This week, I am at last able to answer two queries which have bedeviled this series for some time. Firstly, several readers have pointed out that there was a significant amount of repetition of details in this series. While it is true that that repetition was deliberate on my part, it is also true that there was a growing question: when are you going to give us some fresh information?
Secondly, my repeated requests for publication of the initial letter from CL Financial requesting the state's financial support. It seemed that those calls were being ignored and I did wonder why. On June 11, in the column, Do What is Right, I wrote: "Could it be that that letter contains information which reveals too much about the true background to this tangled affair?�Madam Minister, what is your interest in further secrecy on this aspect?"
In the course of researching another aspect of the bailout, I recently came across a letter. Given that the Minister of Finance revealed that information in the first week after signing the memorandum of understanding, I was clearly wrong to suggest that she had any intention to conceal the letter. The Minister of Finance was speaking in Parliament and seeking to rebut the allegations of opposition politicians that she had benefited from insider information.
This extract of her statement is taken from page 628 of Hansard of February 4. This can be found at: http://www.ttparliament.org/hansards/hh20090204.pdf:
"With your leave also, I would like to read into the record of Hansard, a letter from Clico Investment Bank addressed to the Central Bank. That letter is dated January 13, 2009. It is on the letterhead of CL Financial, addressed to Mr Ewart Williams, the Governor, and signed by Lawrence A Duprey, Group executive chairman.
The severe global financial crisis has begun to impact our local and regional markets and is causing strain on liquidity in certain parts of the financial system in T&T. CL Financial, being a significant part of the financial sector, has been disproportionately impacted by these adverse conditions. Many of our customers are also affected and are consequently calling on their reserve cash positions. Thus far, all our member companies have been able to deal with their commitments. However, we wish to develop a comprehensive contingency plan to meet any further developments, if this trend were to follow a similar pattern to other countries. As a result, CL Financial is taking urgent and decisive action. We have conducted a review of the group's assets and the projected liquidity needs. While the group remains strong in terms of the quantum and quality of its assets, these assets are not in a form that can be liquidated in short order without significant loss in value."
And they gave a table setting out the estimated value, just by sector
Real estate: $2,505,000,000
Financial services: $8,060,000,000
"We are in the process of realigning the asset/liability structure of the group to better match the current liquidity situation. This is a complex action plan that we are embarking on immediately, including initiatives, such as merger of certain entities within the group with strategic partners and/our sale of certain assets in order to raise liquidity. As you would appreciate, these initiatives would need some time before they yield the desired results. In the event that the financial crisis deepens in the local market, we may need urgent liquidity support to be made available to the group. In this regard, we would like to discuss the approach of the Central Bank toward supporting the financial sector and, by extension, the CL Financial Group, if conditions were to deteriorate. I thank you for your understanding in this matter and look forward to your continued support."
That letter, as I said, was dated January 13, 2009.
CL Financial consolidated balance sheet is at page 23 of their annual report 2007 The Next Wave of Growth http://www.clico.com/pdf/AR07/CL%20Financial%20Annual%20Report%202009.pdf
That consolidated balance sheet discloses total assets, as at December 31, 2007, as being $100.666 billion– those financial statements were published on November 18, 2008.
Only 56 days after publication of a $100 billion asset value, the executive chairman signed a letter, stating that the group's assets were worth about $24 billion.�That is an aspect of the fiasco which has not been discussed in public, so far.
The precision of the figures which formed part of Duprey's letter would suggest that the assets had been valued in preparation for that letter. That probability raises several questions:
1. When would a new valuation have been done? By whom?
2. Why would CL Financial have done a new valuation if they had just published the annual report with the accounts audited by PWC?
3. Would there have been enough time to do a complete re-valuation of the assets in less than two months, when the original valuation took almost 11 months?
We have now agreed to restore asset value to the shareholders of CL Financial on terms which are as yet unpublished. We need to hear some accounting of this extraordinary situation.
Out of Africa
The dominant media coverage of the wealthier countries can sometimes mask interesting developments. I had been wondering how other developing countries were handling their own financial crises. I was struck by extensive reporting of the action of the newly-appointed governor of the Central Bank of Nigeria in bailing out five large, publicly listed banks in August. Governor Lamido Sanusi has taken several bold actions to restore confidence in the banking sector.
The main ones were:
�2 Dismissal of 19 of the top executives of the rescued institutions, deploying seldom-used powers.
�2 Publishing lists of defaulting borrowers, many of whom are prominent citizens and leading companies, along with a strong warning that all these loans must be repaid now. Those who do not comply will face the courts.
�2 Making it clear to shareholders that the bailout funds are not for dividends at all, but to restore banking confidence.
�2 A special police unit to deal with economic and financial crimes is questioning the dismissed executives. Those who are not being questioned are forbidden to leave the country.
This instructive story is covered in the Wall Street Journal, The Financial Times and Reuters.
Afra Raymond is a chartered surveyor.
This series on the CL Financial bailout can be viewed or readers'
comments made at: www.afraraymond.com.