JP Morgan comments on the “CL Financial Situation”
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.
Tags: BAICO, CL Financial, clico, Clico Investment Bank, CMMB, crisis, finance, First Citizens Bank, Trinidad and Tobago