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Monday, February 2, 2009

CIB/CLICO and the big bust!

As reported earlier, CIB (CLICO Investment Bank)/CLICO of Trinidad, went bust and the Central Bank of Trinidad, has had to step in to ensure depositors of their money.
Central Bank Report

A good ol'e fashioned bank run is what happened and, was most likely sparked by reports and rumours on the much anticipated end of year financial, which would more than likely indicate more losses in 2008 as well as paint a bleak picture for 2009.

The Trinidadian Central Bank has laid the cause of this collapse, at the over leveraging of CIB and their portfolio's entrenchment in illiquid assets. Moreover, their losses in real estate ventures throughout the previous years.

CIB has not posted an end of year report (for 2008), but I have access to the previous year's financial/auditor's reports and they are none to pleasing. In fact, folks may end up in jail for not reporting all of the facts.

Here are downloads of CIB's last financials
See 2007 Report here
See 2006 Report here

Right off of the bat, share prices plummeted by nearly half; from .97 in 2005, to .57 in 2006 to .39 in 2007. Bad sign. The 2008 reports, were probably going to report less than .30 per share. This is most likely the catalyst for the bank run.

Also interesting, is the non reporting of their "Interest Sensitivity of Assets and Liabilities" in 2007, which was reported vividly in 2006--unless I missed it.

The Central Bank reports what the last two financials spoke clearly--the buying up of assets, with little or no share appreciation, with very little cash inflow. By the way, they have also been operating in the red on operating costs.

This is shades of RBS and its aggressiveness, from former chief Sir Goodwin, expanding without regard to global indicators of credit markets.

What CIB should have done to avoid the bank run, is re-capitalize from mid 2008, borrow money from private investors and government(after they talked to the finance ministry officials and the central bank), issue new shares in a PO, buy back old shares-- switch the investor base through this share buy back and issuance-- and sell, at a loss, some of those real estate investments at knock down prices to increase liquidity to their credit arm and in an attempt to pay new investors.

This would have stopped a bank run of this magnitude, especially since all of this, happened during a global financial crisis as well as preempted the consequential nationalization of the bank--which ended up in the revocation of CIB's license and them being handed over to another bank to be administered.

Preventative steps, as mentioned, would not have raised much alarm.

But, this is Monday morning quarterbacking. Hindsight, is always 20/20.
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