The Leader of the Opposition, Basdeo Panday, recently laid a motion in Parliament seeking for HCU depositors to be granted a ‘bailout’ of the kind given to those who had invested with the failed CL Financial group. On Friday 30th October, the Minister of Finance made a major statement to Parliament, seeking to defend the government’s actions in the cases of these two failed Financial Institutions.

In terms of race, politics and finance, that statement by the Minister deserves our most sober consideration.

Before going further I need to make two things clear – firstly, I am not intervening on behalf of Mr. Harry Harnarine or the HCU. I am not a supporter of that cause. Not at all. Secondly, I do not support the bailout of either group – CL Financial or HCU. The idea that State resources should be deployed to assist investors who have lost money is a dangerous one. As a matter of principle, the concept of moral hazard has real weight in economic behaviour. The idea that investors should be rescued without paying the consequences of their choices is inimical to proper development. That general principle has been done violence by the CL Financial bailout.

As I have stated in my previous articles on this bailout, the record of the government in terms of separating the interests of depositors, policy-holders and shareholders is turbid.

The Minister’s rationale was set out in two limbs – the first being that the HCU dealings were not straightforward – indeed, one newspaper carried the headline ‘Devious HCU’– and secondly, that the CL Financial dealings were marked by “…tangible co-operation…”. This bailout is an extremely serious act being carried out by the government in breach of fundamental principle and we deserve nothing but the truth.

There are deep contradictions on every single point cited by the Minister to support the actions taken.

Here is what the Minister is reported to have said, together with the contradictions –

1. Ample collateral – The Minister is reported to have said that HCU failed to offer ample collateral to the State. The Central Bank Governor is reported to have said, on 7th April, that all of CL Financial’s assets were otherwise committed – This was reported at http://guardian.co.tt/business/business/2009/04/08/govt-left-empty-handed-cl-financial-bailout.
2. The Ernst & Young report – The Minister is also quoted as saying that “The auditors’ assessment was that the Hindu Credit Union was facing not a liquidity problem, but a solvency problem and all its assets were overestimated in value and encumbered.” As a rationale for the government’s actions, that is completely at odds with the 7th April statement of the Central Bank Governor. In fact we were told that the CL Financial group and various of its parts were being examined by Ernst & Young, KPMG and Bob Lindquist, the renowned forensic accountants. To date, no results of those accountants’ work have been released. We are being told that the CL Financial chiefs showed “…tangible co-operation…” in their dealings, so where are the audits? Why has the 2008 audit of the CL Financial group by PriceWaterhouseCoopers not been published?
3. “…What is the Government to do? You dealing with…the major players, and they are not levelling with you…” That was the Minister’s statement about HCU, made in apparent exasperation. As I wrote in my column ‘Who is Who and What is What’ published here on 30th April – “At the beginning of this process we were led to believe that CL Financial was being pro-active and cooperative in their dealings with the State. Indeed the Governor even made this point directly in his prepared remarks at the 30th January press conference “…I would like to acknowledge the high level of cooperation that we have received from Mr. Duprey…” Since then CLF has now been exposed as paying dividends after requesting the State bailout, challenging the injunction obtained by the State over their assets with a powerful legal team and, to top it all, pledging the same assets twice. The Governor spoke on 23rd April – ‘If you ask me whether CL Financial did everything that was honourable and beyond reproach, the answer is no! The answer is no!’”

Obviously, some one of the major players is not levelling with us.

The Business Guardian editorial of 15^th October raised the topical question as to ‘Will Lee Chin avoid Duprey’s fate?‘  http://guardian.co.tt/business/business-guardian/2009/10/15/will-lee-chin-avoid-duprey-s-fate

Of course, one interesting feature of this entire affair is the fact that these two groups were headed by Black Caribbean men.  That is exceptional, as a matter of fact and it required a serious break from our past to develop the required levels of investor confidence.

But the differences are even more interesting than the similarities – for example, it seems that AIC Finance has declared the true position and alerted its stakeholders properly as to its exit strategy.

The characterisation of this situation as being ‘Duprey’s fate’ made me smile.  Quite frankly, that phrase seemed to be a device to create some public sympathy for Duprey when the facts are of another type altogether.

If the terms of the CL Financial bailout are examined, they are truly remarkable, even by our declining national standards.  The principal terms are –

1. Amount – The amount of public money to be advanced is unspecified. Despite various official statements, this did not form part of the first MoU.  The press release on the second MoU of 12^th June 2009 was also silent as to the amount of money to be advanced in this CL Financial bailout.
2. Collateral – The original MoU specified that certain assets were to be disposed of to repay the funds advanced from the Treasury.  That position was soon overtaken by reality when the Central Bank Governor announced on 7^th April that all of CL Financial’s assets were already pledged – http://guardian.co.tt/business/business/2009/04/08/govt-left-empty-handed-cl-financial-bailout. The second MoU and recent statements by Mariano Browne, Minister in the Ministry of Finance, make it clear that no fire sale of assets will be undertaken.  To quote the Minister, speaking on 15th October – “One needs to be judicious in terms of the managing of the assets at CL Financial Group, given the depressed state of the market both here and internationally. There is certainly no intentions (sic) of selling the assets. The position is to manage them and manage them well” http://guardian.co.tt/business/business/2009/10/16/browne-no-plans-govt-increase-shares-rbl.  If we are to believe the Central Bank Governor and the Minister, there being no good reason to doubt either one, it seems that these advances are taking place without security.
3. Interest rate – The first MoU and the press release on the second MoU are both silent as to the interest rate charged.
4. Payback period – There is no stated period for repayment of the public funds advanced.  There have been recent announcements as to the government taking over management of the CL Financial group for 3 years.
5. What fate? – Having arranged an urgent package of rescue financing on those terms, it seems that the shareholders of CL Financial have not had their equity position diluted and further, that Mr. Duprey has been allowed to keep all his personal assets. That is Duprey’s fate.

That summary is the best I can give, based on the limited information available to me.  If it is an accurate one, the CL Financial bailout is tantamount to a huge injection of public funds to bolster the private interests of only 325 shareholders, the main one being Lawrence Duprey.

That is a real shame, given the state of our nation’s finances.   The greater pity is that this is all taking place without proper public accountability or transparency.  So far the Minister of Finance has not replied to my various attempts to get further information on these matters.  But how much blame can we place on our rulers?

Our society is shaped by our collective aspirations, attitudes and actions.  But the notion of collective values is an increasingly doubtful one in this arena.  Insofar as the national economy is concerned, do we actually possess collective values and if so, who can say with certainty what those are?  More and more, it seems that the real question is ‘Whose values will prevail as we go forward’?  The progressive people in the society have a duty to make their voices heard, if we are to have a chance of influencing others.  If we influence others to improve standards, then that is a positive move towards the inescapable future.

This CL Financial fiasco has been marked by the silence of the responsible people in the society.  The nation seems to have been so heavily invested in the CL Financial group that the bailout was greeted with widespread relief.  So much relief, that we seem to have taken our critical eyes ‘off the ball’.  On 19th October I wrote an Open letter to the Institute of Chartered Accountants of Trinidad & Tobago (ICATT) to seek their involvement in calling for greater transparency and accountability in this entire bailout.  That letter can be found at www.afraraymond.com.  The week 19^th to 23^rd October was Accountants’ Week.  The President of the ICATT, Anthony Pierre, writing to open that Week, stated that ‘We have the opportunity to raise the bar on new standards in corporate governance, accounting, auditing and ethics” and “We do so mindful of our continued responsibility to contribute to the further development of our people, our institutions and our country”.

I also intend to seek the involvement of other civic society organizations in promoting the calls for greater transparency and accountability in this entire bailout process.

Afra Raymond

This series on the CL Financial bailout can be viewed or readers’ comments made at www.afraraymond.com.

This week the meaning of Emancipation is considered alongside the CL Financial fiasco.  It is a painful, but necessary, task.  Those of us concerned to commemorate the Emancipation of African people from slavery must have the courage and clarity to reflect on our past, both the distant and the recent.  In reflection we can find direction and perhaps, the beginning of a solution.

How, if at all, is the CL Financial fiasco connected with the story of Emancipation?  I deliberately use the word ‘story’ since it is clear that there are many versions of this period in our history.  I say ‘our history’ because, whatever the race of today’s readers, the Emancipation journey is of vital concern to the progress of humanity.

There were notable and honourable African leaders who put up strong resistance to the efforts by Europeans to enslave their people.  But the sad and inescapable fact is that there were others who thought of the process differently.  It is a painful matter to discuss, but the fact is that some African rulers collaborated with the European slave-traders to capture and sell their people.  Not all, but enough to make the difference.  Without getting into the entire history, which is way beyond the scope of this column, the actions of that group of rulers were enough to ensure the success of the entire monstrous project.  The Atlantic slave-trade shaped large elements of today’s world and we have been trying to build a new one ever since.  Yes, an immoral and greedy group of rulers put a greater value on their personal enrichment than the well-being of those they were entrusted to lead.

The entire society paid the price for the selfish ambitions of these rulers.

One of the most striking things about the CL Financial fiasco is that Lawrence Duprey is one of us, an indigenous Caribbean man. Yes, a black man, with African blood flowing through his veins and that is something that has not formed part of our public discussion so far.  One of the strangest features of these times is how, despite the over-supply of media, critical issues are not discussed.  When one considers that the vast majority of the population of the region comes from an African background, it is striking that Lawrence Duprey is the only such tycoon in the region with his level of profile.  But wait, I almost forgot that there is another one.  Yes, I am speaking about Michael Lee Chin.

Whichever way you slice it, this is extremely telling and as a result Duprey carried a peculiar set of expectations.  Because of his unique profile as a black man, the fact is that Lawrence Duprey was the recipient of widespread admiration, envy and wonder.  That is our society and that is one of the ways we deal with its ugly realities.

To go further, the leading people in the CL Financial team were also black.  Yes, most of the CL Financial team have African blood flowing in their veins.  Yes, by now I can hear some readers saying things like – ‘But X or Y doesn’t think that they are Black’ or ‘So what?’ or ‘Exactly what is your point?’.  That kind of skepticism is expected when one discusses this kind of issue.  In fact it is my view that the underlying attitude is the very problem.

At the same time, let us note that the regulators are themselves black people.  Yes, the picture I am painting is that the main players are virtually all black people – the Cabinet, the Central Bank and the CL Financial/CLICO chiefs.

We African people have come from far, both metaphorically and physically.  We now find ourselves in a sorry place with this CL Financial fiasco.  We have a particular responsibility to do better this time around.  There is no escaping that fact.

CLICO was built around the ideal, by its founder Cyril Duprey (Lawrence’s cousin) that ‘Give a man service, give a man value and he will give you more business’.  Simple, but strong, those were the foundation stones of CLICO.  Truth prevailed and with hard work the company prospered.  CLICO developed unprecedented levels of investor confidence, as a black company (indigenous) in which one could have faith.  Given our history as African people, that level of investor confidence is no small or incidental thing.  It could only have been the result of solid vision and diligent long-term application, to name just two of the qualities of the founder.

CL Financial was established as a holding company and rapid diversification followed, with investments in a number of areas unrelated to conventional insurance business.    As a result of its success, CLICO was able to provide most of the cash to pay for the group’s unorthodox expansion.

At that stage, the activities of the group shifted to reflect the new ambitions of its new chiefs, most notably its Executive Chairman, Lawrence Duprey.  Those activities ultimately undermined the stability and health of the whole.

The Emancipation story has many lessons, but the central one, from my point of view, is that many of our rulers lost sight of the balance between private wealth/privilege and the public good.  Are we doing better now?  For us, in this Emancipation week, it is useful to consider the extent to which we have learnt from our past.

The actual behaviour of the CL Financial chiefs and the group’s shareholders in this moment is instructive.  At every turn, the public good has been shafted in favour of private wealth.  From the payment of dividends while CLICO’s Statutory Fund was in deficit to the payment of dividends to CL Financial shareholders after they wrote for urgent financial assistance from the State.  The pledging of assets which had already been pledged and the attempted sale of assets contrary to the original MoU.  The shocking statement of CLICO’s new boss that $5.0Bn was missing from its Statutory Fund and the utter silence subsequently as to its whereabouts.

All this shocking behaviour and no sign of any reprimand, charge or censure from our rulers.  Instead, we are told that our entire Treasury has been pledged to assist savers and restore shareholder value.  Trinidad & Tobago is a land of many firsts, but this is a tragic one.

How did we get to the point of pledging our common wealth to restoring value to a few privileged people who are showing no proper regard for the public good?

Do we have the moral fibre to recognize what has gone wrong in our past and behave differently?

This week’s title is as deliberate as it is appropriate.  The focus last week was on certain aspects of the 12^th June agreement with CL Financial to show the fundamental shift from the original MoU of 30^th January.

This week, it is time to focus on the parties to the new agreement and the way in which they are dealing with each other.  The differences in treatment are plain and pregnant.

CL Financial are said to have secured the support of about 66% of its shareholders in relation to that agreement.  CL Financial published a Notice to Shareholders of a meeting to be held on 30^th June to seek the approval of 75% of the shareholders to the 12^th June agreement with the State to appoint a new Board with the mandate described in last week’s column.  The shareholders were to be offered an opportunity to read the agreement and make up their minds as to whether they would vote in support of it.

There was a subsequent Notice to Shareholders which stated that the Board had decided to defer the voting-meeting to respond to certain concerns which had been put to them by shareholders: the shareholders were still invited to attend on the 30^th to read and consider the agreement.  It was reported in this paper that a shareholder had written to the CL Financial group finance director, Michael Carballo, to make certain demands in return for his vote in support of the agreement.  There are also other reports of a block of shareholders, led by a Duprey family member, making demands before their support could be assured.

As I write, there is no word as to when CL Financial will be holding the decisive meeting to solicit shareholders votes on the new agreement.

Some serious questions now arise and these would include –

• The rationale – As outlined last week, the new agreement marks a significant shift from the goals and terms of the original MoU.  What is missing here is the rationale behind the shift in strategy.  It is not to say that there can be no grounds for changing the terms of agreement in the course of large-scale and complex situations, but rather, that there ought to be a cogent rationale for such a drastic shift.  What is the reason to move from a scenario of support with consequent liquidation of assets to match the cost to the Treasury, to one of restoring asset value?  Are we being told, in not so many words, that the assets of CL Financial are in fact insufficient to meet its liabilities?  Is it fair, in all the circumstances, for the public to make that assumption?

• The new audits – Some time ago, we were informed by the Minister of Finance that audits were being performed on the CL Financial group by Ernst & Young and KPMG.  There have also been several reports that the renowned forensic accountant, Bob Lindquist, was engaged to audit CLICO.  Where are the audit reports of those firms?  Surely, by now the Minister of Finance and the Central Bank would have had those interim audit reports.

• The New Agreement – Are we to take it that the new agreement is an irrevocable commitment by the State?  Do CL Financial’s shareholders possess the sole right to veto?

• Lack of Public information – The new agreement remains invisible to the public and there is no word as to when it is to be published.  Given that we taxpayers are to pay for this entire operation, it seems highly unsatisfactory to me that we are not yet in a position to evaluate the agreement.

• The question of scale – The newly-reappointed AG is reported to have said that he is concerned over how our country will deal with a $97Bn commercial enterprise in the context of a $150Bn national economy.  What is the true nature and extent of the commitment we have now entered?

• The character of the parties – As explained last week there are legitimate, sobering concerns over the conduct of and relationships between the parties to this huge agreement.  The conduct of CL Financial’s chiefs and the shareholding in that group by the Minister of Finance would give any reasonable person cause to pause.  The huge donations made by CL Financial to the ruling PNM is yet another reason to frown.  The treatment being enjoyed by the CL Financial shareholders at this point, having been paid dividends from a group which would seem to have been essentially insolvent, to now being invited to consider the new agreement, is vexatious.  Hence the title of this week’s column.

Where is the taxpayer in this huge, long-term and expensive set-up?  I am, once again, demanding that we, the public, be given the information necessary to support the new agreement.  This is a glaring case of democratic deficit, in which our elected rulers feel free to enter onerous agreements without affording us the basic information which company law would demand on behalf of shareholders.  There is little doubt that the new agreement will impose heavy burdens on our economy and widespread support will be essential to preserving the investor confidence and legitimacy which is at the heart of this unprecedented mission.  There is no better way to start winning that support than to start sharing information with the public in the same fashion as enjoyed by the CL Financial shareholders.  We do not want a party with General Admission having the worst view and only the VIPs enjoying the best view…especially when we in General Admission are paying the price of the whole party.  Not so.