The Home Mortgage Bank (HMB) was the beneficiary of a $27.2 million fee for providing a guarantee for CL Financial's purchase of Lascelle de Mercado in 2007. HMB, which had an asset base of US$40 million, had provided a guarantee for Lascelle's approximately $700 million purchase at 1.25 per cent interest. This guarantee was signed by former HMB chairman and CL Group Finance Director Andre Monteil, CL Financial Chairman Lawrence Duprey, HMB's chief financial officer Peter Johnson and attorney Geoffrey Leid. Angostura director Michael Carballo, who had worked extensively on the acquisition of Lascelle, was left in the dark after he rejected the need for such a guarantee in the first place.
Carballo told the Commission of Enquiry into the collapse of Clico and the HCU yesterday, there was no guarantee needed because an offer had already been made to the Lascelle shareholders, which they had accepted. Carballo said HMB's letter of interest of guarantee came to his attention on December 14, 2007.
"They wanted me to sign a guarantee arrangement which was not needed," he told the enquiry. CL Financial, through Angostura Holdings, would acquire 86 per cent of Lascelle in two tranches. The first tranche was for $312 million at US$4.50 a share, completed on February 12, 2008. Through a number of inter-company borrowings and two loans-one from HMB and a US$25 million loan from First Citizens to Angostura-CL was able to come up with the sum for the acquisition.
Lascelle was fully acquired in July 2008 at US$676 million and HMB earned the interest on its guarantee.
Carballo said he was "shocked" when Ernst & Young, while doing a financial audit into the collapse of the Clico Investment Bank (CIB), showed him a letter which indicated payment for a guarantee which he did not approve. Besides HMB's $27 million fee, CIB-of which Monteil was also chairman-was paid $13.5 million.
Monies, in the sum of $6.8 million, were also paid to Lonestar Capital-owned by Geffrey Leid, to Republic Bank Limited and bonuses to Johnson and Rawle Ramlogan. Carballo said after he dismissed the matter in December 2007, he assumed it was finished. He observed that while the letter was addressed to him, it did not have his signature.
"But clearly we were not operating in an environment of full disclosure," he said. After he learnt of this letter in 2009, after being appointed Group Financial Director upon the exit of Monteil, he went to HMB and questioned their form of guarantee. The letter, he was told, was their guarantee. He said this has resulted in a dispute between HMB and CLF on the $27.2 million. "I formally challenged HMB on the document because they could never justify earning that fee," he said. Commissioner Colman questioned whether the letter was a "device" for providing $27.2 million to HMB. Carballo said: "To ensure certain fees and commissions could be earned by certain individuals."
Carballo said the 1.25 per cent was split among certain parties and charged Monteil and Leid with going through a great deal to ensure certain individuals earned commission. He explained that Angostura now has a balance on its books for the sum paid to Leid. Carballo argued that while Lascelle was "an expensive purchase" it would have created a lot of synergies with Angostura. Carballo also told the enquiry that Monteil was asked to leave the CLF empire by the board of directors because they were uneasy about the media attention the company attracted after Clico's purchase of a 45 per cent shareholding in HMB.