COLLAPSE OF TRINIDAD,S CL FINANCIAL GROUP RIPPLES

C O N F I D E N T I A L BRIDGETOWN 000144 SIPDIS E.O. 12958: DECL: 02/27/2024 TAGS: EFIN ECON ETRD PREL CN XL SUBJECT: COLLAPSE OF TRINIDAD,S CL FINANCIAL GROUP RIPPLES ACROSS THE POND TO BARBADOS Classified By: CDA Brent D. Hardt, for reasons 1.4 (b) and (d). -------------- Summary -------------- ¶1. (C) The collapse and subsequent bailout of the CLICO Group, one of the largest financial conglomerates in the Caribbean, is a cause of serious concern in Barbados. CLICO holds a wide range of assets in Barbados including the Barbados National Bank, which Prime Minister Thompson is now seeking to repurchase from the former financial giant. Because of the PM,s previous close ties to CLICO, Opposition Leader Mia Mottley called for a vote of no confidence in the PM (dismissed by most as a desperate bid for attention by the opposition),but the fallout could worsen if Trinidad's Central Bank cannot contain the problem. End Summary -------------- -------------- Global Financial Crisis Hits the Eastern Caribbean -------------- -------------- ¶2. (C) The collapse and subsequent bailout of CL Financial of Trinidad and Tobago will have a serious impact on the Barbadian economy, according to Ben Arrindell, Chairman of the PM,s council of Economic advisors and Managing Partner of Ernst and Young. On February 1, the Trinidad Central Bank took control of the CLICO Investment Bank and the Caribbean Money Market Brokers, and required that CLICO give up a 55 percent stake in the Republic Bank. CL Financial has extensive holdings in Barbados, including 82 percent ownership in the Barbados National Bank (BNB) -- which it owns through the Republic Bank -- and CLICO Holding Barbados Limited (CHB) at the top of the list. ¶3. (C) The Eastern Caribbean region as a whole, including Barbados, is dominated by Canadian and Trinidadian banking and insurance concerns. The collapse of one the largest financial conglomerates in the region has local investors and policy holders fearful that the global contagion has finally hit home, Royal Bank of Canada President Tom Sears explained. Many in Barbados felt secure that their insurance and banking deposits were safe in the hands of the more "solvent" and "secure" Canadian and Trinidadian companies. However, he said, the steep drop in commodities prices and the bottom falling out of real estate development market proved too much for CLICO, which was heavily leveraged and got caught holding billions in valuable but non-performing assets. For instance, CL Financial, through its many subsidiaries, purchased two hotel properties and 10 separate areas of plantation lands in Barbados -- all of which are non-performing at this point, Arrindell explained. It is a certainty that CLF is a victim of the global financial crisis -- they got caught with falling revenue and could not refinance their debts after the global debt market clamped shut, he commented. -------------- CLICO Political Storm -------------- ¶4. (C) According to Barbados Labor Party (BLP) opposition leader Mia Mottley, CHB has 38,000 insurance policy holders as well as thousands more holders of pension funds and annuities in Barbados. She also claims that the CHB is under-funded to meet its statutory requirements for Barbadian policy holders by more than US$47 million. The National Insurance Scheme of Barbados is also reported to be heavily invested in CLF subsidiaries; however, the exact amount is not publicly available according to Mottley, who blamed the Government for failing to adequately protect the public. According to Arrindell, this investment, coupled with the large numbers of other investments tied to the collapsing financial giant, could lead to financial and liquidity issues too big for the government to handle. ¶5. (C) PM Thompson quickly took to the airwaves to counter Mottley,s assertion that his government was not addressing the shortfall. Fielding questions from journalists, Thompson explained that his government was fully aware of the problem and had discussed several options to address the under-funded obligations at CHB. After some consternation they decided to help the Trinidadian conglomerate find a suitable buyer in Barbados -- according to Embassy sources that buyer would likely be locally based Sagicor Financial. (Note: Sagicor is 30 percent owned by Barbadians and 50 percent by Trinidadians) If a suitable buyer can,t be found, then the government would buy CHB from CL and inject the necessary funds to ensure that local policy holders are protected, he added. -------------- Thompson Calls for Purchase of BNB -------------- ¶6. (C) On February 20, PM Thompson called for the repurchase of majority control of BNB at the earliest possible moment. This was followed by the February 25 announcement from Republic Bank that BNB was not for sale. BNB is a cash cow for Republic that provides stable dependable earnings and is an asset it is not likely to relinquish prior to the Trinidadian Central Bank,s sale of Republic to outside investors, who may or may not want to keep the valuable asset. According to Arrindell, the PM,s strong desire to buy BNB is being stoked by his admiration for the Singaporean and Chinese development model, which uses state controlled banks to fund national development goals. He added that the PM,s housing program, for instance, requires bank financing and support that he has not been able to generate from the private institutions on the island, and a government organized buyback of BNB would likely solve that problem. There are other investment and development plans that would benefit greatly from greater government sway over lending as well, Arrindell noted. -------------- Comment -------------- ¶7. (C) The failure of CL Financial could be a blow to the entire region, particularly Barbados, whose economy is closely linked to the Trinidadian economy on many levels, from the finance sector to trade in goods. The extent to which this fallout will adversely affect Barbados is still to be seen and will depend largely on the Trinidadian Central Bank,s ability to handle the bailout. However, the issue has already emboldened the opposition enough to call for a vote of confidence against the PM. For an opposition that has had a dearth of issues to engage on, a potential financial crisis in the midst of a global economic slowdown would be welcome grist for their mill. Thompson,s close personal ties to the head of CLICO and his professional role as chief legal counsel for CLF prior to taking office in January, 2008, have made him vulnerable to opposition charges of conflict of interest in the management of this crisis. Economic ties between CLF and the PM also reportedly included an offer of a board seat, according to Embassy sources. With ties this close it is little wonder that Mottley has held three press conferences in the last three weeks seeking to pin the blame for any fallout from the CLF collapse on the PM. The fact that Mottley,s tactics forced the PM to so quickly mount a televised response shows the danger that the collapse of CLICO poses to him personally. For the moment, though, the Central Bank of Barbados maintains that the country's financial sector -- and the economy as a whole -- is well positioned to weather the current global slowdown. HARDT