(Trinidad Express) Former prime minister Patrick Manning called for secrecy in the government’s handling of the financial difficulties facing CL Financial, in an attempt to prevent an immediate collapse of the conglomerate.
So said former finance minister Karen Nunez-Tesheira, as she took the witness stand in the commission of enquiry into the failure of CL Financial and the Hindu Credit Union (HCU) on Wednesday.
Nunez-Tesheira was finance minister when a Memorandum of Understanding was signed with the former People’s National Movement (PNM) government for a billion-dollar bailout of CL Financial on January 30, 2009.
Nunez-Tesheira on Wednesday told the enquiry the first time she got wind of the financial difficulties facing CL Financial was on January 14, 2009, when she saw a fax on her office desk from Central Bank Governor Ewart Williams.
The fax was a letter signed by CL Financial executive chairman Lawrence Duprey, dated January 13, 2009. In that letter, Duprey stated the “severe global financial crisis had begun to impact local and regional markets and was causing a strain on liquidity in certain parts of the financial system in Trinidad and Tobago”.
Following a meeting of the Policy Formulation Committee on January 14, 2009, Williams approached Nunez-Tesheira and said he needed to discuss the contents of Duprey’s letter with Manning and herself.
Nunez-Tesheira, Williams and Finance Ministry Permanent Secretary Alison Lewis went to Manning’s office.
In that meeting, it was discovered that former United National Congress (UNC) minister Carlos John had approached Manning, Williams and former PNM minister in the Finance Ministry Mariano Browne in separate instances to discuss State agencies being persuaded to “roll over” their Investment Note Certificates (INCs) at CLICO Investment Bank (CIB). John was an adviser to the CL Financial board.
The National Gas Company and the National Insurance Board both had INCs at CIB which amounted to a billion dollars, which they intended to withdraw.
Floored
Nunez-Tesheira said she was “floored” when she heard about the investment in INCs by the State agencies.
Manning instructed Nunez-Tesheira to meet with the representative of CL Financial on January 16, 2009, to “make an assessment of the true picture” facing the conglomerate.
Meetings were held with some CL Financial executives, excluding Duprey, on January 16 and 22, 2009.
Nunez-Tesheira said the CL Financial executives were “less than forthcoming” about the difficulties facing the conglomerate.
On January 23, 2009, former group financial director Michael Carballo met with Nunez-Tesheira without the other board members.
On January 24, 2009, another meeting was held with the CL Financial executives and Nunez-Tesheira said she requested the presence of Duprey at the next meeting.
At the January 24, 2009, meeting, former group corporate secretary Gita Sakal is said to have exclaimed, “The game is over, forget it, we have nothing to sell.”
Nunez-Tesheira said the only CL Financial asset being offered for sale was the group’s share holding in Republic Bank Ltd.
“While we were focussing on CIB, we realised that CLICO was insolvent,” Nunez-Tesheira said. Following that meeting, Nunez-Tesheira said she went to the prime minister’s residence to discuss the matter with Manning.
Manning asked Nunez-Tesheira whether with the “gas prices having effectively collapsed and the energy prices collapsed could we afford this TT$5 billion bailout”.
Nunez-Tesheira said she told Manning if they did not assist CL Financial it would another Bear Stearns.
“If we go out to the public and I say or any of one us are seen to be saying ‘we are thinking of or considering’… before those words leave my mouth, there would be a run on CLICO and we would experience a similar fate that Bear Stearns faced in a weekend from Friday to Monday. Bear Stearns collapsed and the reason identified for its failure was the crisis of confidence,” Nunez-Tesheira said she told Manning.
“The (former) prime minister (Manning) agreed, he agreed to the “liquidity intervention, he agreed with the approach the Central Bank had outlined, and the only thing I remember him saying to me was ‘do not say anything because if any word is leaked out there would be a run’,” Nunez-Tesheira said.
On January 25, 2009, Duprey returned to the country to meet with Nunez-Tesheira.
“We had already determined that the problems at CLICO and CIB had less to do with the global financial crisis and more to do with mismanagement, so it would have been highly irresponsible of the government to hand over money to CL Financial,” Nunez-Tesheira said.
“What struck me at that meeting is it seemed to me that Mr Duprey did not understand the gravity of the situation. That is what struck me,” she said.
“I was in utter amazement listening to Mr Duprey speak in that manner, as if he did not understand the seriousness of the problem and still wanting to cut a deal,” Nunez-Tesheira said.
On January 30, 2009, the Memorandum of Understanding was signed. A news conference was held that day, with the intention of showing a united front with Nunez-Tesheira, Williams and Duprey to ensure investor confidence.
Nunez-Tesheira thanked the CLICO policyholders and depositors for their “forbearance” during that period. “Without the forbearance of the policyholders, I do not think we could have avoided the systemic risk,” she said.
Nunez-Tesheira said the cost of the intervention in CL Financial was TT$7 billion.
Central Bank provided a promissory note to CIB for TT$1.9 billion as lender of last resort, and TT$5 billion was provided to CLICO by the government.
“They keep saying what it cost the taxpayer, but you have to look at what it would have cost the taxpayer if we had not intervened. I think that is how we have to value it,” Nunez-Tesheira said.
