Third submission to the Commission of Enquiry into the failure of CL Financial Limited, et al

14th February 2011

Afra Raymond’s third submission to the Commission of Enquiry into the failure of CL Financial Limited, Colonial Life Insurance Company (Trinidad) Limited, Clico Investment Bank Limited, Caribbean Money Market Brokers Limited, and The Hindu Credit Union Credit Union Co-operative Society Limited

My name is Afra Martin Raymond and I am a Chartered Surveyor, being a Fellow of the Royal Institution of Chartered Surveyors.  I am Managing Director of Raymond & Pierre Limited – Chartered Valuation Surveyors, Real Estate Agents and Property Consultants.  I am also the President of the Joint Consultative Council for the Construction Industry (JCC), an umbrella organisation which represents the interests of Engineers, Surveyors, Architects, Town Planners and Contractors in this Republic.

This submission is being made in my personal capacity and does not represent the position of either Raymond & Pierre Limited or the JCC.

My work on this vital issue has all been based on the public record and can be seen at www.afraraymond.com.

I am willing to give oral evidence before the Commission.

My area for focus in this submission is that of Political Party Financing.
In the case of Hindu Credit Union (HCU) these are good references – http://legacy.guardian.co.tt/archives/2004-12-05/business1.html or http://legacy.guardian.co.tt/archives/2008-07-27/news10.html

Questioned about allegations that he had helped finance the PNM’s campaign leading up to the last general election, Harnarine replied: “We have assisted all major political parties in consideration of the HCU’s membership, which has a large base.”
Harnarine said he went out of his way to help the UNC, COP and even organised a meeting between Manning and the Indian businessmen.

It is my view that these persons must be questioned by the Enquiry if we are to properly comprehend the extent of the financiers’ influence –

  • former Prime Minister Basdeo Panday
  • former Prime Minister Patrick Manning
  • former PNM Chairman and Minister in the Ministry of Finance, Conrad Enill.  Enill was also the Campaign Manager during the 2007 and 10 elections, so he will possess a clear knowledge of the campaign finance trail.
  • former PNM Treasurer and Minister in the Ministry of Finance, Mariano Browne.

I do believe all the items in this submission to be true and correct.

……………………………………………..

Afra M. Raymond B.Sc. FRICS

 

Property Matters – Reforming UDECOTT

UDeCOTT Board
UDeCOTT Board with Planning Minister Sen. Mary King

Last week’s cover story in the Trinidad and Tobago Guardian paper was of the same title.  Readers were treated to a two-page article introducing UDeCOTT’s new Board of Directors and offering several views from the re-appointed Chairwoman, Jearlean John.

As a long-time UDeCOTT-watcher, I was really pleased to see their new Board appointed, but John’s opening quote in that article was provocative in the extreme.  Speaking about the scandalous International Waterfront Centre (IWC), UDeCOTT’s flagship project, John is reported to have mused “…Whatever else he did, he did that…”  Ms. John was referring to the now-departed Calder Hart.

Truer words were never spoken, but yet it was a provocative opening.  How so?

Despite the regime change, it seems that the IWC remains UDeCOTT’s flagship project.  On the one hand, its admirers point to the architectural merits of the complex and the repeated claims that it was completed on time and within budget.  On the other hand, it is a monument to a chronically-flawed process of project conception and approval, being one of those classic ‘white elephant’ projects, with a ‘break-even’ point at some point in the distant future, if ever.

The IWC represents a serious paradox in the entire UDeCOTT fiasco, but more interestingly, it offers an insight into the extent of the issues facing that State-owned company.  Yes, there is an unbroken thread of unreason through this flagship project to the bigger picture.

I will move from the general to the particular.

To begin at the very basic level, UDeCOTT has published no audited accounts since the end of 2006.  Yes, that company, one of the hugest in the country,  was operated throughout its period of greatest activity without audited accounts.  Quite seriously, that indicates a far larger failure in terms of the rules and guidelines for State Enterprises, the oversight of the Parliament and of course the sheer dereliction of the Cabinet.  At one point in the Uff Enquiry, UDeCOTT’s attorneys stated that it was a $12Bn company.  Of course, the last Prime Minister repeatedly told the public that UDeCOTT was a leading State Enterprise.

At the Uff Enquiry, Calder Hart was questioned under oath by Alvin Fitzpatrick SC, the JCC’s attorney – the relevant extract is at http://wp.me/pBrZN-51 – and said on 28th January 2009 that all the issues with UDeCOTT’s accounts had been resolved.  He went on to say that the accounts would be published shortly.  Of course that has never happened, so we have to ask why.

In March 2010 I made yet another public call for the publication of those accounts.  But even worse, according to a Newsday article on 18th March 2010, Jearlean John, the newly-appointed Chairwoman said

“…Explaining that she adheres to “good corporate governance” in her professional life, John said Udecott will adhere to the law and the standing accounting practices as outlined by the law…”

That published promise was never delivered.

The simple fact is that we cannot continue talking about performance and good governance, far less change, without knowing the condition of our largest State Enterprises.

That is a serious and inescapable point.  We were sorely disappointed by the wanton mismanagement of the last regime and its consequences on the State Enterprise sector.  The State Enterprises cannot and will not function if the actual strategy is unsound.  The State Enterprises are meant to be servants to the Central Government.

I expect better from you both, Minister Mary King and Chairwoman Jearlean John.  Much better.  No continuation of the past follies and shameless excuses.  I am saying plainly to you, Ms. John, that you promised us these accounts nearly a year ago and we have nothing.  Sad to say, but a little further and your statements on this important matter could echo Hart’s, as he told his tale.

That article in last week’s BG stated that the new UDeCOTT Board would consider financials for 2008, 2009 and 2010 at its first meeting.  No mention of 2007 and I hope that was a mis-print.

Where are the UDeCOTT accounts?  What is the mystery?  Are the issues resolved or not?  Is there yet another ‘Code of Silence’ surrounding this nexus between Calder Hart, the PM’s office and PriceWaterhouse Coopers?

But what does the IWC have to do with all this?

You see, the various UDeCOTT supporters have continued to applaud this project as the flagship and a leading example etc. etc..  Even Jearlean John seems to be going in that direction.

So here are a few facts on that project –

  • The break-even rent – This is the rent a project needs to earn to repay its cost (those costs include land, professional fees, construction and finance – they do not include for profits or maintenance).  In the case of the  IWC, that break-even rent was calculated by me, in this column and prior to the Uff Enquiry, as being of the order of $30 per sq. ft.  Please note that rents of good quality space in POS at the time this project was approved would have been in the $12 psf range.
  • The Feasibility test – I questioned Calder Hart under oath at the Uff Enquiry and he stated that only one UDeCOTT project had been the subject of a feasibility test-  the very IWC.  He stated that its ‘break-even rent’ was ‘…under $20psf…‘, but when I questioned what was the value he had attributed to the land, he replied ‘NIL’.  Bogus and unprofessional approaches to massive investments.  Hart was prepared to omit the property in order to carry out a feasibility test on a property development.  That is the sheer scale of the failure we are looking at.  All these projects were approved by the Cabinet, according to Manning’s 13th May 2008 statement to the Senate.
  • The financing model – UDeCOTT’s 2006 Annual Report was strong on the point that that project in particular did not require a State letter of comfort or guarantee.  It was meant to demonstrate the scale of achievement and independence.
  • When will the IWC break even? – The best offices in POS are rented in the $15 psf range and the IWC comprises some 900,000 sf of offices – that is about nine times the size of the Nicholas Towers on Brian Lara Promenade.  Due to its size, it would be reasonable to expect the IWC to fetch a rent of about $12-13psf now, if one were fortunate.  Given that background, it seems that this project will never break even.

If UDeCOTT’s best project will never break even, the entire company must be insolvent or so close as to not make a difference.

If their best project is a big-time loser, it is no wonder that the last administration was reluctant to publish UDeCOTT accounts.  The very year (2006) that project started was the very year the accounts stopped being published.

The profitability of the Hyatt, which was reportedly cited by John in last week’s article, needs to be backed up by those accounts.  In any case the unprofitable offices far eclipse the Hyatt.

It is clear that UDeCOTT’s new Board have a heavy task before them in terms of fixing its many ills, but they need to start with an honest and straightforward approach.  If the country has to count our losses, you need to  do so now, Chairwoman John.  Do so.

There is no right way to do the wrong thing.

Second submission to the Commission of Enquiry into the failure of CL Financial Limited, et al

14th February 2011

Afra Raymond’s second submission to the Commission of Enquiry into the failure of CL Financial Limited, Colonial Life Insurance Company (Trinidad) Limited, Clico Investment Bank Limited, Caribbean Money Market Brokers Limited, and The Hindu Credit Union Credit Union Co-operative Society Limited

My name is Afra Martin Raymond and I am a Chartered Surveyor, being a Fellow of the Royal Institution of Chartered Surveyors.  I am Managing Director of Raymond & Pierre Limited – Chartered Valuation Surveyors, Real Estate Agents and Property Consultants.  I am also the President of the Joint Consultative Council for the Construction Industry (JCC), an umbrella organisation which represents the interests of Engineers, Surveyors, Architects, Town Planners and Contractors in this Republic.

This submission is being made in my personal capacity and does not represent the position of either Raymond & Pierre Limited or the JCC.

My work on this vital issue has all been based on the public record and can be seen at www.afraraymond.com.

I am willing to give oral evidence before the Commission.

My areas for focus in this submission are –

Fiduciary Duty of Directors and Officers

The burning question is – When did the Directors and Officers of CL Financial (CLF) know that the group was heading to collapse?  When did the Directors and Officers of the failed subsidiaries know? What did they know and when did they know it? How much warning did their management controls give them?

The question is pertinent and the time-line is instructive –

  • 31st March 2008 – Andre Monteil retires as CLF’s Group Finance Director.
  • 6th August 2008 – Anthony Fifi retires as Managing Director of the Home Construction Limited group, which is wholly-owned by CLF.
  • Mid-October 2008 – CLF purchases Jamaica Money Market Brokers’ 45% shareholding in CMMB.   Please note that CLF owns 40% of JMMB.
  • 7th November 2008 – Michael Carballo, CLF’s Group Finance Director gives an interview to the Business Guardian that the group had assets of $100Bn and could weather any storm.
  • 18th November 2008 – CLF 2007 Annual Report is published – its Consolidated Balance Sheet disclosed a Total Asset Value of $100.666Bn.
  • 8th December 2008 – Robert Mayers proceeds on pre-retirement leave from CMMB, pending his scheduled retirement, on 28th February 2009, as Managing Director.
  • 13th January 2009 – Lawrence Duprey, CLF’s Executive Chairman writes, detailing an asset value of $23.9Bn, to the Governor of the Central Bank to seek urgent financial assistance.  See ‘Finding the Assets‘ published on 23rd August 2009 for the text of that letter.
  • 16th January 2009 – CLF pays a dividend of $3.00 per share.
  • 23rd January 2009 – CLF has its Annual General Meeting at Trinidad Hilton.
  • 30th January 2009 – The bailout is announced at a Press Conference at the Central Bank.

So, there is this contradictory financial manoeuvre in the dying stages of the group.  I am speaking about the CMMB share purchase, in which CLF purchases Jamaica Money Market Brokers’ 45% shareholding in CMMB at a reported $41.37M USD.  That price equates to 16.5 times earnings, given that CMMB’s profit as at March 2008 was $35M.  It is impossible to reconcile that earnings multiple with CMMB’s exceedingly low profit rate and the rapidly-approaching collapse.

Was a professional, independent valuation of those shares obtained prior to the purchase?  How can it have been a proper discharge of their fiduciary duty to shareholders for the CLF Directors to have agreed such a massive, questionable purchase without proper advice?

That transaction drew $262M out of CLF’s rapidly-depleting coffers on terms which are suspect.  It demands close examination.

Another inescapable episode is the last CLF Annual General Meeting, the timing could hardly be better for an insight into the sensibilities of these chiefs.  At the date of that AGM, Friday 23rd January 2009, the bailout letter was 10 days’ old, the dividend cheques were one week old and the bailout itself was a week ahead.

What was the atmosphere at that meeting?  Were the shareholders told frankly of the major challenges and that the group had been forced to seek a State bailout?  Did the Directors offer an explanation for the failure of the group?

It would be important to examine that AGM very carefully.

The Second issue is the treatment of departing Directors and Officers.  Note that three of the most important and senior CLF chiefs departed in the 12 months prior to the collapse.  It is most unlikely that those departures were mere good fortune or coincidence.

It is difficult to probe and verify such agreements when they are oral, much less when they are between parties who are actively collaborating.  Memory can be notoriously unreliable.

I am submitting that those departures can be examined from the documents if one were to approach from the compensation aspect.  What I mean is that these chiefs would have been paid upon departure and that would likely have been documented.

If that approach were taken, the suggested questions would be

  • How much did Messrs. Monteil/Fifi/Mayers receive upon retirement?
  • Was that sum reduced to reflect the impending crash?
  • Were the amounts arrived at by a ‘set’ formula?
  • Were the amounts arrived at by an interpretation of an employment contract which divorced pay from performance?

This would make it possible to have some insight into the way these chiefs treated with themselves, their shareholders and the other stakeholders of the group.

Executive Flexible Premium Annuity (EFPA)

I have written extensively on the EFPA, its growth and the effect of that size upon the entire CL Financial group.

I have no further points to make on those aspects.  My submission here is on the point of set-off and the burden to the taxpayer.

My submission is that in relation to the intended payments from the State to EFPA claimants is that the State must conduct itself in an exemplary fashion.  The State must 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 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 at all 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.

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.

I am submitting to the Commission that everyone over seeking bailout funds exceeding $75,000 be subject to a BIR audit for themselves and any business interests that they may have earned revenues from and they should be denied a taxpayer-funded bailout if they were found to have not paid their taxes.

Political Party Financing

It is my submission that the means by our political parties are financed is at the very heart of this affair.

Governance models, regulatory frameworks and accounting conventions are all important parts of the interlocked issues, but those pale into insignificance beside the influence of this major party financier.

There can be no doubt that CLF was one of the leading contributors to political parties in this country.

In the case of the United National Congress (UNC), which is the leading element of the existing coalition government, their last leader was convicted and imprisoned for failing to declare substantial donations received from Lawrence Duprey – see here and here.

In the case of the People’s National Movement (PNM), there have been published reports as to the payment of sums of the order of $20M to that party by CLF in the 2007 general election – see here and here.

In the case of the former political party, the entire CLICO issue was raised by the respected economist Trevor Sudama MP in the 2002 budget debate.  Sudama was a UNC Cabinet member and posed the question as to whether CLICO, having been found to be insolvent by the Supervisor of Insurance, should be allowed to continue in business.  Sudama was strongly opposed in the debate and eventually removed from the Cabinet.  This can be corroborated from Hansard (p. 757 and 800) and the reports of the Supervisor of Insurance.

In the case of the PNM, the link was even deeper, with the same individual being that party’s Treasurer, CLF’s Group Finance Director and Chairman of two banks – Home Mortgage Bank and CLICO Investment Bank as well as two major State enterprises in the construction sector – Housing Development Corporation and the Education Facilities Company Limited.  That individual is Louis Andre Monteil.

It is clear from the many statements of the Governor of the Central Bank that they were very limited in what they could do as regulators and it is difficult to escape the impression that an undue influence was brought to bear in the case of CLF.

The last Minister of Finance, Karen Nunez-Tesheira – a former law lecturer – was found to have withdrawn her own and her family’s monies from the CLF group just before the crash, was a shareholder of CLF and accepted dividends after the bailout was requested by the beleaguered group.

Only when Nunez-Tesheira was confronted by an informed and relentless media did she admit any of those transactions.  We have never had an account of those dividends.

There is a long-standing and widely-accepted doctrine of Cabinet secrecy.  It is my submission that this is one of those exceptional cases in which the very purpose of the Enquiry will be frustrated unless the Terms of Reference are robustly interpreted.  In this case the situation demands an examination of  the conduct of these matters at the political level.

For a proper understanding of this issue, it is essential that Karen Nunez-Tesheira, Trevor Sudama and Louis Andre Monteil be cross-examined on this political aspect. It is my view that former Prime Ministers Basdeo Panday and Patrick Manning must be questioned if we are to properly apprehend the extent of the financiers’ influence.

I am basing that submission on part (i) of this Enquiry’s Terms of Reference -To enquire into “…the circumstances, factors, causes and reasons leading to the January 2009 intervention…”.  There is no way to satisfy the first part of your mandate, to understand the root causes of the crisis, without getting into this fundamental issue.  Political Party financing is at the centre of the fiasco.  The learning from the Wall Street crisis on this question is unequivocal as to the pernicious influence of these political financiers and lobbyists.

For this Enquiry to achieve the required level of interrogation, information and insight, it must pierce the conventional veil of Cabinet secrecy.  To do that, you need to take a robust view of your Terms of Reference.

I do believe all the items in this submission to be true and correct.

……………………………………………..

Afra M. Raymond B.Sc. FRICS

www.afraraymond.com

Afra Raymond’s first submission to the Commission of Enquiry into the failure of CL Financial Limited, et al

10th February 2011

Afra Raymond’s first submission to the Commission of Enquiry into the failure of CL Financial Limited, Colonial Life Insurance Company (Trinidad) Limited, Clico Investment Bank Limited, Caribbean Money Market Brokers Limited, and The Hindu Credit Union Credit Union Co-operative Society Limited.

My name is Afra Martin Raymond and I am a Chartered Surveyor, being a Fellow of the Royal Institution of Chartered Surveyors.  I am Managing Director of Raymond & Pierre Limited – Chartered Valuation Surveyors, Real Estate Agents and Property Consultants.  I am also the President of the Joint Consultative Council for the Construction Industry (JCC), an umbrella organisation which represents the interests of Engineers, Surveyors, Architects, Town Planners and Contractors in this Republic.

This submission is being made in my personal capacity and does not represent the position of either Raymond & Pierre Limited or the JCC.

My work on this vital issue has all been based on the public record and can be seen at my blog www.afraraymond.com.

I am willing to give oral evidence before the Commission.

  • The TV/Radio Shows – I have done seven TV interviews on the CL Financial bailout and those are available at the ‘Multimedia’ page of my blog.
  • Up Next! TV interview with Brian Branker, former Executive Chairman of British American Insurance Company Ltd (BAICO) – This is the first time, to my knowledge, that one of the CL Financial chiefs has gone onto the record to speak about these events.  The interview is available at http://vimeo.com/15145888.
  • The 12th June 2009 CL Financial Shareholders’ Agreement – this is the subsequent agreement, erroneously described by the Ministry of Finance as ‘giving substance to’ the original MoU, but later found to have enshrined a decided shift in favour of the shareholders – https://afraraymond.net/wp-content/uploads/2010/03/mou21.pdf.

I do believe all the items in this submission to be true and correct, save and except for the Up Next! Interview, which comprises the views and observations of Brian Branker.

……………………………………………..

Afra M. Raymond B.Sc. FRICS

www.afraraymond.com

CL Financial bailout – Smashing the Code of Silence

financial-crisis-inquiry-reportI have been preparing my submissions for the Colman Commission and took some time-out to start reading the Report into the USA’s financial crisis. Of course I am referring to the Financial Crisis Inquiry Report, which was published at the end of last month, about a year after its first hearings.

Even though I have barely scratched the surface of this 662-page work, it has already been a deeply fascinating read, filled with cautionary insights. The first conclusion of that Report is worth citing –

“We conclude this financial crisis was avoidable.

The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble.  While the business cycle cannot be repealed, a crisis of this magnitude need not have occurred. To paraphrase Shakespeare, the fault lies not in the stars, but in us.

Despite the expressed view of many on Wall Street and in Washington that the crisis could not have been foreseen or avoided, there were warning signs. The tragedy was that they were ignored or discounted…”

It is an epic failure in that the world’s strongest and most diversified financial system was brought, literally, to its knees by a tidal wave of greed. Some of the main features were –

  • Slack regulators, who had looser and looser control of market activity, yet did little or nothing to propose the need for better controls.
  • Corrupt politicians, who accepted huge political donations from the financial institutions – yes, both parties – so that there was an absence of real debate on major policy shifts and consequences
  • A sheer overdose of hubris in an atmosphere in which it seemed, against all good sense, that tangible risk had been abolished.  The catchphrase among market players was ‘IBGYBG – I be gone, you be gone’ – denoting a total abandonment of the notion of customer service. In many cases the salespersons knew what they were selling was of such poor quality that their own firms were betting against it.

If any of this sounds familiar, yes, you are right; it is almost the same as our own crisis.  The old aphorism ‘When Uncle Sam catch a cold, the Caribbean get pneumonia’ comes to mind.

I have to say that the reading is a sobering experience as one starts to reflect that the deep and broad USA economy has been crippled by these ‘smartmen’ and their political minions.  So what hope do we have of resisting those elements?  That is the question we need to grapple with in this rounds.

But for all the parallels, there are two important differences –

  1. Firstly, the guilty actors are not going to own-up.  This is one pie they won’t want a piece of.  They may try to seek exoneration in a version of the truth which locates blame somewhere on Wall Street.  Those assertions need to be strongly challenged; they represent a piece of pure mischief.
  2. Secondly, the US crisis is far smaller, proportionally, than our own.  The Minister of Finance stated in the 2011 Budget (pg. 8)  that the CL Financial bailout was costing our country more than 10% of its Gross Domestic Product (GDP).  In comparison, the US bailout was estimated, in December 2010, by their Treasury Secretary to be costing about 1% of that country’s GDP.  These facts show the double-mischief of these bold-faced people trying to tell us that this is just like in America.

According to those sources, this crisis is costing us 10 times more than the Wall Street one we keep on about. The relevant Ministry of Finance Press Release of 17th January 2011 states, “…With the Government’s planned bailout of CLFG (CL Financial Group), Standard and Poor’s expect net general government debt will rise to 28% of GDP in fiscal 2011 from 15% in fiscal 2010, though it will remain below the 36% median for ‘A’ rated sovereigns…” That is a difference of 13%. Yes, that is 13 times more than the USA…

This crisis will require us to properly compare and contrast those situations.

It has been two years, but at last the Commission of Enquiry into the T&T financial collapse is about to start its hearings. For the first time and against all their schemes and plans, the main agents of the Code of Silence are going to be forced into the direct sunlight to face questions and of course I mean the several court cases and the Colman Commission as discussed in ‘Testing the Code of Silence‘.

Sir Anthony Colman
Sir Anthony Colman

The final date for submissions to the Colman Commission is Monday 14th February, which means that all written evidence must be filed by then.   I am not sure if electronic evidence, like the 55-minute interview Brian Branker (former Executive Chairman of British American Insurance Co.) gave on Up Next! in September 2010 is allowable, but it seems worth it to try.  So this is my call for the producer of that show, Jerry George, to please do submit it.  If you are interested, it is at http://vimeo.com/15145888.

I expect that by now the main actors in this Code of Silence are all rehearsing their lines and agreeing who will speak on which piece and in fact which parts to be silent on. In my opinion we can expect nothing but self-serving and defensive statements, if not outright lies, from the main actors in this mess – the CL Financial chiefs, the wayward Regulators and of course, the auditors. The burning question is therefore how is the public interest going to be defended and advanced?  By whom?  On what terms?

To make the obvious comparison with the Uff Enquiry, we are looking at the same kind of procedure.  The decisive difference is that, in this case, the balance of forces is entirely different.

You see, in the Uff Enquiry there were the forces of the State and its agents all lined up to defend their way of operating – that included UDeCOTT, Calder Hart, National Insurance Property Development Company (NIPDEC), Housing Development Corporation (HDC) and of course the State itself was in the Enquiry in the person of the Attorney General.  On the other side there were the Joint Consultative Council and Dr. Keith Rowley, MP.  All those parties were strongly represented.  There were also independent forces at the Enquiry – the Trinidad & Tobago Transparency Institute (TTTI), Carl Khan and myself – the only two witnesses whose testimony stood without hostile cross-examination.

Due to the balance of forces in that forum, the Uff Enquiry was satisfactory in that all versions were strongly contested under cross-examination and also by conflicting testimonies – the Enquiry was forced to decide on the veracity and relevance of evidence…there was no easy middle road or settling for a version because no one had spoken against it.

Here, in the Colman Commission, we face an entirely different order of challenge.  Let me explain –

  1. Firstly, the quantities of money involved are several times larger – at least ten times more, in my estimation.
  2. Secondly, the entire establishment seems to have capitulated to the ‘Duprey Dream’.  That is a state in which no serious questioning of the actions of the CL Financial chiefs is undertaken.  In the USA experience, this phenomenon is described as Regulatory Capture.  It is one in which regulators are actually ‘occupied’ by forces who are the people they are supposed to police. That is not unfamiliar to us here in Trinidad & Tobago, but that is why we must fight against it. It is a true nadir of absolute corruption.  A roaring silence of the formal and informal regulators.
  3. Finally, based on that record, the Colman Commission will be dominated by these people, the ones who caused the entire mess.  If that is the case, there is a real danger that the truth could be compromised or even sacrificed. That peril is what we have to work against.

Some of us have insisted on this Enquiry as a necessary step in preventing a repetition and further looting of the society. The facts and the versions of the facts are about to be tested in the crucible of the Colman Commission.

The only way we can avoid the US fate, and possibly worse, is by doing our very best to learn from the bitter experience. Those of us, who have insisted on this crisis being a real turning-point, must make the most of this moment. In my opinion, that can take place on two levels –

  1. The publicity level, with lobbying to ensure that the process receives the maximum possible exposure, generally, and spot-lobbying to ensure that the key players in the mess are spotlighted when it is their turn to testify. The sole Commissioner was reported to have said that the hearings will be televised.  How can we check on and ensure that takes place?  Also, we should be insisting on a similar arrangement to Uff with the transcripts being on-line.
  2. The evidential level, at which we need to make submissions to contend with the rotten and dishonest discourse from the utterly unresponsible parties who are ultimately responsible.  We not only have to contend with and destroy the ‘Anansi-stories‘, we also have to advance our own arguments into the spaces and places they do not want us to go into.
trevor sudama
Trevor Sudama, former MP

The key person from whom I would like to see a submission is the respected former MP and economist Trevor Sudama, who was the first person to put onto the public record these serious concerns over the health of the CL Financial group.  That was in the 2001 Budget debate and of course we all know that Sudama and his colleagues – Ramesh Lawrence Maharaj and Ralph Maraj – were strongly attacked, ostracized and ultimately forced from the political Head Table.  All by their own party colleagues.

Mr. Sudama, we need your input in this vital matter.  The background for your intervention in this matter, your debate on it and the political attack must form part of the record in this Enquiry.

Some of the key commentators who should put in written submissions are Camini Marajh of the Express, Andre Bagoo of Newsday and Anthony Wilson, the Ag Editor-in-Chief of this newspaper.

Our professional Institutions have been pointedly silent and I would hope to see submissions from –

Our institutions of higher education should join in with their perspectives –

  • Arthur Lok Jack School of Business, part of UWI
  • School of Business and Computer Studies
  • School of Accounting and Management
  • Caribbean Centre for Monetary Studies, also a part of UWI
  • UWI’s Economics Department
  • UWI’s Government Faculty

I am going to close by sketching just one parallel.

To go back to the main points of the Wall Street experience as outlined above, we hear of these complex debt swap instruments and their toxic consequences.  The fatal flaw of these instruments, according to the reports I have read, seems to be that they seemed to be a good way to invest with high returns and little or no risk.  The truth turned out to be just the opposite.

It all seems remote from our own situation, but that is not the only way to look at it.  The most controversial single item in this entire situation here has been the EFPA, an annuity duly approved by the Supervisor of Insurance.  When we consider the promotional literature for that product, it is nothing less than scandalous that a leading company should have been allowed to advertise an investment product with exceptional rates of return and the repeated phrase ‘guaranteed investment’.  There is absolutely no such thing as a guaranteed investment.  It is a complete contradiction in terms, but yet it went out to tens of thousands of people, who suspended their disbelief and went along for the ride.  That is the Trini parallel with those complex debt swap instruments.

You see?

Freedom of Information Request for Duprey Letter of 13 January 2009.

foi4This my Freedom of Information application made on 22nd December 2010  to the Minister of Finance for the ‘Duprey’ letter of 13th January 2009 and the 31st December 2008 accounts of the CL Financial Group.

Readers who are not familiar with the ‘Duprey’ letter and its implications, should read – ‘Finding the Assets.’

This is the third application I am making for these documents. The first was to the previous Minister of Finance, Karen Nunez-Tesheira, who delayed a long time, then ended-up telling me to go to the Central Bank, since they were the original addressees. Of course that was a transparent ploy to frustrate my application, as we know that the Central Bank is immune from the Freedom of Information Act (FoIA).

My next application was on 28th June 2010 to the present Minister of Finance, Winston Dookeran, who never acknowledged the application, despite several reminders.

Readers, please remember that the FoIA requires that the public authority reply to applications in 30 days. There are no penalties for breaching that requirement, so we have to contend with these tactics.

It is now occurring to me, as I write this, on Thursday 20th January 2011, that by Monday 24th we will have reached yet another deadline, but this time we will go further than just letter-writing.

When you combine the failure to reply by both PNM and PP Ministers of Finance with the bizarre affidavited evidence of our Inspector of Financial Institutions, Carl Hiralal on the background to the Central Bank’s application to wind-up CLICO Investment Bank, it is clear to me that the decision has been taken to suppress that letter. For whatever reason, as we say in these parts.

Property Matters: Housing Policy Review as an element of the Welfare State

There has been a recent, refreshing discussion on the shape and necessity of our welfare state.  The Welfare State is used to refer to the various administrative arrangements which redistribute the nation’s wealth to assist the more needy citizens in our midst.

The discussion was initiated in the T&T Review of  January 3 in Gregory McGuire’s thoughtful and solidly-based review of the welfare spending trends and their wider consequences.  The responses ranged from a two-part article (Part I & Part II) in the Express from Professor John Spence, with an attempted rebuttal from Dr. Errol Mathura in the same newspaper.  From the Guardian, there has been a serious commentary on Sunday 16 by Dr. L Trevor Grant – ‘Curb escalating poverty in rich T&T’ – and the editorial of Monday 17, dealing with the fate of the empty HDC houses.

That Guardian editorial – ‘Housing Shame’ – was based on the reports of an investigation into the situation at several of the HDC virtually-completed, but unoccupied housing projects.

Sunday’s Guardian headlined with ‘Scandalous’ on an abandoned $156M HDC project and that is my point of discussion on this Welfare State matter.  The empty homes built by the HDC are symbolic of a serious need to re-examine our housing policy.

Above and beyond the case of the vandalized HDC homes, the fundamental public housing situation is scandalous.  Scandalous is my word to describe a policy of allocating of scarce resources to build homes, without satisfying the needs of the poorest applicants.  That is a blatant misallocation of public resources.

As I wrote in the Trinidad Guardian newspaper in 2007, our housing market is divided into 5 layers, moving from the neediest to the wealthiest –

  • Homeless – People who have nowhere to live or rely on charity for shelter.
  • Permanent Renters – People who can never afford to buy.
  • Transitional Renters – People who are renting now, but will end up as home-owners.
  • Home Owners – People who own their homes.
  • Multiple Home-owners – People who are wealthy enough to own more than one home – these people are also the ones who rent property to the others.

According to the latest figures released by the Housing Development Corporation in March 2010, there are over 10,000 empty homes in their stock of newly built units.  In addition, there is a waiting-list of hopeful applicants believed to be in excess of 100,000 people.  How can we reconcile those figures?

Dr. L Trevor Grant is the only author, to my knowledge, to have written on the plight of the homeless in our society and his column in Sunday’s Guardian gave telling details on the level of need in those communities.

Showing Trinidad and Tobago A New Way HomeWe have constructed a national housing policy which pays only lip-service to the housing needs of the poorest applicants.  The clear preference – PNM or PP – is for the applicants who qualify to buy a home from HDC.  That is the only explanation for the reality of 10,000 empty new homes and 100,000 waiting applicants.

There have been some recent handovers of new HDC homes to applicants featured in the press and those have all detailed the incredible length of time these applicants waited for their new homes.  Waiting periods in excess of 20 years have been mentioned.

There is a severe disconnect between these expensive policies to provide subsidized housing and the reality of being a poor applicant on HDC’s waiting-list.

At this point, an estimated 76% of our people live in owner-occupied property.  That is comfortably above the comparative figures for the USA or the UK, where the numbers are in the 68-69% range.  It seems clear that we are approaching the limits to which we can realistically grow home-ownership in our country.  In some ways we may already have exceeded those limits.

Another point I detailed in my 2010 series ‘Housing Policy Imperatives’, was the nature of the housing subsidy being offered by the HDC.  For example, if the HDC sells a home with a market value of $500,000 to an applicant for a price of $325,000, the difference between those two figures is the housing subsidy.  Yes, in this example there is a $175,000 housing subsidy to each of those people who buy those homes from HDC.

The big question is – if the HDC can afford to provide these benefits to applicants in the layer of ‘transitional renters’, what are the levels of subsidy and number of new homes being provided to those in the poorer layers?

If that relationship does not improve to favour those who cannot ever afford to buy, we will be stuck in an increasingly frustrating housing fix.

The housing fix is notable for the inequity with which the country’s scarce resources are allocated and the hopelessness of the poorer applicants.

There are also secondary problems which run very deep and those include the issues highlighted in the Guardian’s story on the abandoned HDC estate.

What is the cost of securing all these virtually complete, but vacant homes?  I am reliably informed that the annual cost of security is of the order of $50M, yet there are still significant episodes of vandalism and squatting.

Additionally, we have to factor in the cost of maintaining and repairing the unoccupied homes.  Empty properties deteriorate at a faster rate and that is a cost to the HDC which could be avoided by putting people to live in these empty homes.

The estimated annual sum of $50M to secure these homes is staggering.  That sum of money could build over 200 badly-needed low-income homes every year.

HDC board
HDC Board

There is a newly-appointed HDC Board and the time is now opportune for a review of this important Welfare State policy.

A critical factor in all this is the role of rent controls, since the long-established rent control boards were allowed to wither on the vine by the last administration.

Rent controls and the planning regime need to form a part of the Housing Policy Review.

There is no right way to do the wrong thing.

The CMMB story

The audited accounts for CMMB for 2006, 2007, 2008 and 2009 were obtained from the SEC.  They allow a view of CMMB’s financial affairs for the 5-year period 2005 to 2009.  I have included some  selected ratios drawn from those accounts.

There has been a challenge to my assertion that CMMB failed, reaching to the stage of my having been requested to provide the Business Guardian with an indemnity against possible legal costs and damages.  I was unable to persuade the Editor to accept my conclusions and agreed alterations to my prior column on this matter.  Regular readers will know that my concern was triggered by reports in the pages of the Business Guardian that some of the key people in CMMB have now opened a new investment house, KSBM.

Since 22nd October 2010 I have been trying to obtain the official Terms of Reference for the Colman Inquiry into this financial fiasco, but those several enquiries were fruitless until the Secretary to the Inquiry faxed me the requested document on the first working day of the New Year.  Thank you. The Terms of Reference were published in the Trinidad and Tobago Gazette of 17th November 2010 – No. 144 in Volume 49.  Here is the first sentence in the second paragraph, for any of those who still have doubts –

…And whereas the President on the advice of the Cabinet has deemed it advisable and for the public welfare that a Commissioner be appointed to enquire into the failure of CL Financial Limited, Colonial Life Insurance Company (Trinidad) Limited, CLICO Investment Bank Limited, British American Insurance Company (Trinidad) Limited, Caribbean Money Market Brokers Limited and the Hindu Credit Union Cooperative Society Limited with a  view to ascertaining why such events occurred…

So there we have it – the President on the advice of the Cabinet – but there is more, if anybody needs more signs of a failure.  The Central Bank issued a Press Release on the day of the Bailout – 30th January 2009.  The first objective stated in that document is  –

  1. To stem the increasingly serious liquidity pressures being faced by the financial services companies within the Group – i.e. CLICO Insurance Company Limited (CLICO), CLICO Investment Bank (CIB), British American Insurance Company Limited (BAICO) and Caribbean Money Market Brokers Limited (CMMB)…

I am not going to spend any more time stating the obvious, but it would be interesting for the other side to give a public opinion on all this. Can anyone seriously claim that CMMB did not fail? Well, I guess we will have to wait and see. The sheer boldfaced attitude of certain people knows no bounds and with the Carnival Season starting-up, anything could play.

In my view, there are substantive issues beyond the obvious failure and those would include –

  1. CMMB’s role in the CL Financial group. In the 5 years I examined, there was a very low rate of profit earned by CMMB.
    Year 2005 2006 2007 2008 2009
    Return on Assets 1.22% 0.97% 0.0015% 0.0043% 0.0094%

    Given the very low profits earned during CMMB’s operations, there are two inescapable questions arising – What is the real reason for the CL Financial group to hold onto this company? and What was in it for them?

    It was certainly useful for the parent company to be able to secure advances of $1.8Bn from CMMB on what were no doubt good terms. So CMMB was a useful subsidiary for CL Financial to be able to draw on when there was the need.

  2. The JMMB (Jamaica Money Market Brokers) element. But then also we need to consider the sidebar item on the acquisition by CL Financial of the JMMB block of shares in October 2008.   What could have been the rationale for CL Financial to spend $262M on securing its ownership of a company that was about to fail?  No doubt that would have been a period of considerable cash-flow pressure within CL Financial itself, so it does seem to be a bizarre decision. Given all of those elements, why would CLF pay such high multiples to buy the remaining shares in a failing subsidiary? This is one of those intrigues which makes me wonder whether there was more in the mortar than the pestle, so to speak. Given that the purchase of the JMMB shareholding was only 3 months before Duprey wrote that fateful letter requesting financial assistance,what was CLF’s rationale?  Could there have been a prior agreement as to the price to be paid for those shares? Was a valuation of those shares ever done? If so, by whom, on what assumptions and with what result?It seems that a huge sum of money (over $260M, by my calculations) was drawn out of the collapsing parent company, on what was virtually the brink of the meltdown, to buy the remaining shares in yet another collapsing company.  It is staggering to conceive of a situation in which a financial company could spend over $260M without such elementary due diligence, which is why this aspect is an important one. At the very least, the quality of judgment of the CL Financial chiefs seems suspect. Could it be that the reporting systems of the group were so poor as to be unable to foresee the impending collapse at either the group or CMMB level?
  3. The First Citizens’ Bank purchase. The FCB price of $1.00 shows the evaporation of CMMB’s shareholders’ capital. The apparent request by FCB’s auditors for a specific confirmation of the State guarantee is important since it is reasonable to assume that PwC, also CL Financial’s auditor, would have been aware of the fragility of the imputed security for those massive advances.
  4. Ramcharan Kalicharan

    Kalicharan’s explanation. The former CMMB Managing Director, Ramcharan Kalicharan gave a version of events in these pages on 16th December 2010? He was trying to contend that the liquidity pressure on CMMB developed as a result of the bailout of the parent company. Of course the fact that they were both in trouble at the same time – hence their being mentioned repeatedly at the time of the bailout – lends the lie to that one.

  5. Leveraging. One of the features of the failed firms elsewhere has been the extent to which they were over-leveraged i.e. the amount of capital they had borrowed greatly outweighed the amount the firm’s owners had invested from their own money. The conventional thinking is that an over-leveraged firm would be likely to act in a more risky fashion if a smaller proportion of the partners’ own money is likely to be lost. Some of the findings of the ongoing global meltdown are causing those formerly settled principles to be re-examined. In the case of the Wall Street firms which were bailed out in the US crisis, the leverage ratios were in the 35 to 40 times range. That means that those firms had borrowed 35 to 40 times more than the capital they had committed out of the shareholders’ funds.
    Year 2005 2006 2007 2008 2009
    Leverage (Gearing ratio) 28.7 20.1 36.4 34.5 240.8

    So, the CMMB gearing ratio exceeded the 20-times range since 2005, with that startling 240-times as at the date of collapse. It seems that CMMB was run far over the ‘redline’ for a substantial period and what is worse, that this steep level of risk was disclosed in their filed audited accounts. Which leads right into the second point, which is, of course, the role of the regulators in all this. To return to the issue I raised in writing about AIC a few months ago, this speaks to the question of the proper role of the regulators of our financial system. Are they to fulfill a virtually clerical function, to ensure that statements and accounts are filed on time and in the correct fashion? Or do they have a more pro-active and forward-looking role and responsibility in identifying firms which may have all their filings in order but, by virtue of their actual behaviour in the market, may be posing serious risks to the entire system?

  6. The medium-term implications for FCB. Finally, when I consider the levels of volatility and the cost of ‘fixing-up’ CMMB for FCB to take it, this,together with FCB’s  exposure to Home Construction Limited (as evidenced in FCB’s 2009 Annual Report in which they disclosed that 9% of their entire loan portfolio (an amount in excess of $1.0BN) had been advanced in a single instrument at favourable rates to Home Construction Limited) would have the combined  effect of the FCB group itself now being significantly exposed, seemingly more so than other banks, to an element of CL Financial risk.

SIDEBAR: Jamaica Money Market Brokers (JMMB)

JMMB and CL Financial established CMMB in 1999. In October 2008, CL Financial purchased JMMB’s 45% share in CMMB at a price of $41.37M USD ($262.7M TTD). That equates to a value for the entire enterprise in the range of $580M and given that CMMB’s Total Profit in 2008 was $35M, that is an earnings multiplier in excess of 16-times. See – http://jamaica-gleaner.com/gleaner/20081015/business/business1.html

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.