Testifying for a second day at the Clico Commission of Inquiry, Carballo gave details of the sequence of events that led to the State’s intervention at CLF in January 2009.
Giving evidence at the Winsure Building, Richmond Street, Port-of-Spain, Carballo said that at the very first meeting he ever had with Nunez-Teshiera on the Clico issue, she revealed the extent of her knowledge of the troubles facing the CLF group.
While Carballo thought he was bringing news to the finance minister at the meeting, he soon discovered that she was far more informed than he thought.
“The minister indicated that she was well aware of the liquidity challenges of CL Financial and indicated that she thought that urgent action was needed,” Carballo said. “That was the first time I met Ms Karen Nunez-Tesheira.”
Inquiry counsel Peter Carter QC, asked, “Did she say how she knew?”
Carballo replied, “No.” He said the former finance minister indicated she wanted to act quickly.
“She wanted to get a better understanding of the CLF situation,” Carballo said. “She wanted to move in with a specific solution by Monday. We thought that was acting with a bit of haste without a proper understanding of the matters involved.”
“The minister suggested that it was essential that we meet the next day (Saturday January 24, 2009) at 9.30 am with an expanded team.” That meeting and another meeting on Sunday took place, Carballo said.
Seven days after the meeting on January 23, 2009, the State would sign a memorandum of understanding (MOU) with the CLF group.
Nunez-Tesheira, who is a party to the inquiry, has been issued with a summons to give evidence at the next phase of hearings starting on November 7. The former finance minister has been accused of withdrawing her own personal funds from Clico, a CLF subsidiary, on the basis of insider information around January, 2009. She has also been accused of a conflict of interest in presiding over the January 30 MOU.
A complaint, in relation to the allegations, has been forwarded to the Office of the Director of Public Prosecutions by the Integrity Commission. Nunez-Tesheira was not present at yesterday’s hearing but attended on Monday.
Carballo said the first Friday meeting with Nunez-Tesheira came mere hours after a CLF annual general meeting where no formal indications of the talks were made.
“The CLF annual general meeting was in the morning at 10 am and I met with the minister of finance at 3.30 pm,” Carballo said. He said the meeting had been arranged in advance, after he had called upon Carlos John, then adviser to CLF executive chairman Lawrence Durpey, to set something up.
Carter noted that at the annual general meeting, Carballo and officials present presented an upbeat and optimistic annual report to shareholders. Yet, by the afternoon he was starting emergency talks.
“The annual report was upbeat but we did indicate that there were turbulent times ahead,” Carballo said.
Ironically, Carballo indicated that a move to tighten the regulation of financial institutions was part of what triggered the tightening of liquidity within the CLF group.
He said the enactment of the Financial Institutions Act in 2008 forced banks to cut credit facilities to the group, provoking an emergency “re-organisation” of the group’s businesses.
“It was an urgent reorganisation, it was a situation were we could not access any further requirements in order to comply with the requirements of the Act. This did place a significant strain on the group post 2008,” he said.
He noted that Republic Bank wrote CLF urgently informing them of changes that would have to be made in relation to its lending to the group, lending which was now capped at ten percent of capital base (down from the 32 percent).
The collapse of one deal in particular, the much-objected-too Lascelles de Mercado drinks deal, forced Republic Bank to restructure a $507 million debt.Carballo revealed that the circulation of a series of anonymous “whistle-blower” e-mails, linked to an ex-employee of the group, precipitated a wave of withdrawals from large Clico policyholders.
These e-mails, Carballo said, were sent to the top-level staff at CLF, to the Central Bank, the company auditors PriceWater-
house Coopers and even AM Best, an insurance rating entity.
The e-mails, he said, were “over-exaggerated” accounts of the techniques used to get around the statutory fund requirements in relation to Clico and the “aggressive nature” of the group. He said he would frequently ask former chief financial officer Andre Monteil and Duprey about the e-mails.
“They did indicate to me at some time that they managed to somehow trace these whistle-blower e-mails to an ex-Clico employee,” he said. “Whether they eventually got into the wrong hands and may have caused a sudden rush to withdraw deposits, I am not sure.” He said from November 2008 to January 2009, “wealthier individuals” and holders of large EFPA Clico products rushed to take out their funds.