Economy & Trade, Financial Crisis, Headlines, Latin America & the Caribbean

CARIBBEAN: Major Conglomerate in Line for Bailout

Peter Richards

PORT OF SPAIN, Feb 3 2009 (IPS) - When it opened its doors to the public in 1936, the Colonial Life Insurance Company (CLICO) adopted the motto: “Give a man value, give a man service, and he will support you.”

But 73 years later, it is the Trinidad and Tobago government that has come to the support of one of the oldest indigenous insurance firms, whose parent company, the Port of Spain-based CL Financial, controls over 100 billion dollars of assets in at least 28 companies.

CL is one of the world’s leading conglomerates, with operations in the English- and Dutch -speaking Caribbean as well as Britain, Switzerland, France, Scotland, the United States and Taiwan. Its spectacular crash over the weekend, with a resultant bailout strategy outlined by the Patrick Manning government, is sending ripples throughout the Caribbean.

“Cleary, the [impact of] global economic crisis on Trinidad and Tobago is deepening,” warned former Trinidad and Tobago Central Bank governor Winston Dookeran.

The billionaire-chairman of CL Financial, Lawrence Duprey, said that the request for assistance was designed to “pre-empt any untoward action” from depositors and investors worldwide.

He said a number of factors, including the global financial crisis and the dramatic fall in methanol and real estate prices, created a perfect economic storm which has affected the privately owned conglomerate. Company officials acknowledge that the fall in methanol prices last year led to a loss of 100 million dollars in dividend payments.

The governments of the sub-regional Organisation of Eastern Caribbean States (OECS) said they were in discussions with the Eastern Caribbean Central Bank (ECCB) and would adopt a “coordinated regional response” while their counterparts in Guyana, Barbados and Jamaica urged their citizens not to panic.

On Monday, the Barbados Central bank announced a financial package to the CLICO Mortgage & Finance Corporation (CMFC) which has also been granted access to a new government facility in the event that it needs to access immediate liquidity support.

“The Bank, with the endorsement of the Ministry of Finance, also proposes to provide inter-bank guarantees, which cover lending by other banks to CMFC, if necessary,” the Central Bank said in a press statement.

In addition to CLICO, the Group’s holding also includes the British American Insurance Company Limited (BAICO), one of the main insurance companies in the Eastern Caribbean, and Angostura Limited, manufacturers of rum and the world renowned Angostura Bitters.

The group’s financial interests cover several industry sectors, including banking and financial services, energy, real estate and media, as well as manufacturing and distribution.

Last year, soon after it was awarded a license by the Barbados government, the U.S.-based AT&T Wireless Services announced a partnership with CLICO and BFF Communications, LTD, a local consortium of Barbadian investors, to build a business offering mobile voice and data services in the Caribbean.

The Trinidad and Tobago government has acknowledged that in recent years, insurance companies here had been “getting more and more involved in innovative interests which heighten the importance of having proper risk management policies and ensuring that good governance practices are in place”.

“The insurance industry has adapted to the forces of globalisation through continuous financial innovation, a blurring of the boundaries between its various sub-sectors and through the adoption of new structures, including conglomerates and holding companies,” Finance Minister Karen Nunez Tesheria told a news conference announcing the government bailout.

She said while there may be many reasons for the present global economic crisis, “one of them is inadequate risk management systems and lax regulation of financial institutions”.

Noted Caribbean economist Norman Girvan said the CL Financial situation should prompt Caribbean governments to more tightly regulate financial entities in the public interest and “not seek to close the gate after the horse has bolted”.

“In the CLICO case, it is clear that the authorities cannot claim that ‘we did not know’. Hence no entity, no matter how large its weight in the economy, can be safely regarded as being above proper oversight and regulation,” he said in a statement.

Girvan is urging Caribbean countries to finalise and adopt, as a matter of urgency, the CARICOM Financial Services Agreement (FSA), which prevents financial entities from engaging in regulatory arbitrage – evading regulations in one regional jurisdiction by exploiting legal loopholes in another.

“A seamless regulatory environment for investment and financial services across the regional space will strengthen the effectiveness of regulations aimed at averting another CLICO debacle, and heighten the attractiveness of the region as an investment destination by reducing the transactions costs of doing business in several regional countries,” Girvan said.

Governor of the Central Bank of Trinidad and Tobago Ewart Williams said that four of CL Financial largest financial institutions manage assets of over 38 billion dollars, more than 25 percent of the country’s Gross Domestic Product (GDP).

“The Central Bank is very conscious of the contagion risks that financial difficulties in an institution as vast as the CL Financial Group could have on the entire financial system of Trinidad and Tobago and indeed the entire Caribbean region,” Williams told a news conference, adding the group has “an imposing presence with potentially systemic consequences” for the financial sector and the economy of the entire Caribbean.

Last weekend, the Patrick Manning government said it had agreed to a Memorandum of Understanding (MOU) that would allow the Central Bank to take immediate control of the conglomerate’s investment bank, acquire controlling shares in the country’s biggest commercial bank, as well as those in a major methanol plant here.

The government said that it would also provide funding support to CLICO and BAICO to meet any deficits that might emerge after CL Financial has made all possible arrangements to place satisfactory levels of cash and other assets into the Statutory Fund.

Tesheria said the move was to ensure that depositors’ assets would not be put at risk.

“We are going to weather the storm, all of us, and the only way to do it is to take action swiftly and decisively,” she said, adding that once the company has returned to stability, it would be listed as a public entity on the Trinidad and Tobago Stock exchange.

The government is yet to say exactly how much money it would be injecting into CL Financial. However, Prime Minister Manning told an urgent session of Parliament on Monday that the bailout would run into billions of dollars.

“I think it is going to be wise not to be quoting numbers,” Williams said, while estimating the liability structure of CLICO to be 16 billion dollars.