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Clico: More questions than answers
It’s almost two years since entrepreneur Lawrence Duprey approached the Government cap-in-hand for a bailout for his illiquid insurance company, Clico. Fear of a systemic risk on the country’s financial system prompted the People’s National Movement administration, aided by the Central Bank Governor, to act swiftly to secure the investments of policyholders by using CL Financial assets as collateral. Twenty three months after the issue was brought to national attention, causing a week-long mini-run on Republic Bank (which is majority-owned by CL Financial) in its wake, details of the company’s exposure are still coming to hand.
“It amounted to almost 10 per cent of the gross domestic product and it involved, in the first instance, an allocation of about $5 billion to stem what was seen as a confidence risk and, subsequently, when this Government began to look into this matter, we got into the depths of the crisis. I had referred this to the understanding—the Clico fiasco—was understanding a bubble cycle that had gone sour,” said Finance Minister Winston Dookeran, during his presentation in Parliament of the Finance Bill. After a shareholders’ agreement was signed in June 2009, superceding the memorandum of understanding (MoU) of January 2009, the Government had quietly managed its encumbered inheritance to maintain a facade of business as usual. Policyholders were still being paid interest on investments, while others chose to withdraw from the failed insurance company.
Heads changed at the top. Former Central Bank Governor Euric Bobb resigned as chairman of Clico. Shafeek Sultan-Khan was identified as chairman of CL Financial. In April 2010, Marlon Holder became chief executive of Clico. In the meantime, the Central Bank had retained the services of forensic investigator Bob Lindquist to unravel the myriad of transactions the company engaged in. Shortly before the PNM Government exited office, Lindquist submitted a report to the former Attorney General, John Jeremie. By this time, Governor Williams had already diagnosed the conglomerate’s corporate sins: a mismatch between assets and liabilities, excessive leveraging of balance sheets assets, a pre-ponderance of inter-group transactions and inadequate capital.
The baton was passed to the People’s Partnership when it triumphed at the general election on May 24.
The PNM’s policy was rubbished by the PP. Finance Minister Winston Dookeran said the issue was misdiagnosed as a liquidity issue in the first instance. Dookeran also chastised “the laxity in regulatory management” for exacerbating the issue. However, months after the PP attempted to deal with the situation, it is no closer to reaching an amicable outcome nor to pacifying the policyholders, some of whom have banded together. There are more questions than answers about how the PP came up with its proposal for policyholders of an initial $75,000 cheque and 20 annual zero-rated bonds. Dookeran was forced to compromise on this offer for credit unions as more than ten credit unions invested up to $422 million in Clico, and there are four other credit unions which are higher in the order of $758 million, he told the Senate two weeks ago.
Dookeran has been resolute that his proposal is the best his Government can offer: every year for the next 20 years the Government will have to put aside $500 million to pay policyholders. That’s one per cent of GDP for the next 20 years. As far as Dookeran is concerned, it’s the best that can be done.
He insists he had the option of a disorderly liquidation, which he rejected. Only this week, the Finance Minister announced the database of Clico policyholders was in shambles, just before he begins to pay out $75,000 to some 11,000 investors. Dookeran is wary that the “fiscal deficits of today become the debt of tomorrow.” Former Finance Minister Gerald Yetming has been selected as chair of CL Financial and Clico. He’s tasked with turning CL Financial around so that the Government can recoup its investment.
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