REGIONAL

CLICO fears shared by entire Caribbean Published on Monday, March 9, 2009 Email To Friend    Print Version GEORGETOWN, Guyana (GINA): On March 5, the shares of the great Citigroup, once one of the largest banks and companies in world, traded for only 97 US cents on the New York Stock Exchange. Unfortunately, this is not a unique situation. It has been repeated with many other financial institutions in the United States, United Kingdom, Germany and many other countries around the world. In the Caribbean, on the other hand, many commentators have viewed the financial system as archaic, and unlikely to suffer from the global financial crisis as a result. While that may be true, the CL Financial Group was not. With operations stretching from Guyana to the United Kingdom, the CL Financial Group was involved in banking, insurance, agriculture and forestry, and energy and petrochemicals among others. They were a sophisticated conglomerate that used the funds generated from the operations of their different subsidiaries aggressively to invest in opportunities that were presented. However, not all their investments were wise and on January 30, the financial crisis, which removed US$30 trillion from the world stock markets in 2008, arrived in the Caribbean. Trinidad & Tobago On that day, the Government of Trinidad and Tobago, through its Central Bank, were forced to bail out four of the subsidiaries of the CL Financial Group, namely CLICO Investment Bank, CLICO Trinidad, Caribbean Money Market Brokers and British American Insurance Company. Ewart Williams, Governor of the Central Bank of Trinidad and Tobago, in a statement noted that the financial difficulties faced by the CL Financial Group were as a result of excessive related-party transactions, an aggressive high interest rate mobilization strategy, equally high risk investments and high leveraging of the Group’s assets. As a result, CLICO Investment Bank, and to a lesser extent CLICO Trinidad, began to experience an unusually high level of withdrawal requests which put a strain on their available liquid resources. The Central Bank noted that contagion risks that an institution as large as the CL Financial Group could have, not only on the financial system of Trinidad and Tobago, but of the entire Caribbean region. Immediately, governments all over the Caribbean were forced to look at the CLICO operations within their countries. In Guyana, Government and the management of CLICO Guyana assured the public that there was no exposure to the operations of the subsidiaries seized by the Government of Trinidad and Tobago. However, it was noted that there was significant exposure, to the tune of $6.9 billion or US$33.7 million, to the operations of CLICO Bahamas. The Bahamas On February 24, just over three weeks after the action by the Trinidadian Government, the Bahamian Prime Minister, Hubert Ingraham, who is also the Minister of Finance, was granted a winding up order over the operations of CLICO Bahamas. In a statement issued by the Office of the Registrar of Insurance Companies, it was noted, “This action was precipitated at this time because of the continuing decline in the market value of the real estate investment in the United States via CLICO Bahamas Limited subsidiaries, CLICO Enterprises Limited and Wellington Preserve Limited, the uncertain financial position of its ultimate parent, CL Financial Limited of Trinidad and Tobago, the inability of the company to pay claims/surrenders of policies in one of the jurisdictions where it operates and the lack of a credible plan by the company to address the shortfall in capital and liquidity in a reasonable time.” Guyana Immediately following the actions of the Bahamian authorities, the Government of Guyana, through the Commissioner of Insurance, was granted a judicial management order by the courts on February 25. In a press conference on February 26 to announce the action, President Bharrat Jagdeo noted that, given the action taken by the Bahamian regulators, as well as the significant exposure that the local company has to CLICO Bahamas, Government viewed it as a prudent measure to obtain the judicial management order. He further noted, “With this move, it is anticipated that a fuller assessment of the financial position of the Company will be obtained and greater protection would be offered to policyholders. Government intends to work towards recovering the sums outstanding from the Bahamas, and to protect the interests of all policyholders of CLICO Guyana.” On March 3, in response to statements made by the Bahamian Prime Minister, Hubert Ingraham before Parliament that there did not appear to be any evidence of CLICO Guyana’s investment in CLICO Bahamas, President Bharat Jagdeo noted that there was a substantial paper trail to support Guyana’s claims. He also took the opportunity to reiterate that all policyholders in the affected company would be protected. Belize Following the action of Guyana, on March 2, the Supervisor of Insurance in Belize, Alma Gomez obtained a judicial management order on the operation of CLICO Belize, securing the assets of the company and taking full control over its statutory reserves. A Government statement said that the action was taken after the operations of its parent company, CLICO Bahamas, was subject to a liquidation order. It was noted that CLICO Belize was to refrain from repatriating any funds out of Belize and from disposing any of its assets without the prior written consent of the Supervisor of Insurance. Cayman Islands On March 6, the Cayman Islands Monetary Authority, ordered CLICO Cayman to cease issuing new policies with investment components, to refrain from accepting new premiums on existing policies with investment features, and they are also required to take certain actions within a prescribed time frame, and must impose additional reporting requirements, to monitor its business activities and financial condition. It is unlikely that this will be the end as Prime Minister David Thompson has stated that CLICO Barbados may be sold. Unfortunately, for all involved, the subsidiaries of the CL Financial Group are intricately interlinked and, while this was a good attribute in good times, it will reverberate for a long time to come. From the foregoing, it can be seen that Guyana is not alone. The problems with CLICO Guyana are not as a result of weak financial regulations, but rather is a consequence of the intricate related-party transactions that occurred between subsidiaries of the CL Financial Group.   Reads : 395 Back... Comments: No comments on this topic yet. Be the first one to submit a comment. Back... Send us your comments!   Send us your comments on this article for publication in our Readers' Forum or as a Letter to the Editor. All fields are required and in the interest of openness and transparency we will no longer accept anonymous submissions. We therefore request that all submissions include a name for publication, regardless of content. We will in special circumstances protect a writer's identity only after we have established good cause for anonymity, otherwise we will not be able to publish the submission. 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