Letter: CL Financial business innovation

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Dear Sir:

There is very little sympathy for, and in particular understanding of the business model of the Trinidad and Tobago CLICO/CLF group. So much so that Sir Anthony Coleman’s report, a UK lawyer, tells us that:

“The fundamental defects in this business model were first, that once funds had been transferred out of CLICO, CIB and BAT and invested by CLF and/or other group component companies in real estate and equities (other companies strewn across the globe), these assets lost the key attributes of liquidity which was essential to the safe conduct of the business of both CIB and the insurance companies, CLICO and BAT. Consequently these companies lost the ability to respond to the requirements of external policy holders and depositors for money payments as and when they fell due… In essence, therefore, the insurance companies were treated as the means of funding the investments made by or directed by CLF.”

The rancour against the architects of the CLICO/CLF reached such heights as to spawn comments in Trinidad and Tobago like:

“I do not believe the people who caused this disaster and who are in a position of responsibility could just be handed back this company after the money is repaid and so on… I do not think that it should be returned to those people who are not fit and proper to have ownership, directorship or hold positions as officers or controlling shareholders of a financial institution in this country…”

Hence it was with some satisfaction that I read the article in the Trinidad press, by Mr Trevor Hosten in which he also explained what in other spaces I called the business innovation of the CLF group. Listen to Trevor Hosten:

“An ingenious Lawrence Duprey acquired his uncle’s home-grown CLICO, steadfastly transforming it into Trinidad’s largest private company and among the Caribbean’s top ten, converting small insurance premiums into over 65 global companies in 32 countries comprising malls, 55% stake in Republic Bank, distribution, CLICO bank, supermarkets, methanol, vast acquisition of land and premium alcohol brands, housing development ,etc. accumulation assets in excess of TT$800 billion,employing over 5,000 and contributing 25% of GDP.”

He continued:

“Sadly CLICO was not immune to the 2009 global downturn which saw great leadership skills by President Obama promptly injecting bailouts to affected USA companies, saving Wall Street from further failure. But never so with Trinidad’s incompetent ‘leaders’ callously unmindful our most indigenous entrepreneurship faces cash-flow challenges not withstanding its enormous salvageable assets. Our business culture is indeed, one strike and you are down, never to rebound again so ably demonstrated by those bearing the authority to either sink or float the CLICO behemoth.”

Indeed we glory in the failure of others!

Let me quote some of the material I have already put into this space:

“In the context of Sir Anthony’s experience in countries in which risk capital exists to fund new economic development his observations could be construed to make some sense. However, the region in which CLF existed there was/is no risk capital in the private sector, a resource which is fundamental to the economic development of countries, in particular T&T, which depend on the earnings of foreign exchange to even exist. But these investment finances exist in T&T, given the embarrassingly high liquidity normally in the country’s finance system, which has to be frozen by the Central Bank to ensure stability in the local economy. However, despite the apparent security provided by the depleting natural resource, some means had to be found to tap into these financial resources held in general by the risk averse public and the private sector, yet be used to fund higher risk enterprises to earn foreign exchange.

“The way CLF attempted to alleviate the risk of investment was classic; investments were made in many different kinds of businesses and these were made throughout the world. The theory was that the probability of all of these business types and throughout the world collapsing simultaneously was negligible. No one could have foreseen the perfect storm; the rapid increase in oil price to US$147/bbl, which severely depressed businesses throughout the world and then the sub-prime mortgage fiasco that brought the house down, It is interesting to note that the Prime Minister’s disclosure or Sir Anthony’s concerns did not even attribute the economic collapse of the global economy to playing any part in the collapse of CLF etc.”

Still, today we see that our government has seized the assets of CLF, sold some and created the NIF that mainly consists of these assets. It has such confidence in the performance of these assets that it raised an oversubscribed TT$4 billion bond, which will be repaid by the future profits of these assets. Things are now back to normal as we look forward to the energy sector, even the regional energy sector, to provide the rents from foreign exploitation of the petroleum resources yet calling for diversification, for entrepreneurs like Duprey!

Indeed as Trevor Hosten also said, Obama and other enlightened leaders bailed out their companies, returned them to their owners when they had recovered and paid back in full their government debts, so unlike the Trinidad experience.

Mary K King
St Augustine
Trinidad

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