Can we shed light on the 56 million which CLICO Holdings Barbados is owed by CL Financial, the parent.

The $56 million Barbados is spread across different companies. There is nothing unusual about these transactions and I am reassured that the loans are all secured. If these were willy-nilly transactions there would be no need for collateral. The collateral also seems okay in most cases.

You know, I have no brief for Clico and I am not saying all is huinky dory. However, the available evidence does not suggest any need for panic. When it comes to financial institutions, panic only makes things worse.

Clico Barbadoxs will obviously be negatively affected by the problems with its parent, but the potential impact appears far from mortal.

Clico Barbados should be able to collect on the $58 ml in receivables from related companies. Even if the worst was to happen, to put things in perspective, $58 million on $1.3 billion of assets would hardly bring down the firm.

Fear is understandable, but a number of informed commentators seem intent on focusing on the worst of worst case scenarios rather than taking a balanced rational approach to the crisis.

The regulators in Barbados moved aggressively and were roundly criticized.

In many countries the headline would have been, “Central Bank shows confidence in CMFC by depositing $10 million.” Or “Central Bank moves swiftly to stave off any liquidity concerns around CMFC.” Local commentators could find nothing but fault.

We should note that the President of the Caribbean Development and the International Ratings Agencies all commended the actions of the Central Bank. The regulators appear to have learnt from the handling of recent crises and seem to be on the ball if they would be allowed to do their jobs.

Dear trained economist you wrote “Some alsmost seem to want the worst to be true of Clico.”

True, true, and that is because people do not like the head of CLICO, because he comes over as arrogant, and he murders the English language.

You expect people to like an arrogant man who can’t talk good?

You study economics, but did you ever take a psychology course? Even one?

Given the fact that we have CL Financial the ailing parent should the Parris led CLICO subsidiary be asked to return the 18 million dollar plane on lease? It would demonstrate that local management is sensitive to the situation.

Two comments.

Trained Economist has not been able to find an example of a failing financial institution which has ended up in bankruptcy. Can I suggest that he / she looks at Lehman Bros?

At the time the T&T Central Bank stepped in to Clico, they stated that one of the problems was “excessive related-party transactions which carry significant contagion risks”. I take this to mean that the group had been making transactions between member companies which the Central Bank considered to be risky, or worse. I do not believe that the position of the subsidiary companies within Clico will be properly known until these intercompany transactions are understood.

All of the $58 million will have to become uncollectible first. Given, the role the Trinidad and Tobago government has committed itself to, that seems to me to be highly unlikely.

I am suggesting that even if it were to come to that, a company with $1.3 billion in assets can reasonably be expected to sustain a loss of $58 million.

My point is that the role the Trinidad and Tobago government has chosen to play, minimizes the impact of the fallout from the financial problems at the affected CL Financial subsidiaries.

Yes, Lehman Bros is a high profile example of a major financial institution going bankrupt. The US treasury decided to let Lehman go under. This is highly unusual. This may have had a lot to do with the fact that Lehman was an investment bank. Lehman’s relatively small size also meant it may not have been seen as posing systemic risk. Many now think that letting Lehman fail was a horrible decision, and that, that decision precipitated the financial meltdown.

The Trinidad and Tobago Central bank seems to have learnt that lesson and has committed itself to preventing any such disruptions of the financial system in Trinidad and by extension the region.

Trained Economist:

Exactly who were you trained by?

Professor Pavlov?

Do you give any guarantees with your “hold tight, be al’right” posts.

Please remember some Bajans have their whole financial future tied up in this increasingly grey area, and there is little, if any, info coming to assuage their fears.

Any reports which do surface add new layers of doubt in their minds.

In this era of financial malfeasance, “keep quiet your betters know what’s good for you”, doesn’t cut it anymore.

Total transparency is absolutely vital when we talk of people’s lives.

This is not about black business, class, or even financial probity.

We need the pure unadulterated facts so we can come to an informed position.

You seem to believe that questioning the actual status somehow damages the people’s investments.

I say, if there is nothing to hide, give the people the facts.

Exhibit your solvency and this hiccup will go away, keep fudging definitions and the doubts will increase.

A famous economist, Milton Friedman, once said that in the middle of a fire, the focus should be on putting out the fire, not investigating the causes of the fire , how far the fire could spread and -re-writing the fire code.

The fire fighters in Trinidad seem to be doing a great job, the fire fighters in Barbados, are on alert.

I am prepared to let them do their jobs.

TE:
Are you in the burning house, or an insurer?

OK I now see your concern TE.

I mistakenly believed you were a CLICO shill.

You through your training must have analysed the various subterfuges raised by delinquent companies to disguise their true positions.

Is your analysis of CLICO Bds based on proven realisable assets or fear of discovery?

I only hope your optimism is soundly based on the various, sometimes contradictory, press reports.

Where is Tony Marshall?

Director of Clico Barbados.

Banking Guru of the airwaves.

Gone fishing , cricketing or just dumbed down,

So which is it, to sell Republic Bank or not to sell?

What are the implications?

So which is it, to sell Republic Bank or not to sell?
……………………………………………………….In Clico might resist the selling of the bank since the bank financed the various third party interest of CL Financial. This grouping probably caused the problems with the group. It would be better for the Government to renege the bank’s contract. As you can see the two regulators pertaining to the banking and insurance portfolios of the group were not vigilantly monitored, thus the risk factors being abused. It will be better for Clico to let go the bank now and savage any funds coming their way before it is too late.

Clico Investment Bank’s Banking license will be revoked. The assets and liabilities are now those of First Citizen’s Bank (the state owned bank in Trinidad). In light of that it does not seem to me to make sense to talk about risks to CL Financial subsidiaries such as Clico Barbados, if Clico Investment Bank Trinidad is not put on a sound footing.

Caribbean Money Market Brokers has been taken over by First Citizens Bank. The assets and liabilities are now those of First Citizen’s Bank (the state owned bank in Trinidad). In light of that it does not seem to me to make sense to talk about risks to CL subsidiaries such as Clico Barbados, if CMMB is not put on a sound footing.

The government of Trinidad and Tobago will take an equity stake in Clico Insurance Trinidad. “CL Financial has agreed to divest additional assets to help fund Clico Insurance Trinidad’s statutory deficit. The Government of Trinidad and Tobago has committed to provide any additional funding needed by Clico Trinidad and Tobago, in exchange for collateral and an equity stake in Clico Insurance Trinidad and Tobago.

In light of that it is not clear to me what the major risks for CL Subsidiaries such as CLico Barbados are.

The MOU is part of the bailout package that was passed by the parliament of Trinidad and Tobago. I would therefore have to give it a lot of weight, unless you know otherwise.

In terms of the financial institutions you mentioned: The assets and liabilities of BCCI in Barbados were acquired by the then Mutual Bank;

Bear Stearns was in fact acquired by JP Morgan Chase;

Washington Mutual was bailed out by the Us government under the FDIC scheme;

Northern Rock in the UK has been bought out by a consortium
a consortium led by Sir Richard Branson’s Virgin Group and two private-equity outfits, Cerberus and J.Ce Flowers.

The point I was trying to make is that the scenario suggested by Mr. Skeete of a major financial institution going bankrupt and the assets being liquidated to meet the liabilities, is very uncommon. It rarely ever comes to that. Competitors cash in and buy at a steal or the tax payers are usually left holding the bag.

Stanford’s scheme seems to falling apart:

Billionaire Stanford’s Firm Said to Face U.S. Probe of CD Sales

http://www.bloomberg.com/apps/news?pid=20601087&sid=aUtjE4_bm4oM&refer=home#

Interested reading!!!!

David you wrote that Peter Wi

ckhan wrote “We agree with Peter Wickham in his last column when he suggested that he smells a rat on this issue of CLICO.”

I agree with you and with Peter Wickham.

I smell a rat too.

@TRAINED ECONOMIST

Have you heard Governor Williams comments on the state of CLICO Trinidad finances?

Here is some more detail on the governor’s comments, from the TT Guardian.

At a news conference at the Central Bank, Williams also requested Clico policyholders not to seek withdrawals of their annuities or policies before their maturity dates as the Cabinet had approved a first tranche of “in excess of $1 billion” in funding “to begin easing the liquidity pressure on Clico and British American,” two of the three companies in the CL Financial group that have come under Government’s control.

He reiterated that Clico “has the full backing and commitment of the Government and the Central Bank.”

On the issue of the size of Clico’s hole, Williams said Clico had surpluses in its statutory fund—assets placed in trust which must equal the insurance company’s liabilities and contingency reserves—in 2004, 2005 and 2006, but had developed a deficit of about $600 million in 2007. “Based on the unaudited accounts for 2008,” Williams said, “the statutory fund deficit—measured on the same basis as in the period 2004 to 2007—has ballooned to $5.1 billion.

Great thread.

I disagree with TE but preface all below with the recognition that its but my opinion.

The key to the CL Financial debtate in Barbados is the state of Clico International Life where by far the bulk of Clico Holdings (BDS) assets reside. The latest available accounts are now 13 months old – an important point for the picture taken then is radically different from the unaudited 2008 accounts I sincerely hope the Central Bank has seen and understood (no I have not seen them).

In 2008 there is not a significant life insurer who did not see major asset destruction on its investments. One may take the view of TE that a large volume of “bad” assets is not visible in the 13 month old accounts. I would suggest that with equity markets off >50% in 2008 and the composition of Clico Intl Life’s bond holdings not laid out much beyond the generic descriptions of Pimco, Franklin Templeton, Deutsche Bank and US sovereign it is entirely probable – and realistic – that their investment portfolio is also a war zone.

But don’t take my word for it. Sun Life and Manulife were downgraded and put on negative review last week in Canada. The UK’s FSA has just rolled a grenade into the accounting depts of life insurers suggesting they may not have the capital base to survive additional market shocks. And any insurer sitting on corporate bond investments is staring a time bomb in the face as default rates jump.

That is the general context. The specific Clico Intl Life context has additional features.

For example, they wrote >30% more annuity business in 2007 than 2006, which is a remarkable feat. So much so I question the quality of underwriting is and the level of endowment guarantee give aways.

The potential problem: the pricing of these benefits will have been based on historical assumptions of equity and bond returns. The longer this crisis goes on the more Clico will have to increase its reserves to fund the difference between the guaranteed future amounts and today’s current value of the premiums paid. Annuity premium income is over 80% of all Clico Intl Life premium income.

Further I would not dismiss the relevance of loans to parent(s). These are not, in fact, all secured (although most are). And they are not “receivables” as TE says (perhaps you were in a rush). A striking feature of these amounts is that they include interest due but not paid. I don’t think that is as normal as the comments suggest.

It fits, in fact, with the likely non-capacity of ultimate parent Cl Financial to repay. On the basis of their last accounts this holding firm is insolvent – defined as an inability to meet current liabilities with current assets – and has been so for at least two reporting periods.

The reason these things matter and why one cannot blithely just say well, the Bds group has $1.3bn of assets, is that Clico Intl Life has balance sheet levered over 15 times. That means that a less than 7% decline in its assets base wipes out all shareholder capital.

I look at all this and find the view that Clico Intl Life is somehow insulated from the rest of the CL Financial empire simply incredulous.

Of course, the politics in Barbados are such that policy holders will be very probably be protected by the public purse should it come to that (as I wager it will). But that would be a real cost to the country in terms of fiscal flexibility.

What we are witnessing now is regulatory forbearance where authorities are persuaded, or have been persuaded, that the Clico Intl Life balance sheet will recover with time. However, the scale of global asset and credit capacity destruction is so vast and generally misunderstood (ie I take issue with David’s description of this as merely one of confidence) that this would be a lucky bet to win.

Some further points of order, if you will.

a) It is ironic TE quotes ultimate free marketeer Friedman in support of Central Bank intervention. Friedman would have policy holders eat the difference in the event of an insolvency.

b) Northern Rock was not bought up by Virgin, Cerebus and JC Flowers. It was nationalised.

David, I posted this on BFP but my comments often get moderated so I thought I should share it with your readers. It is about the CBC, Leroy Parris, Mia Mottley matter:

I have noticed that very few people have commented on this issue. That does not surprise me. BFP has gone too far.

I listened to what Mr. Thompson said in the House and CBC carried four news items from Ms. Mottley’s press conference. He read them out! What BFP fails to understand is that Ms. Mottley wants CBC to carry her full press conference uneidted. Now that’s crazy even in a democracy!

And since they refused, she wants to pay for it. Eh?

CBC’s policy – established in 2000 by the BLP and Ms. Mottley – is that it can’t be broadcast. That is not Leroy Parris’ policy. It always existed so where, tell me BFP, is the conflict of interest over this issue? No edict or rule was handed down by Mr. Parris. So why criticise him? I will get to that.

Now I well recall that in 1997, David Thompson asked for the same privilege. It was refused.

He then started Families First to air some ads about social concerns including “crime and violence” but half of the CBC Board – including Rev. Charles Morris – resigned because they thought that they were political broadcasts simply because David Thompson was in them.

The reason why BFP’s post has not elicited comments is because most of the Barbadians I speak to smell a rat. BFP has an agenda but is pretending to be so “goody-two-shoes” in speaking up for freedom and integrity.

When it coms to Greame Hall Park, BFP wants David Thompson to break the law and use the Land Acquisition Act – have not we heard BFP call this expropriation on other occasions – to acquire land and give it to a national park. Because Allard – a non-Barbadian – says so.

BFP has a problem with CLICO – of which Mr. Parris is Chairman – because it owns land next to its pet project. Clico is to be deprived of using its own land because BFP and its non-Barbadian Peter Allard – say so.

The owner of Greame Hall Park finances BFP hence the criticism of government, the preoccupation with the Kingsland affair etc. It all adds up.

The sum total: tear down Barbados through this blog internationally as the most corrupt place on earth! It doesn’t matter as long as we get what we want – Clico’s land.

Be sensational, insulting and dishonest if you want. But Margaret Knight – and I suspect her son David Thompson – have backbone and stamina. After all, he lasted 20 years in Opposition. And Margaret Knight survived BLP victimisation every time they were in office because of her support for Errol Barrow. Nothing new.

Great going, Margaret.

BFP, again you have gone too far.

@David

Great point.

The role – and hopefully relevance – of the regulators is crucial. I’d suggest – and I know this is an unpopular view – that public money must not socialise the losses of private companies. The profits are not shared, are they?

This principle ought to be the cornerstone of financial regulation. The downturn of the economic cycle being suffered by Clico Intl Life cannot be regulated. Authorities ought not to even attempt to do so (although it is safe in this case to assume they will).

The exception is where there is systemic risk. Now, since every significant actor closely involved and with a vested interest in a favourable conclusion to the Clico saga has, on the record, declared this not to be the case it is mysterious to me that the CB has put the public purse on the line free of charge. This is not a political statement – read the CB press release carefully: the taxpayer is on the hook and without recourse.

The S of I (at a guess) will say its solvency ratios are satisfactory, at worst there is a little temporary liquidity issue. But to my eyes (since the S of I has not shared his range of solvency measures with me) this is a bit like passing as fit to fly a passenger jet except for the qualification that it has no wings. True but not of great practical use.

Clico Intl Life, in my view on the basis of published data and what has happened to both its international peers and markets in 2008, is over leveraged, likely has material maturity mismatches between its assets and liabilities (this is an educated guess, certainly not fact) and is ill positioned to withstand any additional shocks involving a call on its current asset base. Its existence has been as a cash cow (its premium income) to provide finance for the growth of the CL Financial empire. This cash demand from the center is, I suggest, the reason behind the frankly unbelievable (in terms of prudence) growth in annuity sales referred to in my prior comment.

And the risk is that management, biased by 5 years of easy money to summer 2007, neglected to contingency plan for anything like the financial catastrophe of the last 15 months. They may have done but I would not bet even your money on it. Rather I’d bet that at this very moment they are dealing, beyond almost any doubt given human nature, with withdrawal calls and the danger of vastly reduced premium income as potential clients take fright. I don’t say it is so – it’s merely a judgement.

The bottom line on the regulator’s relevance in my opinion is that it is fantasy, at this point, to believe that they have sufficient knowledge of the detail behind the accounts to make reassuring declarations. There is an accounting joke where the CEO presents raw data to a job interviewee for the post of CFO and asks what the final profit & loss numbers will look like. The candidate says, “Well, what do you want them to look like?” He gets the job. This is not to cast aspersion. Rather it illustrates the truism that firms present the best spin they can no matter how dire the runnings.

RA, do you think your international comparisons are the best benchmarks for assessing asset quality at Clico Barbados?

A look at the Clico balance sheet does not suggest any exposure to the toxic assets that affected the balance sheets of many international insurance companies. Clico barbados also seems to have only modets exposure to international stock and bond markets.

Recessions as bad as this one place financial pressures on all kinds of firms. clico barbados seems heavily invested in bajan assets. i ahve not yet seen any evidence of a rapid decline in the value of those assets.