Home' Trinidad and Tobago Guardian : April 2nd 2015 Contents BG10 FEEDBACK
BUSINESS GUARDIAN www.guardian.co.tt APRIL 2015 • WEEK ONE
Ilistened, with sadness, as the Gov-
ernor of the Central Bank presided
over the dismantling of CL Finan-
cial---over the sale of its assets---one
of the more innovative examples of
financial creativity in this plantation
of ours. I was encouraged by similar
comments from David Abdulah who
also saw the importance of non-petroleum
wealth generating assets to our country s econ-
However, many seem very happy; the local
and regional investors will get their money
back, other creditors will get their money back,
the Government will get some of its money
back and part of the remaining assets will be
subsequently sold, including an international
methanol holding and, eventually, the iconic
insurance company, Clico, will be sold.
As the Governor noted; the debacle that
was CL Financial in 2008-2009 would have
come to an end; one which will put cash back
into the hands of the risk averse population,
which some see as simply increasing the liq-
uidity in the country that, to date, has been
unable to find any creative business investment
outlet for the savings that are languishing in
our finance houses.
Even in this current dismantling of an
indigenous asset there is a bit of rancour that
the architects of CL Financial may not lose
their shirts. There was even a statement from
the Government that it is seeking to ensure
there is no return of assets to those who created
the financial collapse. Really? However, in a
recent statement by the Minister of Finance,
he said that once all liabilities are paid the
remaining assets, devoid of the choice com-
panies that are sold, will be returned to the
original shareholders. Oil is not the biggest
curse in this country. This honour is reserved
for those who hold and manage the rewards
from the oil rents, the savings of this country,
including successive governments.
Let us return to the ideas behind the creation
of this conglomerate called CL Financial.
The nadir of the entity was Clico, an insur-
ance company that understood the potential
power of local and regional money assets;
those in T&T backed by foreign exchange and
assets. Its architects also recognised that our
people were willing to buy insurance, a sure
thing, but would not put a penny in a venture
that was of higher risk.
Hence an innovative mechanism had to be
devised which would attract this low-risk
money which CL could use to invest in the
individual and higher-risk ventures. In other
words, CL had to assure the investors of a
sure return, somewhat higher than what others
were offering, and assume the risk of the target
ventures---much like the role I have repeatedly
recommended for our governments in the
diversification of the economy. Still these
architects had to alleviate as much as possible
the aggregated risk of the chosen ventures.
They did this the classic way. They invested
globally and diversified their targets both spa-
tially and market wise. The ventures spanned
some 65 companies in 35 countries and the
ventures ranged from spirits, through con-
struction and real estate to petrochemicals.
The idea here was that with such a distrib-
uted portfolio, business failure in any market
or region would not bring down the entity.
This was based on the concept that the prob-
ability of a global economic collapse was very
The risk was worth taking even though the
management and integration of such a portfolio
would present a challenge to the most astute
businessmen in the world. But, indeed, some
of our own were able to do it.
Then the perfect storm hit.
The global economy was red-hot and this
drove the price of oil, the life blood of the
global economy, up to US$147/bbl, which ini-
tiated an economic decline in the world s mar-
kets. This cascaded into a global economic
collapse as the parallel sub-prime mortgage
fiasco unfolded. As many other large organ-
isations, CL ran out of cash flow and eventually
approached our government for money to ride
out the storm. Hence, it is startling that the
Minister of Finance could refer to the people
at CL as those who may have created this
debacle in the first place.
Did CL also create the debacle that saw the
collapse of AIG, of Lehman Brothers, of Bear
Sterns and JP Morgan?
The impact on the low risk side of the CL
commercial structure was disastrous in that
the low-risk returns to the EFTSs could not
be paid and the cry went up for the return of
monies invested, which the statutory fund
should have guaranteed.
CL took advantage of the laxity of the Central
Bank s regulators and its statutory fund was
under financed; though CL before the crash
could have allocated some of its less risky
assets to the fund.
However, the perfect storm would have
wiped out the value of these assets in the fund
and to sell such assets in the midst of the
global melt down would have been madness.
But CL s calamity was not the only one in the
world; only in other parts of the world the
governments handled the requests for cash
flow bail outs differently. The US bailed out
AIG (US$85bilion), Bear Sterns and J P Morgan
(US$29billion), Fannie May and Freddie Mac
Today, these companies have weathered the
storm and have repaid these advances where
necessary, the assets were preserved and now
are viable companies.
The US Government did the same thing in
similar circumstances before; there was a run
on Continental Illinois Bank in 1984 and it
was given a bailout of US$4.5billion which
was repaid by 1991 and the bank sold to anoth-
er US bank as a going concern. The object of
the bailout was to preserve the entity as a
viable US company.
In our case with CL, the hue and cry was
to advance money to CL s benefit so that as
many of their investors could be paid off, hop-
ing that when the global economy picked up
again the assets would be sold to repay gov-
ernment and the rest of investors and creditors.
There was absolutely no thought or intention
about funding CL so that it would weather
the storm and emerge as a viable operating
asset that could repay its debts to government.
Today, as the global economy turns up, we
are here selling what is left to pay debts, den-
igrating our financial innovators. Instead, we
could have been celebrating the survival of a
conglomerate that was our own creation.
But this is the culture of the on-shore plan-
tation and its governments.
Mary K King
CL Financial: An
innovation in finance
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