in print on October 17, 2010, on page A31 of the Sunday Guardian.

CL Financial bailout – Closing the circle

Inquiring What Went Wrong. Illustration by NiCam GraphicsAmidst the raging debate on the rights of the disappointed depositors versus those of the anxious taxpayer, I am continuing to examine some more of the fundamental issues. Yes, I accept that there are depositors amongst the taxpayers, but those interests are not in alignment, hence the discussion.

By making a legislative proposal to frustrate the CLICO Policyholders Group (CPG) litigation, the government seemed to have conceded the merit of the protestors’ case. Those proposals have now been withdrawn and on Friday 1st October, the Prime Minister gave an extensive reply to the CPG. The strategic decision seems to have been to retreat from the narrow corridors of legality and strive for the broad perspectives of the entire nation. The apparent decision is to favour an act of persuasion over one of sheer power. Given our norms of governance in these parts, that is no small shift and it is a welcome sign, quite apart from my agreeing with the stance taken.

Most importantly, the Prime Minister announced a Commission of Enquiry into the collapse of both CL Financial and Hindu Credit Union (HCU).

Once again, I am going to refrain from discussing the legal issues, despite the tempting developments in this aspect of the matter. I am going to keep deepening this discourse so that we can have a better quality of discussion

What was the EFPA?

Firstly, it is necessary to spend a little time on the true nature of the Executive Flexible Premium Annuity (EFPA), since that product is what the majority of this dispute is about. The product was approved for marketing by the Supervisor of Insurance in 1990.

An annuity is an investment product for an individual, to save for a specified future expense by means of periodic payments. CLICO had an approval for a Flexible Premium Annuities, which was attractive to those people who had fluctuating incomes, but soon led to the sale of Single Premium Annuities. Those are investments in which the investor pays a single premium and receives the benefits after CLICO had held the funds for a short term.

So the single premium can be viewed as a deposit, which is what many of the agents called it. While the annuity, traditionally a long-term investment product, then assumed a norm in which most EFPAs were held for 5 years or less.

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 damage to the notion that this EFPA was sold in conformity with its true nature.

So, in summary we have an approved annuity, which is mainly sold as a single-premium, short-term, high-interest investment product to anyone who wants one, including Credit Unions, private companies – several CLICO agents tried, repeatedly, to get deposits from our firm – and State-owned corporations. At some point that annuity morphed, by this series of changes, which seem, to me at least, to have fundamentally altered the character of the approved instrument

All of which returns to the basic accounting principle that when one is trying to interpret a situation such as this, the correct procedure is to be guided by the substance rather than the form of the transaction. That is the background to my assertion that the correct interpretation of the EFPA is as a deposit.

When you consider the very high interest rates offered and the unique way that CLICO altered the EFPA, one has to wonder how the regulator viewed these activities. But more on the regulators later.

What did CLICO become?

Even beyond the changes which the EFPA underwent in the hands of CLICO, the reverse was also to take place. That happened because CLICO changed the EFPA to suit the strategy of its parent company, CL Financial, but the parent group (and ultimately CLICO) in the end were irreversibly changed and then destroyed by the EFPA’s success. Let me explain –

In our system, there are 3 species of financial institution –

  • Banks and other Financial Institutions (approved as Deposit-taking Institutions by the Deposit Insurance Corporation);
  • Insurance Companies and
  • Credit Unions.

CLICO’s liabilities, as stated by the Finance Minister, were $6Bn to traditional insurance policyholders and $12Bn to depositors. The question being, given that two-thirds of their liabilities are non-insurance, how could it be legitimate to consider CLICO an insurance company? More to the point and looking forward, where does a company like CLICO fit into our regulatory framework? That is an important aspect for us to consider for the future of our financial services market.

What were the Regulators doing?

The Regulators! Coulda, Woulda, Shoulda!That is the burning question at this time and a large part of the blame for the CL Financial collapse must lay with the regulators.  In this case it seems that the Governor of the Central Bank and Inspector of Financial Institutions both have serious questions to answer.  The situation is really too much to even imagine, but a few examples –

  • The Governor repeatedly stated his doubts on the stability of the CL Financial group, yet admitted later, in a written statement – see http://www.central-bank.org.tt/news/releases/2009/mr090204.pdf – that he had deposited money at CLICO Investment Bank (CIB).
  • The Governor stating his strong disapproval the conduct of the CL Financial chiefs – The Governor spoke on 23rd April 2009 – “If you ask me whether CL Financial did everything that was honourable and beyond reproach, the answer is no! The answer is no!”  see – http://guardian.co.tt/business/business/2009/04/24/cl-financial-bailout-cost-5-billion-over-two-years .  Yet he has not invoked ‘fit and proper’ regulations to disqualify those offending people from holding office in any financial institution, which is within his ambit.
  • Carl Hiralal, Inspector of Financial Institutions, swears an affidavit in the CIB winding-up action in which, at para 23, he confirms that CIB had filed no Corporation Tax Returns in 2007, 2008 or 2009.  The plain meaning of which is that they did not pay their taxes, yet  were able to keep their banking licence and when it all went wrong, were also able to get a bailout.
  • The Statutory Fund – We have heard many statements since this collapse that the CLICO Statutory Fund was not paid-up in full and yet they too were able to retain their licences.
  • When, if ever, did the CLICO sales force stop selling?   Answer is they never did, and have continued to remain open for business despite their self-confessed insolvency.  Is it true that CIB was seeking deposits up to the last?
  • Mismatch of funding tenor and risk – It was clear that CL Financial, in addition to morphing an approved product beyond recognition, then ballooning those receipts up to over-balance the entire company, operated with a fundamental ill at the heart of the thing.  Having coaxed many investors to place their eggs in one basket, the very company they had trusted with their savings turned around and broke yet another fundamental financing rule.  CL Financial used short-term/high-interest funds to finance long-term investments, which was evident from its accounts.  Did the regulators have a risk ranking or some other tool to allow closer monitoring of these activities?
  • The Nature of the thing – Finally, we have the issue raised above – i.e. the EFPA that became something else and the insurance company that also became something else. Like some bizarre horror or science fiction movie, but is our country.  My question being that there must be some point at which an approved product stops resembling the original one, to the extent that the regulator needs to have the clarity and integrity to stop those sales.  In consequence of the prior failure, CLICO stop resembling CLICO and also became something else.

What is to become of these self-confessed, slack regulators?  The state has already saddled a considerable burden in assisting these depositors, but are we to have a continuation of this disastrous performance?

I ask the question because the CLICO pattern is not over, not at all.  There are still other doubtful financial institutions offering incredible rates of interest, with special incentives for the vulnerable.  Yes, it is still going on – see the sidebar.  Do we have the will to do differently?  Can we do better?

As a matter of urgency, we need to have published the full details of those who gained from the $7.3Bn already spent in this scandalous bailout.  We need names, addresses, amounts of capital and interest and date of payments as a minimum.  Those monies are public monies and if it was correct to insist on disclosure in the shocking case of the ‘Secret Scholarship Scandal‘ last year, it is equally right in this disgusting case.

‘What is good for the Goose is Good for the Gander’.

Expenditure of Public Money – Accountability and Transparency = CORRUPTION

We also need to have published the full details of the $1.0Bn of ‘non-performing’ loans on CIB’s books.

The Impossible Claim – denied?

The size of the outstanding claims is a total of about $18Bn, which is colossal when compared to the largest pool of money available to the state – i.e. the Heritage and Stabilisation Fund, which itself holds about $18Bn.  The state cannot bankrupt itself

SIDEBAR: The case of AIC Finance

AIC Finance is owned and run by the Jamaican billionaire, Michael Lee-Chin, who came in for mention in this debate in Anthony Wilson’s 15th October 2009 BG View ‘Will Lee-Chin avoid Duprey’s fate?’ – see http://guardian.co.tt/business/business-guardian/2009/10/15/will-lee-chin-avoid-duprey-s-fate.  I commented on that in Trinidad & Tobago Review of 2nd November 2009 in ‘Duprey’s fate’ – see http://wp.me/pBrZN-43 or http://www.tntreview.com/?p=887 and the point is again pertinent.

AIC Finance defaulted on a USD bond last year – in other words, they were unable to pay their debts – see http://guardian.co.tt/business/business/2009/06/06/lee-chin-late-us47m-bond-payment or http://www.jamaica-gleaner.com/gleaner/20100818/business/business1.html.

AIC advertIn the last fortnight or so, the same company has been advertising surprisingly high rates of interest in daily newspaper adverts which also offer ‘Preferential rates to Trinidad & Tobago Association of Responsible Persons (TTARP) members’.  Those interest rates range from three to four times the rates being offered by the commercial banks.  If CL Financial could not sustain this strategy, how can AIC continue to offer these rates in today’s market?

That is the question.

SIDEBAR: Two points in the PM’s speech need emphasizing

The First, is in the positive, democratic interpretation of the revised bailout being offered to the estimated 250,000 people affected as policyholders and depositors.  All 225,000 policyholders – those with life, pension and health insurance policies – will have their claims honoured by the State.  10,000 of the 25,000 depositors are owed amounts less than $75,000 and those claims can be settled now.  Which leaves 15,000 depositors to choose between litigation or accepting the present offer of a discount on their monies.

In summary, 235,000 of the 250,000 claimants are being fully settled and that is 94%.

The Second, is in relation to the erroneous portrayal of the impact of discounting on the claimants who accept the government’s offer.  There seems to be an error in the calculations upon which the PM relied in making her statement –

“…We are going to give some help.  These installment instruments I am saying can be cashed in early at financial institutions.  Yes, they will be cashed in at a discount. But I have been informed by the hon. Minister of Finance, Mr. Winston Dookeran, that based on discussions with local financial institutions, that if the first five years of installment notes were cashed in, the discount could be as high as or as low as—when we look at it the glass is half-full or half-empty, depending on how you look at it—5 to 10 per cent.  What this means is for every dollar, you could get between 90 to 95 cents per dollars if you decide to discount.  I am so advised…”

Apart from my not understanding the selection of the first five years of investment notes as a point for discussion, the calculations are misleading, since the actual discount at those rates (with which I concur) will have a far greater impact – see http://wp.me/pBrZN-qh for a detailed explanation.