Cli­co's hold­ing of 51.7 mil­lion Re­pub­lic Bank shares worth $4.5 bil­lion at to­day's share price of $85.40 is con­sid­ered to be one of the in­sur­ance com­pa­ny's best and most liq­uid as­sets. The Cli­co stake in Re­pub­lic Bank con­sti­tutes the largest sin­gle block in one of the most con­sis­tent­ly prof­itable in­dige­nous com­mer­cial banks in the Caribbean. And it is be­ing eyed by thou­sands of Cli­co pol­i­cy­hold­ers and mu­tu­al fund in­vestors who are anx­ious to re­ceive com­pen­sa­tion for the $12 bil­lion in­vest­ed in the con­tro­ver­sial Ex­ec­u­tive Flex­i­ble Pre­mi­um An­nu­ities (EF­PAs). But, in­cred­i­bly, the Cen­tral Bank state­ment of case against CL Fi­nan­cial, some of its top ex­ec­u­tives and re­lat­ed com­pa­nies al­leges that Cli­co lost up to $2.1 bil­lion in a se­ries of com­pli­cat­ed trans­ac­tions meant to ben­e­fit Cli­co In­vest­ment Bank (CIB), CL Fi­nan­cial and some of the ex­ec­u­tives.

The trans­ac­tions in­clud­ed the De­cem­ber 1998 sale by Cli­co to CIB of 14,344,697 Re­pub­lic Bank shares. At the same time, CIB pur­chased 5,304,319 from CL Fi­nan­cial, In­vestors' Hold­ings Ltd, Vive­ka Hold­ings and Roytrin Se­cu­ri­ties (some of these shares were al­so un­der Cli­co's con­trol). In­stead of Cli­co re­ceiv­ing cash for sell­ing the Re­pub­lic Bank shares to CIB, the in­sur­ance com­pa­ny re­ceived a fixed de­posit worth $370.2 mil­lion at CIB which was sup­posed to ac­crue in­ter­est at 11 per cent. For an in­sur­ance com­pa­ny, the re­place­ment of a volatile share with a fixed de­posit pay­ing as much as 11 per cent may have sound­ed like a favourable trans­ac­tion for Cli­co-with an­nu­al in­ter­est pay­ments of about $41 mil­lion.

CIB's Re­pub­lic shares swapped back to Cli­co

But in 2001, it was de­cid­ed that the Re­pub­lic Bank shares worth $370 mil­lion that Cli­co had sold to CIB would be swapped back to Cli­co. The ef­fect of this "swap," ac­cord­ing to the Cen­tral Bank's state­ment of case, was that CIB was "re­leased from its oblig­a­tion to pay in­ter­est at 11 per cent or any in­ter­est on the fixed de­posits" and the in­sur­ance com­pa­ny was then re­quired to make pay­ments to CIB de­scribed as 'man­age­ment fees' or a two per cent in­ter­est mar­gin as well as oth­er ad­di­tion­al fees. In­stead of re­ceiv­ing the 11 per cent in­ter­est on the fixed de­posit, Cli­co was to re­ceive the div­i­dends on the Re­pub­lic Bank shares. The "swap" al­so meant that if the Re­pub­lic Bank shares in­creased in val­ue by the end of the year, CIB would add to the $370 mil­lion in fixed de­posits. If the Re­pub­lic fell in val­ue at year end, the fixed de­posit would de­cline.

By 2007, the val­ue of Cli­co's fixed de­posit with CIB even­tu­al­ly in­creased to $1.2 bil­lion as a re­sult of the growth in the val­ue of the Re­pub­lic Bank shares and as a re­sult, as well, of the fact that Cli­co did not with­draw its CIB de­posits at ma­tured. Cli­co's en­tire $1.2 bil­lion fixed de­posit with CIB was deemed to be im­paired in the in­sur­ance com­pa­ny's 2008 an­nu­al re­port. This means, ac­cord­ing to the Cen­tral Bank ar­gu­ment, that Cli­co lost the $1.2 bil­lion fixed de­posit, the in­ter­est on the orig­i­nal $370 mil­lion fixed de­posit, which if com­pound­ed would have been equal to $581 mil­lion and it was re­quired to pay CIB $358.8 mil­lion be­tween 1999 and 2007.

Cli­co's bor­row­ings

In ad­di­tion, the Cen­tral Bank is claim­ing that in 2004, Cli­co trans­ferred sums to­talling US$163 mil­lion ($1 bil­lion) to CIB to fa­cil­i­tate the pur­chase of 16 mil­lion Re­pub­lic Bank shares equal to 10 per cent of the bank. CIB's to­tal pur­chase price was US$220.8 mil­lion. To raise the US$163 mil­lion for CIB, Cli­co bor­rowed mon­ey from First Cit­i­zens (US$10 mil­lion), CMMB (US$40 mil­lion, British Fi­deli­ty (US$8 mil­lion), an RBTT loan of US$50 mil­lion (joint­ly with CIB) and Cli­co en­tered in­to a re­po arrange­ment with Re­pub­lic Bank for GORTT bonds worth US$70.5 mil­lion. Cli­co ad­vanced an un­se­cured loan of US$16.7 mil­lion to CIB, ac­cord­ing to the state­ment of case and al­so ad­vanced US$21 mil­lion to CIB by "pur­port­ed­ly" sell­ing two In­vest­ment Par­tic­i­pa­tion Cer­tifi­cates. "Cli­co then loaned the US$21 mil­lion to CL Fi­nan­cial, which loaned the US$21 mil­lion to CIB," ac­cord­ing to the al­le­ga­tions.

The doc­u­ment al­so con­tains the charge that be­tween June 2004 and De­cem­ber 2005, "Cli­co was caused to lend amounts to CL Fi­nan­cial ei­ther con­sist­ing of or cor­re­spond­ing to" the amount of div­i­dends it would have re­ceived from Re­pub­lic Bank. It is es­ti­mat­ed that the div­i­dends so di­vert­ed amount­ed to $118 mil­lion. The doc­u­ment es­ti­mates that Cli­co lost $578 mil­lion on the 1998 sale of Re­pub­lic Bank shares to CIB, $1.1 bil­lion from the 2001 share swap and $806 mil­lion from the funds ad­vanced to CIB to fund the 2004 pur­chase of 16 mil­lion Re­pub­lic Bank shares.