CL Financial and CLICO bailout: The bizarre endgame

“There was a series of large-scale, rapid withdrawals of funds before the start of the bailout.  That pattern of activity would have speeded-up the collapse.”

“We have entered a new stage.  This is where all those trusting people, who were told to wait and have faith, are realizing that the people in the know have already withdrawn and secured themselves.  Some of those people in the know were the same ones who were telling the faithful to keep on waiting.  What a thing.”

by Afra Raymond

A Season of Unreason

We are now entering a bizarre endgame in this rounds of musical chairs.  The children’s game has returned for us adults, but with a vengeance.

As I wrote on 10th September, the big question is ‘When exactly did the CL Financial group collapse?’.

To understand this huge matter we need to put things in the correct order –

Firstly, the CL Financial chiefs left others holding the risks –

  • LA Monteil – retired at the end of March 2008
  • MA Fifi – retired in August 2008
  • Robert Mayers – retired in December 2008.

What did they know and when did they know it?

Secondly, there was a series of large-scale, rapid withdrawals of funds before the start of the bailout.  That pattern of activity would have speeded-up the collapse.  It would be very interesting to see details of who broke their deposits and failed to ‘roll-over’ in that crucial final stage.

Thirdly, post-January 2009, we have the huge payout noted in the Guardian editorial of 25th October.  Who got those monies?  On 1st October, the Prime Minister promised to publish those details – we await with interest.

Now, with the recent decision to review the bailout process, we have entered a new stage.  This is where all those trusting people, who were told to wait and have faith, are realizing that the people in the know have already withdrawn and secured themselves.  Some of those people in the know were the same ones who were telling the faithful to keep on waiting.  What a thing.

There now appear to be at least four groups representing these investors –

  • The Clico Policyholders’ Group (CPG) – which is the most visible one with Peter Permell, Manny Lawrence and Norris Gomez etc.
  • The Clico Policyholders’ Protection Association (CPPA), which is the one with Harold Sookhan and Ramesh Lawrence Maharaj.
  • South Action Group – with Solomon Hem Lee
  • Denbow Group – a small number of Clico investors who are being represented by Dr. Claude Denbow SC.

Some of the positions being taken by the various groups are indicative of the degree of desperation of the parties, hence the title of this article.

The general view emerging from these groups seems to be that the CL Financial group is basically healthy and profitable, so there should be no issue about returning their investment.

It is impractical to continue basing our discussions on the series of rumours and draft reports and suchlike.  We need good quality information to make a quality decision.  We need to insist on that as a minimum.

After the first round of organizing and attorneys’ letters, followed by the Prime Minister’s important address on 1st October, we are now in what appears to be an even stranger place.

Two of the stranger proposals emerging from the CPG’s Port-of-Spain meeting on 24th October were –

  • Prem Beharry of the CPG was reported in this newspaper to have said – “…Ryan ALM are saying they would take US$600 million and would convert it to the best debt instrument in the world which is US Treasury Bills,” Beharry said.

The Ryan ALM group is saying, within three months if they are engaged, they would be able to sell those bonds and get in cash of US$1.8 billion which is equal to the debt of TT$10.5 billion—that money would be used to pay all the policyholders…” That is literally too good to be true.  Ryan ALM will triple your money, in three months.  Take that.  It is the same approach that created this mess in the first place – both at the CL Financial group and Hindu Credit Union.  It seemed to me that the CPG was recommending that the government put $600M USD of our taxpayers’ money into this scheme.  Yes, I said scheme.  Maybe if it was really so good they should have just accepted the discounted rates being offered in the budget and invested those funds with Ryan ALM.  I recently read that one Prem Beharry was appointed to the National Gas Company Board.

  • Another proposal, this one reportedly stated by Peter Permell, the CPG’s most prominent spokesperson, was for the state to pay 40% immediately, with the balance payable in 5 to 7 years.  Delayed payments would earn interest of 4-4.5% on those unpaid balances and also be entitled to a 51% share of any uplift in the value of sold assets.  No, there was no proposal for those CPG members to share in any losses if assets had declined in value.

It may all just be a series of negotiating positions, but it seems that no one from these various investors’ groups intends to take a discount or ‘haircut’ on the monies owed to them.  The unstated assumption is that if someone has to stand the bounce or take a haircut, that someone must be the taxpayer.  That could never be the correct position.  So, we need the facts.

The most startling development is the Central Bank’s full page adverts on Thursday 28th October, repudiating the claims that it had offered any guarantees in this situation. The reaction was immediate, with the CPPA publishing large adverts in opposition the next day and a new anti-bailout group emerging for the first time – at last!  The CPG’s response was a nadir in their campaign, with this paper reporting that – “…Permell went on to say that they do not care where the Central Bank gets the money from once they guarantee the policyholders’ contracts…” – I could scarcely believe what was on the page before me.  Even the most militant Trade Unionists use more reasonable language.

Which brings us right to the meat of the matter, the order of things.  What is the reason that the investors’ groups are now at the front of the line for assistance from this government?  I could be wrong, but it is easy to get that impression when one hears of Cabinet discussing the matter twice in one week, certain groups giving threatening timetables and so on.  I do not know if any Cabinet in this country – PNM, UNC or PP – has ever given such priority to any matter in the past.

There are other claims on the limited monies available to the State.  All of those claims existed before these investors groups.  All.

Many people have poor water supply.  Outstanding payments to contractors and suppliers are in excess of $7.0Bn, according to Central Bank estimates.  Insufficient money for OPVs – the estimated cost of $3.0Bn is too much for the country to bear, so national security is falling behind.  More guns and drugs entering our homeland.  Public Servants claims are about $3Bn and that is also a strain on the Treasury.  Not enough police cars.  A sad situation in our public hospitals.

The CPG issued a 2-page advert in the Guardian on Thursday 4th November and it deserves careful reading.  It was good to see their call for the publication of the correct financial information before making a decision.  They set out their proposals for the relief of CPG members – those are the latter of the two above, with the added condition that they be given two seats on the boards of CL Financial and Clico.

The CPG claims that its proposals place no additional burden on the taxpayers, which is a good thing, if that is truly so.  The CPG proposals were silent as to how the monies already spent are to be recovered.

The real test will be if the accounts and asset valuations reveal the group to be insolvent.  Will the various investors’ groups accept that or are we in for a long, bitter fight?

The Commission of Enquiry

The Attorney General recently announced that he had withdrawn Sir Gavin Lightman QC as the sole Commissioner, due to an apparent conflict of interest.  Lightman had appeared for Clico in a 1991 court case and the PNM did well to have stopped this before it went too far.

Two important further points, though –

Firstly, this is the second such occasion.  In the first case, the Commission of Enquiry into 1990 was announced with retired Appeal Court Judge Mustapha Ibrahim as its chair, until he pointed out that he too had a conflict of interest.  There needs to be some more care taken on this count.

Secondly, the terms of reference need to be qualified, since the AG was reported to have said that “…The COI, he said, covers CL Financial, Colonial Life Insurance Company (Clico), Clico Investment Bank, British American Insurance Company and the HCU…Having been frustrated in my efforts for the past fortnight to get confirmation of the Terms of Reference from the AG’s Ministry, I am forced to rely on press reports.  Question being, why is CMMB being omitted?

Afra Raymond is a Chartered Surveyor. This series on the CL Financial bailout can be viewed or readers’ comments made at


Filed under Barbados, Business & Banking, Consumer Issues, Corruption, Crime & Law, Offshore Investments

3 responses to “CL Financial and CLICO bailout: The bizarre endgame

  1. Inside Job

    This movie is a must see when and if it comes to Barbados.

    The accounting firms, rating firms and investment bankers have run amok over the world economy creating misery for tens of millions of people.

    The little guy always gets it in the end.

    ITAL is long overdue in every country with responsible regulation.

  2. Ryan ALM (Asset/Liability Management), is a specialist in asset liability management. Our solution is not a product but rather a process involving a system which includes several proprietary financial models. We will offer a stable solution to make the policy holders completely whole as soon as possible.

    Gross Liability $1.7 billion
    Investment Fund $600 million
    (in Trust)

    Provide principal restoration to all CLICO Financial policy holders
    Defease liabilities over time to reduce cost and risk to TT Government

    Defeasance is a technique by which a debtor removes liabilities from its balance sheet by pairing them with financial assets, therefore the outstanding debt and assets offset each other on the balance sheet and don’t need to be recorded.

    Ryan ALM Advisers, LLC recommendations:
    Issue a 20-year CPHG bond
    (Secured by Investment Trust and pledge of future payments)

    I. We create debt to be repaid quickly through a Defeasement Bond Strategy. We can defease in 10 years – the higher interest rates grow in the USA, the quicker we can defease. The proceeds of the debt offering in the USA would pay the policy holders 100% of their outstanding principal immediately.
    First we create a portfolio in a Trust Account for the purpose of defeasement. This is a separate distinct fund that can not be touched or used for any other purpose. This is in compliance with International Accounting Standards 39 accounting rules for Defeasement. We do it in harmony with IAS regulations to lower the costs. All of this is taken into consideration by the credit rating agencies as part of the process whereby your credit rating will not experience pressure.
    It is important to note that we are NOT involved in the distribution or allocation of the funds to the Policyholders. That is at the discretion of the Government of Trinidad & Tobago.

    Our approach is Financial Tailoring, a customized solution, where we align the portfolio construction with the liability horizon. Only U.S. Treasury or Agency Zero Coupon bonds are used within the portfolio. We do NOT use derivatives, interest rate swaps or other synthetic products. We MUST price liabilities as a zero coupon bond because it is the only investment with a certain value in the future.

    II. There are two ways we achieve our objective: First, is growth in assets and second is by liabilities going down in present value (see interest rate sensitivity below). As interest rates rise the present value of liabilities goes down. Because of our proprietary Custom Liability Index we are able to – harvest gains to finance the liabilities. We have a greater understanding of the timing and amount of each liability cash flow, and the timing and amount of each asset contribution which keeps us focusing and monitoring the amount of financing required.

    Interest Rate Sensitivity on USD$1.7 Billion in Liabilities:

    Present Interest
    Value of Liabilities Rate Rise Savings
    $1.401 b 100 basis point increase (1%) $299mil
    $1.155 b 200 basis point increase (2%) $545mil
    $0.953 b 300 basis point increase (3%) $747mil

    III. On October 15th I spoke with Roberto Arravello, the S&P analyst for Trinidad & Tobago, and he told us (including the CPHG) that this “Will not add any pressure to the fiscal structure” and “Would be unlikely to affect credit rating.” The reason is because a defeasement bond is treated differently than unsecured debt.
    The bond issuance will not add any pressure to the stature of Trinidad & Tobago because there is no payment until maturity which is in 20 years. It’s not a cash flow issue because it is such a long term liability.


    • We are NOT asking for additional tax payer money, but rather CL Financial assets to match CL Financial Liabilities.

    • There will be NO additional burden on the Treasury, because we will defease the CL Financial Liabilities by pairing it with CL Financial Assets in a separate pledged account. (In accordance with International Accounting Standards Rule 39).

    • Once liabilities are defeased, it will be of NO consequence on the T&T Treasury or affect cash flow. (i.e. credit rating or borrowing costs). Due to the lack of a coupon/installment payment, there is NO effect on cash flow. There will only be a single lump sum payout at maturity to the U.S. Bond Holders. (NOTE: this is another positive factor taken into consideration by credit agencies.)

    • Does NOT affect USD to TTD exchange rate or TTD overhang debt to GDP level.

    • We suggest preserving the CL Financial assets for the country rather than liquidating them. The assets are to be held temporarily in a separate distinct Trust until defeasement is achieved. Then they are returned to the Government in whole. We only need the dividends, interest, and cash flows from the selected pledged CL Financial assets, so as to not encumber the growth or cash flow of other subsidiaries.

  3. another CDO Collateralized Debt Obligation with bells

    “First, is growth in assets and second is by liabilities going down in present value (see interest rate sensitivity below).”

    In case you hadn’t noticed most assets are still shrinking in spite of Trillions of Dollars of US Dollars and treasury Bills being printed every day. Who knows what they will be worth
    and many of the G 20 countries are screaming at the real lack of financial reform in the US compared to the rest of the world.

    I would be highly suspicious of these generalities without a very hard look at the assets and their income generating possibilities without deteriorating the value of the asset. This should not be done other than by a very diligent conservative accountant or actuary familiar with receivership.

    Defeasance sounds like Malfeasance and another way to grab fees along the way without solving the long term problems.

    The other question is who is proposing this scheme and what is their track record?