One of the influential factors in the credit rating downgrade of Republic Bank Ltd from the international credit ratings agency Standard & Poor’s would be the controversial role Finance Minister Karen Nunez-Tesheira had in government agreeing to the multi-billion-dollar bailout of the bank’s major shareholder, the CL Financial Group. So said Prof Patrick Watson, a senior economist and director at the University of the West Indies’ Sir Arthur Lewis Institute of Social and Economic Studies (Salises).

“You cannot ignore the fact that a (government) minister is a shareholder and running into trouble—all these things Standard & Poor’s will take into account. That is how they do it,” Watson said. “Anything that causes people to be less confident in Clico—Colonial Life Insurance Company (Trinidad) Ltd—would cause people to be less confident in Republic Bank (Ltd).” Clico is a subsidiary of CL Financial. “It is a cause of concern that if something happens to Clico, something will happen to Republic Bank because it would cause a spillover,” he said. After three years, Standard & Poor’s cut its counterparty credit rating on Republic Bank from BBB/A-2 to BBB-/A-3. Standard & Poors placed Republic Bank on credit watch after Clico surrendered its 55 per cent share ownership of the bank to the trust of the Central Bank.

It was understood that those shares would be used as security for the Central Bank and Government’s financial support to depositors of Clico and the Clico Investment Bank (CIB). Finance Minister Karen Nunez-Tesheira was involved in discussions to rescue CL Financial and the eventual signing of a memorandum of understanding outlining the conditions of that rescue effort.
Allegations of both a conflict of interest and an abuse of privileged, confidential company information were levelled against her following the failure to declare multi-million-dollar shares in CL Financial Ltd and her premature closure two CIB accounts. Republic Bank Ltd’s total exposure to the CL Financial Group as at December 31, 2008 was $941.6 million. The total deposits, which were held by the bank for the CL Financial Group, were $526.6 million as at the same date.

“I think that anybody who is serious about his money would be cautious about Republic Bank precisely because of the conditions that Republic Bank finds itself in at this point in time through no fault of its own.” “They are owned largely by a company that is having serious difficulties and could be shown sooner to have even greater difficulty,” Watson said. Although the bank’s credit rating has changed, Watson raised the issue of credit rating agencies’ competence. “The movement (from BBB/A-2 to BBB-/A-3) is not a large movement. It is the next step down. It didn’t deteriorate excessively,” he said.