Tag: conflict of interest

CL Financial bailout – The House on the Corner

Some insights into CIB

CIB head office - The House on the Corner
CIB head office - The House on the Corner

I am starting to look at the CLICO Investment Bank (CIB) and its operations, as revealed by the ongoing bailout.

CIB is a very interesting part of the saga, because even prior to the collapse of the CL Financial group there was a widely-held view that CLICO and CIB were parts of the group which were responsible for raising finance for their ambitious plans.  Even though the interest rates offered by CLICO and CIB were incredibly high – about twice the average offered by others – it would have been much more expensive for the CLF group to borrow those funds via loans.  The view was that the CLF group had a legitimate method of harvesting funds on terms advantageous to them.

In April this year the Central Bank applied to the High Court to have CIB ‘wound-up’, due to its insolvency, estimated in that submission to be of the order of $4.7Bn.  (See https://afraraymond.net/wp-content/uploads/2010/09/cibcbtt2.pdf) That application to wind-up is being opposed by the NGC and the National Insurance Board (NIB).  Those matters are still before the Courts, which I only mention because the documents filed there give a disturbing insight into the CIB mystery.

We were also being fed some lyrics that the CL Financial group in general and CIB in particular were all healthy/strong companies with good assets, fallen victim of the global financial crisis.  Despite the natural doubts on that one, I had some trust in those people who were speaking to me.  The mystery remained – Was CL Financial and CIB an audacious, well-run operation which had become a victim of a declining market or, even worse, a sinister conspiracy?  Or was it a much less glamorous story of the Caribbean’s largest-ever business conglomerate actually being some kind of Naipaullian ‘Thing without a name‘?

I have read some of the affidavits in this case and the contents will be severely disturbing to any right-thinking reader, even you are not a financial expert.  This week I am looking at two affidavits of the Inspector of Financial Institutions, Carl Hiralal. The affidavits are available to read at https://afraraymond.net/wp-content/uploads/2010/09/cibey1.pdf and https://afraraymond.net/wp-content/uploads/2010/09/cibcbtt1.pdf.

Carl Hiralal
Carl Hiralal, Inspector of Financial Institutions

There is a way that the entire reading is surreal, since the very person who was supposed to safeguard us from extensive wrongdoing and risk-taking, now has to swear to the Court that the institution has failed so badly it needs to be wound-up.

The main points were –

  • The initial meeting – At para 5 he states “…On January 15th 2009 as part of its normal regulatory process, the Central Bank held a meeting with officials from the Petitioner…” (CIB).  Now that is literally an unbelievable sentence.  Hiralal is swearing that this was a routine meeting.  We are being asked to forget that the then Minister of Finance told the Parliament on 4th February 2009 that

    “…I would like to read into the record of Hansard, a letter from Clico Investment Bank addressed to the Central Bank. That letter is dated January 13, 2009. It is on the letterhead of CL Financial, addressed to Mr. Ewart Williams, the Governor and signed by Lawrence A. Duprey, Group Executive Chairman…”

    see page 628 of http://www.ttparliament.org/hansards/hh20090204.pdf.  I am forming the impression that Hiralal does not want to have the ‘bailout letter’ cited in this Court matter at all, for whatever reason.  You see, if it were cited, the Central Bank would have been forced to file a true copy, which anyone would have been able to access.  Neither of my Freedom of Information applications for that ‘bailout letter’ – to Nunez-Tesheira or Dookeran – have been fruitful.  So we have this incredible statement for starters.  We are being asked to believe that Lawrence Duprey’s letter requesting urgent, massive financial assistance and the meeting two days later were unconnected.

  • Reasons for winding-up – At paras 9 c. and 10 g. he states “…the Petitioner (CIB) was not maintaining high standards of financial probity and sound business practices…”  Stunning, and in a sworn affidavit from the chief regulator.  This is the high official responsible for maintaining good order of the players in the financial system.  Those Directors, Auditors and Officers of CIB, the ones who presided over this situation, do you still consider them to be ‘fit and proper’, Mr. Hiralal?  Yes or no?  If Yes’, how come?  If ‘No’, what are you going to do about it?  And when?  But there is more.
  • Board of Inland Revenue – At para 23 he states “…With respect to the Creditors of the Petitioner, the Petitioner has met the statutory obligations for the Board of Inland Revenue (except for Corporation Tax Returns for 2007, 2008 and 2009 which are being prepared and remain outstanding)…”  I spoke with a very experienced accountant and a corporate attorney before writing this and the common view is that the meaning of that statement is that the Corporation Tax owed by CIB is unpaid for 2007-2009.  If they owe those taxes we dealing with people who do not pay their taxes, yet expect the taxpayer to assist them in times of need.  Even if the taxes are paid-up in full, there is still the elementary and inescapable governance question of how and why CIB failed to file a tax return?  Did PwC report on this in either their audit or management letter?  Was Hiralal aware of CIB’s failure to file before he was forced by the procedural requirements of the winding-up petition to declare his hand?  Did the Board of Directors know?  Have penalties been applied?
  • Statement of Affairs – This is at para 12 and appears to contradict the prior statement in that it does not show any amount for either ‘Taxation Recoverable’ or ‘Taxation Payable’.  There needs to be an explanation on this.
  • Auditors – CIB’s auditors were PricewaterhouseCoopers (PwC), who were featured last week.
  • Lucie-Smith’s view – William Lucie-Smith, former Managing Partner of PwC, responding to bloggers on his Express article ‘CL Financial: A new strategy required’ – see http://www.trinidadexpress.com/commentaries/CL_Financial_A_new_strategy_required_.html – replied on Friday 20th August, like this “…Indeed I dont (sic) know why anyone assumes the books were wer (sic) wrong at any time and did not reflect accurately what was happening…”  Just my first read of those affidavits made me question the reliability of the accounts.

Next, I will be going into some more detail on how CIB actually worked, based on sworn affidavits.

The Concentric Circles

Concentric circlesFor the purposes of this article, CIB is at the centre of the page, with its Directors and Officers being in charge of its strategy and management.  They bear primary responsibility for the company’s affairs on behalf of the shareholders and other stakeholders.

The second ring is the auditors, usually a leading firm of Chartered Accountants, who examine the accounts prepared by the company to report whether those accounts offer a true and correct picture of the company’s financial health.  The auditors use international accounting standards as a benchmark for quality and comparability of figures, if there are material divergences from those standards, the auditor’s opinion can be qualified, which is when the divergences are specified.

The third, outer ring is the financial sector regulators, whose job is to ensure that the companies within the industries comply with the law and other guidelines created by the regulators.  The regulators examine the audited accounts and other information from the companies in order to determine the extent to which the rules are being followed.

We, the saving and investing public, are outside of that series of concentric circles and once there are no alarm bells, we will place our savings with these approved financial institutions.

The reason for all that is to preserve the most fragile and vital ingredient of the capitalist system.  Yes, I am speaking about trust, which is also an important aspect of the wider society.

The society relies on the people in these three concentric circles to act in a ‘fit and proper’ fashion in the execution of their duties, with proper penalties in place for improper or illegal behaviour.  The idea being that there is a minimum standard of conduct and risk-taking which avoids nasty surprises in the course of normal savings and investment.

There are real questions as to what levels of risk-taking and innovation are healthy or desirable to maintain some balance between profit-levels and stability.  That is a fascinating aspect of the financial industry to be expanded on.

The Regulator

The chief Regulator at the Central Bank, with responsibility for both Banks and Insurance companies, is the Inspector of Financial Institutions.  That office is held by Carl Hiralal, who was appointed on 1st January 2007.  Hiralal is a well-qualified, highly-experienced professional and that only makes the contents of his affidavits all the more disturbing.

For more details, see – http://www.ttaifa.com/downloads/2009CarlHiralalBio.pdf

The CIB Directors

At the time of the collapse, the Board of Directors of CLICO Investment Bank comprised –

Mervyn Assam (Chairman)
Amjad Ali
Anthony Rahael
Maria Thorne
Michael Callender
Faris Al Rawi

Housing Policy Imperatives – part 6

I am bringing this analysis to a close by asking the question as to which individuals are ultimately responsible for this scandalous situation.  The age-old questions persist – Are we mere creatures of circumstance?  What influence can one individual have on transforming a situation?  Do modern outlooks over-emphasise the power of the individual?

We need to close the circle to understand the role of the high-powered individuals in charge of this policy.

The Author of the Policy

Calder Hart
Former HMB and UDeCOTT CEO, Calder Hart

Calder Hart, then CEO of Home Mortgage Bank and well-known to be a protégé of Andre Monteil’s, claimed to have authored our National Housing Policy – ‘Showing Trinidad & Tobago a new way home‘

In October 2002, Hart told me that in his office and he made a point of seeking my views of the new policy.

I questioned the originality, relevance and feasibility of the proposed policies and a frank discussion ensued.  It seemed clear, from Hart’s reaction and subsequent behaviour, that he had indeed taken authorship of that misguided policy.

That policy can be viewed at here.  Given their non-involvement in the later stages, it is interesting that the cover-page of the housing policy highlights UdeCOTT as a main state agency in its implementation.

The Minister of Housing

Keith Rowley
Former Min. of Housing, Dr. Keith Rowley, M.P.

The Minister of Housing with longest tenure through this period was Dr. Keith Rowley, M.P., currently leader of the Opposition PNM – he was in that office from  November 2003 to November 2007 – see http://www.ttparliament.org/members.php?mid=26&pid=5&id=KRO01.

The HDC was launched on 1st October 2005 to replace the National Housing Authority.  The Trinidad and Tobago Guardian newspaper reported Dr. Rowley’s remarks at that time – see http://legacy.guardian.co.tt/archives/2005-10-15/news7.html

Earlier, Rowley said the NHA was restructured because it lacked accountability.

There are a lot of things that did not go right in the NHA and one of those things had to do with accountability…The HDC is not going to function like that. We are required by law to have the accounts ready in a certain period of time.  The CEO will be held accountable and the Cabinet will hold the minister accountable and the Parliament will hold the Cabinet accountable. That is what the HDC means.

“…the HDC never published any accounts in the 5 years of its existence. It goes even further, since the NHA’s accounts for the period 2002 to 2004 have only recently been prepared.”

Continue reading “Housing Policy Imperatives – part 6” →

CL Financial bailout – Examining the Horns

Once again, I am returning to the need for us to grow a culture of responsible behaviour as a vital part of national development.

Responsible Reasoning

William Lucie-Smith
William Lucie-Smith

The idea that the CL Financial bailout is just like the one in the USA is a durable one, which has been very useful to those people who are seeking satisfaction.  Nothing could be further from the truth.  That is a false view and what is more, extremely misleading to the public, who rely on informed members of society to share that information conscientiously.  Rightfully or wrongfully, many people here look upon the USA and the doings of its government with a sense of approval, to the point that if Uncle Sam does it that way, there must be some good sense in that.  That idea that our bailout is ‘just like the one in America‘ must be challenged, defeated and put out of its misery.

On Wednesday August 18th, William Lucie-Smith, the Express columnist wrote on this very topic, his sub-title being ‘A new strategy required’.  That column can be found at http://www.trinidadexpress.com/commentaries/CL_Financial_A_new_strategy_required_.html
Lucie-Smith is a chartered accountant, former Managing Partner of PricewaterhouseCoopers and currently is a Director of both Republic Bank and Sagicor – he is described in his byline as ‘specialising in corporate finance’.

That article started with the claim that the CL Financial bailout was in some way similar to the US government’s bailout of its financial sector.

…The original plan was to guarantee policyholder funds and make loans available to Clico, so that confidence would be restored and the group businesses turned around. This is what happened in the United States with the vast majority of TARP funds being repaid in full with interest…

Given the huge stakes in this matter, the promotion of such misleading views is nothing less than public mischief.

Here are some of the main points of the CL Financial bailout which are, in every respect, completely different from the USA situation –

  • No Public Explanation – Apart from Duprey’s single, brief speech at the press conference to announce the bailout on 30th January 2009, there has been no proper forum at which the CL Financial chiefs have been made to give an account of this catastrophic collapse.  Neither has there been an attempt to set one up.  That is in direct contrast to the highly-publicised and televised Congressional hearings at which the chiefs of these failed financial institutions have been questioned as to their actions and the serious consequences.  We have all seen those TV shows.  Even the new CL Financial management is little better, compared with the USA where the Treasury must make a monthly report to Congress on the bailout.
  • No limit on quantum – No limits have ever been set on the CL Financial bailout.  Every firm in the USA bailout had its borrowing limits specified at the outset.  As an example, see Citigroup’s terms at http://www.financialstability.gov/latest/hp1287.html.  Or the wider bailout, at http://www.financialstability.gov/latest/tg13.html.
  • No interest – Neither of the Agreements specifying the terms of the CL Financial bailout even mention interest.  As Lucie-Smith himself stated, the recipients of the US bailout had to repay taxpayers’ monies with interest.
  • No pre-payment of creditors – An interesting feature of the US bailout was that the failing financial institutions were made to stand the first tranche of losses before any taxpayers’ monies were injected.  In other words, they had to sell some of their assets first before tapping into Uncle Sam’s Treasury.  In contrast, CL Financial has been able to tap right into Treasury funds without any significant asset disposals – yet another point that Lucie-Smith himself makes.
  • No time-limit for repayment – Neither of the Agreements specifying the terms of the CL Financial bailout give any stated payback period.  The US bailout set out repayment periods for all recipients of taxpayers’ funds.
  • No security taken – No significant CL Financial assets have been disposed of, as per the agreements – yet another point that Lucie-Smith himself makes.  In addition, the Governor of the Central Bank has himself confirmed that all of the CL Financial group assets are encumbered – see http://guardian.co.tt/business/business/2009/04/08/govt-left-empty-handed-cl-financial-bailout.
  • No dilution of equity position of CL Financial shareholders – Despite the massive extent of the CL Financial bailout – it is effectively an open-ended commitment – there is no dilution of the shareholders’ equity.  In the US bailout, the troubled  companies were forced to give equity to the Federal Government.  In order to receive taxpayers’ money in the USA, Fannie Mae (the huge mortgage company) gave 79.9% of its equity; while AIG (at that time the world’s largest insurer) gave over 85% of its equity; 36% of Citibank belonged to the US government in February 2009 – pages 229, 401-2 and 530 of Andrew Ross Sorkin’s ‘Too big to Fail’ refer.  CL Financial shareholders have not been made to dilute their equity.  If I, writing as an interested citizen, could know this, it seems that any specialist in corporate finance would also know these details.

The only resemblance to the US bailout is in name only.  Real Trini-ting.    Duprey and his cohorts negotiated a Blank-Cheque Bailout at zero interest, without losing any of their assets.  That deal is absolutely unique.

Our taxpayers have effectively made a huge single loan (probably the largest in the Region’s history) to the wealthiest individual in the Region at Zero interest.  Virtually every relevant professional body and Civic Society organisation has remained silent on this bold-faced attack on our Treasury.  Nothing from the Accountants, Lawyers, Bankers, Economists, Trade Unionists or Religious bodies.  The one recent exception to this has been the call by the Trinidad & Tobago Transparency Institute (TTTI) for investigations into the Angostura disaster.

The CL Financial bailout has been cloaked in the robes of benevolence and stability, resulting in a situation which has minimised the floods of lawsuits which would have been confronting some of those responsible parties – Auditors, Attorneys, Company Directors and Officers.  In reality, the common-wealth of our entire society has been pledged to rescue a fortunate few.

The CL Financial bailout is in urgent need of re-negotiation, to say the least.  “It wrong like a biscuit.”

In the same way it was wrong for the last administration to use taxpayers‘ money to rescue the CL Financial chiefs from the real consequences of their decisions, it would be equally wrong for this newly-elected government to also bailout those affected by HCU’s demise.  Two wrongs could never make a right.

Cocktail of Consequences

Angostura Rums

Angostura is the Caribbean’s flagship rum and bitters company.  It was a Caribbean icon, manufacturer of Angostura Bitters, as well as classic rums like 1919, Royal Oak, 1824, VAT 19 and Old Oak – Angostura was acquired by CL Financial in 1998.

The 2008 audited accounts were finally published at the end of July 2010 and the extent of their losses are cause for grave concern, seemingly a harbinger of the state of the entire group, 18 months into the bailout.

Coming after an extended wait for the 2008 audited accounts, the Guardian headline on 4th August 2010 was stunning: ‘Angostura declares $1.28Bn loss’ – see   http://guardian.co.tt/business/business/2010/08/04/angostura-declares-128-billion-loss.

The Express headline, on the same date and story, made me smile – ‘Angostura sales rise’ – see http://www.trinidadexpress.com/business/99917894.html.

It was said to be the largest loss in the history of our stock market and it represents colossal destruction of investors’ capital and national wealth.  It seems that the source of the losses was a receivable due from its parent company, CL Financial – according to the Deputy Chairman’s report – see http://www.angostura.com/LinkClick.aspx?fileticket=JSMxolh%2bmC8%3d&tabid=144 –

…[the] precarious financial position of our parent company…impaired the collectability of circa $1,185M in receivables from the CL Financial group…

The Notice to Shareholders of 26th June 2009 – see https://afraraymond.net/wp-content/uploads/2009/11/26jun2009_angostura_notice_to_shareholders.pdf – stated that the receivable from the parent company was $633M.  So you have to wonder what is the reason for that receivable almost doubling.

The interests of the minority shareholders have been subordinated to those of the majority shareholder, CL Financial, which was able to acquire the leading Jamaican distiller, Lascelles Mercado, by deploying the Angostura assets.  This episode is one which raises issues of minority shareholder rights which are unlikely to disperse.  As Justice Carlton Best is reported to have said, in relation to his lawsuit against CLICO for a $57,000 fixed deposit they failed to honour upon maturity – ‘It feels like robbery without a firearm’.

Who advised the Angostura Board on this transaction?  How can we accept the declaration that those funds are now irrecoverable?  How could a parent company, said by its auditors to have assets worth in excess of $100Bn at the very same accounting date (31st December 2008) be unable to repay a mere $1.185Bn.

Yes, it is true, the same accountants – the esteemed international firm, PriceWaterhouseCoopers – are auditors for both CL Financial and Angostura.  But more on that in the sidebar.

It is almost a metaphysical query – can a responsible class always escape judgement?

SIDEBAR: Auditing the Auditors

PricewaterhouseCoopers (PwC) is the world’s largest professional services firm in the accounting and finance industry.  PwC audits the accounts for UDeCOTT, CL Financial, Angostura and at one point I can even recall the Hindu Credit Union announcing that that firm was to be their internal auditors.  Clearly, PwC is a main player in the big leagues here in Trinidad & Tobago.  Let me declare here that they are also my [Afra Raymond, not Raymond & Pierre] accountants.

On 30th June that firm issued a letter, under the hand of Colin Wharfe, its new Senior Partner, to announce four new appointments.  The letter also explained that four of the most senior Partners had all retired on 30th June, those were –

  • Graham Mitchell, former Senior Partner, after 28 years’ service;
  • Jewan Ramcharitar, after 34 years’ service;
  • Peter Inglefield, after 34 years’ service;
  • Gerald Olliverre, after 32 years’ service.

The new appointments were announced in full-page press adverts, which omitted the retirements. See letter here – https://afraraymond.net/wp-content/uploads/2010/08/pwc_resignations.pdf

•
A version of this commentary appeared in print on August 26, 2010, on page 17 of the Business Guardian.

Change, not Exchange – Part 3: Jack Warner

Jack Warner, MP. Photo courtesy Trinidad Guardian
Austin 'Jack' Warner, MP and acting Prime Minister
On 6th June, I wrote in this space about the challenge to the new government to bring about a real change, as opposed to mere exchange.  I ended that column by highlighting the worrying case of Jack Warner, one of my former history teachers, making history by being the first Cabinet Minister to hold other appointments.  My objection to Mr. Warner serving two masters was that it would be impossible for him to give the full energies we have every right to expect from our Cabinet members.

We need to be mindful of the relationship between morals, ethics, law and of course, that scarce commodity, good sense.  Obviously, law is the paramount authority, because we live in a republic ruled by laws, not men. No one should break the law and there are penalties for doing that.  But we also know that in life we make many important decisions without referring to any laws. Those are sound decisions, which form norms, eventually described as custom-and-practice or culture. There are many acts, which are at one and the same time both deeply offensive to right-thinking people (and I think that most people are right-thinking) and in breach of no particular law.  Many acts, with no need for examples, since this is a newspaper any child could pick up and read. There might even be laws against me describing such acts in print.  Who knows?

The reality being that, as important as law is, the proper development of our society depends on far more than just law.  Law is a necessary, but not sufficient ingredient for proper development.  So, what do I mean by proper development?  One of the key signs that we are moving forward would be an increased sense of consequence and the capacity to learn from our errors.  Some examples of our failures in those respects were set out in the prior article in this series.

Some of the main points here were –

  • Board resignations – Jack Warner’s opening statement, made on Indian Arrival Day, was his strong demand that all Board Directors of State Enterprises and Statutory Bodies coming under the control of his Ministry must submit immediate resignations.  In making that call, Mr. Warner relied heavily on custom-and-practice, good practice and established norms.  He was, quite properly, declaring that he expected those high-ranking public servants to behave properly.  No reference to law was considered necessary to see what was the right thing to be done.  Yet when queries arose on Jack Warner’s multiple appointments, we were rapidly boxed-into a strange place where only the law prevails.  That is ‘chinksing’ with a vengeance.
  • Warner’s statement upon his return home on the 15th was most instructive.  Consider please that this was no hasty response to an ambush question and that the entire Piarco reception had been arranged by Warner.  His emphatic reply as to the weakness of Rowley’s case was telling, in as much as it relied on the various examples of PNM wrongdoing that Rowley was accused of having condoned.

    …If Dr Rowley is so concerned about the Parliamentary Code of Ethics, I want to ask him some questions this afternoon. “Why was he so silent when Mr. Manning appointed his wife, not once, not twice, but three times as a minister? “I want to ask him why he was silent when a Minister of Health had his son open pharmacies all over the country to sell CDAP drugs? Wasn’t that code of ethics broken then? “I want to ask him also why he was silent when another Minister of Health had his wife take all the insurance of the Government of Trinidad and Tobago to a company she owned? Why was he silent then?

    See – http://guardian.co.tt/news/politics/2010/06/16/warner-i-have-broken-no-law

    Strange as it might seem, a mere 3 weeks into the honeymoon, we were witnessing a premeditated statement by a senior Minister to the effect that ‘two wrongs make a right’.  Mr. Warner was trying to silence Dr. Rowley, by reference to his condonation.  That is a sad and rickety foundation from which to proceed, but even more telling is Warner’s implicit acceptance that his own position was wrong.

    Warner’s attempt to diminish Rowley’s victory was also interesting –

    Not contented that he removed Patrick Manning from office—he got the easiest political ride in history—he had the temerity to accuse me of breaking some law, or transgressing some code of ethics…

    It has to make you wonder, if that is Jack Warner’s view of Rowley’s victory, what is his view of the PP’s triumph?

  • In the midst of all the lawyers’ opinions, we had an attempt, by Michael Beloff QC, to set these local events in international context –

    …Beloff said he was unaware of any precedent in any common law jurisdiction for a person holding at one and the same time, ministerial office and another post outside of the Government.  “I have little doubt that a main reason is that the demands of ministerial office would usually preclude such dual appointment and the minister could be exposed to criticism for not devoting himself full-time to his government duties…

    see http://www.trinidadexpress.com/news/97564904.html

  • The silence of the lions – Most notable, for me, in all this, was the lack of comment from outspoken people like – Errol McLeod, David Abdullah, Makandal Daaga and Anil Roberts.
  • We voted against the idiosyncratic and bizarre leadership style of Mr. Manning, in which important policies were perverted and new precedents set for a favoured operative.  It seems that the grounds for the decision were limited and the well-established precedents set aside for Mr. Warner and effectively, a ‘special case’ was made for him.

I say again that the State has a duty to be exemplary in its conduct.  We have a right to reasonable, consistent and transparent decision-making by government.  Another aspect of this is that this lawyer-driven decision seems, to me at least, to limit the PM’s power in Cabinet to control her team.

Apart from law, most of the people who supported Jack Warner on this issue seemed to proceed from either the ‘two wrongs’ principle or from the notion that Mr. Warner is a superior performer.  It seems that, in this case, Jack Warner will have to ‘take win’ and all we can do is measure his reputation against his actual performance.

One of the fascinating aspects of this affair is the way in which power has been defined, and re-defined, in the unfolding.  My favourite definition of power was always ‘the ability to set the agenda’.  It has always been the case that the setting of the public agenda was a prerogative of the PM, leaving Leaders of the Opposition lagging one beat behind.  As a result of that pattern, a lot of sound and fury became the norm of Opposition. In his opening statement on 4th June, Dr. Keith Rowley, as the new Leader of the Opposition, set out his objections to Jack Warner’s multiple appointments.  We had comments from every sector of the society on this issue and many group exchanges on radio call-ins and the social media.  Whatever one thinks of the actual objections raised by Dr. Rowley, it is clear that those objections shaped the public agenda. That is no bad thing. In this rounds, it seems that the change we voted for could be coming from unexpected places and with odd timing.

CL Financial bailout – Testing the terms

On Sunday 6th June the Trinidad Express’ Investigative Desk published yet another series of exclusive reports from Camini Marajh and those are once again, raising more questions than answers.

The reports revolved around some of the recent dealings of Home Construction Limited and their financing via First Citizens’ bank.  The Home Construction group of companies is an important part of the CL Financial empire – that CLF empire is being bailed out by the State.

The key issues arising from the reported information would seem to be –

  • Interest rate – It was reported that First Citizens’ bank extended a credit facility to Home Construction Limited in excess of $1.0Bn as a 5-year demand loan.  The interest rate was reported to have been at 7.5% and that seems very low when one considers that commercial demand loan facilities are being offered now by the banks in the 10-11% plus range.  But that interest rate could also be explained by other factors.
  • Markdown of Security – For example, there may have been measures taken by the lender to obtain beneficial markdown on the various securities held against the funds advanced.  In this case, it is being claimed that the property valuations obtained from a Miami-based firm were on the conservative side and that may be grounds to consider that HCL offered a greater measure of security for the funds advanced. The point here is that asset values are indeed lower than they have been in recent years and those are the current values, however uncomfortable that might make the borrowers.
  • State guarantee – The other aspect of the matter is that the terms of the bailout are tantamount to a State guarantee for the debts of the CL Financial group and that would have to include the HCL group of companies.  In the circumstances, the importance of the underlying, written guarantee is such as to almost eclipse the properties held as security.
  • Timing – An interesting point is that the deal is reported to have been signed on Thursday 20th May, virtually on the brink of the recent general election.
  • Over-concentration of risk – One of the fundamental guidelines to prudent financial behaviour is that one should avoid putting all ones eggs in one basket.  When one examines the CL Financial fiasco, over and over, this basic principle has been violated.  In ‘Taking in Front‘, published in the Sunday Guardian on 25th April – see also http://guardian.co.tt/business/business/2010/04/25/taking-front – I analysed how the NGC’s prudent rules for placement of deposits appeared to have been compromised by the attractively high interest rates offered by the CLICO Investment Bank.  As another example of this, there are people, who had put virtually all their savings into the CL Financial group.  In this case, we have yet another sobering example.  This demand loan was stated to have been for $1.073Bn to HCL for a period of 5 years at an interest rate of 7.5%.  According to the audited accounts which form part First Citizen’s 2009 Annual Report – see https://www.firstcitizenstt.com/dms/AnnualReports09/FC-Annual-Rpt2009-3/FC-Annual-Rpt2009-3.pdf – its total loan portfolio as at 30th September 2009 was $11.87Bn.  This single facility therefore comprises over 9% of its loan portfolio, to a single borrower, known to be in financial difficulties.  That seems to be an over-concentration of risk.  A related question would have to be whether the CL Financial group has further borrowings from First Citizen’s, apart from the load assumed from CLICO Investment Bank.
  • Crisis measures – We should not be surprised that the present financial crisis is being used to justify the unorthodox crisis measures being deployed to handle various situations.  The purpose of this demand loan facility was stated to have been for the restructuring of HCL’s existing facilities. Which means that this level of indebtedness pre-existed the collapse of the CL Financial group.
  • Related Parties – According to the Governor of the Central Bank, speaking at the press conference to announce the CL Financial bailout, one of the main causes of the collapse was ‘…excessive related-party transactions…’.  In this case we have the boards of CL Financial, HCL and First Citizen’s bank, all being appointed by government, with a huge single loan to a single borrower.
  • The State’s position – The most astonishing part of the entire Sunday Express story was the question as to whether the various Directors of the Boards of companies within the CL Financial group would be resigning.  Marlon Holder, CEO of the group and Chairman of CLICO is reported to have said that

    …there was no need since CL Financial was not a statutory State company, and the shareholders’ agreement signed between Lawrence Duprey and the Government required agreement by both sides before any change could be instituted…

      If I am reading that right it would seem that the terms of the June 12th 2009 Shareholders’ Agreement were being invoked to secure the positions of the present holders of high office in the CL Financial group.  If this position as outlined by Holder is indeed correct, then there seems to be an urgent  need for those terms to be re-examined and/or renegotiated.

SIDEBAR:  The importance of Critical Thinking

Dr. Bhoendradatt Tewarie
Dr. Bhoendradatt Tewarie
Dr. Bhoendradatt Tewarie is a former UWI Principal, Director of CL Financial and Republic Bank Limited.  In ‘People’s Partnership Position’ on 23rd May – see http://wp.me/pBrZN-fG – I was critical of his continued silence on the collapse of this, the Caribbean’s largest conglomerate.

Apparently Dr. Tewarie is also the Director of the Institute of Critical Thinking at UWI.  Listen to his conclusion to the Director’s Statement –

…The present in which we now live has already been created for us or we ourselves might have knowingly or unknowingly conspired to create it. But we live and we learn. The important thing is that we learn. When we learn we grow and evolve and are better able to deal with the inevitable new challenges. And so we press on…

see http://sta.uwi.edu/ct/foundir.asp

We need a proper account from Dr. Tewarie on the last days of the CL Financial group.  The people who are responsible for this  scale of collapse must render an account.  To fail to do so would only compound their failure and we would have to banish them to obscurity.

An overview of the Uff Report

Professor John Uff. Photo courtesy Trinidad Guardian
Professor John Uff

The Attorney General announced at the Post Cabinet press briefing on Thursday 1st April that the full Uff Commission Report will be laid in the Senate on Tuesday 6th April – see http://guardian.co.tt/news/politics/2010/04/02/uff-report-senate-tuesday.  I was pleased to hear that, but there remained a widespread attitude of skepticism as to the outcome of the AG’s promise.  One can hardly blame people for having those feelings since, as TTTI’s President, Victor Hart, has recently reminded us, PM Manning broke his promise to publish the report of the Bernard Commission into the Piarco Airport project.  That was over 6 years ago and still no Bernard Report yet.

I received a copy of the Uff Report in my email on Saturday and several other concerned citizens as well, so it seems that some publicly-minded person wanted to ensure that it was not either suppressed or edited.  Thank you, whoever you are.

The Uff Report is 512 pages long and contains 91 recommendations, so its sheer volume and the limited time available mean that I am unable to give a detailed review.  This week’s column will therefore comprise an overview of the main concerns raised in the Enquiry and the way in which the Report has handled those.

CORRUPTION

Q – Does corruption exist in the manner alleged by the government’s critics?

A – At para 59. the Uff Report states that “…It is accepted that corruption is a problem of serious proportions in Trinidad & Tobago…to which the construction industry is particularly prone…”

Was there actually something corrupt or wrong at UDeCOTT?
Q – Is there good reason for concern at UDeCOTT’s operations, or is it a case of politically-motivated attacks?

A – Para 14.36, from the Commission’s discussion of the Ministry of Legal Affairs Tower/CH contract, is a classic of understatement – “…UDeCOTT’s application of its own rules discloses a worrying lack of transparency as well as inconsistency…”

Para 14.37 states – “…the appearance of Mr. Calder Hart’s fax number on the notepaper, which was no doubt hurriedly printed by CH Development, remains unexplained…”

Para 14.41 –“…there should be an investigation by an appropriate criminal Law Authority into the award of the MLA contract to CH Development, to include the role of Mr. Calder Hart and the conduct of the Board in not ensuring that an enforceable guarantee was given by the parent company of CH Development…”

LOCAL VS FOREIGN

Q – Are local contractors being unfairly replaced by foreign contractors or do the foreigners really deliver better performance?

A – Para 6.18 states that – “…no convincing comparison has yet been presented from which reliable conclusions can be drawn as to the relative performance of local and foreign contractors or consultants…”

PROCUREMENT

Q – Is it better for the government to try using Design and Build or should they stick with the traditional Design and Tender method of procurement?

A – Para 7.20 states that – “…there is no single system of procurement which should be preferred in all circumstances…”

The Hart legacy –
According to Para 12.55 – “…We have noted the apparent absence of any note of criticism or dissent within the UdeCOTT staff and the dominant influence of the Executive Chairman, Mr. Calder Hart.  To the extent the failure of senior staff and directors to raise any voice in opposition to the level of financial irregularity found on the Brian Lara Project amounts to loyalty, such loyalty is clearly misplaced…”

The Property Matters critique of UDeCOTT started in 2008 on the theme ‘A considerable concentration of power’, which attempted to draw lessons from the Cadbury Commission as to the perils of the Executive Chairman.

The role of UDeCOTT’s Board and its Executive Chairman came in for heavy criticism, with the Report calling for full investigations into the Ministry of Legal Affairs Tower and the Brian Lara Cricket Academy.  Furthermore, there is a recommendation that the roles of Chairman and CEO should be separated.

The Rowley saga –

Q – Was there really any money missing at Cleaver Heights?

A – Para 27.11 – “…the entirely erroneous addition of $10,000,000…”

SIDEBAR: Notes to Jearlean John

Jearlean John. Photo courtesy Trinidad Guardian
Jearlean John, Chairman UDeCOTT

On Tuesday 16th March, I spoke at a JCC press conference and took the opportunity to issue two calls to Ms. Jearlean John – the MD of the Housing Development Corporation and newly-appointed Chairwoman of UDeCOTT.  See http://www.caribdaily.com/article/267861/publish-udecott-accounts/.

On the question of the HDC’s fundamental role and its performance, I again raised the issue of their output.  In the course of the Enquiry and in this column, I have pointed out the serious output shortfall of the HDC, the primary function of which is contained in its name.  Housing Development.  At the press conference I was openly skeptical about the often-repeated figure of 26,000 new homes built by the HDC in the execution of the present national housing policy (implemented in 2003) which set a target of 100,000 new homes in a decade.  I doubted that even half that amount had actually been built and requested that Ms. John should publish a list of where and how many new homes were completed.  On Sunday 28th March, this newspaper carried a two-page ‘Special Report’ on UNC claims of voter-padding and that included the requested information.  The article was probing another aspect of the housing riddle, but the two figures which struck me were ‘15,394 housing units constructed by the government in 2003-2009’ and the table detailing the locations and unit numbers with a closing total of 13,677 units.  Either way, the total is far less than that claimed thus far and using the upper figure equates to an average of just about 2,200 new homes per year.  That is a far cry from the original annual target of 10,000 new homes and even the revised target of 8,000.  One can only wonder where the wrong, inflated figure came from and, those having been fed into the budget process, how accurate is our planning?  It is all reminiscent of the outstanding query from the Uff Commission as to the Cleaver Heights housing project and the false claims as to missing money – Who told the PM that false information for him to have made those baseless and misleading statements to the Parliament?  No one ever admitted to that in the course of the Uff Commission.

Thank you for releasing that info, Ms. John, even if it was in response to another call.  Given our persistent culture of secrecy, especially in public matters, it is a welcome change.

My second call to Ms. John at that press conference was to publish the UDeCOTT accounts without further delay.  As I put it – ‘Ms. John, if you want to be noted for integrity and transparency, you must publish the UDeCOTT accounts without delay.  UDeCOTT has published no audited accounts since the end of 2006 and I was pleased to see the Ms. John’s positive response to those calls.  See – http://www.caribdaily.com/article/268401/john-udecott-will-publish-accounts/.

Ms. John was reported to have been appointed and met with UDeCOTT’s Board on 25th March – See http://guardian.co.tt/news/general/2010/03/26/udecott-pushes-complete-priority-jobs.  That report in this newspaper concluded with a telling quote from the Deputy Chairman – “Bahadoorsingh said John was an excellent chairman, “Highly competent, very knowledgeable, no nonsense and to the point and very friendly, a pleasure to work with. “It’s a new era with this new chairman. I’m very impressed,”

We are waiting for either the prompt publication of UDeCOTT’s Annual Report, accompanied by audited accounts, or some cogent public explanation for the unacceptable delay in so doing.  For all this time to pass, with neither of those events to taking place, can only deepen the atmosphere of distrust.  We, the taxpaying public, expect better from you, Ms. John.

VIDEO: First Up Interview – 17 March 2010

VIDEO: First Up Interview – 17 March 2010

Afra Raymond sits with Fazeer Mohammed and Jessie May Ventour to discuss, among other things, the “battle” between the Government & the construction industry in Trinidad and Tobago. Video courtesy CNMG

  • Programme Air Date: Wednesday, 17 March 2010
  • Programme Length: 0:38:03

M

VIDEO: First Up Interview – 09 March 2010

VIDEO: First Up Interview – 09 March 2010

Afra Raymond sits with Fitzgerald Hinds and Jessie May Ventour to discuss an updated in-depth look at UDeCOTT subsequent to the resignation of its Executive Chairman, Calder Hart. Video courtesy CNMG

  • Programme Air Date: Tuesday, 9 March 2010
  • Programme Length: 0:43:23

CL Financial Shareholders’ Agreement

Second MOU between CLF and Govt of TT
FOR YOUR INFORMATION: A copy of the official agreement between C.L. Financial Limited and the Government of Trinidad and Tobago has finally been delivered to me per my request under the Freedom of Information Act. This CL Financial Shareholders’ Agreement (SA) of 12th June 2009 which I requested on 16th November 2009 under the Freedom of Information Act was sent to me by the Ministry of Finance on 11th March 2010 and my emailed response to the Minister of Finance is on the home page of this blog.

My preliminary comments are –

  1. Quantum – The SA is silent as to quantum, which would seem to mean that the group will enjoy unlimited access to taxpayers’ funds. The 2010 budget statement on 7th September states an estimated allocation to the CL Financial bailout of $5.4Bn – but subsequent events have only added to the confusion. To wit, the $50M USD for the British-American Insurance recovery (as per 2nd November ECCU press release) and the ‘up to $510M’ announced to be available to meet the pensions due to ex-Caroni workers. Question being whether the $5.4Bn includes the subsequently-announced amounts or are those to be added-on?
  2. Security–At the preamble to the SA – on page 5 – we are told that “…valuable consideration…” is being offered by CLF as per the original MoU. Of course, given the Governor’s revelations on 7th April 2009 – see http://guardian.co.tt/business/business/2009/04/08/govt-left-empty-handed-cl-financial-bailout – that is simply not so. Indeed, it seems clear that the cupboard is bare and that this CLF group has no unpledged assets of any value.
  3. Interest–No mention of interest at all. We are therefore now advancing an unlimited quantum of taxpayers’ funds, for which no security has been provided and those funds are being advanced at ZERO interest. Given the well-established rule that late payment of taxes makes a taxpayer liable to 20% interest and the interest rate the Federal government charged AIG for their bailout funds – it was 8.5% above the benchmark LIBOR, which was at 3.0% – it is clear that this represents a massive concession to the CL Financial group. Quite apart from the bailout itself, the 325 shareholders of this group are also benefiting from this unprecedented and unexplained facility of ZERO percent interest rate.
  4. Accounting–Section 4 of the SA sets out the procedure for a proper system of accounts, culminating at 4.4.5 – “…shall ensure that an annual report of CLF is prepared and dispatched…in manner consistent with standard corporate practice…”  The accepted interpretation of this language informs us that the word ‘shall’ denotes an obligatory, non-voluntary duty.  If that is the case, when can we expect publication of the 2008 annual report, accompanied by audited accounts, as per ‘standard corporate practice’?
  5. The role of the Shareholders–The MoU of 30th January, at Para (c) of its preamble, spells out its aims as “…to protect the interests of depositors, policyholders and creditors of these institutions…”  According to the second sentence of the Ministry of Finance press release of 12th June 2009 – this is the penultimate document in the ‘Quick-Guide’ in the CL Financial bailout section of this website – “This new agreement is designed to give substance to the Memorandum of Understanding (MOU) of January 30th 2009.” The SA of 12th June 2009 was the subject of that press release.  The SA, at Para A. of its preamble, states the intentions of the parties as having been set out in the MoU of 30th January 2009 and ends by “…their stated understanding, inter alia, that certain steps be taken to correct the financial condition of CLICO, CIB and BA in order to protect the interest of depositors, policy holders, creditors and shareholders of these institutions…” (These two words are put in bold as my own emphasis).  I questioned that official version in ‘Fit and proper?’, ‘Party of parties’ and ‘Figuring it out’ – all available on this blog.  Now that we have the actual SA to work with, it is clear that the statement in 12th June press release is extremely misleading.  The SA does not just ‘…give substance to…’ the original MoU, it in fact is an entirely different species of agreement.  The SA constitutes a written guarantee to protect the 325 shareholders of this CLF group.
  6. Assisting the incoming Management–Clauses 2.3.3 and 2.3.4. of the SA, require the outgoing CL Financial chiefs to render all assistance to the incoming Board and Management in terms of all records and accounts etc.  The question here is ‘Have the new Board and management been receiving the full assistance of the previous CLF chiefs?’  If not, what is being done about it?  If yes, where is the $5.0Bn missing from the CLICO Statutory Fund?
  7. Analysing the lacunae–The events in the interregnum and their consequence are extremely important aspects of this matter.  I say so because the intervening period – i.e. between 30th January and 12 June 2009 – was one in which several important and shocking facts came to light. Some of these were –
    • Payment of Dividends – $3.00 per share paid on 16th January – i.e. three days after Duprey wrote to the Central Bank Governor for urgent financial assistance.
    • Over-pledging of assets – As cited above, the Central Bank Governor revealed that CL Financial’s assets were all fully pledged.
    • $5.0Bn is missing from CLICO’s Statutory Fund – According to the newly-appointed CEO of CLICO, Claude Musaib-Ali (he has since resigned, effective 14th February 2010) the CLICO Statutory Fund had $5.0Bn missing – see http://guardian.co.tt/news/general/2009/03/01/where-money-gone.
    • Attempted sale of assets as per CLICO Energy – Also, CL Financial attempted to sell its shares in CLICO Energy, which was in breach of the terms of the MoU. At clause H. and 6.1, the outgoing CL Financial Directors agree to use their best endeavours to reverse the sale of those shares.

    With the exception of the last item, none of these other three serious matters are addressed at all in the SA.  Silence on the payment of dividends.  Over-pledged assets are described as being ‘valuable consideration‘.  Silence on the missing $5.0Bn from CLICO’s Statutory Fund.

    Those four events, having been revealed in the gap between the MoU and the SA, should have informed the stances taken by the parties.  To my mind, these actions by CL Financial are indicative of insincere behaviour intended to outwit and cheat the taxpayer.  The Ministry of Finance press release describes the SA as ‘…giving substance to…‘.  Nothing could be further from the truth, since the SA in fact creates new levels of entitlements and protections for the CL Financial shareholders.

    As taxpayers, we ought to have been able to rely on the State negotiators to propose terms which would have extinguished the equity of the CL Financial owners and taken other steps to restore the correct position.  Instead, the SA has not sought to address their assaults on good faith and ‘fit and proper’ behaviour.  We have now been bound into a long-term arrangement to restore the fortunes of one of the Caribbean’s riskiest adventurers.

Readers, please take note. In terms of its size, timing and terms, this CL Financial bailout is a grievous attack on the very integrity of our Treasury.

SIDEBAR: Heads we lose, tails they win…

The EQUITY position

In a situation like this, where a company is effectively both illiquid and insolvent, the incoming investor/lender has enhanced rights.  Effectively, such a company is dead – just like someone whose heart has stopped beating – and any assistance or lending is usually on very onerous terms.  The only exception would be in the case of related-parties who are able to agree special terms which no one else could accept.

That seems to have been the case here, since we had the CL Financial group out of cash, with its assets fully pledged, but yet able to get the full financial assistance of the State, without being forced to relinquish the rights of its shareholders.

One is reminded of the telling statement by the Governor at the press conference to announce the bailout on 30th January 2009, as to the fact that one of the main reasons for the collapse of the CL Financial group was ‘…excessive related-party transactions…’.  It seems to me that this is exactly what we, the entire nation of Trinidad & Tobago, have now entered into.

The capacity to learn from the past is one of the main signs of maturation, but we are not displaying those qualities here at all, at all.

We do not seem to have learned from the central lesson of that tragic collapse.

The PUBLIC position

Another troubling aspect of this SA is that it does not properly allocate risk and reward between the parties.  Again, readers are asked to remember that the mis-matching of risk and reward was also one of the elements which brought down the CL Financial group.

  1. First example, let us use an Optimistic Modelin which the State intervention in CL Financial is successful. That would look like this –
    • All policyholders’ and depositors’ claims are satisfied;
    • All asset values are restored;
    • Republic Bank Limited and Barbados National Bank continue to thrive as leading banks in their sectors;
    • CLICO, British-American etc are restored as dynamic companies with healthy market share;
    • Angostura, Methanol Holdings, Home Construction Ltd and the other non-financial parts of the CL Financial group are also restored to health;
    • Overall, the CL Financial group returns to profitability.

    If that happened, the State investment in CL Financial would have been beneficial to the 325 shareholders, but all the State would be entitled to receive, for having risked its own capital, would be a repayment of those sums, with no interest.

    In this situation, the SA has allocated to the State all the risk, a massive injection of capital, responsibility for management, yet even in the case of a successful outcome there is no return either by way of interest on the funds advanced or equity in the rejuvenated enterprises.

  2. Second example, let us use a Pessimistic Modelin which the State intervention in CL Financial fails. That would look like this –
    • Many policyholders’ and depositors’ claims are frustrated;
    • Assets are sold by mortgagees and decline in value;
    • Republic Bank Limited and Barbados National Bank are disposed of to meet the demands of creditors;
    • CLICO, British-American etc fail to regain their place in the markets;
    • Angostura, Methanol Holdings, Home Construction Ltd and the other non-financial parts of the CL Financial group are adversely affected by the group’s troubles and also decline or are disposed of;
    • Overall, the CL Financial group is slowly broken up.

    If that happened, the State investment in CL Financial would have been a loss for the taxpayer, since it would be impossible to recover our funds.

    In this situation, the SA has allocated to the State all the risk, a massive injection of capital and responsibility for management.  The only thing the State has to look forward to here is the blame and the losses.

Heads we lose, tails they win…