Dr. Fraser- Point of View
February 6, 2009
The Clico fall out

For months we had been caught up following not only Obama’s move to the White House but also the economic crisis that had overtaken America and the rest of the world. No one would have been as naïve or ignorant to even harbour the thought that we were removed from all of this, given the vulnerability of our economies and the extent of our dependence on remittances, tourism and the banana industry.{{more}} So we expected that we would have caught a cold after America’s big sneeze. No one, however, expected the impact to have come in the way it did, that is the announcement last Friday of a bail out of CL Financial ltd, with the Trinidad Government and the Central Bank taking control of its financial subsidiaries CLICO Investment Bank (CIB), CLICO Insurance Company, British American Insurance and the Caribbean Money Market Brokers (CMMB). CL Financial Ltd is, of course, a Caribbean giant with investments throughout the Caribbean and in other parts of the world.

It appears that for some time now there had been rumours that all was not well with CLICO although no one was sure about the magnitude of the problems. In fact, it would appear that this is still an issue. The government of Trinidad and Tobago did what it had to do to safeguard public confidence by guaranteeing the deposits and policies held by CLICO and its subsidiaries. CL Financial has assets amounting to more than 25 percent of the Gross Domestic Product (GDP) of Trinidad and Tobago. It has as the Governor of the Central Bank of Trinidad and Tobago described it ‘an imposing presence’ in the Trinidad and Tobago economy. The company reportedly has over US$100 billion in assets in 28 companies around the world. It is, therefore, solid with assets although it could not easily meet its ‘cash on demand’ commitments, which is what prompted its approach to the Central Bank.

I am somewhat confused by some statements being made to the effect that the global economic meltdown had nothing to do with the Company’s problems. This is certainly unthinkable, given its involvement in so many different areas of the world, including real estate in parts of the United States of America. But if that is the thinking, then the suggestion is that the problems are of the company’s own doing, and some have pointed to management shortcomings and inadequate systems. A report in the Trinidad Express of February 4 indicated that CL Financial is looking at the possibility of challenging the ‘Bailout Plan’, arguing that what they were seeking was a line of credit. With Government’s takeover, temporary, it is said, there would have had to be changes in the Board of Directors of the companies involved. Already we see changes with former Central Bank Governor Euric Bobb now the new Chairman of the CL Financial subsidiaries. The company, under the memorandum of understanding with the government, had to divest itself of its 55percent stake in the Republic Bank, giving the Government a majority stake in the Republic Bank. In fact, it is being made to stick to its Insurance portfolio.

Of course, there are always concerns when government becomes too involved in these matters and there had been some run on the Republic Bank, with persons wanting to make withdrawals because of this. This, however, seemed to have eased off when more information was provided to depositors and they were told that it was a temporary arrangement. One area of concern has to do with the relationship with the CL Financials ‘big man’ and the Leader of the Opposition Basdeo Panday. Some comments have been made about this link. In fact Independent Senator Professor Ramesh Deosoran stated in the Senate: “Let me emphasise the point that election financing sits at the heart of this CLICO issue…If that was removed I have a feeling consensus would have been more expeditious and the ultimatums would not necessarily have arisen.” The government is also to become the largest shareholder in ‘One Caribbean Media’, the regional body that looks over the assets of Trinidad’s CCN, the Barbados Nation and the Grenada Broadcasting Network.

We are dealing with a delicate issue about which we have not heard the last word. Although we have been assured that CLICO Holding Barbados has an independent existence, we have to tread carefully because of the nature of what can be called ‘cross border ownership’ and the widespread nature of the parent company’s holdings. The question is where are monies deposited in the subsidiary companies invested? Certainly, to get the kind of returns expected one will suspect that the investments would be made in areas and places that could provide the best possible returns. This begs, of course, other questions. However, in these kinds of situations we have to avoid being scaremongers and take the reports being given at their face value. All the regional institutions are obviously closely monitoring the situation, including the Eastern Caribbean Central Bank and the Barbados Central Bank. Fortunately, Trinidad and Tobago was in a position where it could do what it did. More people are now more aware of the need for tighter regulations, particularly of non-banking institutions like Credit Unions. Hopefully, we will learn our lessons from the present crisis and be on our guard, hoping that the problem is not greater than we have been told. The question of the deepening of the regional integration movement is, however, bound to surface strongly again.

Dr Adrian Fraser is a social commentator and historian.