Tag: CL Financial

Emancipation

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?

Figuring it out

“We are not serious,

Very few conscious,

So I cannot agree wid mih own chorus!”

from ‘Trinidad is Nice, Trinidad is a Paradise’ by Brother Valentino (Emerol Philips)

The 12th June agreement is to be voted on by CL Financial’s shareholders on Wednesday 15th July.  By the time this is published, there ought to have been a decisive vote on the matter.

I maintain my position that the 12th June agreement is taking us in a completely different direction to that outlined in the original MoU of 30th January.  I am also saying that the new direction is a detrimental one for this country with not even an attempt being made to explain the underlying rationale.

The flagship of the CL Financial group was CLICO, according to the Central Bank Governor, on 13th February – “In the CL Financial business model, Clico was a major source of cash much of which was used to finance investments held in the name of other entities in the Group.  In this model, Clico has ended up as guarantor for many of the Group’s assets most of which are heavily pledged.”  CLICO’s most successful product in this model was a high-interest one which promised more than any other investment available in the market.  Even at those high rates of interest promised to their investors, it was cheaper for CL Financial to raise funds in this way than to borrow.

CL Financial is no longer able to rely on CLICO for a source of cheap funds, so we are all thrust into a new, perilous position.

CLICO is now unable to offer the highest rates of return which once distinguished its products and is suffering an unwelcome migration of its better sales agents.  What future for CLICO?

We were often regaled with stories of Lawrence Duprey’s prowess, as a commercial negotiator, in securing the best terms.  It seems to me that CL Financial has arranged a new line of finance from the Treasury to go forward.  We are not told what, if any, interest rate is being charged by our Treasury for this massive line of unsecured borrowing.  Overdue Tax payable to the BIR attracts a punitive interest rate of 20% per annum, being rightly regarded as the taxpayers’ unsecured borrowings from the Treasury.  Are we seeing a plain case of double-standards?

As part of the new agreement, Lawrence Duprey has resigned from his Directorships of the companies in the CL Financial group.  He has retained his significant shareholding and it is clear that Michael Carballo, the group’s finance director, continues as his representative.

Some of you may think this is all OK, since the public funds being advanced to clean up this fiasco are ultimately protected by CL Financial’s agreement to sell assets so as repay.  Time to think again.  The assets which were pledged in the original MoU, were already pledged elsewhere.

Yes, the CL Financial chiefs tried to sell the same thing twice.

But what about the assets which were not pledged?  Oh, those were treated differently.  For example, CL Financial agreed to sell its majority shareholding in CLICO Energy Company less than a week after agreeing to seek the State’s prior written approval to any asset sales.  That action triggered the Central Bank’s legal action to both halt all further assets sales and demand a declaration of all assets.

Yes, CL Financial chiefs tried to sell off one of the remaining assets, contrary to the terms of the MoU.

So we have Republic Bank and Methanol Holdings shares being effectively unsaleable, since they are reliably reported as having been fully pledged before the original MoU.  Next we have the aborted attempt to sell other assets, not yet pledged.

So what is left?  Wait, what about the Liquor and spirits brands, the Angostura and Jamaican rum companies and such?  Well, according to its most recent Notice to Shareholders, Angostura is itself owed some $633M by CL Financial.  Given that its 2007 accounts disclose sales of $818M, that is a colossal amount of money for Angostura to be owed.  So much for that.

As for those Jamaican Rum assets, Lascelles de Mercado is Jamaica’s leading spirits company, controlling the top rum brands of Wray & Nephew and Appleton.  CL Financial owns about 87% of Lascelles de Mercado, which still has some 1,500 minority shareholders.  The Jamaica Gleaner of 17th June (at http://www.jamaica-gleaner.com/gleaner/20090617/business/business1.html and http://www.jamaica-gleaner.com/gleaner/20090617/business/business4.html) contained two instructive reports on that CL Financial subsidiary.  The first one highlights the payment of dividends to holders of ordinary shares for the first time in 2 years – “Lascelles de Mercado said Monday it would pay dividend amounting to $14 per share, ending a drought for ordinary shareholders who have received no returns for at least two years.” That subsidiary appears to be doing well.  The second report tells us  –

  • “Duprey…has bowed out as chairman of CLF, but remains chairman of Lascelles.”
  • Referring to the 12th June agreement – “Carballo said the government was in control of the management and running of the Caribbean conglomerate, but what has not changed is the ownership.

“The shareholding hasn’t changed. There is no intention to change the shareholding. It’s an agreement for about three years whereby the assets are managed and restructured and then the company will be returned to the shareholders,” he said.

  • There is more – “”So the question of selling does not arise,” he (Carballo) added, referring in this instance to Lascelles.”

So there you have it.  If we are to believe Michael Carballo – and I see no reason to doubt him – the good assets which are not pledged are to be retained by CL Financial.

Having lost grip of CLICO and its positive cash-flows, the CL Financial chiefs have now negotiated a new survival strategy.  On the other hand, we have now agreed to finance the recovery of the CL Financial group on terms which are unknown, to restore the value of its assets and return it to its shareholders.

The rueful regulator

The Governor’s statements on 13th February are really perturbing. On 13th February, at his first (and only) CL Financial briefing, the Governor of the Central Bank said – “Meanwhile, with the assistance of the Manager appointed to Clico by the Central Bank, we have made much progress in clarifying the present financial position of CLICO, which unfortunately, appears to be much worse than we had envisaged.”  How could it be much worse?  Are we being told, in not so many words, that CLICO’s filings and accounts were misleading?  Or did the regulator make a poor reading of the information?

Party of Parties

This week’s title is as deliberate as it is appropriate.  The focus last week was on certain aspects of the 12th June agreement with CL Financial to show the fundamental shift from the original MoU of 30th 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 30th June to seek the approval of 75% of the shareholders to the 12th 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 30th 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.

SIDEBAR

We have all read the public statements by the newly-reappointed Attorney General, John Jeremie, that he is intent on taking the necessary action to enforce the law if wrong-doing is discovered at CL Financial.

We need to determine if our newly-returned AG is indeed a serious upholder of our laws.

Mr. Jeremie, it is reliably reported that CL Financial paid its shareholders dividends of $3.00 per share on 16th January, some 3 days after writing to the Central Bank for urgent financial assistance from the State.  Now that the State-appointed Directors are on the CL Financial Board, it is possible to obtain evidence of that, with or without the co-operation of the Minister of Finance (herself a CL Financial shareholder).  I am putting it to you that, as a matter of urgency, we need to hear from you on three questions –

  1. Firstly, is such a payment of dividends a legal act?  Can such an act be considered to be fit and proper?
  2. Secondly, did that reported act take place?
  3. Thirdly, what steps, if any, are you now prepared to take against the CL Financial Directors who authorized payment of that dividend?

Fit and Proper

On Friday 12th June, the Acting Minister of Finance, Conrad Enill, signed a new agreement with the CL Financial chiefs.  That agreement has not yet been published, so we have to rely on the Ministry’s press release and news reports. A further new spurt of information has been the story in the Sunday Express of 21st June, which detailed huge campaign donations by CL Financial to the ruling PNM. We have also seen a strong denial from PNM Treasurer and Minister in the Ministry of Finance, Mariano Browne, that CL Financial enjoys any undue influence over government policy as a result of those donations.

Those events form the background to this week’s column –

Change of Course

This new agreement has been presented to us as a supplement to the original one, intended to facilitate its implementation.  The Ministry’s press release informs us that “….This new agreement is designed to give substance to the Memorandum of Understanding (MOU) of January 30th 2009…“  Having considered the available material, I have come to view this new agreement as a complete change of course from that outlined in the original MoU.    The original MoU spoke to the crisis at 4 of CL Financial’s subsidiaries – CLICO, Clico Investment Bank, British-American Insurance and Caribbean Money Market Brokers.  The process outlined was one of immediate State financial support of those companies, with CL Financial to pay back the taxpayers’ funds advanced by agreeing to sell their best assets.  Those assets included majority shareholdings in Republic Bank Limited and Methanol Holdings Trinidad Limited.  The stated goal at that point was to stabilize the entire financial system against the loss of confidence which would surely have followed a collapse of those companies.

The striking features of the new agreement are –

  • New CL Financial Board – The new agreement installs a new Board of Directors for CLF: stated to comprise 4 Directors nominated by the State and 3 nominated by CL Financial.  Michael Carballo is CL Financial’s Group Financial Director and has been retained as a Board Director under the new agreement.  Carballo has been reported as stating that the CL Financial group will be returned to the control of its shareholders after a maximum of 3 years.  The State is now taking over the strategic management of the CL Financial Group.  That was never part of the original MoU.
  • Asset Sales – The Ministry’s press release also states that– “…The MOU imposes requirements on CL Financial to sell its assets in order to repay GORTT for advances and other costs arising from closure of CIB and the restructuring of CLICO and BAT. The achievement of this objective requires continuing goodwill, cooperation and participation by CLF over a period of several years since there is no intention of engaging in a fire sale of CLF assets…”  The emphasis is mine.  For some time now I have been critical of the obscure official rationale for deferring the asset sale agreed to in the original MoU.  I have gone so far as to label that rationale as being a stupefying one.  Here is official confirmation that that is the new policy.  No attempt was made in this rounds to give a rationale for deferring the sale of these assets.  Dry so.  That was never part of the original MoU.
  • Shareholder Value – The new agreement seems to have, as one of its central features, a mission to rescue the CL Financial group on behalf of its shareholders.  Readers should note that CL Financial has only 325 shareholders.  Angostura Ltd. is an important part of the CL Financial group and their Notice to Shareholders published on Saturday 27th June is instructive – “…Shareholders should also note that on June 12th 2009, a formal agreement was signed between CLF and the Government of Trinidad & Tobago (GORTT), whereby a new Board has been constituted at CLF.  The mandate of the new Board, empowered by the GORTT will be to restructure the debts of the CLF group to ensure that they are properly satisfied and also that the Parent company and subsidiaries are placed on a proper and sustainable path to achieve growth and value optimization…”  The restoration of shareholder value was never part of the 30th January MoU.

Entirely new objectives are being presented as ‘giving substance to’ the original MoU.  The examples cited here are enough and one expects to find more food for thought when the document is published.  The 30th January MoU was published on the Finance Ministry’s website on 9th April – about 10 weeks after its execution – which means that this second agreement is not yet, on that basis, overdue.  However, given the increased burdens being imposed on the Treasury and the silence on critical aspects of this unfolding fiasco, I am calling for it to be published without delay.

Let us re-cap how we got here, so that we can understand the moment.

Our Treasury was originally pledged to bail-out savers in 4 troubled finance houses.  The use of public funds to stabilize the financial system by ensuring that depositors and policyholders were safeguarded was itself questionable on grounds of moral hazard, but at least the Treasury was to be repaid by sale of the assets held by the parent company.

We have now learnt several new things –

  1. CLF assets, specifically pledged in the original MoU, were already pledged elsewhere.
  2. CLF, having agreed not to sell or pledge any further assets, agreed to sell assets to German investors, less than one week later.
  3. CLF, having written on 13th January for urgent financial assistance, issued dividend cheques to shareholders 3 days later.
  4. The Minister of Finance is herself a shareholder in CLF.
  5. The CLF group is a major donor to the ruling PNM, even during those years when the CLICO Statutory Fund was in deficit.

We are now being told that the government is to restore shareholder value.  Cool so.  As yet, we have no report from the KPMG team or the Bob Lindquist team examining the books.  No attempt at explanation or providing background information.  Our Treasury has now been pledged to assist the 325 shareholders of the CL Financial group.

Now that the State is in control of the CL Financial board will they now be obliged to submit the affidavit identifying all their assets?  Will the ongoing Court case between CL Financial and the Central Bank be abandoned, now that shareholder and taxpayer interests are so completely aligned?

The Governor of the Central Bank, speaking at the press conference on 30th January made a penetrating point – “…In the Bank’s view however, the current financial difficulties being faced by CIB and Clico have more to do with…excessive related-party transactions which carry significant contagion risks …”

‘Excessive related-party transactions…’ – I could not agree more, Governor.

Do What Is Right

Once again, the information flow on this fiasco is so erratic that one has to wonder if that is intentional.  We not so easy to destabilize.  Madam Minister, it is our taxpayers’ money that you are spending, so the time to account is now.

In the history of our region’s development, it is my view that this episode is arguably the most shattering failure – economically, financially and regionally – in living memory.  It is important to distinguish this from externally-propelled events since it is Caribbean people, principally from our country, who were the architects and engineers of the CL Financial empire.  We are the driving force in this fiasco, both those who designed and built the seductive savings and retirement plans, as well as those who invested with CLICO/CL Financial.  Those who designed the fancy car and those who got on for the ride.  Those who did not take the fancy ride are being asked – no, told! – to help those people injured in the crash of the largest and fanciest ride on the road.  We are very kind people and it is never any problem to help those who are in need, but please don’t tell us that the ‘driver lost control of the vehicle’.  Time to change gears and shift our thinking.  Who is our leader?

Some of the important aspects of this situation are –

  1. CL Financial letter – The CL Financial letter of 13th January which requested urgent financial assistance from the State has never been published.  Yes, that is the appeal signed by Mr. Duprey 3 days before dividends were paid on 16th January.  We have never even been told why the letter has not been published.  It is no excuse that these items of correspondence are never normally published.  The sheer size, financial consequence, political linkages and regional impact of the CL Financial failure are all sound reasons to declare this an exceptional case to the extent that a new standard of transparency is required.  That 13th January letter is obviously part of the public record yet it is not available.  Why is that Minister?  Could it be that that letter contains information which reveals too much about the true background to this tangled affair?  Madam Minister, what is your interest in further secrecy on this aspect?  The atmosphere is heavy with claims, counter-claims and, most oppressive of all, the scripted silence of the chiefs.  It is my view that your continued concealment of this vital document is only going to feed an unhealthy degree of skepticism, which is already present in this sorry affair, for reasons we are all too familiar with.
  2. The new MoU – We are told that a new agreement was signed with CL Financial on Tuesday 2nd June.  I have been unable to get sight of that agreement but there are reports that the State has now taken control of the troubled group.  What are the terms of that agreement?  Does CL Financial have assets sufficient to cover their liabilities?  Is there an option to call on the assets of the CL Financial Directors and Officers to settle any shortfall?  When can we expect the new MoU to be published?
  3. The Dividend – We have heard the Minister attempt a rebuttal of the parliamentary allegations she faced on early withdrawals of her various CIB deposits and the potential conflict of interest issues.  Minister, we have that part of your message, even if only a few of us have accepted your version.  That is all part of public life, but what we are not hearing from you is any statement on the CL Financial dividend.  You are a noted attorney and former lecturer at the Law School in UWI, so what is your learned opinion on the payment of dividends by an organization which was unable to pay their financial obligations in proper priority?  Am I asking an improper question?  Are we, as a country with ambitions of becoming an International Financial Centre, going to let these shareholders keep their dividends in this failed group?  That would be a real shame and completely incompatible with our stated ambitions.  Minister, your continued silence on these aspects of the fiasco of the century will only increase the clouds of suspicion and disrespect now swirling through the public mind.
  4. CLICO’s new business model – The newly-appointed Chairman of CLICO, Dr. Euric Bobb, has made recent statements on the development of a new business model for CLICO.  The recovery of this company will face challenges from the departure of key sales agents; the withdrawal of their high-return products, which were CLICO’s unique selling point; and of course, the missing $5.0Bn from the CLICO Statutory Fund.  It did not help that the new board released a high-profile series of advertisements in February which went to pains to assure the public that it was ‘business at usual’ at CLICO.  That is absolutely the last message they could, or should, have been wanting to send.  The CLICO model is what put us into this mess and the new board should have been making efforts to point out that they would not be repeating the errors of the previous CLICO chiefs.
  5. The Court case – We are still no wiser as to why on earth is the CL Financial legal battle being fought in closed court.  Someone must have applied to have the hearings closed: I wonder who?  And why?  You see, the fact that the hearings are closed means that we are forced to rely on ‘leaks’ to see only part of the story.  Of course, that is only the part the person leaking would like us to see.  So we need to have those hearings opened to ensure a good quality of information.  Even beyond that burning concern is the recent reports that the High Court has made an order to prevent the State from using information in this case for criminal cases.  No doubt that order was obtained at CL Financial’s request, but what is the thinking underlying the ruling of the Court on this aspect.  I would like to hear some better explanation of that.
  6. The last days – I believe that a full, public investigation of this entire sorry fiasco is vital, if we are to learn all its lessons.  I am not entirely sure if a Commission of Enquiry is the way to go, or if another form of investigation can also be effective here.  For example, I would have liked to see the Arthur Lok Jack School of Business undertaking some extended studies on this.  It would be very interesting to see a list of those who broke their investments/fixed deposits in the Group in the last 90 days.  That would be very instructive.

Judgment Time – Moral Hazard, Part III

The drama continues and we learn of it in weird, spasmodic bursts.  The Information Age is here.  To err is human.

So many threads to pull from, but here goes –

  1. The Minster of Finance – Thus far, I have not touched the issues of the Minister’s shareholding, or joined the calls for her to resign.  I heard for myself on radio 102.1FM, one morning recently, the aggressive statements made by the Minister of Finance and those prompted me. There are 2 aspects of this in my view –
    • The first is that it is safe to assume that the Minister knew that CLF paid dividends after they had written to the Central Bank for urgent financial assistance.  Did she take exception to this action by the CLF chiefs?  What is her view on that?  In any case, did she instruct her negotiating team to attempt to recover those dividends?  Was that ever an agenda item in those MoU negotiations? Does the Minister have a view as to that decision by CLF’s Board of Directors?  Is that a decision which, in her learned view, would be taken by ‘fit and proper’ people?
    • The second one flows from the Minister’s defensive statements made in Parliament to explain the broken fixed deposits and so on.  Without going into the details of those statements, the line of defense went like this – I, like many other citizens, knew of the problems being experienced by the CLF group; I was also advised of those by my sister, who is engaged at a senior level in the financial sector; as a result of those factors, I decided, as a matter of prudence, to withdraw the various monies held in the group; CLF did not write the Central Bank ‘til 13th January and that is when my official knowledge began.  I accept the Minister’s statement as factual, but that is the very problem.  To my mind, the oath of office which is taken by our parliamentarians and cabinet ministers obliges them to put country first.  The first action of any responsible Minister of Finance, upon becoming aware of an impending crisis at CLF, was to seek an immediate meeting with the PM and other colleagues to discuss an urgent solution.  A key cabinet Minister states openly that she was seeking her own interest first and then effectively waiting for the other shoe to drop.  Utter irresponsibility and the lack of consequence writ large.
  2. The Governor – The Governor of the Central Bank has described the challenges of trying to regulate the CLF group in its several subsidiaries.  We have no reason to doubt his account of the perils posed by the CLF business model and the Central Bank’s various attempts to grapple with those.  The Governor also issued a private statement to clarify the position around the opposition allegations that he had taken advantage of his special knowledge to withdraw fixed deposits held at CIB.  I also accept as true his clarification on that matter.    If you accept both accounts, as I do, there is a real issue as to quality of judgment.  We are contemplating that the very man who knew, more than any other ‘outsider’, of the deep challenges and high-risk business-model of CLF was also making investments with CIB.  I am unable to reconcile that picture, which seems to be correct, with responsible judgment.  What is the manner of man to make those investments?
  3. The Sakal saga – I read in the Sunday Express of 24th May an expose of the Gita Sakal story.  It seems from that story that CLF has made allegations against Ms. Sakal that she attempted to obtain certain monies from the sums which were obtained by their sale of a shareholding in CLICO Energy to a German company.  That sale was been agreed on February 3rd and was one of the subjects of the ongoing court action between the Central Bank and CLF.  Up to that point, according to the Sunday Express story, there appears to be little dispute on the facts.  That court action started when the Central Bank obtained an ex parte injunction on Carnival Sunday and the action continues, in closed hearings.  The Sunday Express expose quoted Michael Carballo several times in setting out the case against Ms. Sakal.  I am proceeding cautiously here since the author of the Sunday Express piece is an esteemed colleague and the entire matter is very delicate, centering on ‘Who is to guard the guards?’  Some points to consider –
    • The MoU – was signed on 30th January and clause 20 of it prohibits CLF from disposing of any of its assets without the prior approval of the State.  Yet, on Tuesday 3rd February CLF entered an agreement to sell its 51% shareholding in CLICO Energy to its German partners.  That story was made public in this paper on 24th March at http://guardian.co.tt/news/general/2009/03/24/duprey-energy-fire-sale-raise-severance-money.  What kind of person agrees on Friday to clear terms and by next Tuesday is acting in breach of the prior agreement?  That is the one burning question in all this…What is the manner of man we are dealing with?  Amidst all the talk of visionaries and plots and schemes for his downfall…
    • One Caribbean Media – are the owners of the Express newspaper.  According to their 2007 Annual Report, CLF hold a 33.1% shareholding in One Caribbean Media.
    • Director – Michael Carballo, the Group Financial Director of CLF, is also a Director of One Caribbean Media – http://www.onecaribbeanmedia.net/index.pl/hdir.
    • The burning question – given that my colleague had access to Michael Carballo and some key documents, is why not enquire as to the genesis of the share sale?  That seminal issue appears to have been sidelined and we in the media who seek after clarity and integrity, must take special care at this time to preserve our own.

    4. Please note that I am not, in any way, defending Ms. Sakal.

  4. The MoU – We are also hearing reports that both parties have agreed that the MoU is to be renegotiated.  Can this be true?  Will the Governor please update us on these matters?  I ask again, ‘Who are we negotiating with?’
  5. Executive Remuneration – The new Chairman of CLICO, Dr. Euric Bobb, was reported to have recently stated that the new management would not be continuing the level of excessive remuneration which had been a pattern in the past (at CLICO).  It would be good to know the previous levels of salary and benefits which led to this complete fiasco.
  6. CLICO – Dr. Bobb also gave recent clear statements as to the strength of CLICO under the new management and that was important.  We are getting increasing reports that some of CLICO’s most productive sales agents are joining other insurance companies and, if those are true, CLICO’s future could be very challenging.

SIDEBAR: Integrity and the CL Financial bailout – the nexus

There is an interesting nexus between the Integrity in Public Life Act (2000) and the CLF bailout.

The Act obliges that public officials make a declaration of their income, assets, liabilities and interests to the Integrity Commission on or before 31st May of each year.  There are penalties for non-compliance.  We have seen high-profile investigations and prosecutions with the proposed amendments to the Act now being debated in the Senate.

The Integrity Commission website lists ten classes of persons in public life who must file declarations with them.  That list can be found at http://www.integritycommission.org.tt/whofile.html.  The ninth class of person is “Members of the Boards of all Statutory Bodies and State Enterprises including those bodies in which the State has a controlling interest.”

CL Financial has already signed over its shareholdings in Republic Bank Ltd. (55%) and Methanol Holdings Trinidad Ltd (56%) to the State under the MoU, and the State has taken complete control of CLICO.  Will CLICO, MHTL and Republic Bank Directors be filing returns on or before 31 May?

Payback Time – Moral Hazard, Part II

There is a powerful and circular irony in the entire CL Financial fiasco.  That irony is in the manner in which risk and its twin brother, reward, were dealt with.  CLICO and British-American built an impressive reputation as safe companies with which one could invest for an uncertain future.  That reputation was such that many people in our region held the greater part of their investments with those companies.  The irony, which is now clear for us to see, is that those companies did not do an effective job of managing their risks.  Hence the disaster we are facing.

According to CL Financial’s 2007 annual report, the group held cash or cash equivalents in excess of $8.7Bn at the end of 2007.  That huge sum of money was depleted to the extent that the CLF Group had to write on 13th January 2009 seeking a massive bailout.

The same annual report also gives cause to question the manner in which the global meltdown has been blamed for the fiasco.  With the audited accounts only being completed in late November 2008, the annual report must have been finalised after that date.  The preface to the CLF 2007 annual report, at page 1 and entitled ‘The Next Wave of Growth’, refers to the meltdown like this –

  • “These are foreboding financial times – for Trinidad and Tobago, for the world. At C L Financial we are cautious but unafraid. Leaders in government and business sectors throughout the globe are taking joint action to mitigate this economic crisis, and so are we.”
  • “No organisation will be immune from the turbulence but our widespread assets and market penetration are the best shield against these uncertain conditions.”
  • “We have confidence in our ability to not only navigate this financial storm but to find fresh and profitable opportunities within it.”

Contrast those statements, finalized in the last six weeks of 2008, with the written appeal to the State for urgent help in the first fortnight of 2009.  Maybe truth really is stranger than fiction after all.

We are now getting reports that some CLF directors have resigned in the last month or so.  In addition, there was a story in another newspaper which detailed the high salary and bonuses (exceeding $2.5M US annually) paid to the CLF General Counsel/Corporate Secretary.  That story also stated that she retired on 21st April and was making claims for terminal payments of some $5.0M US.  According to the annual report, that person was the third highest officer in CLF.  I have not seen any published correction to or denial of that story.  She is also the officer who signed the Director’s (sic) Report in the CLF 2007 annual report, which declared a dividend of $3.00 per share.  Do these post-fiasco resignations and retirements exonerate directors and officers from their liabilities in this matter?

The MoU of 30th January specifies, at clause 20, that there are to be no increases in salary, payment of bonuses or share options without the government’s prior approval.  That is good, but it would be interesting to know what salaries and bonuses were paid to the CLF chiefs since the beginning of 2008.  That is a most important question, since it is the period in which the group went from a position of reported strength to one of virtual insolvency.  These directors and officers were in charge of the group’s strategy and operations in that period.  How were they rewarded?  How much of those people’s wealth is actually invested in the CLF group?

The issue is one of transparency, but that is a plastic concept here.  It is interesting to note that Royal Bank of Canada, which purchased RBTT last year, has a totally transparent policy on compensation.  I am right now looking at RBC’s website (http://www.rbc.com/investorrelations/pdf/2009englishproxy.pdf) on which they have displayed the detailed salaries of its directors and principal officers, with the rationale.  If we are going to bailout this fiasco, we need to know what were the rewards earned by the CLF chiefs.

We have seen bold moves being made in the USA to recover bonuses from executives of failed financial giants which are now seeking federal bailout.  Does our government intend to take firm and fair actions to recover those monies?

We also need to consider the role of professional standards in all this, since those exist to provide assurance to stakeholders that they are looked after in a complex world.  Not every question is for the court, since all the responsible professionals – accountants, attorneys and actuaries – belong to organizations with disciplinary codes.  Those codes can be severe in dealing with those who bring their profession into disrepute.  It is absolutely no defense for a professional to say that they were just following client’s instructions, if those instructions are in contravention of one’s professional codes of practice.  None.  Is the State intent on making the necessary reports?

This episode has important lessons for our country at a most delicate time of economic downturn and growing social unrest.  What lesson is this sending to our less-well-off citizens and our young people?  Is it going to be a straight case of business as usual or do we have the belly to make a fresh start?

SIDEBAR

The Governor of the Central Bank gave a press update on the CL Financial bailout on 13th February at which he told us that the financial position of CLICO was much worse than had been originally envisaged.  At that time, the Governor promised that that update was the first of a series.  There have been several incidental releases of information on the issue, most recently at the Monetary Policy Review press conference.  Since then it is fair to say that the entire position seems much worse than we had thought and another specific CL Financial update is now overdue, Governor.

Some of the matters I would like to propose for explanation at the next press briefing are –

  1. CLF’s letter – The CLF letter of 13th January has not been published.  Why not?
  2. CLF Dividends – Did the State negotiators know that CLF paid a dividend after writing to seek financial assistance?  If no, why not?  If yes, why not seek recovery of those dividends as a condition of the MoU?
  3. At what point did the State learn that the CLF assets pledged in the MoU had already been pledged elsewhere?
  4. When is the disposal of CLF assets, agreed in the MoU, to start?
  5. In light of the Governor’s own comments, when can we expect him to make a finding as to the CLF directors’ and officers’ being ‘fit and proper’ under Central Bank guidelines?
  6. What progress is being made in finding the $5.0Bn missing from CLICO’s statutory fund, as stated by their newly-appointed CEO?  Are the CLF chiefs, with whom you are in negotiation, being co-operative in this regard?
  7. The Court proceedings in relation to the Carnival Sunday injunction obtained by the Central Bank against CL Financial are being held in closed session.  Why is there the need for secrecy/privacy on these issues?  Who applied to the Court for the hearings to be closed to the public?

Moral Hazard, Part I

The key issue being exposed in the entire CL Financial bailout is that of Moral Hazard.  What is moral hazard and how does it have a bearing on this bailout?

A society in which people operate without standing the consequences of their actions is on a downward spiral to social breakdown or worse.  We have all discussed the social breakdown of our country with our friends and families.  Ours is a nation which has not suffered natural disaster, epidemics or invasion from our enemies, so the source of the breakdown is the absence of consequence.  The concept and reality of consequence is the essence of responsible, mature behaviour.

Moral hazard describes a situation in which, as a matter of policy, people escape the adverse consequences of their actions.  The idea that responsible people can, as a matter of custom and practice, escape the consequences of their actions is of course immoral to most right-minded people.  If there are no consequences, there is no motivation to do the right thing, other than an individual’s own private morals.  We all know how weak a safeguard those can be.  The hazard comes from the fact that the absence of consequence can encourage irresponsible and anti-social behaviour.  Hence the term moral hazard.

A society’s morality is the foundation upon which its legal system is built.  Morals come first and legalities are secondary.  An important point to note, for those who seem fixed upon which laws may, or may not, have been broken in this episode.  The point here is that it is possible to cause a great deal of harm by irresponsible behaviour, without necessarily breaking the law.

The Central Bank’s Governor has spoken directly on these points –

  • 30th January, in describing the causes of the CLF problems – “excessive related-party transactions which carry significant contagion risks. I should note that the high level of concentration is not specifically prohibited by the present legislation. An aggressive high interest rate resource mobilization strategy to finance equally high risk investments, much of which are in illiquid assets (including real estate both in Trinidad and Tobago and abroad).”
  • 13th February – “Clico/CIB were isolated cases of an overly-aggressive and risky business model.”
  • 11th March, speaking on that occasion on the limits of our financial regulations – “Even with all these pieces in place, any licensee who is committed to exploiting loopholes, to taking excessive risks with policyholders’ and depositors’ funds, and to bending the system could go undetected for a while and in so doing could do a lot of damage.”

The State is funding the bailout of the CL Financial Group and CLF’s operating methods were extremely risky ones.

There is no doubt in my mind that the bailout was necessary to prevent a huge financial disaster.  It was a necessary evil that we use taxpayers’ funds to preserve investor confidence.  The question is whether we are capable of learning from these experiences.  The litmus test is to ask – ‘What is to be the fate of those directors, officers, auditors, actuaries and attorneys who presided over the entire house of cards?’

We the taxpayers are now committed to finding the money to fix this colossal fiasco, and that is despite the fact that we did not cause it.  That is moral hazard for you.  This fiasco is due to CLF’s adventurous directors and officers.  What is to be their contribution to cleaning up this disaster?  Are these directors and officers going to be allowed to continue as if nothing happened?   I am asking whether CLF’s directors and officers are going to be let off the hook completely.

We continue to hold aspirations for Caribbean leadership and our response at this time of crisis is instructive as to challenges facing our region.

SIDEBAR: The CL Financial dividend

I have not spent any time on the many calls for the Minister of Finance to resign, be prosecuted, be fired and so on.  To me, the issue is simply too obvious for words and that is all.  I agree with Minister Enill that our time is better spent on the ‘bigger picture’.

The timeline set out in last week’s column allows an insight into the conduct of CL Financial over the last few crucial months.

CL Financial was unable to pay the interest or capital due to its depositors.  CL Financial was also unable to pay the benefits to which its policyholders were entitled.  We are told that that was the background to their letter of 13th January requesting urgent financial assistance.  We have no reason to doubt that account of events.

We have also read that dividends were paid to CL Financial shareholders on 16th January.  As a shareholder, the Minister of Finance knew that those dividends were paid after CLF requested State assistance.  The MoU, which is the ‘rescue plan’ for this fiasco, was signed on 30th January.  Why was that document silent on the refund of those dividends?

This cannot be allowed to stand.  It goes to the heart of the major issue of the negative long-term impact of a lack of consequence.  This is really the bigger picture.

Did the Central Bank know that a dividend had been paid to CL Financial shareholders after the written request for assistance and before the signing of the MoU?  If the Central Bank knew, why were CLF shareholders allowed to keep hold of those dividends?  If the Central Bank did not know, why not?  Was the Central Bank operating with an incomplete and misleading set of instructions?  Or are we contemplating something far, far, worse?

Methanol Holdings Trinidad Limited

Last weeks’ column sought to say that 2 statements on this aspect of the bailout – one from the Governor of the Central Bank and the other from MHTL – were contradictory.  It has been pointed out to me that those statements are not necessarily contradictory and I now accept that as being correct.

Equity in the Bailout process

Apart from the directors and officers of CL Financial and members of the government, there are other aspects of moral hazard at the level of the private citizen.

It is already a matter of concern that profits and benefits have been privatized, while the costs and losses have been nationalised.  That is a shame.  But there is more, since CLICO and CIB always offered the best interest rates and everyone knows what that means.

More reward is only available to those who have an appetite for more risk.  Those people who invested in CLICO knew that a greater rate of return was being offered.  Why then are we bailing out adventurous investors on these terms?

There is an apparent discrepancy in the terms of the bailout and that variance is interesting, to say the least.  CLICO Investment Bank has been absorbed by FCB and depositors there have been offered a choice of reduced interest at FCB rates, or the $75,000 entitlement under the Deposit Insurance scheme.  In contrast, CLICO’s depositors and policyholders have had their position fully guaranteed.  CIB, being a bank, was better capitalised, better regulated and its depositors were insured.  In terms of those benchmarks, CLICO was an inferior investment vehicle, yet the State has offered full protection to CLICO investors and only partial satisfaction to those who invested in CIB, the stronger company.  In my view the playing field should be leveled so that both sets of investors are offered the more modest package of benefits.

To continue with this lop-sided bailout only adds to the moral hazard of this messy situation.

Who is Who and What is What?

The more one considers the CL Financial bailout, the less comfortable one feels.  It was no surprise to see the main points of last week’s column publicly confirmed by the key participants.

What can one possibly say to the confirmation that the assets pledged in the MoU were pledged elsewhere? That was confirmed by both the Governor of the Central Bank and Michael Carballo, CL Financial’s Group Financial Director.

These are some of the puzzling aspects of this complex situation-

  • Methanol Holdings Trinidad Limited (MHTL) – There appear to be stark contradictions between the 6th April statements of the Governor of the Central Bank and the recent MHTL press release (available at http://www.ttmethanol.com/web/assure.html).  The signatory on the MHTL press release is their CEO, Rampersad Motilal, who is also listed as a CLF Director in their 2007 Annual Report.  There have been recent press reports that Mr. Motilal recently resigned as a Director of CL Financial.  The Governor stated that methanol prices are so low that to try to sell those shares now would be to limit the returns on the sales.  MHTL states that  its operations continued to be strong with all their plants having excellent first quarter performance, with its low cost profile allowing it to maintain overall profitable operations for 2009 even if the softened methanol prices continue.  The press release went on to state that the company’s financial position, especially its liquidity position is very strong.  Which one of these accounts should we trust?  What are the MHTL shares worth?
  • Republic Bank Limited (RBL) – These shares were pledged as part of CLF’s collateral in the 30th January MoU, but we have only silence on the agreed disposal.  Indeed, the RBL share price is stable at $86 per share since November 2008 and one has to wonder why the delay in the agreed disposal.
  • CLICO – As stated in last week’s column, the newly-appointed CEO of CLICO, Claude Musaib-Ali, revealed on Ash Wednesday that over $5.0Bn is missing from CLICO’s Statutory Fund and that those monies cannot be located.  A week ago, the Governor stated that the size of the CLICO bailout is now estimated to be $5.0Bn.  I am assuming that these taxpayers’ funds are being used to fill the gap left by the missing Statutory Fund monies.
  • CL Financial’s stance – 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!”  [See – http://guardian.co.tt/business/business/2009/04/24/cl-financial-bailout-cost-5-billion-over-two-years ]My word.  But there is yet another account coming from Michael Carballo, expressing surprise at the Governor’s statements – “We have a good relationship…and we have always sought to operate in good faith.  All information presented has been authentic and above board…”  In that case we may not need a Bob Lindquist to find out ’Where is the missing $5.0Bn the Treasury is now replacing?’  One can only wonder – What next?
  • A matter of interest – It seems clear that some consensus has now been formed to defer the sale of CLF assets so as to transfer the burden to the Treasury.  The MoU, which we were led to believe is the main document, now appears to have become secondary, despite the existence of no new facts.  What could possibly be the rationale for such an iniquitous decision?  If we proceed from where we are, it is clear that CL Financial has negotiated for itself an unsecured, massive line of credit from our Treasury.  Any one who has had to borrow money without security knows how difficult it is to get such a loan.  Even if you are lucky and someone big in the bank favours you, the interest rate is going to be extremely high.  Given the background to this fiasco, the lack of security and the reported conduct of the chiefs at CLF, what is the rate of interest being paid by this high-risk borrower?  We need to know that interest rate and now, please.

The weakening of moral authority

Finally, we come to an inevitability we all have to face, even if there is seldom any appetite to discuss it.  Yes, I am talking about the future and our aspirations.  There is a real danger that we – and I am deliberately using the collective ‘we’ – could allow our ‘Fit and Proper’ guidelines to remain yet another law which is ‘on the books’ but ‘nobody ever get charge’.  Here we have Directors and Officers of a finance company who –

  • have paid dividends after appealing for a massive State bailout;
  • pledged assets twice, which is something no ordinary person would ever be allowed to get away with;
  • claim to be cooperating with the State yet there is still $5.0Bn missing and silence on the refund of those odious dividends.

This country has intentions or stated ambitions to become an International Financial Centre.  This sorry episode is a litmus test as to our seriousness.

SIDEBAR: 22 Days of Decision

  • Tuesday 13th January 2009 – CLF writes to Central Bank requesting urgent financial assistance.
  • Friday 16th January 2009 – CLF issues dividend cheques to its shareholders.
  • Friday 23rd January 2009 – CLF holds its AGM at Trinidad Hilton.
  • Friday 30th January 2009 – MoU announced at Central Bank.  This is available at http://www.finance.gov.tt/documents/news/mr03183E.pdf
  • Sunday 1st February 2009 – Press reports that an agreement has been made to allow CLF to re-purchase MHTL shares at an agreed price in 2 years’ time.
  • Thursday 5th February 2009 – Press reports that an agreement has been made to allow Lawrence Duprey to remain as CLF Executive Chairman.  Further press reports that CLF has been advised by its British legal advisers that they must abide by the terms of the MoU.

If it was not so serious, this would be real jokey.

Rapid De-Rail

The Governor of the Central Bank is reported to have advised, at his address to the South Trinidad Chamber of Industry & Commerce on 7th April, that the assets of CL Financial (CLF) were fully pledged. <http://guardian.co.tt/business/business/2009/04/08/govt-left-empty-handed-cl-financial-bailout>. This is an outrageous development.

We are told that CLICO, CMMB, CIB and British-American Insurance Company Limited are the 4 CLF companies which were in financial trouble.  Those troubles prompted the request for urgent financial assistance made on 13th January.

That letter remains hidden from our view.  What sound reasons could possibly exist for its concealment?  Lawrence Duprey was interviewed on 12th March by this newspaper and it was reported that “…Speaking about the bailout, Duprey said he could not discuss the proposals that the CL Financial group made to the Government in January…”  Why the secrecy?  http://guardian.co.tt/news/general/2009/03/12/conflict-interest-no-way-says-duprey

This is not, repeat not, private business.  This is an enormous claim, estimated to exceed $10Bn, on our Treasury at a time of ‘belt-tightening’.  The continued secrecy on this matter is inimical to the very investment trust which the bailout is meant to preserve.  The CLF letter of 13th January must be published without further delay.

We are witnessing one of the greatest outrages in the history of our young Republic.  You see, the CLF officials who negotiated with the State must have known that the assets being pledged under the terms of the Memorandum of Understanding (MoU) were already pledged elsewhere.  You cannot sell something twice.  Everybody knows that.  Unless, that is, you trade in lies and fraud.

One of the basic principles of the insurance contract is Uberrima Fides – meaning that the person seeking the cover of an insurance policy must act with utmost good faith.  Failure to disclose important facts to your insurer could have the effect of making your policy in-valid.  It seems that CLF has acted with utmost bad faith in this matter.

CLF does not have, or cannot borrow, enough money to meet its financial obligations.  The plain meaning of the Governor’s statement is that CLF’s liabilities exceed its assets, which means that CLF is insolvent.

On Ash Wednesday, 25th February, the newly-appointed CEO/Managing Director of CLICO, Claude Musaib-Ali, reportedly told employees that the sum of $5.0Bn was missing from the company’s Statutory Fund.  “The people who were here before took the money and put it somewhere. We don’t know where. “We are perplexed…” he told workers, “we don’t know where it has gone.”<http://guardian.co.tt/news/general/2009/03/01/where-money-gone>

I could scarcely believe what I was reading.  If ever there were a case for the expensive expertise of the renowned forensic accountant, Bob Lindquist, this is it.  Mr. Lindquist is now investigating an alleged discrepancy of $20M at the Housing Development Corporation.

The Liquidation process

We also need to consider the liquidation process – what gets sold; to whom; when and at which price.  According to the 30th January MoU, CLF agreed to sell its shareholdings in Republic Bank, Methanol Holdings and CMMB to meet the cost of the bailout.  If the money raised from the sale of those shares was insufficient, CLF also agreed to the sale of “…all or any of their other assets as may be required to achieve the said correction…”.  Yet the Governor was reported to have also said on 7th April – “…because of a slump in real estate and methanol prices the Government would not be able to sell the conglomerate’s vast real estate holdings at present to recover the funds provided to CL Financial to relieve a liquidity problem.”

It seems that the decision has been taken to defer the sale of these assets because of the poor returns which would be made at this time.  Why the shift in strategy since 30th January?  The plain meaning of the Governor’s words is that to sell the CLF assets as agreed in the MoU would not yield the required monies.  That, in turn, would lead to a call on ‘all or any’ of the other CLF assets until the State injection of funds were matched.  The likely effect would be to close down CLF.  We are now being given a stupefying rationale for the fact that the implementation of the MoU is being delayed.  I say stupefying because the slump in real estate and methanol prices were already realities on 30th January.  The deferral of the liquidation of these CLF assets has two important consequences –

Firstly, taxpayers would be funding the bailout while waiting for asset prices to recover.

Secondly, CLF, having negotiated in bad faith, are being given a second lease on life, since, when asset prices recover they would be able to settle their indebtedness to the State and continue trading.  The obvious CLF insolvency issue is being forgotten.  Is any interest being charged on the huge sums of money being advanced to fund this business rescue?  Is it proper use of taxpayers’ money to rescue a privately-owned conglomerate?

In my view, the main effect of deferring the liquidation of CLF’s assets would be to transfer the growing costs of the bailout from the CLF balance sheet to the Treasury.  Thus allowing CLF’s shareholders to retain value.

The Minister of Finance and her defenders would have us believe that the MoU does not benefit CLF shareholders.  That would be so if it were being faithfully implemented.  But, as is so often the case, the devil is in the details.

Finally, we come to the burning issue which has occupied so much of the debate taking place overseas.  CLF paid a dividend to its shareholders on 16th January, 3 days after writing to the Central Bank for urgent financial assistance.  What moves are being made to recover those dividends?

SIDEBAR: CLF’s Directors and their responsibility

CLF’s Directors, as listed in their 2007 annual report, were –

Lawrence A. Duprey, CMT (Group Executive Chairman / Executive Director)

Sylvia Baldini-Duprey (Deputy Chairman)

Michael E. Carballo (Group Financial Director)

Roger R. Duprey (Executive Director)

M. Anthony Fifi (Director)

Dr. Bhoendradatt Tewarie (Director)

Dr. Rampersad Motilal (Director)

Clinton Ramberansingh (Director)

Leroy Parris (Director)

Bosworth Monck (Director)

Evan McCordick (Alternate Director)

Director’s liability – In May 2005, the Central Bank published its ‘Fit and Proper’ Guideline (sic) and that document can be found at http://www.central-bank.org.tt/news/releases/2005/mr050510.pdf.  It is a critical part of this discourse since it sets out the official position as to the type of person held to be ‘fit and proper’ to be a Director or Officer of a Financial Institution.

It states –

3.1 In accordance with governing legislation a person is considered to be fit and proper if the person essentially is of good character, competent, honest, financially sound, reputable, reliable and discharges and is likely to discharge his/her responsibilities fairly.

In light of the startling information disclosed in the Governor’s recent speech, how can we regard the CLF officers who conducted the MoU negotiations as ‘fit and proper’?  What action is being proposed to deal with them?

On 12th March Mr. Duprey was interviewed on the conflict of interest issue – here are some interesting quotes from that interview –

  • “What conflict of interest? Let’s grow up.”
  • “…Government came to protect the policyholders. They are not protecting us because I could walk away from Trinidad tomorrow and make a better living…”
  • “…It does not matter what I am left with. That is irrelevant. What is most important is that the policyholders are protected. I’m not important because I could pick up tomorrow and make a living in Greenland or Alaska or Saudi Arabia…”