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).

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Summary
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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

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Global Financial Crisis Hits the Eastern Caribbean
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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.

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CLICO Political Storm
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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.

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Thompson Calls for Purchase of BNB
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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.

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Comment
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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