Home' Trinidad and Tobago Guardian : August 3rd 2014 Contents SBG14
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt AUGUST 3 • 2014
So much has been said and
written and more would
be said and written about
the disintegration of two
major giants of T&T
business experiments: CL
Financial and the Hindu
Credit Union (HCU).
In retrospect, lots more has been written
about the bad and the ugly and very little
about the good of the business models of these
two indigenous business entities. In this article,
I would take the less-popular and provocative
stance arguing for what can we learn and use
as our business community continues to risk
capital in a future impregnated with serendip-
In the interest of full disclosure, I lost my
investments in HCU, Workers Bank, and the
Cooperative Bank, but none in CL Financial.
In this article I would argue for a half-full
view of these once towering icons of commerce
in the twin-island republic.
John F Kennedy once quoted a Chines
proverb which says: "It is better to light a can-
dle than to curse the darkness" meaning it is
better to help change a bad situation than to
complain about it. This is the context in which
I would like to view the CL Financial and HCU
debacles for in my official visit to the offices
of the HCU in 2006 and, as a former director
with the Eastern Credit Union headquartered
in St Joseph, I could not come to grips with
the fact that the HCU was venturing into so
many diversified and diffused financial under-
As a matter of fact, and as far as I knew
then, a credit union was a co-operative whose
major aim is that of meeting the lending needs
of its members of whom, in turn, would share
in the surpluses.
But HCU, by venturing into vastly arrayed
non-credit union businesses such as real estate
speculation, media businesses, auto services,
and so on baffled me. I believe the HCU must
have had the blessings of the co-operative
sector s oversight arm of the state and I was
perfectly happy to examine the risk appetite
of the HCU leadership, which seemed outra-
geously excessive at times.
In like fashion, CL Financial became entan-
gled in the global recession of 2008-9 and
witnessed its crumbling balance sheet with a
cash burn rate that was overwhelming and
unsustainable resulting in the waxing and
waning of investors confidence.
In other words, the CL Financial model was
working during good times as indeed the
Lehman Brothers and the Enrons, but when
the table turned the model succumb to the
pressures of systematic risk. Systematic risk
is the exposure that is carried by an entire
class of assets or liabilities of an entire industry,
economy, or even worldwide as the CL Finan-
cial had contributed to their free fall.
The super growth that befell these two con-
glomerated were unprecedented and the vir-
tuosities behind the business model should
not be banished into the dustbin of history,
but to salvage whatever residual of success
that could be recycled as we ride the learning
curve toward sustainable growth of our nation.
One should not forget, that during the hey-
day of these conglomerates, many of us mar-
veled at financial wizardries of the two house-
hold names: Lawrence Duprey and Harry
Harnarine. For it was not too long ago that
these two personalities epitomised inventions
that were the greatest since the creation of
chickpeas sandwich (doubles).
Do not deny it. We all did or else why so
many groups and individuals both rich and
not-so-rich would have invested all their life s
fortunes with such unprecedented exposures?
A prophet is without honour in his own
country was the counter argument by those
trying to see wunderkinds in the business
models of CL Financial and the HCU.
So here we are, and we would ride this one
out also, just as we did after the debacles of
International Trust Ltd, Workers Bank, the
Penny Bank, among others.
The question now becomes: are we just a
dog chasing its own tail or are we playing the
perpetually blame game?
The fundamental truth is: our failure to
understand how our economy works, where
asymmetric information and moral hazards
are not factored into the business governance
and financial equations such that, if we have
to bear the full responsibility of our own risky
action, we would act more responsibly. And
this is true for both sides: agents and stake-
holders. The agents being those who took and
invested our money, the other interested parties
From where I sit today---and given the risk-
reward calculus nature of a business---the
release of the report into the HCU by sole
commissioner Sir Anthony Colman gives rise
for me to question some of the allegations
originating out of that report from a risk-
For example, allegations such as knowingly
or recklessly causing HCU to make loans to
members of the board of directors and senior
management in excessive amounts and without
security; knowingly or recklessly causing HCU
to fail to acquire and maintain sufficient liquid
assets to enable it to meet its liabilities to its
members; knowingly or recklessly causing
HCU and its subsidiaries to trade while insol-
vent are all within the purview of the rights
to manage private property for the creation
of shareholders wealth.
If there is malfeasance or breach of the T&T
laws then so be it and let the chip fall where
it may, but using terminologies such as "know-
ingly and recklessly" sounds too bureaucratic
and, therefore, ignorant of the risk-reward
calculus in a business undertaking.
In fact, attracting an above-normal return
has, by its very nature a tinge of "recklessness"
in that the agent is called upon to take exor-
bitant risk to secure the higher return antic-
ipated by investors.
And, if shareholders were laughing all the
way to the bank when they were earning
returns that were above normal than that of
comparable institutions, someone would have
to have an above normal passion for risk
"knowingly reckless" if you will.
The point is that in creating wealth in a
risky environment, we are allowed to be reck-
less if and only if, heads we win, tail we also
win, relying perhaps on the morally hazardous
nature of "too big to fail."
On the other hand, pension funds trustees
could play it safe like the overly risk-averse
government bureaucrats whose investment
strategies could barely yield an above-zero
real returns on pension funds accumulation.
In other words, take no risk and yield an unten-
able negative real return
Emotions and politicisation of what is essen-
CL Financial and HCU: The
bad, the ugly and the good
Continued on Page 15
Our acumen for financial
brilliance...did not come about
by our aversion to risk, but
rather our willingness to take
calculated chances as our
entrepreneurs venture into
new and diversified portfolios
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