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Friday, May 30, 2025

CL Fi­nan­cial bailout: A Re­view

Finding the assets

by

20091117

This week, I am at last able to an­swer two queries which have be­dev­iled this se­ries for some time. First­ly, sev­er­al read­ers have point­ed out that there was a sig­nif­i­cant amount of rep­e­ti­tion of de­tails in this se­ries. While it is true that that rep­e­ti­tion was de­lib­er­ate on my part, it is al­so true that there was a grow­ing ques­tion: when are you go­ing to give us some fresh in­for­ma­tion?

Sec­ond­ly, my re­peat­ed re­quests for pub­li­ca­tion of the ini­tial let­ter from CL Fi­nan­cial re­quest­ing the state's fi­nan­cial sup­port. It seemed that those calls were be­ing ig­nored and I did won­der why. On June 11, in the col­umn, Do What is Right, I wrote: "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?"

In the course of re­search­ing an­oth­er as­pect of the bailout, I re­cent­ly came across a let­ter. Giv­en that the Min­is­ter of Fi­nance re­vealed that in­for­ma­tion in the first week af­ter sign­ing the mem­o­ran­dum of un­der­stand­ing, I was clear­ly wrong to sug­gest that she had any in­ten­tion to con­ceal the let­ter. The Min­is­ter of Fi­nance was speak­ing in Par­lia­ment and seek­ing to re­but the al­le­ga­tions of op­po­si­tion politi­cians that she had ben­e­fit­ed from in­sid­er in­for­ma­tion.

This ex­tract of her state­ment is tak­en from page 628 of Hansard of Feb­ru­ary 4. This can be found at: http://www.ttpar­lia­ment.org/hansards/hh20090204.pdf:

"With your leave al­so, 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.

"Dear Gov­er­nor,

The se­vere glob­al fi­nan­cial cri­sis has be­gun to im­pact our lo­cal and re­gion­al mar­kets and is caus­ing strain on liq­uid­i­ty in cer­tain parts of the fi­nan­cial sys­tem in T&T. CL Fi­nan­cial, be­ing a sig­nif­i­cant part of the fi­nan­cial sec­tor, has been dis­pro­por­tion­ate­ly im­pact­ed by these ad­verse con­di­tions. Many of our cus­tomers are al­so af­fect­ed and are con­se­quent­ly call­ing on their re­serve cash po­si­tions. Thus far, all our mem­ber com­pa­nies have been able to deal with their com­mit­ments. How­ev­er, we wish to de­vel­op a com­pre­hen­sive con­tin­gency plan to meet any fur­ther de­vel­op­ments, if this trend were to fol­low a sim­i­lar pat­tern to oth­er coun­tries. As a re­sult, CL Fi­nan­cial is tak­ing ur­gent and de­ci­sive ac­tion. We have con­duct­ed a re­view of the group's as­sets and the pro­ject­ed liq­uid­i­ty needs. While the group re­mains strong in terms of the quan­tum and qual­i­ty of its as­sets, these as­sets are not in a form that can be liq­ui­dat­ed in short or­der with­out sig­nif­i­cant loss in val­ue."

And they gave a ta­ble set­ting out the es­ti­mat­ed val­ue, just by sec­tor

Re­al es­tate: $2,505,000,000

Man­u­fac­tur­ing: $6,300,000,000

En­er­gy: $7,048,993,014

Fi­nan­cial ser­vices: $8,060,000,000

To­tal: $23,913,993,014

"We are in the process of re­align­ing the as­set/li­a­bil­i­ty struc­ture of the group to bet­ter match the cur­rent liq­uid­i­ty sit­u­a­tion. This is a com­plex ac­tion plan that we are em­bark­ing on im­me­di­ate­ly, in­clud­ing ini­tia­tives, such as merg­er of cer­tain en­ti­ties with­in the group with strate­gic part­ners and/our sale of cer­tain as­sets in or­der to raise liq­uid­i­ty. As you would ap­pre­ci­ate, these ini­tia­tives would need some time be­fore they yield the de­sired re­sults. In the event that the fi­nan­cial cri­sis deep­ens in the lo­cal mar­ket, we may need ur­gent liq­uid­i­ty sup­port to be made avail­able to the group. In this re­gard, we would like to dis­cuss the ap­proach of the Cen­tral Bank to­ward sup­port­ing the fi­nan­cial sec­tor and, by ex­ten­sion, the CL Fi­nan­cial Group, if con­di­tions were to de­te­ri­o­rate. I thank you for your un­der­stand­ing in this mat­ter and look for­ward to your con­tin­ued sup­port."

That let­ter, as I said, was dat­ed Jan­u­ary 13, 2009.

CL Fi­nan­cial con­sol­i­dat­ed bal­ance sheet is at page 23 of their an­nu­al re­port 2007 The Next Wave of Growth http://www.cli­co.com/pdf/AR07/CL%20Fi­nan­cial%20An­nu­al%20Re­port%202009.pdf

That con­sol­i­dat­ed bal­ance sheet dis­clos­es to­tal as­sets, as at De­cem­ber 31, 2007, as be­ing $100.666 bil­lion– those fi­nan­cial state­ments were pub­lished on No­vem­ber 18, 2008.

On­ly 56 days af­ter pub­li­ca­tion of a $100 bil­lion as­set val­ue, the ex­ec­u­tive chair­man signed a let­ter, stat­ing that the group's as­sets were worth about $24 bil­lion.�That is an as­pect of the fi­as­co which has not been dis­cussed in pub­lic, so far.

The pre­ci­sion of the fig­ures which formed part of Duprey's let­ter would sug­gest that the as­sets had been val­ued in prepa­ra­tion for that let­ter. That prob­a­bil­i­ty rais­es sev­er­al ques­tions:

1. When would a new val­u­a­tion have been done? By whom?

2. Why would CL Fi­nan­cial have done a new val­u­a­tion if they had just pub­lished the an­nu­al re­port with the ac­counts au­dit­ed by PWC?

3. Would there have been enough time to do a com­plete re-val­u­a­tion of the as­sets in less than two months, when the orig­i­nal val­u­a­tion took al­most 11 months?

We have now agreed to re­store as­set val­ue to the share­hold­ers of CL Fi­nan­cial on terms which are as yet un­pub­lished. We need to hear some ac­count­ing of this ex­tra­or­di­nary sit­u­a­tion.

Out of Africa

The dom­i­nant me­dia cov­er­age of the wealth­i­er coun­tries can some­times mask in­ter­est­ing de­vel­op­ments. I had been won­der­ing how oth­er de­vel­op­ing coun­tries were han­dling their own fi­nan­cial crises. I was struck by ex­ten­sive re­port­ing of the ac­tion of the new­ly-ap­point­ed gov­er­nor of the Cen­tral Bank of Nige­ria in bail­ing out five large, pub­licly list­ed banks in Au­gust. Gov­er­nor Lami­do Sanusi has tak­en sev­er­al bold ac­tions to re­store con­fi­dence in the bank­ing sec­tor.

The main ones were:

�2 Dis­missal of 19 of the top ex­ec­u­tives of the res­cued in­sti­tu­tions, de­ploy­ing sel­dom-used pow­ers.

�2 Pub­lish­ing lists of de­fault­ing bor­row­ers, many of whom are promi­nent cit­i­zens and lead­ing com­pa­nies, along with a strong warn­ing that all these loans must be re­paid now. Those who do not com­ply will face the courts.

�2 Mak­ing it clear to share­hold­ers that the bailout funds are not for div­i­dends at all, but to re­store bank­ing con­fi­dence.

�2 A spe­cial po­lice unit to deal with eco­nom­ic and fi­nan­cial crimes is ques­tion­ing the dis­missed ex­ec­u­tives. Those who are not be­ing ques­tioned are for­bid­den to leave the coun­try.

This in­struc­tive sto­ry is cov­ered in the Wall Street Jour­nal, The Fi­nan­cial Times and Reuters.

Afra Ray­mond is a char­tered sur­vey­or.

This se­ries on the CL Fi­nan­cial bailout can be viewed or read­ers'

com­ments made at: www.afraray­mond.com.


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