Afra Ray­mond

One of the abid­ing ques­tions on the CL Fi­nan­cial is­sue is–What main event/s caused the group to fail? One of the main ru­mours mak­ing the rounds at the time of the bailout was that the State-owned Na­tion­al Gas Com­pa­ny (NGC) had made heavy with­drawals from Cli­co In­vest­ment Bank. Those with­drawals and the re­quests for the re­turn of fur­ther de­posits were said to have trig­gered the 'crash' with­in the CL Fi­nan­cial group. An­oth­er ma­jor is­sue which was raised in the Par­lia­ment by the cur­rent leader of the Op­po­si­tion was the al­le­ga­tion that the Min­is­ter of Fi­nance and Gov­er­nor of the Cen­tral Bank had used 'in­sid­er in­for­ma­tion' to with­draw their own de­posits from CIB. De­spite the ex­pla­na­tions by these of­fi­cials, which form part of this ar­ti­cle, those per­cep­tions per­sist among the pop­u­la­tion. Ul­ti­mate­ly, the ques­tions have to be 'What did they know?' and 'When did they know it?' This ar­ti­cle will delve in­to some of those is­sues, us­ing the pub­lished record, as is my prac­tice.

The NGC press re­lease

This was pub­lished in the dai­ly news­pa­pers on Feb­ru­ary 4, 2009, as a cor­rec­tive to the wide­spread and po­ten­tial­ly-dam­ag­ing ru­mours. It was is­sued un­der the hand of the NGC Pres­i­dent, Frank Look Kin. It is the penul­ti­mate item on its pub­li­ca­tions page, un­der the ti­tle 'Press Re­lease-NGC's Man­age­ment of Its Fi­nan­cial In­vest­ments,' which can be ac­cessed at http://www.ngc.co.tt/Me­dia/pub­li­ca­tions.htm. Due to its huge rev­enues (stat­ed to be $14.0B in 2008), over 90 per cent of which are in US dol­lars, the NGC has es­tab­lished a pol­i­cy for the man­age­ment of its large-scale, short-term in­vest­ments.

Ac­cord­ing to the press re­lease, those funds are placed in ei­ther ap­proved fi­nan­cial in­sti­tu­tions or in­vest­ment-grade rat­ed for­eign banks. The place­ment of those de­posits is guid­ed by lim­its for the per­cent­age of funds al­lo­cat­ed to a fi­nan­cial in­sti­tu­tion or group of fi­nan­cial in­sti­tu­tions. The se­lec­tion of de­posit-tak­ing in­sti­tu­tions and the es­tab­lish­ment of place­ment lim­its are both good fi­nan­cial prac­tice in terms of risk man­age­ment.

NGC's place­ment lim­its These were not dis­closed in the NGC press re­lease, but we are told that at the start of 2008, the CL Fi­nan­cial group was al­lo­cat­ed 40 per cent of the NGC's de­posits, which by the end of 2008 had been slight­ly re­duced to 37 per cent. At an­oth­er point we are told that in 2008, NGC with­drew an av­er­age of US$151M per quar­ter, with CL Fi­nan­cial's por­tion of that be­ing 45.7 per cent–more than the 2008 al­lo­ca­tions stat­ed ear­li­er. The si­lence on the ac­tu­al place­ment lim­its means that we can­not de­ter­mine whether the 2008 de­posits in the CL Fi­nan­cial group com­plied with that pol­i­cy. The on­ly de­posits for which we are told '...the de­posits were with­in the max­i­mum per­cent­age lim­its...' were CIB de­posits in 2001, but no per­cent­ages were giv­en in that case. We are al­so told that "...In the 4th quar­ter of 2008, de­posits were re­called up­on ma­tu­ri­ty from...sev­en fi­nan­cial in­sti­tu­tions in Trinidad & To­ba­go and the USA..."

Even if we on­ly count the lo­cal ones, there are six large banks and 19 oth­er ap­proved fi­nan­cial in­sti­tu­tions avail­able to ac­cept de­posits un­der NGC's pol­i­cy. It is pass­ing strange that up to 45.7 per cent of NGC's funds could be al­lo­cat­ed to a sin­gle group. If that al­lo­ca­tion of funds in 2008 was in con­for­mi­ty with NGC's de­posit place­ment pol­i­cy, it is in­dica­tive of a tremen­dous mea­sure of con­fi­dence in the CL Fi­nan­cial group, to put it in its best pos­si­ble light. Even if CL Fi­nan­cial were a 'blue-chip' group, which they were not, such an al­lo­ca­tion of de­posits could be viewed as reck­less be­hav­iour by the re­spon­si­ble par­ties. It seems that we may need to ex­am­ine more close­ly how our en­er­gy rev­enues are in­vest­ed.

Dic­ta­tor­ships recipe for dis­as­ter

No­vem­ber 2008–We are al­so told in that press re­lease that "...In No­vem­ber 2008 CIB failed to re­turn the prin­ci­pal and in­ter­est up­on the ma­tu­ri­ty of an NGC de­posit (US$10 mil­lion). This de­posit, plus in­ter­est, was paid in two amounts dur­ing the first week of De­cem­ber 2008..." From that state­ment it seems cer­tain that CIB's in­abil­i­ty to re­pay was known to NGC, a huge, State-owned cor­po­ra­tion. It is dif­fi­cult to imag­ine that news of that im­por­tance would not have trav­elled to the very high­est lev­els. In­deed, one could ar­gue that prop­er man­age­ment of the State's fi­nan­cial re­sources would have re­quired such news to be for­mal­ly re­port­ed to the rel­e­vant of­fi­cials.

When one jux­ta­pos­es the fact that CIB "...failed to re­turn..." US$10M to NGC with the mea­sure of con­fi­dence one can in­fer from the ex­tent of their deal­ings, it is im­pos­si­ble to imag­ine such an episode pass­ing off qui­et­ly.

The Gov­er­nor's re­sponse

Ewart Williams' writ­ten re­sponse to the al­le­ga­tions was un­equiv­o­cal and made the very same day–it can be viewed at

http://www.cen­tral­bank.org.tt/news/re­leas­es/2009/mr090204.pdf.

The Min­is­ter's re­sponse

That was a state­ment in Par­lia­ment on the very day at pages 626 to 631 of http://www.fi­nance.gov.tt/doc­u­ments/news/spF82F5F.pdf. At the time of the CL Fi­nan­cial col­lapse, the Gov­er­nor was clear in iden­ti­fy­ing the prime cause to be "...ex­ces­sive re­lat­ed-par­ty trans­ac­tions..." and this NGC/CIB sit­u­a­tion bears a strange re­sem­blance. We need to strive for bet­ter norms of gov­er­nance and pru­dence if we are to avoid a re­cur­rence. His­to­ry is said to be rich in irony, nev­er more so than in this sit­u­a­tion, since the de­fen­sive state­ments by both of­fi­cials were made on the very day the NGC pub­lished its own de­fence. Wednes­day Feb­ru­ary 4, 2009.

Ap­proved fi­nan­cial in­sti­tu­tions

Those are tak­en to mean the 25 com­pa­nies li­cenced un­der the Fi­nan­cial In­sti­tu­tions Act 2008. Those com­pa­nies are all re­quired to be mem­bers of the De­posit In­sur­ance Fund and their names can be viewed at http://www.dictt.org/de­posit_in­sur­ance/in­dex.php?pid=2006.

There are six main banks on the list

1. Citibank;

2. First Caribbean;

3. First Cit­i­zens';

4. RBTT;

5. Re­pub­lic Bank and

6. Sco­tia­bank.

Two small­er banks on the list are In­ter­com­mer­cial Bank and Bank of Bar­o­da.

In­ter­lock­ing di­rec­tor­ships

A con­tin­u­ing con­cern, in light of the grow­ing chal­lenges to the old or­der of the com­mer­cial and fi­nan­cial world, is the role of in­ter-lock­ing di­rec­tor­ships. That is the sit­u­a­tion in which a very small group of peo­ple con­trol most of the ma­jor com­pa­nies and ac­tiv­i­ties in a so­ci­ety. Crit­ics of that sit­u­a­tion would say that such sit­u­a­tions are a recipe for cor­rup­tion and self-serv­ing be­hav­iour. The small group of peo­ple can en­rich them­selves, leav­ing the left­overs for every­one else.

Those who sup­port that sit­u­a­tion would say that the emer­gence of such a small group of lead­ers is nat­ur­al, par­tic­u­lar­ly in a small so­ci­ety such as ours, and the re­al chal­lenge is to de­vel­op rules and norms which lim­it the pos­si­ble neg­a­tives. This is an is­sue which I am ex­plor­ing in the on­go­ing se­ries to ex­am­ine the gov­er­nance im­pli­ca­tions of the Ude­cott fi­as­co. It is not sur­pris­ing that it is al­so a fea­ture of the CL Fi­nan­cial col­lapse and there is an ex­am­ple of that in the case of NGC and CIB.

CIB di­rec­tors

At the time of the col­lapse, the Board of Di­rec­tors of CLI­CO In­vest­ment Bank com­prised:

1. Mervyn As­sam (Chair­man)

2. Am­jad Ali

3. An­tho­ny Ra­hael

4. Maria Thorne

5. Michael Cal­len­dar

6. Faris Al Rawi

NGC Ex­ec

At that time, the Na­tion­al Gas Cor­po­ra­tion's ex­ec­u­tive man­age­ment in­clud­ed: Ms Olave Maria Thorne, Vice Pres­i­dent, Le­gal and Cor­po­rate Man­age­ment and Com­pa­ny Sec­re­tary. See http://www.ngc.co.tt/About/ex­ec­u­tive.html

Afra Ray­mond is a char­tered sur­vey­or. This se­ries on the CL Fi­nan­cial bailout can be viewed or read­ers' com­ments made at www.afraray­mond.com D:\CL Fi­nan­cial\The CL Fi­nan­cial bailout - the NGC el­e­ment-1.doc'Tak­ing in front'