The end of this month marks a sad anniversary. It will mark eight long years since the government and Central Bank took control of Clico and CL Financial in a purported attempt to rescue the companies and to avoid the effects of contagion on the economy.
Contagion, by the way, is the knock-on effect of this major financial institution being unable to pay its creditors and they, in turn, being unable to pay their bills. The objective of a rescue, as I understand it, is to get the company back to financial health and to recover any sums invested at the earliest possible opportunity.
I have followed all the major company rescues that came out of the 2008/2009 global financial crisis (Clico was not alone). None has taken remotely as long as eight years, the average being just over two. Entering the ninth year, we still know so little.
The government can’t or won’t tell us the precise figure that is owed to taxpayers. They can’t or won’t tell us exactly when the rescue will end and the taxpayer repaid. They still argue in the Appeal Court against an earlier judgment giving access to basic financial data about the state of Clico and who was repaid early.
There has been no proper investigation into the failure of the regulator (the Central Bank) and the auditor (PwC). There could not possibly be—as it is the same failed Central Bank that is in charge of the company under the rescue, being both regulator and director—a situation that any first-year student knows to be unhealthy and ineffective.
Likewise, we are now told that the terms of the final agreement are being designed by consultants at the very company—PwC—whose auditors failed to report on the deficit in the statutory fund back in 2008/9. You simply could not make it up.
That is why the figures don’t add up, and why draconian legislation was passed. Nobody must be allowed to “see the books” or to take any of the management’s actions before a judge no matter how grotesque.
The Central Bank Amendment Act, passed in 2011— in case you’ve forgotten—removed Clico management from any judicial oversight while being in charge of over $20 billion of taxpayers’ money, and even more billions of dollars of Clico and CLF assets. “The trough runneth over” to misquote a popular saying.
Taxpayers have been abused spectacularly in the process. By refusing to return the company to its owners for the past four years (when it first became solvent), successive administrations have effectively denied us access to billions of dollars that would have dramatically altered our economic landscape for the better. Even the universal measure of economic health, the debt to GDP ratio used by international lending agencies and others would have been much healthier.
Feeding at the trough by a few has been placed ahead of feeding our neediest.
The law states quite clearly that once the conditions that give rise to the statutory control cease to exist, control of the institution SHALL be relinquished. It is patently evident that the risk of contagion, the main condition that gave rise to the rescue ended a long time ago. Ironically, by imposing a part payment on policyholders, the government has created a new contagion risk that did not exist before. Both taxpayers and policyholders will be better off with the company in the hands of its shareholders and in full compliance with our laws.
To illustrate just how badly the company has been run, I will point to just a few figures. There are, of course, many more. In justifying the “haircut” to policyholders in 2010, the Prime Minister at the time, Kamla Persad Bissessar, told us that the previous administration had spent $7.3 billion, thus far, and that the accounts showed that another $7.5 billion was needed to close the remaining financial gap. That comes to a total of about $15 billion.
Having denied policyholders about $3 billion through their new plan, the revised total should have been $12 billion. How then did the final rescue figure come to $25 billion? We’re talking about unexplained costs of $13 billion. Are we to simply turn a blind eye to this and other discrepancies once the company is returned to its owners?
To make matters worse, we have the pronouncements of the current Minister of Finance, Colm Imbert. In a rare statement about the finances of the company, Imbert told us that between 2010 and 2014 the value of Clico’s investments and other assets rose by a staggering $15 billion.
Remember that this is exactly what Lawrence Duprey said would happen once the global financial crisis was over. Personally, I was stunned by the scale of the turnaround in values. It speaks volumes for the quality of the assets acquired or developed under previous Clico stewardship.
Where did those extra $15 billion go, I hear you ask?
Without access to the underlying data, it is impossible to answer that question with any degree of certainty. Given the lengths that successive administrations have gone to in order to block access to financial data, I suspect getting answers will not be easy. Yet it is clear that a light could easily be shone on the most suspicious area of the limited accounts that have been presented.
While asset values have increased by $15 billion in the period mentioned, liabilities have also increased by a similar amount. How is it possible for liabilities to increase at all during a rescue, while no new business is being undertaken, and presumably creditors are being repaid?
There is no need for another expensive forensic investigation. Drill down on these mysterious $15 billion of new liabilities and we will discover where our taxpayer dollars have really gone, and I assure you that it was not to rescue Clico, or to avoid contagion.
So, what should we do now?
The answer is the same as it was from the outset, before billions of taxpayer dollars disappeared without explanation:
• Remove Clico et al from Central Bank control as the law demands. I will be writing to the Central Bank Governor asking for an explanation of his justification for continued control in the light of publicly available data and the stipulation in the Central Bank Act. I invite all and sundry, especially taxpayers, to support my request for an explanation.
• Within the next week enter into a binding agreement with shareholders for repayment of the agreed balance with interest accruing from the date of said agreement. Any delay in so doing means we continue to forego interest that we should be earning.
• Most importantly, conduct an INDEPENDENT review of the roles of the regulator and auditor resulting in effective recommendations to ensure they do not sleep on the job again and that there is some consequence if they do.
• Repeal the draconian Central Bank Amendment Act, and enact a new amendment so as to ensure that in the event of a recurrence, no financial institution is placed in the hands of the regulator, no matter who the regulator may be.
Only then can we exhale.
David Walker
