PM: Disregard by management led to FSA taking over SVBLA

Poor governance and a disregard by management for company policy led to the Financial Services Authority (FSA) taking control of the Building and Loan Association, following a run on the institution.{{more}}

Prime Minister and Minister of Finance Dr Ralph Gonsalves, speaking at a press conference at Cabinet room on Tuesday, said that the management of the Association failed to put in place measures, which would have prevented substantial amounts of money being withdrawn, days after the January 18 publication of a letter written by economist Luke Browne, which questioned the governance and financial health of the Association.

“They were not following the rules,” Gonsalves said of the management.

“All you had to do was turn up and say ‘I have money here….” in some cases, huge sums of money, and say to them ‘I want to take it out….’

“They proceeded ‘willy nilly’, just to give the special deposit. That is a species of irresponsibility.”

Quoting article 77 of the rules in relation to special deposits, Gonsalves pointed out that three months notice should have been given for withdrawals, and this had to be approved by the Board of Directors.

He said that this was not enforced by those in charge, as persons came to withdraw their special deposits.

The prime minister also read excerpts of a letter dated January 22, written to him by Earl Crichton, then Chief Executive Officer of the Building and Loan Association.

“The first paragraph speaks to the article (by Browne). ‘This callous and misleading article is already causing serious anxiety to the investors of the St Vincent Building and Loan, and causing a run on the lifeblood of the institution.’

“Of course there was a run of a similar magnitude in 2009, and Mr Crichton must know about that.

“The letter continued: ‘Please advise how the Ministry will assist in the alleviating of the damage being caused by the article.’

“But it seems as though the Building and Loan didn’t ask themselves; Mr Crichton didn’t ask himself how could he alleviate the problem.

“….Despite the fact that the officials from the FSA spoke to the hierachy of the Building and Loan in that very week, when Mr Crichton was writing, asking the Ministry what can you do to help…. This is one where you, yourself, four days after Luke Browne’s article, writing the Ministry, saying what are you going to do to help. Why you ain’t help yourself too, by applying the rules?”

The prime minister pointed out that had the rule been applied, the flow of funds from the institution could have been stemmed.

“Because clearly, you have to give the Association enough time to manage their cash flow; they have money to collect, they have money to pay out.

“This is not a situation where you are in a normal flow, where the odd person is going to come and take out their money and you give them, then and there and they forfeit three months interest.”

Reports from auditors show that the Board of Directors had been informed of discrepancies and irregularities in the operation of the institution, but recommendations were not heeded by the board.

“Everybody knows that there was a lot of friend, friend business and a lot of incestuous financial relationships,” Gonsalves said.(JJ)