CL Financial, the economy and the future – Part 1

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The TTWhistleblower today begins a deep and thorough look at CL Financial, the circumstances surrounding its corporate governance, and the impact it has had on the economy of Trinidad and Tobago by its collapse. In part one, we look back to see how CL Financial fell.

The CL Financial Group was not always the subject of billion dollar intrigue and corporate drama.

In fact, it could well be said that at one time, the CL Financial and CLICO companies represented the dream of indigenous businesses rising to huge influence in the regional and global economy.

Today, because of the company’s experience since the 2008 Global Financial Crisis, the ensuing revelations of dubious corporate governance and an economic crisis made worse by the quantum and spread of the liabilities of the company, CL Financial turns a bitter taste to most – particularly to former investors, shareholders and insurance policy holders.

There have been three different political administrations since the CL collapse – Patrick Manning, Kamla Persad-Bissessar and Dr Keith Rowley – and in almost a decade, the truth of what happened, the dealings that were part of the CL bailout and the subsequent legal and stakeholder wrangling are not much clearer, save for two huge volumes of findings by Sir Anthony Colman.

What also exists is a trail of court-sworn testimonies, financial reports from the Central Bank of Trinidad and Tobago and stakeholder accounts of the experience since January 2009 when the company formally announced its liquidity crisis, prompting the then Manning Administration to advance a bailout package.

The collapse of CL Financial

CL Financial was the largest privately owned conglomerate in Trinidad and Tobago and one of the largest in the Caribbean.

The company was founded by Cyril Duprey as CLICO, an Insurance Company, and was later expanded by nephew Lawrence Duprey into a multi-sector conglomerate.

CL, which was started as a holding company for CLICO, became one of the largest local conglomerates in the region, encompassing over 65 companies in 32 countries worldwide, with total assets exceeding US$100 billion.

By January 2009, suspicions of a liquidity crisis at the company and possible State intervention rapidly morphed into a bailout package, which itself became the subject of immense political controversy.

At a meeting on 23 January 2009, former Finance Minister Karen Nunez-Tesheira told former CL Financial (CLF) chief financial officer Michael Carballo that she knew about the liquidity troubles at CLF, even before their first meeting.

According to Nunez-Tesheira’s attorney Frederick Gilkes during cross-examination of former group financial director of CL Financial, Michael Carballo on 22 September 2011, it was the former Central Bank Governor, Ewart Williams, who told her about the crisis before the debacle happened.

CL debts and the bailout

In 2010, incoming Finance Minister, Winston Dookeran, of the People’s Partnership Administration, said the US$1.2 billion pumped into CL Financial up to May 2010, by the previous Government, involved more than 10% of the country’s GDP and affected quarter of a million people.

At June 2010, the combined total liabilities of CLICO and British American amounted to US$4 billion, higher than total assets which stood at US$3 billion.

The traditional, long-term policyholders affected by the CL Collapse, including pensions, life and health insurance, amounted to 225,000 and accounted for US$953 million in liabilities.

CLICO also sold short-term investments or deposit accounts with three- to five-year durations which earned interest rates significantly above market rates. Approximately 25,000 customers were left holding the short-term contracts, and the liability to them is US$1.9 billion.

With liabilities already amounting to US$6.85 billion (TT$43.1 billion) the price of the bailout would change substantially as the years passed:

  • The previous Manning Administration admitted concurrence with a Central Bank statement of 13 January 2009 estimating Government’s intervention at TT$5.0 Billion.
  • On 01 October 2010, the then People’s Partnership Prime Minister told Parliament that TT$7.3 billion had been spent on the bailout, and that a further TT$7.0 billion was needed.
  • By 03 April 2012, then Finance Minister, Winston Dookeran stated the bailout cost stood at $12 billion.
  • By 01 October 2012, a new Finance Minister, Larry Howai, confirmed that TT$19.7 billion had been spent on the bailout, with an additional TT$7.7 billion required in six months.
  • And the Central Bank of Trinidad and Tobago’s Economic Bulletin of July 2013 Volume XV No. 2, stated that the CL bailout eventually cost this country’s taxpayers approximately TT$26 billion.

How did CL collapse?

Testimony at the CLICO Commission of Inquiry by former CL Financial Chief Financial Officer, Michael Carballo, pointed to ‘greed and naked ambition’ that brought CL Financial to its knees and made CLICO bankrupt.

Carballo said funding for company acquisitions in the United States and Europe were borrowed using Angostura’s good name. When deals failed due to a lack of due diligence, the losses were placed on CLICO’s books, making policyholders liable for all risks involved in decisions made in the boardroom or by former Executive Chairman, Lawrence Duprey.

Carballo testified that by 2008 when he took over as CFO, CL Financial had TT$3.3 billion in debt to CLICO and it was company practice to keep risking deals off Angostura’s books by arranging inter-group funding to mask ventures. This practice made the CL Group largely insolvent.

By this time, the CL Group comprised 289 entities in 32 countries in the areas of Real Estate, Financing, Spirits and Energy.

It was also revealed around the same time that former group Chief Financial Officer, L Andre Monteil, continued to exert influence on the group long after he had turned away from the public glare of the company amid the HMB share purchase scandal.

Monteil is reported to have developed a plan to ‘solve’ CL Financial’s liquidity crisis, where his company, Stone Street Capital, would orchestrate a sale of CLICO’s $12 billion worth of Republic Bank shares at a certain price.
In return, CL Financial (CLF) would get cash to solve its liquidity flow problems and to pay Stone Street Capital a fee of more than $206 million comprising a US$2 million “consultancy fee” and a 1.75 percent commission–worth an estimated $194 million–for the sale.

In Part 2 of ‘CL Financial, the economy and the future’, the TTWhistleblower will look at the Colman Commission of Enquiry and its findings.

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