Ewart S Williams: Update on CIB/CLICO/CNMB
Media address by Mr Ewart S Williams, Governor of the Central Bank of Trinidad & Tobago,
to update on CIB/CLICO/CNMB, Port-of-Spain, 13 February 2009.
* * *
Ladies and Gentlemen,
This is the first in a series of media conferences that the Central Bank intends to schedule to
update the national community about progress with respect to resolving the financial
difficulties in CLICO, CIB and CMMB. The Chairman of the Board will also be communicating
with the media from time to time.
Since the Media Conference of Friday 30, January 2009, much has been achieved in the
implementation of the MOU signed between CL Financial and the Government and in the
clarification of the financial situation of the three institutions - CIB, CLICO and CMMB.
As you are no doubt aware, in accordance with the MOU, a new Board was appointed to run
the affairs of Clico, in addition to a Manager/CEO (Mr. Andrew Claudius Musaib-Ali) and a
Chief Financial Controller (Ms Carolyn John).
CL Financial, the signatory to the MOU has appointed a team to work with the Government
on the implementation of the MOU. This team and the Government representatives have had
one meeting but have otherwise been in constant communication with each other.
Meanwhile, with the assistance of the Manager appointed to Clico by the Central Bank, we
have made much progress in clarifying the present financial position of CLICO, which
unfortunately, appears to be much worse than we had envisaged. Let me give you some
examples:
•
Based on the audited accounts, Clico had surpluses in the Statutory Fund in 2004,
2005 and 2006; these surpluses shifted to a deficit of about $600 million in 2007.
•
Based on the un-audited accounts for 2008 the Statutory Fund deficit (measured on
the same basis as in the period 2004-2007) has ballooned to $5.1 billion. If this is
correct, one interpretation would be that the premium income collected in 2008, and
which should have been directed to the Statutory Fund, was otherwise utilized.
•
Over the last few years Clico's statutory fund assets have included several
intergroup assets, including deposits in CIB and securities issued by the parent CL
Financial. Certainly at the present time, these instruments appear to be of little
value. If we exclude these from the Statutory Fund calculation of 2008, the notional
deficit rises to $10 billion, on a policyholder liability base of $16.7 billion.
•
In the CL Financial business model, Clico was a major source of cash much of
which was used to finance investments held in the name of other entities in the
Group. In this model, Clico has ended up as guarantor for many of the Group's
assets most of which are heavily pledged. Of course, pledging limits the potential
proceeds from asset sales. A Canadian firm has been contracted to disentangle,
inter alia, a whole range of complicated financial transactions, to review Clico's
nonpolicyholders' liabilities and the extent to which Clico's assets are pledged.
Turning to the immediate situation:
•
As at end-January 2009, Clico had policy surrender requests on maturing
obligations of $650 million; the monthly payment for pensions and annuities is $40
million. Clico currently has a bank balance of $15 million, in addition to a sizable
bank overdraft.
In accordance with the MOU the Cabinet has approved a first tranche of a funding package
to begin to ease the liquidity pressures on Clico and British American. In line with the spirit of
the MOU, the focus in the first round will be on meeting policyholders' liabilities and
payments to pensioners.
These steps would convince policy holders that Clico has the full backing and commitment of
the Government and the Central Bank of Trinidad and Tobago. Policyholders should also feel
confident that their funds are protected and this should encourage the maximum roll-over of
policyholder funds. At worst, to facilitate an orderly recovery of Clico we would request that
policyholders do not seek withdrawals before their maturity dates.
Ladies and Gentlemen, for years Clico has been a most prominent domestic and regional
brand. The objective of this rescue exercise is to restore confidence. But this process will
obviously involve considerable public resources for which the Government and the Central
Bank, as regulator, will be held responsible.
As I noted earlier Clico's recent financial operations and the reasons for the emergence of
very sizable statutory fund deficit in 2008 are still very unclear. The information that we have
received so far points to a range of complex financial arrangements which have ended up
with Clico as either direct debtor or guarantor. As regulator we need to understand these
arrangements more clearly, if we are to continue recommending government financial
support.
To facilitate this wide-ranging and very complex exercise, (which is critical to addressing the
claims of policyholders and creditors in a comprehensive way) the Central Bank has decided
to invoke the powers provided under Section 44D of the Central Bank Act (as amended) in
respect of CLICO and British American. It is to be noted that this move is consistent with
Clause 16 of the MOU which states that:
"The Memorandum of Understanding does not preclude (a) the Central
Bank from requiring that CLF, CIB, CLICO and BA take any other action
which in the opinion of the Central Bank is desirable; or (b) the Central
Bank taking such action as the Central Bank may think fit under the
provisions of the Financial Institutions Act, the Insurance Act or the Central
Bank Act and any of them"
The invocation of these powers by the Central Bank is designed to achieve several specific
objectives, including:
1. Conferring legal authority to the Board, appointed in accordance with the MOU, to
manage all of the business and undertakings of CLICO.
2. Providing the necessary authority for beginning the restructuring of CLICO as
envisaged under the MOU;
3. Providing the authority for conducting the requisite in-depth examination of the
business operations, contracts and arrangements of CLICO that may have
contributed to the current state of the company;
4. Providing a legal basis for entering into negotiations with creditors in order to
facilitate any debt re-structuring that may become necessary;
5. Providing a legal basis for advancing the funding to which the Government is
committed in order to ensure the protection of policyholders of CLICO.
I would like to assure the public that the exercise of its powers by the Central Bank will not
cause any disruption of the day to day operations of the two companies.
The new arrangements that I have mentioned in respect of CLICO (specifically Section 44D
invocation) will also be applicable to British American Insurance Company. Next week we
plan to announce a new Board for BA.
As regards CIB, we are working frantically to prepare deposit files that need to be transferred
to First Citizens Bank Limited. The exercise has turned out to be a major challenge because
of the state in which CIB's records have been found. We give the assurance that this
exercise will be completed in another week and that funds will be available by February 25,
2009.
I apologise for the delay in the execution of this transaction, and for the inconvenience it
would have caused depositors. We are doing our absolute best to have this task completed
as quickly as possible.
As you are aware, the MOU provides for the transfer to First Citizens Bank of the shares in
CMMB as part of the consideration put up by CLF to balance the assets and deposit liabilities
being transferred to First Citizens. Considerable progress has been made towards this end
and the legal arrangements should be finalized within the next ten days or so. In the
meantime, First Citizens continues to provide support and oversight over the operations of
CMMB and has succeeded in returning a great deal of calm and stability to those operations.
Ladies and gentlemen, the Government and the Central Bank have undertaken a number of
steps, including today's actions, to protect policyholders of Clico and BA, and to maintain
stability and confidence in the financial system.
I am pleased to see that the steps we have taken so far have already succeeded in reducing
the initial concerns. There is a greater stability in the banking system as a whole and
customers of Clico, CIB and CMMB have shown tremendous maturity in responding to the
current financial situation. There is still a considerable way to go and I therefore urge all
members of the public to continue to support Clico and BA based on the commitments made
by the Government and the Central Bank.
Remember, our banking system is enormously robust, well-capitalised and generally
conservative and responsible. Clico/CIB were isolated cases of an overly-aggressive and
risky business model. With the committed assistance of the Government and the Central
Bank, and with the support of the general public, Clico will overcome its current difficulties
and emerge as a transformed, more resilient part of an even stronger financial sector.