CORRECTION: On the issue of interest due on Public Money advanced for the CL Financial bailout
I have been stating that the Public Money advanced for this CL Financial bailout has been interest-free and that was a clear indication of the most-favoured status of the borrowers. With apologies to my readers, I now accept that 4.75% was charged on the first tranche of $5Bn which was lent in 2009, so my prior claim needs to be withdrawn – see comments below. Yes, interest was charged on the bailout monies but at such a paltry rate as to leave my fundamental point undisturbed, as explained below.
The Weighted Average Cost of Capital (WACC) is a metric used to show what is the average cost of the capital raised by a company. It is a vital tool in strategic management and allows the company’s leaders to make effective borrowing decisions. For example, a company which had borrowed half of its capital at 10% and the other half at 14%, would have a WACC of 12%.
If we apply this approach to the CL Financial bailout the answer is instructive. So, we can assume that the total advanced is $25Bn – there are many estimates floating out there, but $25Bn is recurs quite frequently – with only 4.75% being charged on the first $5Bn and no interest on any more of the Public Money advanced to CLF. According to my calculations, given that only 20% of the CLF bailout pays interest at 4.75% and the other 80% is at zero-percent, the WACC is .95%, less than 1% is the interest due from the CL Financial chiefs for this epic loan. I tell you. It really looks like those insurance and investment gurus had it right, eh…party political investment is really the best insurance policy.
Having said that, the two questions arising are still of high importance –
- firstly, why was no interest charged on the rest of the Public Money advanced?
- Secondly, why was the low rate of 4.75% charged on that first tranche?
That rate is significantly less than the mortgage rate at that time, so how and why did a distressed borrower qualify for that kind of favour?
The return of Lawrence Duprey was the Sunday Express lead story on 15th January 2017 – ‘Rebirth of Duprey‘. This is one of those times when one is really sorry that an original suspicion was true.
We seem to be striding straight toward a precipice with no clear information at all about why, or how. The largest-ever special interest deal now seems set to return CL Financial to Lawrence Duprey and his cohort, which will be hugely detrimental to the public interest.
These bailout conditions in no way resemble the Wall St examples, despite the comical claims of its defenders that it was the same thing. There are three important differences –
- the CL shareholders kept their shares;
- the massive loan of over $20 Billion to the Caribbean’s wealthiest individual was made at a zero interest rate, that’s right, zero;
- the CL Financial chiefs were never required to give a public explanation of what caused this massive collapse.
Those terms were agreed by the Cabinet in January 2009. It is a real ‘sweetheart deal’ to assist Mr Duprey and his cohorts to a soft recovery so they could get back control of the companies when things improved. We are now reaping what our rulers sowed, hence the title of this article. Continue reading “CL Financial bailout – Bitter Brew” →