In January 2009, the Central Bank of Trinidad and Tobago intervened and placed the distressed financial institutions of the CL group under section 44D control. These institutions included Clico, CIB and British American.
The decision to intervene was taken due to requests by the CL group for substantial government and Central Bank support for what was then described as a temporary liquidity problem.
In this current economic environment, given the extent of the significant debts owed by the CL group, the problem was obviously not a temporary one.
There was a much deeper and wider problem of solvency in the group's financial institutions, where debts exceeded available assets and where inter-company borrowing left the financial institutions with significant receivable balances due from CL, but for which there was and is insufficient freely available assets available within the group to repay Clico, BAT and CIB.
It is our view that the former administration grossly and completely mismanaged the Clico matter making it into the crisis it is today. By their misguided misinformed actions, they clearly had no solution to the matter.
We now know that the then Government was blinded by personal interest in Clico—and they lacked the capacity to properly diagnose the crux of the problem facing Clico.
More than that, recent disclosures in a private matter before a domestic court in the High Court, reported in the newspapers locally, revealed evidence of concern raised six years ago about the stability of CIB.
It is alleged that one of the directors of CIB at the time was a gentleman who subsequently became a Minister in the Ministry of Finance under the previous government. By their incompetency, they added to the tragedy of what Clico now means to this country.
More than that, they pumped billions of dollars in what appears to be in a blind manner, into a situation in which they had not the slightest clue of how to handle it. What the results show is that they were acting out of their league.
They wasted $7 billion in Clico which passed through Clico in the proverbial "dose of salts" manner. Their actions signified nothing and, clearly, did not accomplish anything for our citizens in spite of that seven billion of taxpayers’ dollars being wasted there.
If we focus on insurance entities of Clico and BAT, it was clear that these companies shifted their marketing focus away from the traditional long term insurance business, and they began to sell Executive Flexible Premium Annuities (EFPAs) which you are reading about.
In Clico's case, they also marketed and guaranteed the principal and interest on the mutual fund. The maturities on the EFPAs and mutual fund were typically three to five years, but some were short as one year.
The interest rates offered and paid on these products ranged from 8 per cent to 9 per cent on average and for very large sums which were invested, the rates went as high as 13 per cent.
By comparison, information published by the Central Bank revealed that the weighted average interest rate on deposits invested with commercial banks range from 2.88 per cent to 3.14 per cent, between 2006—2008.
These companies raised enormous amounts of cash from the sale of these products because Clico's rates were obviously significantly higher than what was prevailing on the market rate for investment of similar duration.
So much money was raised from the sale of these products that EFPA and mutual fund liability owed to 25,000 Clico and BAT customers equal $12 billion as of June, 2010 which was twice the size of the $6 billion owed to the 225 traditional long-term life insurance policyholders.
Another important element of the crisis that has not been sufficiently highlighted is that approximately $10 billion of the $12 billion EFPA and mutual fund liability is due over the next 18 months, that is to say in the short term.
The $12 billion liability includes approximately $10 billion owed to individuals; $600 million owed to credit unions and trade unions; and $1.1 billion owed to corporations.
Additionally, when one considers the taxpayers' exposure to Clico and other distressed CL Financial entities, it is also important to know that Government owned corporations have also invested approximately $300 million in Clico and in BAT, EFPAs.
Separately, state-owned companies NIB and NGS also invested approximately $1.7 billion in CIB. As such, the State and therefore the taxpayers are directly exposed to CL Financial Group institutions by way of impaired investments that amount to approximately $2 billion.
This crisis is widespread and as a nation, we are all bearing some form, some part of the burden of the crisis.
Mr. Speaker, how did this happen? How did we reach to where we are today that we have this hole of a debt that is a burden and a drain on the Treasury? It is a burden and a drain not just on the Treasury, but it is the money of the taxpayers, not the assets of Clico, because the liabilities far outweigh the assets.
How did we reach there?
A significant amount of the cash raised from the sale of these products was "lent" or transferred to CL Financial, the parent company of Clico and BAT, and other CL Financial entities, to fund investments and acquisitions within Trinidad and Tobago, the Caribbean and across the globe.
Many of these investments were extremely risky.
CL Financial took these risks because they had to generate higher than normal returns to pay these higher than average interest rates on the EFPAs and mutual funds.
The inability then of the parent company, CL Financial to repay Clico and BAT the billions that was "borrowed" was exacerbated by the global financial crisis and due to the fact that CL secured some of the assets of Clico and BAT for other CL Financial third party borrowings.
Now we are hearing about Ponzi schemes and so on. This here was the CL scheme, and what it was really is to take people's money in non‑traditional investments, push it out there in very risky investments to try to get a very high rate of return and, of course, like a pack of cards, it collapsed. And so, what happened then?
These companies, insurance companies, gave assets to CL Financial for which no consideration was provided in return.
That is to say, they took the cash from the sale of the products in Clico and BAT—they took that money out—and invest into the other non‑traditional businesses, but they gave no consideration, that is to say, nothing in return for using and leveraging people's money in that regard.
The evidence suggests then that these signs were visible, years ago. Expanding on the topic of Clico’s and BAT's assets, in addition to amounts owed by CL Financial, it is a known fact that Clico also owns shares in Republic Bank Limited and Methanol Holdings and some other smaller investments.
These are obviously, in the view of many, very solid investments with value.
However, what we must understand is that these investments are included in the asset balance previously stated by the Minister of Finance, Hon. Dookeran, when he indicated that these assets equalled about $16 billion while the liability balance equalled $23 billion.
Therefore, these assets with value are included in the calculations which indicates that the recorded values of these assets on the books of Clico still fall short of liabilities by $7 billion.
In addition, information provided by the Central Bank and Clico management indicates that the majority of these assets—Republic Bank and Methanol Holdings—are already included in the statutory fund, which is a fund where assets are supposed to be held in trust as cover for insurance liabilities.
It is also important to note that Clico's assets in this statutory fund also fall short of the liabilities that this fund is supposed to cover by the sum of about $6.4 billion, based on information provided by the Central Bank and Clico.
This statutory fund deficit is a clear signal that the inadequacy of the financial regulations resulted in insufficient oversight and investigation, into this financial giant by the regulators.
The intervention by the authorities coming down under section 44D in January 2009 was too late and was therefore reactive and not preventative, hence the ability and the opportunity to rebuild now is limited.
There was oversight and governance failure across the board, and questions must be asked of the regulators, auditors, executives and, of course, the previous administration under whom this all unravelled.
The liquidation scenario, I turn to that. Additionally, the $16 billion in assets at Clico is based on what is recorded on Clico and BAT's books as of June 2010. If a liquidation type valuation or sale of these assets is conducted in order to repay the short-term liabilities, it is extremely likely that these assets would not raise $16 billion and, therefore, the shortfall in assets available to repay Clico creditors would be even higher than the estimated $7 billion.
It must be borne in mind that the Clico creditors do not only include the EFPA and mutual fund holders. These are the ones we are seeing and, rightly so, they are concerned for their investments and savings, but there are so many others.
The group also includes secured lenders, local and foreign banks; they include traditional long‑term insurance policyholders; they include credit unions, trade unions, state owned corporations and the central government, that is to say, the citizens, the taxpayers of Trinidad and Tobago who are very much in the centre of this.
Everyone in this group of stakeholders would suffer substantial losses should we move for the “quick‑sale" or "fire sale" of assets approach, if we adopt that, or if Clico was forced into such a quick sale because of a disorderly liquidation.
So, in two ways this could happen: If we adopt that approach to satisfy the demands of every single person to the full value of what it is they claimed is owed to them and we go into a disorderly liquidation, we are going to realize far less than if we are given the time within which to turn it around and to raise the monies.
If we are forced in a quick sale—so one is, we could voluntarily say, "Look we are going to sell everything out". It is not an option, because it is a fire sale, a quick sale, a garage sale and you are not going to get the estimated value, you will go even further under.
The other way is for someone to force us into liquidation—force Clico into liquidation, CL Financial, and so you would go into a disorderly liquidation sale again. The result would be the same.
So, what action was taken by the former government in the light of all of this? The previous administration injected $5 billion into Clico and they spent $2.3 billion to bail out the other distressed entities such as CIB in particular, so coming to a total of $7.3 billion has gone into that hole and yet today the Government and, therefore, the taxpayers of this country have been called upon to come up with another $16 billion to $19 billion.
So what happened to that $7.3 billion? Where did it go? Who are the people that were paid? How was it utilized? What happened to that $7.3 billion? That was the miracle bail out offered by the then government in 2009.
We were there and we argued with them, but they came with it as a done deal to the Parliament. It was a done deal. They had already signed the MOU when they came to the Parliament for us to amend the Central Bank Act and bring in these emergency powers and so on.
It was a done deal. They signed that deal and, again, we have to ask why, because as we all know what happened immediately before the signing of that MOU.
Despite the statements made by some persons in the public regarding "guarantees" made by the previous administration, this guarantee does not exist, because there was no authorized guarantee via the parliamentary or budgetary approval process.
There was none. There was absolutely none.
So when you stood out there and you held out to people saying that they were guaranteed, there was none. The Government took no steps to do any such thing at that point in time.
So you pumped in the $7.3 billion; you gave no guarantee to anyone and worse of all, what was in it for the people of Trinidad and Tobago; the taxpayers’ dollars that you were spending.
The prior administration misdiagnosed the problem, and to make matters worse the $5 billion injected into Clico only resulted in a 49 per cent minority share ownership interest in Clico.
So we put in $7.2 billion and what we got in return for the taxpayers of Trinidad and Tobago? A 49 per cent minority share interest in Clico. In other words, for $5 billion taxpayers in this country we got a minority interest in what? In an insolvent bankrupt company.
That is the deal they brokered. That is what they worked on.
So here you are, you took over this insolvent company and what did you do with the money? You went in there and you continued to pay what was totally out of the market.
The prior administration adopted a narrow view by solely seeking to address local investors that were supposed to be covered by the statutory fund. That is what you did. So approximately 1,100 investors in EFPAs that reside outside of Trinidad and Tobago were excluded under the prior repayment plan.
This group, I am advised, is worth $1.2 billion, additionally, since the mutual fund investors were not covered under the statutory fund were also excluded.
There are 2,800 investors in this mutual fund group and they are owed, I am advised, $1.2 billion as well. Both of these groups are included in this Government's offer of assistance.
Both of these groups that were left out completely out of the—I almost used the word "bogus" but I do not think—I withdraw the word "bogus"—repayment plan that they had, they left out these 1,100 investors in the EFPA; they left out another 2,800 in mutual funds; they are now covered by the plan and the proposal being made by the hon. Minister of Finance, Winston Dookeran.
Given the size, the magnitude of the debt, the Government will bankrupt the Treasury and collapse this economy should we go now to pay every single one of these people every single cent that they claim that they have invested in these companies.
That is the truth and that is the reality. We must face the reality in these economic times. We have to face the reality.
This is a scandal of monumental proportions.
We must understand that Clico and BAT are private institutions. And after spending the $7.3 billion the Government is under no obligation to spend additional taxpayers’ funds related to this crisis.
We are under no legal obligation. However, recognizing the need for some relief, the Hon. Minister of Finance, Minister Dookeran, announced in his budget statement that all of the traditional long‑term life insurance policyholders, group pensions and long-term annuities and so on, would be fully protected.
This fully covers 225,000 traditional policy holders. This, in a time of constrained economic realities; in a time when around the world, around the globe, everyone is experiencing serious problems.
The vast majority of people who were caught in this trap and in this chaos are going to have some relief coming from the Government. We are going to give some help. It is an offer, you do not have to take it should you decide that it is not in your best interest.
The Government cannot afford an additional $7 billion to pay off all investors in Clico and BAT over a shorter period.
We cannot afford it and when the Government cannot afford it, the country cannot afford it, the taxpayer cannot afford it and the people cannot afford to pay this amount at this time. We cannot afford it!
We have already spent taxpayers, $7.3 billion, so we cannot come up with that $7 billion now. This will be fiscally irresponsible.
We cannot do it because in a budget of $49 billion, we will be taking a substantial portion of that budget to give to 1,200 people. I am saying we wish we could give you, but not at this time, immediately and in this way. Those taxpayers cannot afford it, the country cannot afford it.
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