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Category: Trinidad Society 08 Feb 09

 

It’s as surreal as dancing—in this pre-Carnival season—on the Titanic. Our life-saving boats are not in the energy sector, but in confidence in the financial sector. Confidence will keep our businesses ticking over, our banks steady and economy stable.

The outrage against this insurance giant, and now our treasury, is understandable. Our people never interpreted Clico’s “people centred future driven” motto delivered with great fanfare, that we, the people, would have to dig into our treasury, created by our taxes, to bail it out. Here then, in an effort to get a rounded picture of what happened, are the views and questions of several people in the know in the financial world, who do not wish to be identified. What is unanimous is that a bailout was the only way to go and that the Central Bank Governor acted swiftly and honourably, possibly saving the day.

 

Clico Investment Bank manager
“The problem all along was not with Clico Investment Bank (CIB) it was with Clico the insurance company. There is a clear distinction between CIB and Clico. “When the CIB board met with the external auditors the Wednesday before the announcement there was no indication of trouble. NGC’s maturing deposit was being managed through liquidation of shares from CIB and other matters to bring liquidity.

“The problem was at Clico and the empty statutory fund. The fund, which should house policyholder’s money, was empty. “Lawrence Duprey then wrote the letter to the Central Bank telling them he had a problem. The problem was Clico, but because there was no law to allow the Government to intervene in Clico, it had to intervene through CIB. “Superficially, you can create an asset (that is worth nothing) and borrow inter company. You don’t have to show any evidence to Central Bank.”

 

Senior financial adviser in a leading bank:
“We all knew that within Clico it was fast and loose, with a lot of internal lending. “A combination of factors made it vulnerable: falling methanol prices, cost overruns on real estate, tightened credit, with the NGC withdrawal dealing the death blow.”

 

Senior manager in a branch of a foreign-owned bank
“Within our industry there has always been talk of some degree of insolvency in Clico. “The first flashing lights had gone off over ten years ago because of their consistent delayed auditing. When you have interim numbers but your key parent company is 12 months behind its audits this suggests irregularities. “Regulators were rejecting statutory reports. From a financial services perspective it suggested that something was not right.

“The local financial sector got wind of it in early January. It was not just the obvious—pulling out of the jazz festival—which gave the company massive international exposure, but other indicators that went way back. “If commercial banks were offering four and five per cent and the Central Bank not much more, why was Clico entity paying premium price to you for your money? They needed the money for something. “They were funding other projects: debt-servicing projects, trying to keep others afloat. “We were always mindful of some component of the conglomerate being insolvent while the other was the cash cow. When you pay premium pricing for deposits there is always a degree of risk.

“When you look at the marketing and the general spending power of the hierarchy of that conglomerate: the world trips, the cars, the bonuses. There was reward and there was a price to pay by some other means. “In the banking sector and in terms of insider trading the regulatory codes are very strong. I’m not sure how much governance and enforcement of those codes are done in the insurance sector. “It was just a matter of time before Clico went down because no regulatory modes were intact in Clico (and many people in high places knew there was little or no compliance in many instances.)

“Somebody must be held accountable at the end of the day. It’s one thing to give back for entertainment or social responsibility—Shiv Shakti dancers, jazz, and so on, but good governance and integrity is necessary. “What was alarming was the late reporting of its financial statements. That was the flashing light that something was not right. The auditor was not signing off because things were not right and there were no checks and balances in between. “We are not surprised. This was a long time coming. ”

Financial analyst:

“My question is: if the State stands behind NGC, why pull the money from only one bank (CIB) bringing it to its knees, only to have to bail it out the next week? “The only answer I can think of is that this was the only way to save Clico’s investors from chronic mismanagement, which would have ultimately crippled the entire financial sector. ”

 

So what collapsed the bank?
How transparent was Clico? Is it its mismanagement going in wily nilly into industries worldwide, forestry, real estate, spreading too fast without systems? How did it justify investments? How was the risk investment portfolio spread? Could be some or all.

Perhaps this was the wake-up call that we need to have a more regulated, accountable and transparent financial system. Ultimately after speaking to friends, colleagues, the woman in the grocery, businessmen, professionals, the woman selling vegetables, the businessman and the vendor, everybody seems to have confidence in the Central Bank, the governor, our financial sector and the Government’s guarantee. And for now, that’s plenty.

 

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All Articles Copyright Ira Mathur