My chief concern this week is not financial markets where, in a continuing and remarkable piece of co-ordinated globalisation, authorities seem bent on convincing themselves, broken record-like, that spending other people’s money (the more the merrier) is the solution. No. There is a test match beginning in the Caribbean today where the West Indies takes on England in Jamaica (preparations at left).
Unfortunately, even in the Caribbean the financial crisis intrudes. Last Friday the region’s largest conglomerate saw key pieces of its empire collapse. Trinidad’s CL Financial has been forced by the country’s central bank to cede control of large portions of its insurance, investment banking and brokerage operations in a massive (here a relative term) bailout (pending passage of necessary legislation).
Don’t expect to see this story on Bloomberg. However, in US dollar terms CL Financial control over $16bn of assets (albeit on their own valuation); and their Trinidad assets alone are worth over a quarter of the country’s GDP. This is a major regional story.
Across the West Indies governments are frantically claiming the locally registered holdings of CL Financial are independent and untouched. So please don't withdraw your savings. But, in some cases, these claims are disingenuous mentioning only the companies seized by the Trinidad government but not the links to CL Financial itself.
Yet, for anyone looking at the parent company accounts (qualified last time) they will see a conglomerate that has had no short-term liquidity for at least the last two reporting periods - indeed, it has been negative. This inability to meet third-party withdrawals is the root cause of the bailout. CL Financial has long been a walking insolvency candidate and one the Trinidad authorities have tried to reign in since 2004. The country has been placed on negative credit watch as a direct result of the bail out.
This suggests that all CL Financial subsidiaries should look carefully at any monies lent back to the centre and what such monies are now worth - or whether they are even recoverable (pending the inevitable "restructuring" of CL Financial).
For example, the accounts for the group's Barbados-based insurance operations for the entire eastern Caribbean (Clico International Life insurance Ltd) show loans to parent and ultimate parent companies of over US$50m, more than 10% of the insurers’ asset base. The notes to the accounts of course only offer basic detail. The bulk of these loans may be very safe (although parts are labeled "unsecured"). But there is as yet no clarification from the insurer's management as to who is the ultimate counter party. In fact, the topic of potential holes being blown in the balance sheet has not even been broached.
In the glaring absence of that, and with some family monies concerned, it is hard not to conclude in the case of Clico that the combination of:
- its astoundingly aggressive underwriting of annuity premiums (with some portion of these contracts perhaps "guaranteeing" clients fixed future benefits);
- a net cash-free, walking zombie parent; and
- a desperately poor asset market since 2008 that has eroded the capital bases of insurers everywhere;
NB: Freebie for the game. Buy Jerome Taylor match runs at 32 on IG Index.