Monthly Archives: February 2009

Business & Finance, Trinidad & Tobago

S&P says may cut ratings on FCB and Republic Bank

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S&P, which said today it was considering downgrading T&T’s sovereign credit rating, is also scrutinising the ratings of both First Citizens Bank and Republic Bank due to the fallout from the CL Financial bailout.

Here are the statements, any emphasis/explanations mine:

S&P: First Citizens Bank Ltd. ‘BBB+/A-2’ Rating Put On CreditWatch Negative

[“CreditWatch Negative” means that a downgrade is likely within the next three months, pending further information/review]

[A triple-B rating is borderline investment grade; the institution is considered ‘satisfactory’]

MEXICO CITY Feb. 3, 2009–Standard & Poor’s Ratings Services said today that it placed its ‘BBB+/A-2’ counterparty credit rating on First Citizens Bank Ltd. on CreditWatch with negative implications.

Standard & Poor’s also said that it placed its ‘BBB+’ ratings on the $100 million bonds from First Citizens and First Citizens (St. Lucia) Ltd. on Credit Watch negative.

The CreditWatch placement follows Trinidad and Tobago’s announcement on Jan. 30, 2009, that it will assume control of or provide support to several key subsidiaries of CL Financial Group (CLFG), a large Trinidadian financial conglomerate. According to the central bank, CLFG’s financial condition has deteriorated because of related-party transactions, high-risk investments, and high leveraging of the group’s assets. The central bank has announced that it will take control of CLFG’s flagship bank, Clico Investment Bank (CIB), transfer its assets and deposits liabilities to First Citizens Bank (wholly owned by the government), and revoke CIB’s banking license. The government has announced that CLFG will divest assets, including its shares in Republic Bank Ltd. (a 55% share) and Methanol Holdings Trinidad Ltd., to First Citizens Bank and the government to make up the statutory fund shortfall, with the government backstopping any deficiency.

“We expect to resolve the CreditWatch status of the ratings when there is further clarification of First Citizens Bank participation in the bail out process and the impact that this will have on the bank’s overall creditworthiness,” said Standard & Poor’s credit analyst Angelica Bala.

S&P: Republic Bank Ltd. ‘BBB/A-2’ Rating Put On CreditWatch Developing

MEXICO CITY Feb. 3, 2009–Standard & Poor’s Ratings Services said today that it placed its ‘BBB/A-2’ counterparty credit rating on Republic Bank Ltd. on CreditWatch with developing implications.

The CreditWatch placement follows Trinidad and Tobago’s announcement on Jan. 30, 2009, that it will assume control of or provide support to several key subsidiaries of the CL Financial Group (CLFG), a large Trinidadian financial conglomerate that owns 55% of Republic Bank Shares. The government has announced that CLFG will divest assets, including its 55% share in Republic Bank Ltd., to First Citizens Bank and the government to make up the statutory fund shortfall, with the government backstopping any deficiency.

“We expect to resolve the CreditWatch status of the ratings when there is further information on how the transaction is going to be done and the implications to Republic Bank, currently the largest bank in the country,” noted Standard & Poor’s credit analyst Angelica Bala.


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Business & Finance

CL Financial bailout threatens T&T’s credit rating

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From credit rating agency Standard & Poor’s on Tuesday (emphasis and in-line explanations mine):

NEW YORK, Feb. 3, 2009–Standard & Poor’s Ratings Services said today that it placed its ‘A/A-1’ foreign-currency and ‘A+/A-1’ local-currency sovereign credit ratings on the Republic of Trinidad and Tobago on CreditWatch with negative implications.

[Credit watch with negative implications means the ratings agency is considering downgrading T&T’s existing credit rating; any subsequent rating action is normally taken within three months. A sovereign’s credit rating is important because it determines (among other things) how much that country will pay to borrow in the international debt markets. Essentially, a credit rating is an assessment of a country’s creditworthiness; it is an indicator of that country’s willingness and ability to repay its debts. As a benchmark, S&P rates the United States as triple-A – the highest possible rating – while Jamaica is currently rated B]

“The CreditWatch placement follows the government’s announcement on Jan. 30, 2009, that it will assume control of or provide support to several key subsidiaries of the CL Financial Group (CLFG), a large Trinidadian financial conglomerate,” explained Standard & Poor’s credit analyst Roberto Sifon-Arevalo. According to the central bank, CLFG’s financial condition has deteriorated because of related-party transactions, high-risk investments, and high leveraging of the group’s assets. The central bank has announced that it will take control of CLFG’s flagship bank, Clico Investment Bank (CIB), transfer its assets and deposits liabilities to wholly government-owned First Citizens Bank, and revoke CIB’s banking license. CLFG has also disclosed that its insurance companies–CLICO Insurance Co. Ltd. and British American Insurance Co. Ltd.–have sizeable statutory fund deficits. The government has announced that CLFG will divest assets, including its 55% share in Republic Bank Ltd. and share in Methanol Holdings Trinidad Ltd., to First Citizens Bank and the government to make up the statutory fund shortfall, with the government backstopping any deficiency.

“We will resolve the CreditWatch status of the ratings once we can estimate the potential fiscal cost to the government, the broader damage to its financial system, and any impairment to the island’s medium-term growth prospects,” Mr. Sifon-Arevalo added. Trinidad and Tobago enters this CLFG intervention with general government assets exceeding debt by 4.5% of GDP in 2008, a substantial improvement from a net debt position of 20% in 2003. The country’s external position has also strengthened, with net external liabilities of 6% of current account receipts in 2008, down from 134% in 2003. The government’s saving of part of its gas windfall in its Heritage and Stabilization Fund during this period accounts for its fiscal buffer and the country’s improved international investment position.

Further reading:
Sovereign ratings in the Caribbean – An S&P report from May 2007


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Business & Finance, Trinidad & Tobago

JP Morgan comments on the “CL Financial Situation”

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From a note issued by analysts at JP Morgan, emphasis mine:

The Central Bank late on Friday announced that it would bail out a number of financial services companies—Clico Investment Bank (CIB), Clico Insurance Company (CLICO), British American Insurance Company (BAICO) and Caribbean Money Market Brokers (CMMB)—within the CL Financial Group, which have recently been facing liquidity pressures. The government will take control of CIB and transfer third party assets and liabilities of both CIB and CMMB to First Citizens Bank (100% owned by the government and the second largest local bank with over US$2.4 billion in assets). The problems at CL Financial Group apparently stemmed in part from the sharp drop in methanol and real estate prices, but also from risky practices that included excessive related-party transactions. As part of the bailout plan, CL Financial will sell, liquidate or collateralize its assets and use the proceeds to meet funding requirements for both CLICO and BAICO and the government will provide full funding support to meet any remaining deficits; the fiscal cost of such support is still undetermined. The central bank governor emphasized that excluding CIB, T&T’s banking system is well capitalized (the average capital adequacy ratio stands at 18%) and is not facing undue liquidity challenges. While the situation is still fluid, at this juncture, we believe that Friday’s decision was a pre-emptive move to contain any contagion from the possible collapse of the CIB and do not believe that the troubles at CL Financial Group are symptomatic of a broader systemic problem. Separately, the central bank on Friday left the repo rate unchanged at 8.75% after its monthly policy meeting on the heels of December inflation data, which showed the CPI increasing 0.1%mom taking 2008 annual inflation to 14.5%yoy.

(via VG)


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