The Government's plan to deal with Clico depositors could cause some of this country's credit unions to collapse, says manager of the Credit Union League, Dianne Joseph. The Government's proposal to make a $75,000 initial payment to Clico depositors and 20 bond coupons (one for each year) at zero interest is causing a great deal of concern among Clico depositors, including the credit unions. Joseph said that of the 128 credit unions in T&T, more than 40 have invested about $600 million. And that's being conservative, she said. She said the total investment of credit unions would be higher than $600 million.
One credit union, the Guardian understands, has more than $100 million in deposits in the financially troubled insurance company. Drawn to the high rates of interest that the Port-of-Spain insurer offered before it hit hard times in January 2009, many of the country's credit unions held sizeable Clico deposits on their books, according to checks by the Guardian yesterday. Rhand Credit Union, which was established 63 years ago as a civil service co-operative society, held Clico deposits of $28.1 million in a portfolio of $395 million as at the end of 2009. Venture Credit Union, based on the Point Lisas Industrial Estate, invested $21 million in a Clico fixed deposit as its December 31, 2008, annual report shows, while its portfolio is $333.7 million. Eastern Credit Union, the nation's largest, held $17 million in Clico units, according to its 2008 financial report, but this was less than one per cent of its assets, according to an official of the credit union.
Teachers Credit Union invested $16 million directly with Clico and $8 million indirectly through the Central Finance Facility, which is a co-operative of the nation's co-operatives. The Teachers asset base amounts to $503 million. Several credit unions called by the Guardian yesterday declined to provide information on their Clico holdings.
"This must be a very worrying time for any credit union that did not have a policy that restricted investment in any one entity to an agreed maximum percentage of their total portfolio," said Rawle Rochardson, the president of Teachers' Credit Union. Several of the credit union reports surveyed by the Guardian yesterday contained the following language, relating to the Clico problems: "Based on assurances from the Ministry of Finance and the Central Bank, we expect to recover the full principal amounts invested in these companies on the respective maturity dates."
The Guardian understands that some of the country's trade unions have also made investments into Clico. President of the National Union of Government and Federated Workers (NUGFW) trade union, James Lambert said the union has some investments but did not quantify it. Lambert admitted he was an individual investor and was not happy with $75,000. "When you look at the age of most Clico investors, 20 years is a long time to wait... $75,000 is no big set of money given the cost of living in T&T," he said. The Guardian also learnt that when Caroni (1975) Ltd folded in 2003, the Government had invited financial institutions to talk to cane farmers on investing their separation packages. Clico was given the nod because it was the only company guaranteeing the sugar workers their principal backed by the Statutory Fund.
Joseph said the credit union movement has both Clico and British American (BA) investments. She said that in January 2009, the Central Bank issued a letter guaranteeing depositors both their principal investments and their interest rates. The Central Bank guarantee came after the PNM government took over the company to prevent a collapse of the country's financial sector. Last week, Finance Minister Winston Dookeran announced his "creative plan" during the budget presentation.
After his announcement, Dookeran said he informed the Central Bank Governor Ewart Williams that no more interest should be paid to depositors.
But Joseph said investment was made in the Lawrence Duprey enterprises, based on approval given by the regulators–the Central Bank. "We invested in Clico and BA at specific interest rates...The rates are paid on a quarterly, semi-annual or annual basis. Credit unions budgets would have included the interests expected from their investments," explained Joseph. For example, a $5 million investment would have yielded $500,000 in interest. Credit unions, she explained, would have factored this into their financial year planning. "We are no longer getting interest or principal...We have growing concerns," she added. She said this had the potential for credit unions to "mash up," collapse or perhaps go into receivership.