From the S&P statement, highlighting mine:

Barbados Foreign Currency Credit Rating Lowered To ‘BBB’ From ‘BBB+’; Outlook Stable

– The global economic crisis has pressured Barbados’ economic and fiscal performance and had a negative spillover effect on its sovereign debt trends.

– We are lowering our long-term foreign currency sovereign credit rating on Barbados to ‘BBB’ from ‘BBB+’.

– We expect the combination of prudent policymaking and strong, cohesive social policies will help Barbados through difficult economic times ahead, in line with its ‘BBB’ rated peers.

NEW YORK, June 10, 2009–Standard & Poor’s Ratings Services said today that it lowered its long-term foreign currency sovereign credit rating on Barbados to ‘BBB’ from ‘BBB+’. At the same time, we lowered our long-term local currency rating on Barbados to ‘BBB+’ from ‘A-’, and the foreign currency short-term rating to ‘A-3′ from ‘A-2′, while the local currency short-term rating was affirmed at ‘A-2′. Our transfer and convertibility assessment was revised downward to ‘BBB+’ from ‘A-’. The outlook is stable.

“As the global economic crisis spills over onto Barbados’ economic and fiscal future performance trends, the sovereign’s debt ratios, which already lag behind those of its ‘BBB+’ rated peers, will further diverge from the ‘BBB+’ median over the next few years, putting the country’s fundamentals and prospects more in line with ‘BBB’ rated sovereigns,” said Standard & Poor’s credit analyst Olga Kalinina.

We expect Barbados’ economy to contract by 2.5% in 2009, followed by a flat performance in 2010, before gradually recovering to a 2.5% growth in 2011. In the meantime, the government fiscal policy is countercyclical, resulting in the projected increase in debt levels to 86% of GDP (on a gross level) and 46% (on a net level) in 2009. Importantly, with lower revenues, servicing of the debt is becoming more expensive, as interest payments are expected to rise to 12% of revenues this year from 9% in 2007–the highest level among the rating peers.

The stable outlook reflects our expectation that the government’s limited policy choices, especially in light of the peg on the Barbadian dollar and the country’s already high debt levels, coupled with its commitment to address the debt situation, will result in the government tightening its fiscal accounts from 2010 onward. We believe this will lead to stabilization in the government’s debt levels. The strength of the country’s institutional and social arrangements, and its well-funded Social Security scheme (which provides significant fiscal deficit financing) afford Barbados the credit support and stability necessary for the current rating level.

On the external front, we will closely watch the trends in Barbados’ international reserve levels in order to identify any potential stress on its external liquidity position and currency peg. While the build-up in the government’s external sinking fund alleviates its short-term, external-debt servicing needs, the ratings could come under downward pressure if reserve losses were to come in higher than projected and strain the country’s already weak external liquidity ratios. Also of concern is the drop in the international reserves’ coverage of the monetary base to 83% in 2008 from 102% in 2007; this is expected to fall further to 74% in 2009.

“Our future ratings actions will take into account the magnitude of any deterioration in the country’s economic and fiscal metrics, including those related to the resolution of CLICO Holdings (Barbados) Ltd.’s issue, as well as the level of public support for the government’s necessary fiscal consolidation measures over the next year and beyond,” added Ms. Kalinina.

Here are the comments from Moody’s, any highlighting is my own:

New York, June 02, 2009 — Moody’s Investors Service has placed the A1 long term local currency deposit rating of First Citizens Bank Limited on review for possible downgrade in light of its global review of systemic support for bank ratings in the context of the current credit crisis. As a result, Moody’s also placed on review for possible downgrade the A1 ratings for the foreign currency debt of First Citizens Bank (St Lucia) that is guaranteed by First Citizens. The bank’s C- bank financial strength rating, Prime-1 short term local currency deposit rating, and Baa1/Prime-2 foreign currency deposit ratings are not affected by this review and have been affirmed.

Government-owned First Citizens is the only bank rated by Moody’s in Trinidad and Tobago and as such is the only bank affected by the reassessment of systemic support. At present the bank’s local currency deposit and foreign currency debt ratings incorporate three notches of systemic support. “The review of First Citizens’ debt and deposit ratings will consider the extent to which the government of Trinidad and Tobago’s ability to support its banking system, should such support be needed, is converging with the government’s own debt capacity as a result of the ongoing global economic and credit crisis,” says Jeanne Del Casino, a Moody’s Vice President and Senior Credit Officer.

The rating agency believes that most governments are at least as likely, if not more likely, to support their banking systems as they are to service their own debt — a view that has traditionally led to bank ratings often benefiting from significant uplift due to systemic support. However, as the financial crisis continues, the capacity of a country and its central bank to support the nation’s banks converges with, and is constrained by, the government’s own debt capacity.

Moody’s has previously used the local currency deposit ceiling (LCDC) as the main input for its assessment of the ability of a national government to support its banks. Although anchoring the probability of support at the LCDC is appropriate in many circumstances — regarding the provision of liquidity to a selected number of institutions over a short period of time — this might overestimate the capacity of a central bank to support financial institutions in the event that a banking crisis may become both truly systemic and protracted.

The rating agency will review the specific circumstances of Trinidad and Tobago to determine the appropriate systemic support for Trinidadian bank ratings. Moody’s will reassess the level of systemic support for First Citizens to determine to what extent the systemic support incorporated in its ratings should be more closely aligned to the government’s local currency bond rating of Baa1. This approach is outlined in Moody’s special comment “Financial Crisis More Closely Aligns Bank Credit Risk and Government Ratings in Non-Aaa Countries” available on www.moodys.com.

Factors that the rating agency will consider in its assessment of systemic support include (i) the size of the banking system in relation to government resources, (ii) the level of stress in the banking system, (iii) the foreign currency obligations of the banking system relative to the government’s own foreign exchange resources, and (iv) changes to the government’s political patterns and priorities.

Moody’s noted that the size of Trinidad and Tobago’s banking system is modest relative to the government’s resources. Credit stress in the banking system has been muted so far during the current financial crisis, though banking fundamentals are experiencing some pressure in light of the economic slowdown in Trinidad and Tobago. Government actions during past crises are indicative of the Trinidadian government’s high focus on financial system stability. During Trinidad’s financial crisis of the early 1990s, the government acted purposefully to contain the potential contagion effects of troubled institutions in the market. More recently, in February 2009, the government took control of three local financial institutions owned by CL Financial Limited, the country’s largest conglomerate, to help stem funding pressures at that company.

In affirming First Citizens’ C- bank financial strength rating Moody’s said that the bank continues to exhibit sound profitability, liquidity, and capital adequacy which position it well to cope with potential asset quality deterioration in the context of the economic downturn. Moody’s noted that the ratings review is unlikely to lead to more than a one notch change in First Citizens’ foreign currency debt and local currency deposit ratings. The rating agency expects to conclude the review over the next few weeks.

I am a stranger. I am estranged. I am a person without a country, without people, without kin.

I rely more often on the kindness of strangers than the loyalty of friends. I watch those I love and loved and lost create lives in which I play no part. I am apart.

This, I think, describes the primary challenge of a Caribbean expat (exile?), genus young, gifted and alone.

It is the very definition of an existential crisis.

The last time I went to Tobago, and upon checking in to Toucan Inn & Bonkers, I proffered a Trinidadian drivers’ license [accepted nowhere in Manhattan as a form of ID], a UK credit card and a US address.

My tax lawyers disagree as to my country of residence, a question I dither over every time I am confronted with the question on immigration forms.

Trying to renew my passport, I am stymied because I don’t know anyone here who fits the criteria for a “recommender” [sic]: has known me for three years, is not a close relative, is an “accomplished professional.”

Need to renew my US visa – easier to do that in the UK than in Trinidad, where I will be asked to demonstrate my “strong ties” to the country [the better to prove I am not a potential illegal immigrant]. Which I can’t prove I have – no Trinidadian bank account, no property in my name, job based overseas.

So it go.

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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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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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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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CMMB Assures Clients Their Investments are Safe

In light of the announcement today by the Central Bank regarding the CL Financial Group, CMMB wishes to reassure its clients that their investments with us are safe. CMMB continues to operate as an independent entity separately from Clico and Clico Investment Bank. We are the largest full service securities company in the Caribbean and have been in operation for over eight years. During this time CMMB has operated as a profitable company continuing to offer
safe and profitable investments to clients.

CMMB has met all commitments to our clients and will continue to do so. We will provide further details regarding the arrangement with First Citizens Bank butclients should be assured by the First Citizens’ proposed acquisition of CMMB.
First Citizens is wholly owned by the Government of Trinidad & Tobago and has the strongest rating of any financial institution in Trinidad & Tobago. Further assurance should be taken from the Governor of the Central Bank comments
that the objective of the Central Bank and the Government of Trinidad and Tobago is to ensure that all investors are protected.

For further information please contact:

Mr. Ram Ramesh – Managing Director & CEO, CMMB Limited
Tel: 623-7815 ext 2000 Email: ram.ramesh@mycmmb.com

Mr. Ramcharan Kalicharan – Chief Operating Officer, CMMB Limited
Tel: 623-7815 ext 2094 Email: ramcharan.kalicharan@mycmmb.com

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Some of you may know that CIB has been facing liquidity challenges over the past few weeks. These challenges came to a head in the last few days when the bank began to face an unusually high level of withdrawal requests which put a strain on their available liquid resources. Clico has also been facing liquidity problems, though nowhere near the levels of CIB. Of course, given the close integration of these two financial institutions within the CL Financial Group. It is just a matter of time before Clico also begin to come under severe liquidity pressures. The Inspector of Financial Institutions and the Governor of the Central Bank met with the Chairman and Chief Financial Officer of CL Financial on January 7 2009. In a second meeting on January 13, 2009, Clico’s Chairman formally raised the issue of possible financial assistance from the Central Bank.

There is no doubt that the increase in CIB withdrawals and the nervousness seen at Clico have something to do with the depositors’ concerns about the impact of the sharp decline in methanol and real estate prices on CL Financial’s overall financial situation. In the Bank’s view however, the current financial difficulties being faced by CIB and Clico have more to do with four things:

*Excessive related-party transactions which carry significant contagion risks. I should note that the high level of concentration is not specifically prohibited by the present legislation.

*An aggressive high interest rate resource mobilization strategy to finance an equally high risk investments, much of which are in illiquid assets (including real estate both in Trinidad and Tobago and abroad).

*A very high leveraging of the Group’s assets, which constrains the potential amount of cash that could be raised from the asset sales. In our regular monitoring of CIB and of Clico since 2004 (when insurance supervision was transferred from the Ministry of Finance), the Central bank has consistently focused on these deficiencies but have been stymied by the inevitable challenge of change and by inadequacies in the legislative framework which do not give the Bank the authority to demand these changes. The Central bank is very conscious of the contagion risks that financial difficulties in an institution as vast as the CL Financial Group could have on the entire financial system of Trinidad and Tobago and indeed in the entire Caribbean region. For the record, ladies and gentlemen, the CL Financial Group has an imposing presence with potentially systemic consequences for the financial sector and the economy of Trinidad and Tobago and the entire region. For example:

1 The Group controls over ($100) billion of assets in at least 28 companies located throughout the Region and the world.

2 The Group’s financial interests cover several industry sectors including banking and financial services, energy, real estate and manufacturing and distribution. The four largest financial institutions in the Group manage assets of over $38 billion, over 25 percent of the country’s GDP.

3 In addition to Clico, among the Group’s holdings is the British American Insurance Company Limited, which is one of the main insurance companies in the Eastern Caribbean.

After intense discussions over the past week the Central Bank, the Ministry of Finance and representatives of the CL Financial Group have reached agreement on a strategy to deal with the liquidity challenges of CIB and Clico and to address the underlying problems that have given rise to the current financial stress.

The principal objectives of the strategy are to ensure that resources are available to meet withdrawals of third-party CIB depositors and Clico policy holders; to protect the funds of the depositors and policy holders and in so doing maintain confidence in Clico and reinforce confidence in the financial sector as a whole. The main elements of the strategy are as follows:

*The Central Bank will take control of CIB under section 44D of the Central Bank Act.

*Early next week all the third-party assets and liabilities on the books of CIB and CMMB will be transferred to First Citizens Bank. These liabilities will be matched by resources from the sale of CIB’s holdings of certain high quality assets. The Central Bank will provide short term liquidity as needed to ensure that these liabilities are serviced.

*Following the execution of these transactions, CIB’s banking license will be revoked.

*Clico has a sizeable Statutory Fund deficit. CL Financial has agreed to divest additional assets to help fund this deficit. The Government has committed to provide any additional funding that is needed by Clico.

*Government funding will be provided in exchange for collateral and an equity interest in Clico. It will also act as a catalyst for implementing a change in the current business model and corporate governance structure of Clico. The intention will be to return Clico to its original moorings.

I would like to emphasize that these considerable steps being taken – by the CL Financial Group, the Government and the Central Bank are specifically designed to tell CIB’s depositors that your funds are safe and to maintain confidence in Clico which for decades has been the strength of the insurance sector in Trinidad and Tobago and in the region. Clico’s policy holders can also be assured that the long term future of Clico will be guaranteed by the adoption of a more robust and less risky model. Because any stress in one corner of the financial system tends to raise concerns throughout the sector.

I would also take the opportunity to remind the national community of the tremendous strength of our financial system, which indeed is the envy of the region. Excluding CIB, the banking system now boast of an average capital adequacy level of 18 per cent, compared with a recommended minimum of 8 per cent; in contrast to the illiquidity of CIB, the rest of the banking system is plagued by excess liquidity; the overall level of non-performing loans is an impressively low 2 per cent and the banks have more than adequate level of provisions against bad loans.

Let me support the point raised by Minister Tesheira on the need to accelerate some aspects of the new Insurance Act on which we have been working for some time in collaboration with industry stakeholders. We absolutely need updated insurance legislation to regulate the insurance industry in normal times as well as in times of financial stress.

The ‘fast track’ amendments to the 1980 Insurance Act that are being proposed will provide us with the authority to conduct on-site supervision; will give us the legal basis to share information with other regulators (I should note that CLICO and its affiliate British American have vast regional operations) and will allow the Central Bank to take prompt corrective action to protect depositors, if and when necessary. Before ending I would like to acknowledge the high level of cooperation that we have received from Mr. Duprey in our efforts to address what must be a very difficult period for the CL Financial Group.

I should also recognize the role of First Citizens Bank in doing its part to help stabilize the banking system. Resolving the problems of Clico will call for continued collaboration between CL Financial, Government and the Central Bank, but moreso on the collaboration of the entire financial community led by ATTIC and BATT. While it is currently a CL Financial problem, only the concerted and vigorous action of the entire financial sector would stave off financial contagion. This is not the time for companies to take advantage of CIB/Clico’s problems to expand their balance sheet; this is the time to let competition take a back seat and to support the Government and the Central Bank to keep Clico as a functioning entity and to ensure the continued stability of our financial system.

The actions that we will be taking over the next several weeks and months will only work if they have the support of the community of depositors and policyholders as well as the entire financial sector. We are confident that the proposed strategy will lead to a financial sector that is more resilient to deal with the adverse currents now buffeting the global economy.

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Friday 30th January, 2009

CL Chairman, Lawrence Duprey confirms that government will intervene in CLICO, British American and CLICO Investment Bank.

Mr Duprey says this is just pre-emptive action and he does not believe that it will be a crisis.

Central Bank governor says CLICO manages 38 billion in assets or a quarter of the country’s gross domestic product.

The Central Bank will immediately take control of CIB. CIB’s banking license will be revoked after sale of assets.

Central bank governor assures CIB depositors that their funds are safe.

Government to provide funding for CLICO insurance portfolio in return for equity in CLICO.

CLICO to be returned to its core insurance business.

Central Bank governor says this is not the time to take advantage of CLICO’s situation. Not a time for competition.

Minister of finance, Karen Nunez-Tesheira says international firm to be hired to restructure CLICO, CLICO Investment Bank and British American.

First Citizens CEO, Larry Howai says CIB customers should refrain from visiting First Citizens branches.

First Citizens CEO says there are regulatory and legal issues to be worked out before monies can be paid out.
—

If you’re on Twitter, @keith_in_tnt had the scoop from the press conference. (H/T @nplaughlin)

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To Mike, who commented on “This is not the time to not know what you’re talking about“, here is my belated response:

Mike – I stand by my assertion that Ms Marajh’s coverage of the RBC/RBTT deal was textbook, which is what irks you. You criticise it as “routine” – I invite you to show me a comparable piece of business coverage from any other reporter at a Caribbean publication. My intention was not to compare her work to that of the FT, the WSJ or the NY Times – and I have seen worse at all three of these papers – but to highlight her as an outlier amongst her peers.

Further, Ms Marajh did scoop the international media; the deal was small but significant for RBC from a strategic standpoint. Your criticisms of the story – e.g. “is RBTT bloated? Will there be
job cuts to generate cost savings?” are not unfair, but I would contend that they are usually addressed – even in the major papers – in secondary analysis pieces, or in the second take on the news. This is often because, especially in a deal that has not yet been made public, the details are not available and are secondary to the fact of the transaction.

Yes, the story would be considered routine at a major international daily; but the Express is not the FT. Given the dross typical of the content of our local newspapers, the coverage stood out.

You then criticize Curtis Rampersad’s Express story, which I characterised as having done a decent job of summarizing a complex topic. You contend: “I see no real understanding of the complexity of the situation facing financial markets. He mostly quotes local “experts” opining on the implications of the meltdown for local businesses. This isn’t journalism; it’s stenography.”

I riposte – there are very few journalists even at the WSJ and the FT who have a thorough grasp of this financial crisis. Indeed, there are but a handful of global policymakers who have not been proven to be out of their depth. And yet, despite Rampersad’s lack of expertise and his even further remove from expert sources than a journalist in the US or UK, he produced a decent story. And if he committed stenography, by your definition, then thousands of journalists across the world are doing the same every day.

Sometimes, you have to give credit where it is due.

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