In exchange for this, CL Financial will divest its 55 percent shareholding in Republic Bank and also shares in Methanol Holdings Trinidad Limited (MTHL), effectively giving Government control of both entities. Republic Bank is the largest commercial bank in the country.
In a bid to avert a financial crisis and prevent a run on CL Financial institutions, British American Insurance will also be taken over by Government. CL’s banking subsidiary, Clico Investment Bank (CIB) and its money management arm, Caribbean Money Market Brokers (CMMB), will now be run by First Citizens. The move will see the banking licence of CIB being revoked.
At a press conference at the Central Bank in Port-of-Spain, Central Bank Governor Ewart Williams along with CL chairman Lawrence Duprey, sought to allay fears of Clico depositors, saying their funds are safe and the bank had moved in time to prevent an economic fallout.
“Clico is not bankrupt,” Williams said when asked about the company’s financial position.
Neither Duprey nor Williams would say how much money was being provided by Government to bail out the CL companies.
Williams said he did not want to go into figures but stressed their main concern was staving off financial contagion and reinforce confidence in the financial sector as a whole. “The Central Bank,” Williams said, “is very conscious of the contagion risks that an institution as vast as CL Financial could have on the entire financial system in TT and the entire region.”
CL, he added, has an imposing presence with potentially “systemic consequences” for the financial sector. “CIB funds are safe and Clico policy holders are safe,” he assured, noting that Central Bank stands ready to ensure all liabilities are met. He said however, that Clico’s liability structure stood at TT$16 billion. “It is a difficult but manageable situation,” he stressed.
Said Duprey: “It could have been a crisis if not addressed early.”
Finance Minister Karen Nunez Tesheira, who was also at the press conference, said depositors’ assets as well as pension funds will not be put at risk and assured there was going to be a smooth transition from CL to Government.
Stressing that every effort will be made to protect jobs, she said: “There will be a substantial infusion of liquidity” to ensure pension funds and life insurance policies are not jeopardised.”
First Citizens Bank CEO Larry Howai said his bank had a track record of managing situations like this and added it was not taking on liability that would affect operations. He assured depositors funds will be protected. “We will emerge stronger, we have been through this before,” he said. Williams told reporters government funding will be provided in exchange for collateral and equity interest in Clico, noting that the intention was to bring Clico back to its original moorings.
Williams said CIB had been facing “liquidity challenges” over the past few weeks and this came to a head in the last few days when the bank began to face an unusually high level of withdrawal requests which it could not meet. Clico, he said had also been facing liquidity problems.
Duprey and CL’s chief financial officer met with the Inspector of Financial Institutions on January 7 and in a subsequent meeting on January 13, Duprey formally raised the issue of “possible financial assistance”, from the Central Bank.
CL’s four largest financial institutions manage assets of over $38 billion, more than 25 percent of this country’s Gross Domestic Product (GDP).
CL will sell and liquidate its assets and allocate the proceeds to the Statutory Fund for both Clico and British American, thereby protecting all its insurance and pension fund clients.
If there is a deficit, the Government will provide funding. Asked about CL divesting its 55 percent stake in Republic Bank, Duprey said this was a chance to move out of the financial sector and concentrate on energy.
(SEE PAGE 5)