A giant ship doomed at sea

As he closed off a second day of cross-examination of Planning Minister Dr Bhoe Tewarie at the Winsure Building, Richmond Street, Port-of-Spain, Colman asked Tewarie for his views on the causes of the collapse of CLF.

“My career has been in the past one of a shipping lawyer,” Colman noted. “Very often, large ships are sometimes very sadly lost at sea. They are lost for all sorts of reasons, and they are also lost in very heavy seas indeed.”

“The loss of such ships is triggered by water entering the hull and the water enters the hull because of some weaknesses in the welding or because something has been wrongly left open and sea water has been allowed to get in and cause disturbance.”

Continuing the analogy, he added, “Sometimes things are rendered disastrous because the ship has been loaded in an unsatisfactory way.” And, “sometimes one of the reasons why a ship is subjected to huge maritime forces is because it is navigated the wrong way.”

Colman identified what are, thus far on the evidence, the reported causes of the collapse of CL Financial. These included: the intrinsic vulnerability of CIB. “Should there have been a run on the bank the effect of which would have been default on a substantial amount of debt,” he said.

Also, “the fact that historically the cargo, so to speak, had been stored in an improper way” was key. By this, Colman meant “there had been illiquid assets used as security for loans.”

“No doubt if there had been a run on the bank, the collapse would have been worsened,” he said. Tewarie, a former principal of the University of the West Indies, agreed.

“The short answer would be all of the above,” he said. But he elaborated further as the inquiry, for a moment, took on the air of an academic seminar.

“There were weaknesses in the system to start with,” he said. “There were not effective enough governance systems. There was not enough tight coordination and control and monitoring, nor was there compliance with the intended requirements when attempts at good governance were initiated.”

“Intense inter-connectivity made the company very vulnerable to start with,” he said. “Then there was the triple whammy when the global crisis, real estate softening and energy prices dip came together in a situation where borrowing could no longer be had.” Because of this liquidity tightened, debts could not be paid. With the then worldwide credit crunch in 2008, big depositors supposedly began to feel the impact and moved to withdraw deposits. Legislation passed in Parliament, at the same time, limited borrowing sources.

“Once that happened, the company was not just vulnerable, it was in terrible danger,” Tewarie, who sat on the board for over a decade, said. “The system that led to the crisis is too loose.” He called for reform of regulation, but Colman noted that this was useless unless there were the means to implement it.