Asha Javeed

The Home Mort­gage Bank (HMB) was the ben­e­fi­cia­ry of a $27.2 mil­lion fee for pro­vid­ing a guar­an­tee for CL Fi­nan­cial's pur­chase of Las­celle de Mer­ca­do in 2007. HMB, which had an as­set base of US$40 mil­lion, had pro­vid­ed a guar­an­tee for Las­celle's ap­prox­i­mate­ly $700 mil­lion pur­chase at 1.25 per cent in­ter­est. This guar­an­tee was signed by for­mer HMB chair­man and CL Group Fi­nance Di­rec­tor An­dre Mon­teil, CL Fi­nan­cial Chair­man Lawrence Duprey, HMB's chief fi­nan­cial of­fi­cer Pe­ter John­son and at­tor­ney Ge­of­frey Leid. An­gos­tu­ra di­rec­tor Michael Car­ballo, who had worked ex­ten­sive­ly on the ac­qui­si­tion of Las­celle, was left in the dark af­ter he re­ject­ed the need for such a guar­an­tee in the first place.

Car­ballo told the Com­mis­sion of En­quiry in­to the col­lapse of Cli­co and the HCU yes­ter­day, there was no guar­an­tee need­ed be­cause an of­fer had al­ready been made to the Las­celle share­hold­ers, which they had ac­cept­ed. Car­ballo said HMB's let­ter of in­ter­est of guar­an­tee came to his at­ten­tion on De­cem­ber 14, 2007.

"They want­ed me to sign a guar­an­tee arrange­ment which was not need­ed," he told the en­quiry. CL Fi­nan­cial, through An­gos­tu­ra Hold­ings, would ac­quire 86 per cent of Las­celle in two tranch­es. The first tranche was for $312 mil­lion at US$4.50 a share, com­plet­ed on Feb­ru­ary 12, 2008. Through a num­ber of in­ter-com­pa­ny bor­row­ings and two loans-one from HMB and a US$25 mil­lion loan from First Cit­i­zens to An­gos­tu­ra-CL was able to come up with the sum for the ac­qui­si­tion.

Las­celle was ful­ly ac­quired in Ju­ly 2008 at US$676 mil­lion and HMB earned the in­ter­est on its guar­an­tee.

Car­ballo said he was "shocked" when Ernst & Young, while do­ing a fi­nan­cial au­dit in­to the col­lapse of the Cli­co In­vest­ment Bank (CIB), showed him a let­ter which in­di­cat­ed pay­ment for a guar­an­tee which he did not ap­prove. Be­sides HMB's $27 mil­lion fee, CIB-of which Mon­teil was al­so chair­man-was paid $13.5 mil­lion.

Monies, in the sum of $6.8 mil­lion, were al­so paid to Lon­es­tar Cap­i­tal-owned by Gef­frey Leid, to Re­pub­lic Bank Lim­it­ed and bonus­es to John­son and Rawle Ram­lo­gan. Car­ballo said af­ter he dis­missed the mat­ter in De­cem­ber 2007, he as­sumed it was fin­ished. He ob­served that while the let­ter was ad­dressed to him, it did not have his sig­na­ture.

"But clear­ly we were not op­er­at­ing in an en­vi­ron­ment of full dis­clo­sure," he said. Af­ter he learnt of this let­ter in 2009, af­ter be­ing ap­point­ed Group Fi­nan­cial Di­rec­tor up­on the ex­it of Mon­teil, he went to HMB and ques­tioned their form of guar­an­tee. The let­ter, he was told, was their guar­an­tee. He said this has re­sult­ed in a dis­pute be­tween HMB and CLF on the $27.2 mil­lion. "I for­mal­ly chal­lenged HMB on the doc­u­ment be­cause they could nev­er jus­ti­fy earn­ing that fee," he said. Com­mis­sion­er Col­man ques­tioned whether the let­ter was a "de­vice" for pro­vid­ing $27.2 mil­lion to HMB. Car­ballo said: "To en­sure cer­tain fees and com­mis­sions could be earned by cer­tain in­di­vid­u­als."

Car­ballo said the 1.25 per cent was split among cer­tain par­ties and charged Mon­teil and Leid with go­ing through a great deal to en­sure cer­tain in­di­vid­u­als earned com­mis­sion. He ex­plained that An­gos­tu­ra now has a bal­ance on its books for the sum paid to Leid. Car­ballo ar­gued that while Las­celle was "an ex­pen­sive pur­chase" it would have cre­at­ed a lot of syn­er­gies with An­gos­tu­ra. Car­ballo al­so told the en­quiry that Mon­teil was asked to leave the CLF em­pire by the board of di­rec­tors be­cause they were un­easy about the me­dia at­ten­tion the com­pa­ny at­tract­ed af­ter Cli­co's pur­chase of a 45 per cent share­hold­ing in HMB.