An overseas firm is being recruited to restructure companies that Lawrence Duprey's CL Financial controlled up to Friday, under a rescue plan launched by the Central Bank of Trinidad and Tobago, and backed by the Patrick Manning government looking to safeguard customer deposits and pension assets.

The companies included in the rescue are CLICO Investment Bank Limited (CIB), which is being taken over by the central bank and will have to surrender its banking licence as part of the deal; CLICO insurance; Caribbean Money Market Brokers and British American Insurance Company.

But Trinidad's finance minister Karen Nunze-Tesheira also gave a clear signal that the bailout programme could stretch even further to CL Financial itself as the holding company and ultimate parent, because of how interwoven the operations have become.

Central bank governor Ewart Williams said the group was overextended, having backed high-risk investments with high-interest debt and illiquid assets, including real estate owned at home and abroad.

The news of liquidity troubles within the 72-year-old group spread rapidly throughout the region, with Jamaica Money Market Brokers, one of two local companies associated with Duprey's outfit, saying immediately it had no exposure, having sold out its share in CMMB four months ago, after 20 months of negotiation.

re-energise stock

"Our shareholding in CMMB, which we sold to CL Financial group in September 2008, was paid for in full," says JMMB group CEO, Keith Duncan.

CLICO, however, still owns 40 per cent of JMMB, but its stake, chiefly held by CIB, is a minority position, that if it were to be divested as part of the scheme of arrangement would have no impact on the strategic direction nor management of JMMB, Duncan said. "They have one board member and no management control."

Even Guardian Holdings - another Trinidadian financial conglomerate mainly in the business of insurance, which this week launched a buy-back of its shares to re-energise its stock - was swift to react, saying it was profitable and strong, had no liquidity problems and anticipated no bounce-back from Friday's development.

"There is no connection with CLICO whatsoever of any kind with the Guardian companies," Chairman Arthur Lok Jack told Sunday Business. Guardian, he adds, has the largest share of the life insurance business, but CLICO manages a larger portfolio of pension assets.

Fearing systemic risk, Williams urged CLICO's rivals not to exploit the company's troubles for their gain, for the good of the financial sector.

"This is not the time for companies to take advantage of CIB/CLICO's problem to expand their balance sheet," he said. "this is the time to let competition take a back seat and to support the government and the central bank to keep CLICO as a functioning entity and to ensure the continued stability of our financial system."

Added Lok Jack: "CLICO is major player. It is important that no one tries to bury the nail in the coffin."

As early as this week, the third-party assets and liabilities of CIB and CMMB will be transferred to government-owned First Citizen Bank, itself a commercial bank.

This is First Citizen's second go at being a white knight. The bank was used in 1993 as the vehicle to take over another three government-owned banks that were on the verge of collapse and unable to meet obligations to creditors.

Its selection might also have rested on the fact that it is already a banker to the CL Financial group and, as such, would have a deeper appreciation of the value within its businesses.

The troubleshooter being brought in to reshape the companies will get to cherry-pick the best or, as central bank governor Ewart Williams put it, "high-quality" assets of CIB, and sell them off as payback for the bailout.

Williams was unwilling to say how much money the government and the central bank would be sinking into the CL Financial companies, but acknowledged it was "a lot". Clico's liability structure is estimated at US$16 billion. The rescue, he said at a press conference that included Duprey and Nunze-Tesheira, was a pre-emptive move to avert any contagion that would have been likely, were a firm as big and expansive as Clico to fail. interwoven transactions

Duprey, the chairman of CL Financial, said the financial situation in CIB, Clico and BAIC, a holder of substantial pension assets, "threaten the interest of depositors, policyholders and creditors of these institutions and, at this point, one of the views is that it may prove the danger or disruption to the financial system if it is not addressed".

Nunze-Tesheira said the plan, which is still evolving, requires the government to gain a degree of leverage over the operations of CL Financial to allow the orderly rationalisation of assets and liabilities of the group.

CL was formed in 1993 as a holding company for Clico, whose operations date back to December 1936, and as a vehicle to undertake capital-intensive programmes.

"Many of the group's transactions are interwoven," said Nunze-Tesheira. "The wide scope of coverage of the sheer size of the groups means that the government and the central bank are particularly cautious about the potential impact of its financial problems.

"It is our assessment that the present circumstances may require not only an infusion of liquidity but substantial additional steps undertaken for the express purpose of protecting depositors and other liability holders of the group, especially life-insurance clients and pension fund beneficiaries."

Those additional steps are expected to be laid out more clearly by the overseas consultant, with no estimate yet of how long the process will take.

Trinidad now has on fast track amendments to its insurance act to empower regulators and the central bank to conduct on-site supervision of companies, provide the legal basis for regulators to share information, and allow the central bank to take prompt, corrective action to protect depositors when necessary.

additional assets

CL Financial has agreed to divest additional assets to help fund its deficit, including, the CMC reported, 55 per cent interest in Republic Bank Limited and shares in Methanol Holdings Trinidad Limited.

Williams said government would provide the additional funds needed by CLICO "in exchange for collateral and an equity interest in CLICO", and that the long-term plan is to return CLICO to its "moorings".

The central bank will, if needed, also provide short-term liquidity support to ensure that all liabilities are serviced.

"The principal objective that underlines these agreements is to ensure that resources are available to meet withdrawal of third-party CIB depositors and CLICO policyholders when they want it," said Williams.

protect the funds

"The second is to protect the funds of depositors and policyholders going forward and, in so doing, maintain confidence in CLICO and reinforce confidence in the financial sector as a whole."

The CL Financial group controls over TT$100 billion in assets - including banking and finance, energy, manufacturing and distribution and real estate - in at least 28 companies in the Caribbean and around the world.

The Jamaican holdings include JMMB and Lascelles deMercado, which spirits company Angostura led in acquiring last year.

JMMB up to last September held a 45 per cent share in CMMB, but divested its holdings to CL Financial for US$41 million to pump liquidity into its own operations.

business@gleanerjm.com