This is the official copy of CL Financial’s Annual Return from the Companies Registry, as at 17th February 2009 – it bears the official stamps and is signed by CLF’s then Corporate Secretary, Gita Sakal.
The company had a paid-up capital of $7.5M, with that number of $1.00 shares in issue.
The 325 shareholders are listed alphabetically, as at 7th September 2008, with details of their occupations and addresses also supplied. Of course, that list shows, at #289, the then Minister of Finance – Karen Nunez-Tesheira – as Karen Tesheira, Attorney-at-Law – holding some 10,410 shares.
Another thing that is striking is that Lawrence Duprey would appear to have only three blocks of shares in his ownership –
#47 – CL Duprey Investment Trust – holding 1,634,335 shares, but we are unable to find the details on that company.
#78 – DALCO Capital Management Company Limited of #37 Frederick Street, POS – holding 1,947,833 shares. I am assuming that DALCO is a play on his initials – Lawrence Andre Duprey LAD, reversed.
I am taking that to mean that Lawrence Duprey had under his direct control a maximum of 3,701,313 shares – i.e. 49.35% of the group’s entire shareholding…slightly less than half.
I am leaving it to the better-informed readers to help fill in the gaps in this story.
As to Andre Monteil, the recently-retired Group Finance Director, his 337,269 shares were transferred from Stone Street Capital Limited to First Street Capital Limited on 31st March 2008, the date he retired from the CLF group. Both companies’ registered address is the same – 33b Perseverance Road, Haleland Park, Maraval.
Afra Raymond’s submission seeking to be made a party 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.
I have been conducting a campaign in the public interest on this important matter. My work is unfunded and I have no assistance. Indeed, I have no legal adviser at this Enquiry.
Having followed the issue so closely and attended the opening session on Friday 11th March, I am of the view that the parties thus far identified in this Enquiry are all seeking to advance their own interest.
I am here seeking to be made a party to this Enquiry, in seeking the interest of the silent majority, the taxpaying public, who have had to pay for this huge financial fiasco.
I am making this submission under rule 2. of the Commission’s Rules of Procedure, as a person whose “…participation in the Enquiry may be helpful to the Commission in fulfilling its mandate…”
I await your reply.
——————————-
Afra M. Raymond B.Sc. FRICS
Port-of-Spain
Afra Raymond sits with hosts, Fazeer Mohammed and Felipe Nogueira on the Morning Edition television show to discuss the code of silence surrounding the CLICO bailout. Video courtesy TV6
The Code of Silence has formed the subject of several columns in this series.
I am referring to the unwritten agreement amongst the leadership group in our society to maintain silence in matters of white-collar crime. The guiding principle of the Code being that the members of that group must never be exposed to the same scrutiny and penalties as the common criminal.
That Code of Silence is poisonous to the progressive development of our society. Unless we can bury the notion that white-collar crime pays, our society is doomed to lurch from crisis to crisis. White-collar crime will never be truly challenged until the Code of Silence is tested to destruction. I welcome anything which would dismantle the Code of Silence. Literally anything.
The Commission of Enquiry into the various financial collapses which have beset us – Clico, British-American, Clico Investment Bank, Caribbean Money Market Brokers, the CL Financial group and the Hindu Credit Union – was announced by the Prime Minister in her 1st October address to Parliament.
On 17th November, Sir Anthony Colman QC was sworn in as the new sole Commissioner – he replaced the original choice – Sir Gavin Lightman QC, who had an apparent conflict of interest. The Secretary to the Colman Commission is Judith Gonsalves, who served the Uff Commission in that role. It is reported that Colman intends to hold open hearings and that those should start sometime in this month.
So, we are seeing three powerful channels emerging –
CIB winding-up action – ongoing litigation from National Insurance Board and National Gas Company to stop the Central Bank’s winding-up action. Those court actions have been set for hearing in April and the sum of money at stake is an estimated $1.8Bn.
Policyholders challenges – The various policyholders’ groups have now declared their intention to take legal action to recover the monies they feel are owed to them. The sum of money at stake in that series of actions is estimated to be $12Bn.
The Colman Enquiry – This is an overall, public investigation into the causes of the large-scale financial collapse as listed above. Given the continuing failure to produce the accounts, the total sums of money involved are unknown.
So, what is the likely effect of these lawsuits and the oncoming Colman Commission of Enquiry on the entrenched Code of Silence in our society?
To begin with, I expect a series of legal challenges to the very hearings of the Commission, with the likely grounds being the long-established principle that no person should suffer ‘double jeopardy’, in terms of two sets of charges to be answered. It will be an attempt to completely derail the entire Commission of Enquiry.
I would not be very surprised if certain state agencies also sought to shut the enquiry down. That would be a repeat of the unprecedented recent situation in which UDeCOTT went to court to challenge the Uff Commission.
The beneficiaries of the Code of Silence will make great efforts to avoid any deep examination of its members and the public needs to be alert to this point. There is absolutely no shame in that group and we should also prepare ourselves mentally for the ‘memory loss’ defence of the kind we saw from Hafeez Karamath in the recent Uff Commission.
After generations of operating unexamined, the very bowels of the society’s leaders are about to be opened up to a disgusted and skeptical public. The motivations, links and payoffs between these leaders are to be exposed to view. The exposure is going to be critical. Given the speed with which our legal system operates, the exposure is likely to be lengthy. Given the range of active media in our society, the details are going to be all over the place.
So, what is at stake here? What else can we expect, apart from legal challenges?
To begin with, I believe that the sums of money involved are several times more than in the Uff Commission. In addition, the slowing economy and the pattern of behaviour have set the public into a very critical mood.
In my view, these are some of the people we would see publicly cross-examined in the Commission of Enquiry and various lawsuits –
Lawrence Duprey
Most important of all, the Chief of Chiefs, Lawrence Duprey – Will he or won’t he show up for the many hearings? What can we expect to hear? Can Duprey offer an explanation for the shocking discrepancy between the $100BN+ asset valuation as at the end of 2007 and the $23.9Bn asset value he specified in his letter of 13th January 2009 to Ewart Williams? A mere 56 days separate the publication of those 2007 accounts – on 18th November 2008 – from Duprey’s letter, which has been hidden from view, despite my two Freedom of Information applications. The only reason we have some idea of this discrepancy – no…that is the wrong word, maybe staggering decline is better – is the anxiety of the then Minister of Finance to clear her name from allegations of Insider Dealing. That anxiety led the Minister to read this letter into Hansard on 4th February 2009.
Andre Monteil
Second most important of all, the Chair of Chairs, Andre Monteil – Monteil is now in retirement as a farmer and his testimony is surely one of the most awaited in recent times. As former PNM Treasurer, CL Financial Group Finance Director, Chairman of Education Facilities Company, National Housing Authority, then Housing Development Corporation and Clico Investment Bank, it is difficult to imagine a player who was more central. It is almost like a spy movie called ‘The Man who knew Too Much’.
Patrick Manning
Patrick Manning – When one considers the huge donations reportedly made by CL Financial to the PNM and the tangled web of this entire affair, it is difficult to see how Manning can escape serious, hard questions on many aspects. For instance, his 2002 decision to stop enquiries into HCU by then Minister in the Ministry of Finance, Conrad Enill, will surely be open to question. Manning’s recent bizarre behaviour might well be the beginnings of a defence. We will see.
Karen Nunez- Tesheira
Karen Nunez-Teshiera – The Minister of Finance who had to go to Parliament twice to attempt to clear her name in this matter. Firstly, from allegations that she withdrew her money from CIB early, having had inside information. Secondly, from allegations that as a CL Financial shareholder, she was biased in her dealings with the bailout, having failed to recuse herself from the discussions. Not one person I know, even blindly-loyal PNM-ites, is willing to openly defend the behaviour of Nunez-Teshiera. Not one. Imagine that. I think the phrase is “…A jury of one’s peers…” I wonder whether her Cabinet colleagues knew that the Minister was a shareholder? We won’t have to wait long.
Carl Hiralal
The Regulators – from both the Supervisor of Insurance, and the Inspector of Financial Institutions, Carl Hiralal. Just imagine the Supervisor explaining how Clico kept its licence all those years its statutory fund in serious shortfall. Or the Inspector justifying how CIB can fail to file its tax return and yet keep its licence. Mr. Hiralal must be considering his position most carefully at this point.
Ewart Williams
Central Bank Governor – Imagine Ewart Williams reconciling his several statements on Clico being a problem case since 2004, with his having two fixed deposits at CIB. Williams must also be having a few reflective moments.
The Directors – What is to be the position of the Directors of these failed companies? According to an affidavits filed in the Central Bank’s winding-up action, CIB made an undocumented loan with no interest rate or repayment period agreed. That loan was in the sum of $162M USD – yes, about $1.03Bn of depositors’ funds were lent to Angostura (a related party) with no documentation. It would be interesting to hear the Directors explain the degree to which that sort of advance is compatible with their fiduciary duty. It is important to note that the phrase fiduciary duty in this case refers to the obligation of those CIB Directors to act with the depositors’ interest as their first priority. But remember that CIB was wholly-owned by CL Financial. So, can one properly reconcile the fiduciary duties owed to depositors with those owed to the sole shareholder? It is a veritable conflict to be loaning depositors’ monies to the main shareholder, but that is why the loan agreements and credit committees exist. So as to provide safeguards against incautious loans, which can jeopardise depositors’ funds, so as to ultimately destabilize the bank itself, as in this case. There was no agreement. None at all. For a loan exceeding one billion dollars. All of the safeguards to balance the several duties of the prudent Director seem to have been ignored in this situation. Just imagine the Chairman who presided over the meeting of CIB’s Board which approved that loan, answering a series of critical questions, explaining just what they were doing dispensing with depositors’ funds in that loose fashion. I can scarcely wait.
The Auditors – The various PWC professionals who prepared and signed those audits. Will we see the release of the hidden accounts? How much longer can they remain concealed? There must be some quiet desperation creeping into Balisier House and PWC, just edging forward, along Victoria Avenue.
Robert Mayers
Robert Mayers – When he retired on 7th December 2008, did he or did he not know that Caribbean Money Market Brokers (CMMB) was heading for a financial collapse? Of course, we now know from the official statements that CMMB collapsed a mere 7 weeks after Mayers left office as its Managing Director. So, which is it to be? Is it that the collapse came like a bolt of lightening from a clear blue sky? Were there any warning signs? Do CMMB’s accounts give any clues?
Dr. Bhoendradatt Tewarie
Dr. Bhoendradatt Tewarie – He is former principal of UWI’s St. Augustine campus and now heads UWI’s Institute for Critical Thinking. Dr. Tewarie was a Board Director of the parent company, CL Financial, at the time of the collapse. Was he aware of Duprey’s letter to the Central Bank Governor, a mere 3 days before that Board authorized payment of a dividend to CL Financial’s shareholders?
The same characters and many of the same questions are in the HCU part of the story.
The members of that Code of Silence are probably considering how best to escape the consequences of their actions and inactions. It will be a truly unique Christmas season for some of them. There are probably not enough lawyers in the country to handle this tidal-wave of legal actions.
The stakes are huge and the burning question for me is – Can this be the first time that prominent people go to jail? Serious sentencing? Will any stolen monies be recovered?
Can the Code of Silence survive this challenge?
The Code of Silence must be destroyed if we are to progress.
We are now entering a bizarre endgame in this rounds of musical chairs. The children’s game has returned for us adults, but with a vengeance.
As I wrote on 10th September in this space, the real question is ‘When exactly did the CL Financial group collapse?’.
To understand this huge matter we need to put things in the correct order –
Firstly, the CL Financial chiefs left others holding the risks. Some dates and names, to support the theory –
L.A. Monteil – retired at the end of March 2008
M.A. Fifi – retired in August 2008
Robert Mayers – retired in December 2008.
What did they know and when did they know it?
Secondly, there was a series of large-scale, rapid withdrawals of funds which preceded the start of the bailout. That pattern of activity would have speeded-up the collapse. It would be very interesting to see details of who broke their deposits and failed to ‘roll-over’ in that crucial final stage.
Thirdly, post-January 2009, we have the massive payout of State funds, as detailed in the Guardian editorial of 25th October. Who was the recipient of those funds? Who benefited? On 1st October, the Prime Minister promised to publish that list and we await with interest.
Now, with the PP government taking the decision to review the bailout process, we have entered a truly bizarre stage of this matter. This is the part where all those trusting people who were told to wait and have faith, are realizing that the people in the know have already withdrawn and secured themselves. Some of those people in the know were the same ones who were telling the faithful to keep on waiting. What a thing.
There now appear to be at least four groups representing these investors –
The Clico Policyholders’ Group (CPG) – which is the most visible one with Peter Permell, Manny Lawrence and Norris Gomez etc.
The Clico Policyholders’ Protection Association (CPPA), which is the one with Harold Sookhan and Ramesh Lawrence Maharaj.
South Action Group – with Solomon Hem Lee
Denbow Group – a small number of Clico investors who are being represented by Dr. Claude Denbow SC.
Some of the positions being taken by the various groups are indicative of the degree of desperation of the parties, hence the title of this article. The general view emerging from these groups seems to be that the CL Financial group is basically healthy and profitable, so there should be no issue about returning their investment.
I do not know what those views are based on and it is impractical to continue basing our discussions on the series of rumours and draft reports and suchlike. We need good quality information to make a quality decision and that is not negotiable. We need to insist on that as a minimum.
After the first round of organizing and attorneys’ letters, followed by the Prime Minister’s important address on 1st October, we are now into what appears to be an even stranger place.
Two of the stranger proposals emerging from the CPG’s Port-of-Spain meeting on 24th October were –
Prem Beharry of the CPG was reported in the Trinidad Guardian to have said – “…Ryan ALM are saying they would take US$600 million and would convert it to the best debt instrument in the world which is US Treasury Bills,” Beharry said. “The Ryan ALM group is saying, within three months if they are engaged, they would be able to sell those bonds and get in cash of US$1.8 billion which is equal to the debt of TT$10.5 billion—that money would be used to pay all the policyholders…” That is literally too good to be true. It is the same approach that created this mess in the first place – both at the CL Financial group and Hindu Credit Union. It seemed to me that the CPG was recommending that the government put $600M USD of our taxpayers’ money into this scheme. Yes, I said scheme. Maybe if it was really so good they should have just accepted the discounted rates being offered in the budget and invested those funds with Ryan ALM. After one time is really two times, yes. I recently read that one Prem Beharry was appointed to the National Gas Company Board.
Another proposal, this one reportedly stated by Peter Permell, the CPG’s most prominent spokesperson was for the state to pay 40% immediately with the balance being payable in 5 to 7 years. The persons waiting for delayed payments would earn interest of 4-4.5% on those unpaid balances and also be entitled to a 51% share of any uplift in the value of sold assets. No, there was no proposal for those CPG members to share in any losses if assets had declined in value.
It may all just be a series of negotiating positions, but it seems pretty clear that no one from these various investors’ groups intends to take a discount or ‘haircut’ on the monies owed to them. The unstated assumption is that if someone has to stand the bounce or take a haircut, that someone must be the taxpayer. That could never be the correct position. So, we need the facts.
The most startling development is the Central Bank’s full page adverts on Thursday 28th October, repudiating the claims that it had offered any guarantees in this situation. The reaction was immediate, with the CPPA publishing large adverts in opposition the next day and a new anti-bailout group emerging for the first time – at last! The CPG’s response was a nadir in their campaign, with the Trinidad Guardian reporting that – “…Permell went on to say that they do not care where the Central Bank gets the money from once they guarantee the policyholders’ contracts…” – I could scarcely believe what was on the page before me. Even the most militant Trade Unionists use more reasonable language.
Which brings us right to the meat of the matter, the order of things. What is the reason that the investors’ groups are now at the front of the line for assistance from this government? I could be wrong, but it is easy to get that impression when one hears of Cabinet discussing the matter twice in one week, certain groups giving threatening timetables and so on. I do not know if our Cabinet – PNM, UNC or PP – has ever given such a total priority to any matter in the past.
There are other claims on the limited monies available to the State. All of those claims existed before these investors groups. All.
Many people have poor water supply. Outstanding payments to contractors and suppliers are in excess of $7.0Bn, according to Central Bank estimates. Insufficient money for OPVs – the estimated cost of $3.0Bn is too much for the country to bear, so national security is falling behind. More guns and drugs entering our homeland. Public Servants claims are about $3Bn and that is also a strain on the Treasury. Not enough police cars. Sad situation in the public hospitals.
The CPG issued a 2 page advert in the Guardian on Thursday 4th November and it deserves careful reading. It was good to see their call for the publication of the correct financial information before making a decision. They set out their proposals for the relief of CPG members – those are the latter of the two above, with the added condition that they be given two seats on the boards of CL Financial and Clico.
The CPG claims that its proposals place no additional burden on the taxpayers, which is a good thing, if that is truly so. The CPG’s proposals are silent as to how the monies already spent are to be recovered.
The real test will be if the accounts and asset valuations reveal the group to be insolvent. Will the various investors’ groups accept that or are we in for a long, bitter fight?
SIDEBAR: The Commission of Enquiry
The Attorney General recently announced that he had withdrawn Sir Gavin Lightman QC as the sole Commissioner, due to an apparent conflict of interest. Lightman had appeared for Clico in a 1991 court case and the PNM did well to have stopped this before it went too far.
Two important further points, though –
Firstly, this is the second such occasion. In the first case, the Commission of Enquiry into 1990 was announced with retired Appeal Court Judge Mustapha Ibrahim as its chair, until he pointed out that he too had a conflict of interest. There needs to be some more care taken on this count.
Secondly, the terms of reference need to be qualified, since the AG was reported to have said that “…The COI, he said, covers CL Financial, Colonial Life Insurance Company (Clico), Clico Investment Bank, British American Insurance Company and the HCU…” Having been frustrated in my efforts for the past fortnight to get confirmation of the Terms of Reference from the AG’s Ministry, I am forced to rely on press reports. Question being, why is CMMB being omitted?
Code of Silence was an article in two parts – the first dealing with the agents and effects of that Code and the second dealing with the unfolding case of AIC.
As usual, I sent the article to my main blogging-collaborator Barbados Free Press (BFP) who split it apart into those halves. Maybe they felt that the bond default by AIC Barbados in the second half deserved a separate focus for their readers – who knows?
Amidst the raging debate on the rights of the disappointed depositors versus those of the anxious taxpayer, I am continuing to examine some more of the fundamental issues. Yes, I accept that there are depositors amongst the taxpayers, but those interests are not in alignment, hence the discussion.
By making a legislative proposal to frustrate the CLICO Policyholders Group (CPG) litigation, the government seemed to have conceded the merit of the protestors’ case. Those proposals have now been withdrawn and on Friday 1st October, the Prime Minister gave an extensive reply to the CPG. The strategic decision seems to have been to retreat from the narrow corridors of legality and strive for the broad perspectives of the entire nation. The apparent decision is to favour an act of persuasion over one of sheer power. Given our norms of governance in these parts, that is no small shift and it is a welcome sign, quite apart from my agreeing with the stance taken.
Most importantly, the Prime Minister announced a Commission of Enquiry into the collapse of both CL Financial and Hindu Credit Union (HCU).
Once again, I am going to refrain from discussing the legal issues, despite the tempting developments in this aspect of the matter. I am going to keep deepening this discourse so that we can have a better quality of discussion
What was the EFPA?
Firstly, it is necessary to spend a little time on the true nature of the Executive Flexible Premium Annuity (EFPA), since that product is what the majority of this dispute is about. The product was approved for marketing by the Supervisor of Insurance in 1990.
An annuity is an investment product for an individual, to save for a specified future expense by means of periodic payments. CLICO had an approval for a Flexible Premium Annuities, which was attractive to those people who had fluctuating incomes, but soon led to the sale of Single Premium Annuities. Those are investments in which the investor pays a single premium and receives the benefits after CLICO had held the funds for a short term.
So the single premium can be viewed as a deposit, which is what many of the agents called it. While the annuity, traditionally a long-term investment product, then assumed a norm in which most EFPAs were held for 5 years or less.
In saying so, it is interesting to consider the question of just how an organisation can purchase an annuity, which is an investment product for an individual. The fact that so many organisations did so, does damage to the notion that this EFPA was sold in conformity with its true nature.
So, in summary we have an approved annuity, which is mainly sold as a single-premium, short-term, high-interest investment product to anyone who wants one, including Credit Unions, private companies – several CLICO agents tried, repeatedly, to get deposits from our firm – and State-owned corporations. At some point that annuity morphed, by this series of changes, which seem, to me at least, to have fundamentally altered the character of the approved instrument
All of which returns to the basic accounting principle that when one is trying to interpret a situation such as this, the correct procedure is to be guided by the substance rather than the form of the transaction. That is the background to my assertion that the correct interpretation of the EFPA is as a deposit.
When you consider the very high interest rates offered and the unique way that CLICO altered the EFPA, one has to wonder how the regulator viewed these activities. But more on the regulators later.
What did CLICO become?
Even beyond the changes which the EFPA underwent in the hands of CLICO, the reverse was also to take place. That happened because CLICO changed the EFPA to suit the strategy of its parent company, CL Financial, but the parent group (and ultimately CLICO) in the end were irreversibly changed and then destroyed by the EFPA’s success. Let me explain –
In our system, there are 3 species of financial institution –
Banks and other Financial Institutions (approved as Deposit-taking Institutions by the Deposit Insurance Corporation);
Insurance Companies and
Credit Unions.
CLICO’s liabilities, as stated by the Finance Minister, were $6Bn to traditional insurance policyholders and $12Bn to depositors. The question being, given that two-thirds of their liabilities are non-insurance, how could it be legitimate to consider CLICO an insurance company? More to the point and looking forward, where does a company like CLICO fit into our regulatory framework? That is an important aspect for us to consider for the future of our financial services market.
What were the Regulators doing?
That is the burning question at this time and a large part of the blame for the CL Financial collapse must lay with the regulators. In this case it seems that the Governor of the Central Bank and Inspector of Financial Institutions both have serious questions to answer. The situation is really too much to even imagine, but a few examples –
The Governor repeatedly stated his doubts on the stability of the CL Financial group, yet admitted later, in a written statement – see http://www.central-bank.org.tt/news/releases/2009/mr090204.pdf – that he had deposited money at CLICO Investment Bank (CIB).
The Governor stating his strong disapproval the conduct of the CL Financial chiefs – The Governor spoke on 23rd April 2009 – “If you ask me whether CL Financial did everything that was honourable and beyond reproach, the answer is no! The answer is no!” see – http://guardian.co.tt/business/business/2009/04/24/cl-financial-bailout-cost-5-billion-over-two-years . Yet he has not invoked ‘fit and proper’ regulations to disqualify those offending people from holding office in any financial institution, which is within his ambit.
Carl Hiralal, Inspector of Financial Institutions, swears an affidavit in the CIB winding-up action in which, at para 23, he confirms that CIB had filed no Corporation Tax Returns in 2007, 2008 or 2009. The plain meaning of which is that they did not pay their taxes, yet were able to keep their banking licence and when it all went wrong, were also able to get a bailout.
The Statutory Fund – We have heard many statements since this collapse that the CLICO Statutory Fund was not paid-up in full and yet they too were able to retain their licences.
When, if ever, did the CLICO sales force stop selling? Answer is they never did, and have continued to remain open for business despite their self-confessed insolvency. Is it true that CIB was seeking deposits up to the last?
Mismatch of funding tenor and risk – It was clear that CL Financial, in addition to morphing an approved product beyond recognition, then ballooning those receipts up to over-balance the entire company, operated with a fundamental ill at the heart of the thing. Having coaxed many investors to place their eggs in one basket, the very company they had trusted with their savings turned around and broke yet another fundamental financing rule. CL Financial used short-term/high-interest funds to finance long-term investments, which was evident from its accounts. Did the regulators have a risk ranking or some other tool to allow closer monitoring of these activities?
The Nature of the thing – Finally, we have the issue raised above – i.e. the EFPA that became something else and the insurance company that also became something else. Like some bizarre horror or science fiction movie, but is our country. My question being that there must be some point at which an approved product stops resembling the original one, to the extent that the regulator needs to have the clarity and integrity to stop those sales. In consequence of the prior failure, CLICO stop resembling CLICO and also became something else.
What is to become of these self-confessed, slack regulators? The state has already saddled a considerable burden in assisting these depositors, but are we to have a continuation of this disastrous performance?
I ask the question because the CLICO pattern is not over, not at all. There are still other doubtful financial institutions offering incredible rates of interest, with special incentives for the vulnerable. Yes, it is still going on – see the sidebar. Do we have the will to do differently? Can we do better?
As a matter of urgency, we need to have published the full details of those who gained from the $7.3Bn already spent in this scandalous bailout. We need names, addresses, amounts of capital and interest and date of payments as a minimum. Those monies are public monies and if it was correct to insist on disclosure in the shocking case of the ‘Secret Scholarship Scandal‘ last year, it is equally right in this disgusting case.
‘What is good for the Goose is Good for the Gander’.
Expenditure of Public Money – Accountability and Transparency = CORRUPTION
We also need to have published the full details of the $1.0Bn of ‘non-performing’ loans on CIB’s books.
The Impossible Claim – denied?
The size of the outstanding claims is a total of about $18Bn, which is colossal when compared to the largest pool of money available to the state – i.e. the Heritage and Stabilisation Fund, which itself holds about $18Bn. The state cannot bankrupt itself
In the last fortnight or so, the same company has been advertising surprisingly high rates of interest in daily newspaper adverts which also offer ‘Preferential rates to Trinidad & Tobago Association of Responsible Persons (TTARP) members’. Those interest rates range from three to four times the rates being offered by the commercial banks. If CL Financial could not sustain this strategy, how can AIC continue to offer these rates in today’s market?
That is the question.
SIDEBAR: Two points in the PM’s speech need emphasizing
The First, is in the positive, democratic interpretation of the revised bailout being offered to the estimated 250,000 people affected as policyholders and depositors. All 225,000 policyholders – those with life, pension and health insurance policies – will have their claims honoured by the State. 10,000 of the 25,000 depositors are owed amounts less than $75,000 and those claims can be settled now. Which leaves 15,000 depositors to choose between litigation or accepting the present offer of a discount on their monies.
In summary, 235,000 of the 250,000 claimants are being fully settled and that is 94%.
The Second, is in relation to the erroneous portrayal of the impact of discounting on the claimants who accept the government’s offer. There seems to be an error in the calculations upon which the PM relied in making her statement –
“…We are going to give some help. These installment instruments I am saying can be cashed in early at financial institutions. Yes, they will be cashed in at a discount. But I have been informed by the hon. Minister of Finance, Mr. Winston Dookeran, that based on discussions with local financial institutions, that if the first five years of installment notes were cashed in, the discount could be as high as or as low as—when we look at it the glass is half-full or half-empty, depending on how you look at it—5 to 10 per cent. What this means is for every dollar, you could get between 90 to 95 cents per dollars if you decide to discount. I am so advised…”
Apart from my not understanding the selection of the first five years of investment notes as a point for discussion, the calculations are misleading, since the actual discount at those rates (with which I concur) will have a far greater impact – see http://wp.me/pBrZN-qh for a detailed explanation.
We are witness to a second wave of assault on our Treasury. Let us be sure, those of us who are not in line to benefit directly from the bailout, that the picture is complicated and it contains perils for the entire country.
The original bailout was an unjustifiable and colossal facility granted to the CL Financial Chiefs and the shareholders of that failed, privately-owned, group. I say facility because the taxpayers’ money in our Treasury was pledged to repay the debts of the CL Financial group. The deal was hatched in secret and fact is, upon reflection, its terms were never formally debated in our Parliament. What was debated was a series of amendments to the laws governing distressed Banks and Insurance companies. A lot was said about the issue and many notable contributions were made to the debate in Parliament, but the agenda item for debate was not the terms of the bailout.
The 30th January 2009 Memorandum of Understanding had already been signed and was on its way to implementation when our Parliament debated and agreed to amend the legislation. The nation had witnessed a ‘Quiet Coup’ to draw from the title of Professor Simon Johnson’s seminal article (in the May 2009 edition of The Atlantic) on this process in the USA – see http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/7364/.
I have no intention of arguing the legal merits of the case being advanced by the CLICO Policyholders’ Group (CPG), leave that to the learned. I just note that we are yet to hear the voice of the traditional policyholder in the declarations of this Policyholders’ Group.
The bare facts need to be laid out for consideration, it would be far better to conduct this discussion in a more informed manner, with some of the missing details requested at the close of last week’s column. But is best to start from where we are. So, the bare facts –
CIB’s insolvency is estimated, according to the winding-up petition being heard in the High Court, to be of the order of $4.7Bn
According to the Finance Minister in his budget speech, the combined insolvency of British American and CLICO is of the order of $7.2Bn. It is not possible to tell from that speech if those estimated figures included the monies already drawn from the Treasury in pursuance of this bailout.
The amount said to be spent on the bailout, up to May 2010, was $7.3Bn.
The amount being owed to the 225,000 policyholders is estimated to be $6Bn. That covers traditional insurance products such as pensions, health plans and life insurance – it works out at an average of $26,666 owed to each person.
The amount being owed to the 25,000 depositors is estimated to be $12Bn, which works out at an average of $480,000 owed to each person. But there is another way to look at that information and that is in the sidebar.
The Governor of the Central Bank, the very official the CPG is seeking to have affirmed as the proper decision-maker in this matter, in April last year made public statements that all the assets of the group are encumbered.
In the absence of the accounts and operating with the available information, it seems reasonable to believe that the CL Financial group is insolvent and further that our Treasury has swallowed an impossible series of obligations. Furthermore, there is no obligation on the borrowers – the CL Financial shareholders – to pay one cent of interest. Even worse, Para ‘A’ of the 12th June 2009 CL Financial Shareholders’ Agreement actually obliges the State to protect the interest of the shareholders – see http://wp.me/pBrZN-bP.
Of course this leads to yet another ‘$57,000 question’ – ‘If the CL Financial group is insolvent, then how are we paying for all this?’ Yes, that is the big one.
It seems that the CPG is intent on advancing its sectoral interest and while we know that is how things work, it is even more important to be watchful of our nation’s wealth. We are actually being asked to put out an additional $12Bn to rescue the 15,000 CPG members, with no reasonable hope of recovering those monies.
For the record, no one from the previous government or the Central Bank, for that matter, has ever even attempted to justify the rotten terms of this bailout. Not even an attempt to explain the interest-free, unlimited, unsecured loan to that lucky group of 325 CL Financial shareholders.
Even now, with the new terms being hotly debated, please note carefully that no new terms are being announced for the ultimate borrowers, the CL Financial shareholders.
Selwyn Ryan
Professor Selwyn Ryan of UWI, who was, last year, a strong critic of the bailout process and its glaring conflicts of interest, now appears to have become a leading party in the CPG, calling for that suspect deal to be honoured. A deep contradiction in terms, I tell you. How do you honour a rotten deal? Politics does make strange bedfellows and yes, history is truly rich in irony.
Emmanuel "Manny" Lawrence
Even stranger still, is the presence in the CPG of Emmanuel ‘Manny’ Lawrence, former Sales Director of CLICO and now head of one of its sales agencies. In the three years before the CL Financial group collapsed, all the CLICO agents I knew made intense efforts to get deposits from me. Not once did these agents even attempt to sell me a life insurance plan or health plan. These agents consciously and deliberately coaxed many of those people who are now protesting to place all or most their investments in this one instrument. That is the kind of irresponsible behaviour which led many people to be in breach of the basic investment guideline against over-concentration of risk – to avoid putting all ones eggs in one basket. That is the kind of biased and unsound advice which no proper professional would render to a client. It is a decisive factor in this entire scenario.
The ingredients included the requirement for cash by an expanding industrial/commercial group, the resulting lucrative commissions being paid, the trust of the investors and the poor level of general financial literacy. Those factors all contributed to this appalling picture. To be fair, despite the titles adopted by some of these salesmen, they were not true Investment Advisers, since they were selling CLICO products.
Also, as to the discussion about the sophistication of the investors, the fact is that even an organisation as large as the National Gas Company, could be seen to have placed undue reliance on the high-interest/high-risk products being offered by the CL Financial group. At one point, according to its 4th February 2009 Press Release, over 45% of NGC’s funds were in CL Financial – see http://wp.me/pBrZN-ec .
SIDEBAR: The depositors re-examined
I just made the point that the 225,000 ‘traditional, long term policyholders’ are owed an average of $26,666 per policyholder.
Also, that the 25,000 depositors are owed an average of $480,000 per depositor. It is interesting that if you subtract the maximum of $75,000 which would be due to each of the 10,000 ‘small-scale’ depositors, the total owed to the remaining 15,000 depositors is reduced to $11,250,000,000. That adjustment carries the average amount due to the real protestors in this CPG to no less than $750,000 per depositor. Yes, that is twenty-eight times the amount due to the traditional policyholders.
Ironically enough, the voice of the traditional policyholders, who outnumber the depositors nine-to-one, is virtually silent in all this. I am yet to hear anything from the CPG on behalf of those traditional policyholders. But then again, it is clear that by far the larger amount is owed to the depositors and further, that they appear, on average at least, to be owed about 18 times more than the typical policyholder. Yes, as Growling Tiger did sing “Yuh know very well that Money is King’’.
Winston Dookeran’s budget proposals to re-order the ongoing CL Financial bailout have sparked considerable controversy. Dookeran stated his first priority to be “…Stop the drift and indecision…” – ironically enough, it appears that the sentiments of the public are moving in another direction entirely. A new mood of protest and threats of impending lawsuits have emerged. This is a live example of the law of unintended consequences.
The budget’s revised proposals are –
Immediate stop on all interest payments;
$75,000 claims from depositors to be settled immediately;
Balances exceeding that threshold to be repaid over 20 years, with no interest payable. For an example, click here;
The group to be re-structured, with CLICO and British-American Insurance Company (BAICO) to be merged and prepared for divestment;
“…Those responsible for this crisis must be held accountable.…”
Clearly, Dookeran took the decision to review the MoU of 30th January and the Shareholders’ Agreement of 12th June 2009. He reduced the burden on the State by increasing the sacrifice of those who were anticipating the return of all their funds under the terms of the original agreements. The latter aspect is arousing serious protest, but there are other areas which also deserve attention.
The entire picture is very confused, which seems to be deliberate. There were two main types of investments made in this situation – firstly, the basic and traditional insurance products such as pensions; life, health and general insurance and secondly, the depositor who was seeking high returns. It is true that the pension products offered an optimistic 12% rate of return, but the short-term depositors were different.
Much of the current discussion and argument is actually about the repayment of the depositors, not the traditional insurance policyholders. The fate of the policyholders is often invoked by people who are actually arguing for the return of their own deposits and that is why the separation between the two, which Dookeran makes, is so important.
To quote – “…The number of traditional, long term policyholders affected by this crisis, covering pensions, life and health insurance, is around 225,000 persons and accounts for $6 billion in liabilities…” That is an average of $26,666 per policyholder.
Again – “…There are approximately 25,000 customers holding these short term contracts, and the liability to this group is in the region of $12 billion…” That is an average of $480,000 per depositor.
Ironically enough, the voice of the traditional policyholders, who outnumber the depositors nine-to-one, is virtually silent in all this. But then again, it is clear that by far the greater liability lies with the depositors and further, that they appear, on average at least, to be owed about 18 times more than the typical policyholder. Yes, I am aware that there are depositors who are also policyholders and so on.
For those of us who did not invest with CLICO, the mere idea of our taxpayers’ funds being used to rescue those who placed high-return deposits is deeply offensive. Both the CL Financial chiefs and the depositors who took the chance at investing at those incredible rates of return are being spared the consequences of their decisions by the bailout process. But those groups are being differently treated from each other and that is the point in this commentary.
On the principle, the absence of consequence is inimical to any development, personal or national.
When I consider the appeals from Credit Union and Trade Union leaders, as well as individual investors, it makes me wonder if there is a live concept of responsibility in this place. All those people withdrew money from the slow-but-steady accounts of the traditional banks and put it into the high-interest accounts at CL Financial and HCU were indulging in riskier choices. How can they be so bold-faced as to tax the rest of us for their adventure?
CLICO EFPA Policyholders group at press conference on Sept. 21
There are now two groups organized to lobby for the interest of the disappointed depositors – the ‘CLICO EFPA Policyholders’ and the ‘CLICO Depositors Interest Group.’ Some of the leading members are themselves leading CLICO sales agents, so the decline continues. They are asking for an urgent meeting with the Minister of Finance and litigation is threatened, so this will form part of this ongoing series.
‘Credit Unions fear collapse’ was the headline of a story in this newspaper on 17th September – at http://guardian.co.tt/news/general/2010/09/17/credit-unions-fear-collapse – reporting on the concerns of the Credit Union League (CUL), given the scale of their investments in the CL Financial group. Figures were presented for four large credit Unions and those have an average of less than 4% of their assets in CLICO. See the table here:
CREDIT UNIONS’ reported CLICO Holdings
Credit Union
CLICO Deposits
Total Assets
Proportion
Eastern CU
$17,000,000
$1,234,000,000
1.37%
Teachers’ CU
$24,000,000
$503,000,000
4.77%
Rhand CU
$28,100,000
$395,000,000
7.11%
Venture CU
$21,000,000
$333,000,000
6.29%
Summary
$90,100,000
$2,474,700,000
3.64%
Note – The data in this table is taken from the Guardian article cited, except for the Eastern Credit Union Asset Value which is from its 2009 Annual Report.
The CUL has not made any convincing case for a possible collapse and it seems reckless to even suggest further collapses on the basis of these figures.
But the confusion is continuing, with contradictory positions being taken on this issue. The idea that the Credit Union movement is under threat is a very serious one, which would be of great public concern, so we need to examine these statements carefully.
At page 10 of the Express of 22nd September ‘Credit Unions seek help from Rowley’ – see http://www.trinidadexpress.com/business/Credit_unions_seek_help_from_Rowley-103498744.html?corder=reverse – the Credit Union League met with the Opposition Leader, Dr. Keith Rowley. Once again, the idea that Credit Unions are in serious trouble was advanced – “…They said they would not be able to sustain daily operations. …” That is a very startling statement, this time given without any attempt to provide evidence.
To add to the confusion, the Guardian of that same day (22nd September) reported, at page 13 “CFF welcomes move to meet with CU on Clico” – see http://guardian.co.tt/news/general/2010/09/22/cff-welcomes-move-meet-cu-clico – on statements by Esme Raphael, President of the credit union’s Central Finance Facility (CFF) on this situation – “…Raphael said while the credit union movement was under no threat of collapse, the 20-year repayment plan would make it less competitive in delivering credit union services…”.
These contradictory messages will detract from the credibility of the Credit Union movement and must be clarified.
The idea that there is any such thing as a ‘guaranteed investment’ is preposterous. An absolute oxymoron is generating all this argument.
Yes, the last government made certain pledges and I have been critical of those, but here we are entering an even more turbid situation.
As outlined above, the PP government has decided to alter the terms of the existing bailout agreement as to refunds to depositors, so it is clear that it regards the terms of those agreements to be negotiable.
In my view, the most odious aspect of the entire bailout is that the wealthiest individual in the Caribbean was able to negotiate the largest-ever loan from our Treasury at zero interest on the basis of a letter. If the terms of the bailout agreement are negotiable, why are we not insisting on charging a proper rate of interest to compensate the State for these massive loans? Who is protecting our country’s wealth? In view of the fact that they are essentially unsecured loans, the only proper interest rate would be a punitive one.
There are live, cogent notions of financial equity and economic justice which are being abused in this entire scenario, but that is for a separate series.
The amounts involved are massive – “…The total funding provided as at May 2010 by the Government and the Central Bank, excluding indemnities and guarantees to First Citizens Bank amounted to approximately $7.3 billion…” Emphasis in the original. That equates to over $456M a month to rescue Mr. Duprey. I wonder how much is the total of the indemnities and guarantees?
The bailout terms were revised to reduce the amount of the State payout to the depositors, but no additional pressure is being put on the CL Financial group in terms of interest payments. It is resembling a comfortable arrangement for Duprey.
Another aspect of the budget which was difficult to follow was the shifting focus between CLICO and CL Financial.
We need a better quality of information to move ahead with this, so it was encouraging to hear Dookeran’s clear post-budget statement “…No more shall we have secret government,…” – see http://www.newsday.co.tt/news/0,127330.html.
Minister, these facts need to be made public if we are to eliminate secret government :
The original Duprey letter of 13th January 2009 – I have applied twice under the Freedom of Information Act for this and the second application has been in your Ministry since 28th June, unacknowledged.
The audited accounts of the CL Financial group for the year ending 31st December 2008 – Have PwC completed that? When are they to be published?
The Lindquist Report – Bob Lindquist was reportedly appointed to examine CLICO. Has he submitted a report? Are we to be told of any of his findings?
The Mottley Report – There was a team of three advisers – Wendell Mottley, Colin Soo Ping Chow and Steve Bideshi – appointed to examine the CL Financial group and we need to know what were the findings of this group.
Given that we are being asked to bailout and clean-up Mr. Duprey’s crisis, I feel we need to be told who are the borrowers of the $1.0Bn of ‘non-performing loans’ in CIB’s portfolio. The fact is that these are some of the delinquents we are being asked to bailout and the names would surprise the public. Local banks customarily publish the names etc of people who have non-performing loans, so why can you not do the same thing in this case?
To quote the budget statement – “…This crisis was caused by…wrong financial reporting…” False Accounting is a criminal offence under our laws – When are criminal charges to be laid? Those people – the accountants who were accused of that grave offence – belong to professional bodies, both here and overseas. Is there any intention to make formal reports to these professional bodies?
Quoting again – “…This fiasco was caused by reckless corporate governance and the glaring failure of our financial regulatory institutions…” What action is to be taken against these slack regulators?
Is there any intention to invoke the ‘Fit and Proper’ provisions against any of the CL Financial Directors or Officers?
Finally, do you intend to insert an interest clause into the ‘sweetheart bailout agreement’?
Mr. Dookeran, you have the opportunity to inject notions of solid responsibility and proper conduct into this sorry situation.
Next, I am going to delve into the promise to ensure accountability of the responsible persons.
SIDEBAR: The Hindu Credit Union peril
Amidst all this and completely to be expected, the PP government is bailing-out HCU depositors on identical terms to those now being offered to CL Financial depositors. For the record, the Finance Minister’s statement was as plain as it was unsettling –
“…Although the failure of HCU did not carry a systemic risk to the financial system since it represents less than one percent of the total assets of the financial sector, this Government is of the view that these funds of these small investors must be protected…”
We were told directly that this HCU collapse is not a risk at all to the system, but these disappointed savers are still to be rescued by the Treasury.
This is a poor precedent, since when the next Financial Institution collapses, the then Minister of Finance would have to deal with those unrealistic expectations.
CL Financial Annual Returns 17 February 2009
The Auditors – The various PWC professionals who prepared and signed those audits. Will we see the release of the hidden accounts? How much longer can they remain concealed? There must be some quiet desperation creeping into Balisier House and PWC, just edging forward, along Victoria Avenue.
Amidst the raging debate on the rights of the disappointed depositors versus those of the anxious taxpayer, I am continuing to examine some more of the fundamental issues. Yes, I accept that there are depositors amongst the taxpayers, but those interests are not in alignment, hence the discussion.
That is the burning question at this time and a large part of the blame for the CL Financial collapse must lay with the regulators. In this case it seems that the Governor of the Central Bank and Inspector of Financial Institutions both have serious questions to answer. The situation is really too much to even imagine, but a few examples –
In the last fortnight or so, the same company has been advertising surprisingly high rates of interest in daily newspaper adverts which also offer ‘Preferential rates to Trinidad & Tobago Association of Responsible Persons (TTARP) members’. Those interest rates range from three to four times the rates being offered by the commercial banks. If CL Financial could not sustain this strategy, how can AIC continue to offer these rates in today’s market?
We are witness to a second wave of assault on our Treasury. Let us be sure, those of us who are not in line to benefit directly from the bailout, that the picture is complicated and it contains perils for the entire country.
Winston Dookeran’s budget proposals to re-order the ongoing CL Financial bailout have sparked considerable controversy. Dookeran stated his first priority to be “…Stop the drift and indecision…” – ironically enough, it appears that the sentiments of the public are moving in another direction entirely. A new mood of protest and threats of impending lawsuits have emerged. This is a live example of the law of unintended consequences.
AfraRaymond.net 