The recent contagion caused by the collapse of CL Financial Group – which owns CLICO – has sent shock waves across the Caribbean with policyholders in Barbados among the hardest hit. With this comprehensive series of articles, THE NATION seeks to set the situation in context.
IN A Trinidad Guardian press release on January 30, 2009, it was announced that the Trinidad & Tobago government would “bail out” CL Financial, the parent company of CLICO, Angostura and several other local and regional businesses.
During a Press conference held later the same day, Central Bank Governor Ewart Williams released a statement revealing that the bank and the Ministry of Finance had taken control of the assets and liabilities of Colonial Life Insurance Company, CLICO Investment Bank (CIB) and Caribbean Money Market Brokers (CMMB).
The statement explained that liquidity challenges which CIB had been facing for some weeks came to a head when an unusually high level of withdrawal requests put a strain on available liquid resources.
Clico was also facing liquidity problems, to a lesser extent.
On January 13, 2009, Clico’s chairman Lawrence Duprey formally raised the issue of possible financial assistance from the central bank.
The statement highlighted the contagion risks that financial difficulties in CL Financial Group could have on the overall financial system of Trinidad and Tobago and the Caribbean region: CL Group controls over TT$100 billion of assets in at least 28 companies located throughout the region and the world.
CL Group’s financial interests cover several industry sectors, including banking and financial services, energy, real estate and manufacturing and distribution. The four largest financial institutions in CL Group manage assets of over TT$38 billion, over 25 per cent of the country’s GDP.
CL Group’s holdings include the British American Insurance Company Limited, one of the main insurance companies in the Eastern Caribbean. In the bank’s view, the financial difficulties being faced by CIB and Clico resulted from: • excessive related-party transactions which carry significant contagion risks; • an aggressive high interest rate resource mobilisation strategy to finance equally high-risk investments;• very high leveraging of CL Group’s assets, which constrains the potential amount of cash that could be raised from the asset sales;• and, to a lesser extent, depositors’ concerns about the impact of the sharp decline in methanol and real estate prices on CL Financial’s overall financial situation.
According to the statement, the central bank, the Ministry of Finance and CL Financial Group agreed to a strategy intended to deal with the liquidity challenges of CIB and Clico, and to address the underlying problems that gave rise to the current financial stress.
The principal objectives were to ensure that resources were available to meet withdrawals of third party CIB depositors and Clico policyholders, protect the funds of the depositors and policyholders, maintain public confidence in Clico and reinforce public confidence in the financial sector as a whole:
The Central Bank said it would: • take control of CIB; • transfer all the third-party assets and liabilities on the books of CIB and CMMB to First Citizens Bank;• provide short term liquidity as needed to ensure that liabilities were serviced;and • following the execution of these transactions, CIB’s banking licence would be revoked.
Also, CL Financial will divest additional assets to help fund Clico’s existing Statutory Fund deficit.
In exchange for collateral and an equity interest in Clico, the government will provide any additional funding needed to eliminate this deficit, and will “act as a catalyst” for Clico to implement changes to its business model and corporate governance structure: “The intention will be to return Clico to its original moorings.”
Williams emphasised that CIB depositors’ funds were safe, and assured Clico’s policyholders that the long-term future of Clico would be guaranteed.
A memorandum of understanding (MOU) describing the intended actions, also dated January 30, was signed by the Minister ofFinance (on behalf of the government) and Lawrence Duprey (acting for CL Financial Limited and its affiliates).
According to the MOU, the threat was the financial condition of three companies: Colonial Life Insurance Company Trinidad Limited (CLICO Trinidad), CLICO Investment Bank Limited (CIB) and British American Insurance Company Trinidad Limited (BA Trinidad).
In return for government protection of the interest of depositors, policyholders and creditors of these three institutions, CL Financial agreed to sell its Republic Bank shareholdings, its MHTL shareholdings, its CMMB shareholdings, and any other assets as required.
In Barbados, the Nation reported that Leroy Parris, chairman of CLICO Holdings Barbados Limited, sought to allay fears among policyholders and other investors. Parris said what had occurred in Trinidad “had no effect on Barbados and the Eastern Caribbean”.
Parris stressed that the Bajan company was autonomous and its management structure, balance sheets and auditing were totally separate.
“CLICO in Barbados is separate from the Trinidad and Tobago operation which is supervised by the Central Bank and Ministry of Finance. In Barbados, CLICO is supervised by the Supervisor of Insurance and the Ministry of Finance. We are regulated by Barbados and the Barbados Government,” he stated.
The chairman also stated that the capital projects involving CLICO Holdings were still on stream, including a $60 million housing project in Clermont, St Michael, and the $140 million redevelopment of historic Sam Lord’s Castle hotel.
DISCLOSURE: The Nation Group is the holder of annuity policies in Clico International Life Insurance Limited. Further, it is a matter of public record that Colonial Life Insurance Co. (Trinidad) Limited is a shareholder in NATION parent company One Caribbean Media Limited (OCM). This disclosure is made in the interest of transparency. The Nation wishes to assure its readers that the above will in no way inhibit its commitment to the time-honoured principles of journalistic integrity.
