Volume 48 - Tab C - XX Richard Trotman - CLICO

Inquiry into Clico Investment Bank (CIB) Presentation to the Commission of Enquiry September 2011

Reliance Restricted

1

Limiting conditions This presentation was prepared solely to assist the Commission of Enquiry into the failure of CL Financial Limited, Colonial Life Insurance Company (Trinidad) Limited, CLICO Investment Bank Limited, British American Insurance Company (Trinidad) Limited, Caribbean Money Market Brokers Limited and the Hindu Credit Union Co-Operative Society Limited (“COE”). The content of the presentation is derived from work performed by Ernst & Young Services Ltd (“EYSL”) for the Central Bank of Trinidad and Tobago (“CBTT”) in accordance with an engagement dated 11 March 2009 to perform an investigation into the affairs of CLICO Investment Bank Ltd (“CIB”) and its affiliated institutions for the purpose of preparing a Statement of Affairs. This presentation was prepared specifically to assist the COE in the fulfillment of its mandate, and should not be relied upon for any other purpose. Because others may seek to use this presentation for different purposes, it should not be quoted or referred to for any other purpose other than within the scope of the COE. EYSL assumes no responsibility or liability whatsoever to any party, individual and/or entity in respect of the content of its presentation. EYSL assumes no responsibility whatsoever in respect of, or arising out of, or in connection with the contents of this presentation to any party and/or individual and/or entity whatsoever. If anyone chooses to rely in any way on the content of this presentation, they do so entirely at their own risk. The preparation of this presentation was done as explained under the headings of “Scope of work” and “Limitations of scope” contained herein.

All figures represented herein are in Trinidad and Tobago dollars, except where stated otherwise.

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Abbreviations A/c

Accounts

Dec03 to Dec07

Financial years ending 31 December

JMMB

Jamaica Money Market Brokers

PMI

Premium Management International

Adj

Adjustment

2003 to 2008

Financial years (ending ) 31 December

k

Thousands

PWC

PricewaterhouseCoopers

AHL

Angostura Holdings Limited

EIB

European Investment Bank

LDM

Lascelles deMercado

RBL

Republic Bank Ltd

APUA

Antigua Public Utility Authority

EUR

Euro currency

LT

Long term

Ref

Reference

AVP

Assistant Vice President

EYSL

Ernst & Young Services Ltd

Ltd

Limited

Repo

Repurchase agreement

b or B

Billion

EY

Ernst & Young

Mgmt

Management

SoA

Statement of Affairs

BWIA

British West Indies Airways

GTM

GTM Insurance Company Ltd

MHTL

Methanol Holdings Trinidad Limited

ST

Short term

CBTT

Central Bank of Trinidad and Tobago

HMB

Home Mortgage Bank

m or M

Millions

TRAM

Trust and Asset Management services

CFO

Chief Financial Officer

HCL

Home Construction Ltd

MT

Medium term

TT

Trinidad and Tobago

CIB

CLICO Investment Bank

HR

Human Resource department

NIB

National Insurance Board

TTD or TT$

Trinidad and Tobago dollars

CLF

C L Financial Ltd

IBS

Islamic Banking Services

NO

Number

U.S.

United States

CLICO

Colonial Life Insurance Company (Trinidad) Ltd

IFRS

International Financial Reporting Standards

OCM

One Caribbean Media

USD or US$

United States dollars

CMMB

Caribbean Money Market Brokers

INC

Investment Note Certificate

OECS

Organisation of Eastern Caribbean States

COE

Commission of Enquiry

IPC

Investment Participation Certificate

QS

Quantity surveyor

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Table of contents Ernst & Young engagement

5

Introduction

7

Scope of work

8

Limitations to scope

9

EYSL Approach

10

Historical overview of CIB

12

Quality of financial records

16

Statement of Affairs at 31 January 2009

18

Reasons for insolvent state of CIB

20

Intercompany/related party balances

25

Investments

28

Loans and advances

34

Significant business transactions

41

Liabilities

48

Other balance sheet accounts

55

Appendices

57

Appendix 1 – Loans and advances details

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4

Ernst & Young Engagement

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Ernst & Young Services Limited ► Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which constitutes a separate legal entity. Ernst & Young Global Limited is a U.K. entity, limited by guarantee, that does not provide any services to clients. Services in this matter were provided by Ernst & Young Services Limited, an Ernst & Young member firm located in Trinidad. The Ernst & Young member firms in the Caribbean provide services including assurance, tax, business advisory and transaction advisory services.

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Introduction ►

EYSL was commissioned on 11 March 2009 by the Central Bank of Trinidad and Tobago (CBTT) to prepare a Statement of Affairs (SoA) for Clico Investment Bank (CIB) as at 31 January 2009.

►

CBTT assumed control of CIB in accordance with Section 44D of the CBTT Act. Thus the SoA was required by CBTT to: ►

Determine the quality of the assets of CIB

►

Determine the solvency position of CIB

►

Determine the value of “third party” assets and liabilities; third party being a person or entity not connected to CIB as defined below (and provided) by CBTT

►

Consider whether to place CIB into formal liquidation

For the purposes of this, a person or entity is considered connected to CIB and is not a ‘third party’ as defined below: i.

The entity is the parent, subsidiary or affiliate of CIB. A subsidiary and affiliate has the same definition as in Section 2 of the FIA 2008.

ii.

A current director or officer of CIB, CLICO, CMMB, BAICO and CLF. An officer has the same definition as in Section 2 of the FIA 2008.

iii.

The spouses of the directors and officers of the five (5) named entities in ii. A spouse also includes a cohabitant as defined in the Cohabitational Relationships Act.

iv.

Former directors and officers of the five (5) named entities in ii who have held such a position up to a 1 year prior to January 31, 2009 being the date that Section 44D action was taken on CIB.

v.

The spouses and cohabitants as defined in the Cohabitational Relationships Act of persons in iv.

Corporations that are under the control of persons in ii, iii, and iv.

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►

Colonial Life Insurance Company Limited

►

Caribbean Money Market Brokers

►

British American Insurance Company Limited

►

C.L. Financial Limited

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Scope of work ►

Broadly, our work involved the preparation of the SoA for CIB as at 31 January 2009.

►

By definition, a SoA presents a balance sheet showing immediate liquidation amounts rather than historical costs and is usually prepared when insolvency or bankruptcy is imminent.

►

A SoA: ► ► ►

Illustrates the assets and liabilities of a company Is similar in concept to the balance sheet of a company Reflects the estimated realisable value of the net assets as at a particular point in time

►

Our work focused primarily on balance sheet accounts, with limited review of CIB’s revenue and expenses.

►

Our review was based on: ► ► ► ► ►

►

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Management accounts provided by CIB as at 31 January 2009 The audited financial statements for the year ended 31 December 2007 The general ledger and supporting accounting system The physical files and supporting documentation that were made available Interviews with certain executives (past and present), management and staff of CIB, and CIB’s auditors PricewaterhouseCoopers (PWC) Information made available by CBTT

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Limitations to scope of work ►

Our scope of work did not cover the following: ►

Valuation opinions of the equity investments held by CIB

►

Real estate or other fixed asset valuations;

►

Physical verification of property and equipment

►

Legal verification of the securities pledged to loans and, in particular, whether such securities were perfected

►

Legal due diligence

►

Preparation of financial statements in accordance with IFRS

The work performed by us did not constitute an audit and there was no audit opinion expressed as a result of this engagement.

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EYSL approach ►

Challenges were encountered in obtaining information and explanations for business transactions and accounting entries as well as supporting documentation from CIB staff present during our exercise. EYSL also held discussions with certain CIB and other CLF Group Executives and Senior Management (past and present).

►

Our estimates of realisable values of assets and liabilities represented in the SoA were determined based on the following approaches: ►

Cash – Cash was based on the bank statements as at 31 January 2009 obtained from various financial institutions. These balances were adjusted for outstanding deposits; while outstanding cheques were classified under current liabilities given that CIB’s bank accounts were closed upon intervention.

►

Investments – Third party securities were valued based on external broker statements, discounted cash flows in the case of bonds, internal valuation estimates for unlisted equities and traded prices for listed equities.

►

Loans – Valuations of loans were based on a number of methods including value of work completed in the case of real estate projects under construction; discounted cash flows of remaining loan payments; and estimated net realisable values of securities.

►

Deposits – These were based on book values on the basis that the third party deposit accounts would be transferred to First Citizens Bank Limited at book value.

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EYSL approach ►

Investment Note Certificates (INC) – These were based on book value.

►

Other payables and debtors – Based on the documentation provided and the length of time outstanding, the recoverability of these debts was assessed. Payables were reflected at cost obtained from supporting documentation.

►

Intercompany assets – The intercompany assets were assessed based on the specific intercompany debtor and its ability to repay the receivable given the current financial information which was made available during the exercise. At the time of the completion of our work there was no evidence presented to us of a recovery plan for the CL Financial (CLF) Group. This was considered when assessing the recoverability of intercompany receivables and investments and was a main consideration in the approach taken to deal with these balances.

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Historical overview of CIB

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Balance Sheet Analysis – Pre CBTT Intervention ‘$ 000’ Assets Cash and balances with Central Bank Loans and advances Derivative financial instruments Investment securities Receivables

Ref 1 2

31 December 2005 31 December 2006

31 December 2007

223,095 1,269,607 38,730 4,132,294 423,786

423,521 1,362,030 9,226 9,261,098 654,688

969,967 1,677,460 7,383,664 2,373,562

Investment in associated undertakings

3,404,277

130,438

107,667

Investment in subsidiary undertakings Property and equipment Retirement benefit asset Taxation recoverable Deferred Taxation Total Assets

3,240 29,797 1,031 9,525,857

3,240 56,484 1,031 11,901,756

3,240 70,702 1,217 12,587,479

4,573,635 976,261 1,174,529 378,221

5,493,714 1,837,184 1,372,521 418,034

5,508,712 2,362,317 1,215,947 417,473

1,586,675 2,009 20,240 8,711,570

2,035,235 30,995 111,821 11,299,504

2,054,978 37,592 102,385 11,699,404

286,348 77,283 3,778 446,897 814,306 9,525,876

286,348 76,521 (34,414) (166,240) 440,037 602,252 11,901,756

627,325 88,840 (61,793) (317,210) 550,913 888,075 12,587,479

Liabilities Customer deposits and accrued interest Other fund raising instruments Other Borrowed funds Payables

3 4

5 5

Notes payable and Long Term debt Derivative financial instruments Deferred Tax Liabilities Total Liabilities Shareholders equity Share Capital Statutory reserve Other reserve Revaluation reserve Retained earnings Current Year Earnings Total Equity Total Equity and Liabilities

6

Source: Audited Financial Statements

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1. This balance includes CBTT

reserve deposits and short term deposits 2. Loans and advances increased

by 23% from 2006 to 2007 3. Investment securities decreased

significantly due to the transfer of JMMB shares to CLF and the sale of a number of investments 4. The biggest increase is in

Receivables which is represented by large intercompany balances with CLF. The major transaction was the transfer of 447m JMMB shares to CLF at a price of $1.85 per share for $828.5m in total. This was done via a declaration of trust. 5. Customer deposits increased by

less than 1% as the major funding source became” Other Fund Raising Instruments” which were INCs. 6. Share capital was increased via

CLF transferring the shares of companies to CIB via a declaration of trust

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Profit and Loss Analysis – Pre CBTT Intervention ‘$ 000’ Investment income Interest Dividends

Ref 1

Loan income - Interest Net gain/loss from financial instruments designated at fair value through profit and loss

Interest expense Net investment/interest income Other operating income Total Net Income Operating expenses Write back/write-off of provision Impairment losses on loans and advances Total Non-Interest Expenses Operating Profit Share of profits of associated undertakings Profit before taxation Taxation Profit attributable to shareholders Source: Audited Financial Statements

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2

2005

2006

2007

220,067 8,431 228,498 80,723

345,760 97,367 443,127 97,964

513,253 105,709 618,962 217,871

97,012 406,233

(56,119) 484,972

23,174 860,007

(359,466) 46,767 40,474 87,241

(442,683) 42,289 140,672 182,961

(659,747) 200,260 148,749 349,009

(96,012) -

(45,970) (50,000)

(100,350) 50,000

(6,000)

(1,000)

(139,371)

(102,012) (14,771) 239,695 224,924 52,360 277,284

(96,970) 85,991 13,426 99,417 13,172 112,589

(189,721) 159,288 4,608 163,896 (40,701) 123,195

Inquiry into Clico Investment Bank Reliance Restricted

1.

Included in 2007 interest income was the following: $123m related to a 15% interest charge on the $828.5m receivable from CLF to CIB for the transfer of JMMB shares B. A $61m reimbursable from CLF to CIB for losses on Belvedere shares. C. Without these two accruals, CIB would have incurred a loss of $25m. D. The total intercompany interest income was $268m which accounted for 52% of the total interest income A.

2.

During 2006 a provision of $50m was created, representing an un-agreed receivable balance. During 2007, pursuant to reconciliations and agreement of these balances, CIB wrote back this provision. (Source: notes to the audited financial statements )

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Cashflow analysis – Pre CBTT Intervention Ref

$ 000' Cash flows from operating activities Operating profit before taxation Adjustments for items not requiring an outlay of funds Cash flow from operating profit before changes in operating assets and liabilities Changes in operating assets Increase in term and statutory fund deposits Increase in loans and advances Increase in receivables Changes in operating liabilities Increase in customers' deposits Increase in other fund raising instruments (Decrease)/increase in payables

1

2

Net cash (used in)/ generated from operating activities Investing activities Purchase of property and equipment Proceeds on sale of property and equipment Purchase of investments Sale of investments Net cash inflow/(outflow) in investing activities Financing activities Net proceeds from notes payable and long-term debt Proceeds from other borrowed funds Repayments of other borrowed funds Net cash inflow/(outflow) in financing activities

3

2006

2007

85,991

159,288

61,372

83,231

147,363

242,519

(137,425) (93,423) (230,903) (461,751)

(2,460) (454,801) (890,374) (1,347,635)

920,079 860,923 39,812 1,820,814

14,998 525,133 (2,471) 537,660

1,506,426

(567,456)

(28,748)

(11,405)

314 (2,951,889) 890,346

315 (786,424) 2,045,787

(2,089,977)

1,248,273

448,560 417,967 (219,975)

19,743 1,330,611 (1,487,185)

646,552

(136,831)

1.

Receivables increased significantly with almost $600m disbursed by the Bank for transactions on behalf of CLF and related parties and for which no secured security was attained

2.

Funds were being raised mainly through the short term Investment Note Certificates (“INCs”) rather than through traditional fixed deposits

3.

The majority of funding raised for the year was through the sale of investments

Source: Audited financial statements

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Quality of financial records ►

The Accounting System at CIB consisted of two software applications that were not integrated ►

Bankmaster and the Bankmaster+ which maintained the back-office customer information

►

Sun System which maintained the general ledger system

►

As a result of this dual information system, transactions had to be posted in both systems. In order to do this, a number of intransit/clearing accounts were created. To ensure that these systems were always in sync, reconciliations of the contra accounts between the two systems were required. However this process was not done on a timely basis or done at all. Consequently, there were significant uncleared balances in many of the clearing accounts.

►

At the start of our exercise there was an intransit position of $413m which had to be investigated and cleared.

►

CBTT representatives commenced an exercise to address these clearing accounts; however, as at the end of our field work, this exercise was incomplete.

►

The management accounts presented for the exercise had a number of material misstatements, incorrect account mapping and a number of transactions that were not recorded.

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Quality of financial records ►

In addition to the limited senior accounting staff present at CIB during our field work, the following issues concerning the quality of financial records hampered our work: ►

Lack of supporting documentation for entries into the general ledger.

►

Bank reconciliations were not prepared for all bank accounts and for those that were presented the majority of them contained numerous un-posted general ledger entries and reconciling items that were material in some instances.

►

Many audit adjustments for the 31 December 2007 year end were either not posted to the general ledger or posted incorrectly.

►

There were a number of business transactions managed or directed by senior management who were not present at CIB during our engagement which meant that clarification was difficult and on occasion impossible; further, source documentation and payment supports were not always attached to the general ledger journal entries recording these transactions.

►

Source documents for accounting entries were maintained in multiple locations at CIB’s head office and, in some instances, relevant documents could not be located.

►

The management accounts provided were not prepared in accordance with IFRS.

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Statement of Affairs at 31 January 2009

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SoA at 31 January 2009 Currency: $TT Assets Cash and balances with Central Bank Loans and Advances (net of provision) Derivative financial instruments Investment securities Sundry debtors and prepayments Interest receivable Due from related companies Property and equipment (fixed assets) Taxation recoverable Retirement Benefit Asset Deferred taxation asset Total Assets

Management accounts 31 January 09

SoA 31 January 09

198,382,915 2,110,909,939 89,693,735 6,168,792,851 598,791,539 623,315,790 2,004,527,913 68,490,912 (716,784) 1,011,802 401,709,346 12,264,909,958

196,949,243 1,113,033,800 4,992,380,837 9,590,286 2,892,662 71,810,147 6,386,656,975

6,157,709,045 960,893,725 1,700,167,362 116,434,141 (287,579,570) 406,239,529 1,236,241,881 (10,261,159) 411,832,199 10,691,677,153 1,573,232,805

6,067,389,744 1,913,665,507 33,326,160 342,426,697 376,935,580 335,277,218 1,926,395,356 84,595,050 11,080,011,313 (4,693,354,337)

Liabilities Customer deposits Other fund raising instruments Funds under Management Short and medium term borrowings Interest payable Creditors and accruals Due to related companies Notes payable and long term debt Derivative liabilities Taxation payable Deferred taxation liability Total Liabilities Net Assets

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Reasons for insolvent state of CIB

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Reasons for insolvent state of CIB Our SoA at 31 January 2009, reflected an insolvent position for CIB. Based on our work, we concluded that the following factors contributed to CIB’s financial status: ►

►

Intercompany Transactions ►

In 2007, CIB’s largest increase in assets was receivables and intercompany balances. The increase in that year alone was $1.7b. The balance grew to over $2.5b by January 2009 and up to the time that we concluded our work none of these amounts were repaid, nor was any repayment plan proposed. These intercompany balances in most cases were built up as a result of acquisition transactions on behalf of CLF and the swapping of investment securities between CIB and its parent without cash considerations. The most significant contributor to CIB’s financial distress and to its eventual insolvency is the lack of recovery of these intercompany balances from CLF and other related parties. CLF’s Group CFO confirmed that CLF was not in a position to liquidate its intercompany Debts to CIB.

►

The financial status of the CLF Group post January 2009 raised serious concerns over the recovery of all intercompany/related party investments and intercompany balances.

Investment Portfolio ►

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Included in CIB’s Investment balance was $7.5b in related party investments. The single largest investment after the investment in Republic Bank Shares (valued at approx $2.7b) was an Investment Participation Certificate of $1.2b which was issued by Angostura to CIB for the Lascelles deMercado acquisition. This amount was later transferred to CLF. Again this amount was issued in 2007 and by 2009 there was no repayment. When this is included with the Intercompany receivables, the balance due to CIB from CLF increases to over $3.7b.

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Reasons for insolvent state of CIB ►

►

Distressed Loan Portfolio ►

The loan portfolio managed by CIB was high risk and of poor credit quality. There was a significant concentration of project financing/bridging loans extended to borrowers in volatile sectors (like tourism, commercial real estate development) and challenged economies like Jamaica, OECS and Guyana.

►

This concentration presented significant risks to CIB which further hampered CIB’s liquidity position. In fact, 40% of CIB’s top 20 loans were non-cash generating as at 31 January 2009. This excludes CIB’s other less significant third party and intercompany loans which were in arrears and thus also non-cash generating.

►

CIB’s loan management process was inadequate, given the size of its portfolio. An example of this was the loan recovery which was not actively performed by designated staff until 2008 when one officer was hired specifically to deal with recoveries. Hence a significant percentage of the portfolio was in arrears with little or no follow up by 2009.

CIB was used as a funding vehicle for the CLF Group ►

Specific investment decisions were made to fund investments within the CLF Group with CIB providing the sources of funding. At times, this created material liquidity challenges as well as exposure to material financial loss for CIB.

►

CIB’s role as a funding source for CLF Group acquisitions forced it to raise funds aggressively and at high costs and short duration, which was not supported by the returns on its two largest assets – i.e., the loans and investment portfolios.

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Reasons for insolvent state of CIB ►

►

CIB was used as a vehicle to swap assets and liabilities among the CLF Group ►

CIB was at the centre of a number of business transactions which were in effect ‘paper transactions’ which created assets such as the receivables for CIB or investment securities which were usually unsecured and not recoverable.

►

In other cases, group transactions were structured and assets transferred to satisfy CLICO’s statutory fund requirements. Moreover, CIB’s assets were used by the Group to guarantee third party funding which by 2009 was in default creating further devaluation of the Net Asset Position in CIB.

►

In fact when it was discovered that CIB’s capitalisation was not meeting regulatory requirements, additional cash was not injected into CIB by the parent, CLF but instead minority blocks of CLF subsidiaries (i.e. Home Construction Ltd (“HCL”) and One Caribbean Media (“OCM”)) were transferred to CIB as an equity injection in 2007.

Poor controls and financial reporting ►

The inaccuracy of CIB’s general ledger and financial reporting adversely affected its ability to obtain accurate accounts on a timely basis. This was evident by the late delivery of the audited financial statements.

►

The design of CIB’s information technology to require dual data entry without adequate controls, resulted in a general ledger system plagued with unreconciled clearing and intransit accounts. The lack of these reconciliations on a timely basis resulted in numerous accounting errors and material transactions remaining unrecorded.

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Reasons for insolvent state of CIB ►

Liquidity issues began before 2009 ►

Based on correspondence seen on the fixed deposit files, liquidity issues were occurring since 2007. There were a number of major depositors who communicated to CIB their frustrations with not being able to access their deposits upon maturity and therefore reinvestments were encouraged.

►

The fact that over 70% of CIB’s assets were in intercompany or related party investments or receivables affected liquidity because:

►

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►

Most of, if not all of the receivables and investments in commercial paper and investment note certificates were either not being serviced or repaid and, therefore, there was no cash inflow from these instruments.

►

Management could not have efficiently managed its investment portfolio to ensure that the portfolio mix matched the liquidity demands of the liabilities. Almost 50% of its investment portfolio was in RBL shares which were encumbered.

►

The liquidity challenges created a lack of funding for loan disbursements which further hampered the loan portfolio and the financing for the completion of projects.

►

The liquidity challenges created a lack of funding to repay maturing liabilities which then hampered its fundraising capabilities for new capital from third parties.

►

CIB’s survival was dependent on the financial state of its parent company, CLF.

The fund raising in the INC’s was also heavily concentrated with major investment two entities and, when they began to request their funds which were short term; there was limited liquidity available to CIB to meet this obligation.

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Intercompany/related party balances

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Intercompany/related balances As at Jan 2009 CLICO

Due From

Due To Net Receivable Amounts due from: 317,205,461 ►

641,096,786

323,891,325

CL Financial

1,060,968,928

84,294,830

976,674,098

Add Venture

-

(1,946,626)

1,946,626

268,746

0

268,746

326,895,096

-

326,895,096

Dalco Capital Management

25,298,358

-

25,298,358

Less: Allowance for Losses

(50,000,000)

Home Construction Limited Angostura

2,004,527,913

(50,000,000) 406,239,529

1,598,288,385

Source: Management Accounts

Amounts due to: ► The amount due to intercompany/related parties was $406m, of this $246m, represented management fees payable to CLICO for the RBL shares/fixed deposit arrangement. In addition, included under ► this balance was $43.4m in bonuses payable to the executive managers of CIB. When the amounts “Due To” are netted against “Due From” there was a net amount of $1.6b to CIB from CLF and ► related companies. This net amount was fully provided for in light of discussions held with CLF’s Group CFO and the current financial ► state of both CLF and CLICO post January 2009.

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The largest receivable balance was from CL Financial of $1.06b, the major portion of which was $828.5m in relation to the transfer of JMMB shares from CIB to CLF (via a Declaration of Trust) which was signed on December 31, 2007 and a corresponding $123.25m in interest at 15%. The letter confirming these amounts to CIB from the Group CFO was dated 5th December 2008. This represents 447,838,072 shares at $1.85 per share. In January 2008,these shares, together with JMMB shares owned by CLICO(but in CIB’s name) were used as partial collateral for a US$80m loan to CLF from RBL for the LDM purchase. The market value ascribed by RBL for 450,629,764 shares was $405m (TT$302.4m for the forced sale value). An amount of $641m was due from CLICO in relation to RBL shares held in trust by CIB from CLICO in exchange for CLICO fixed deposits. An amount of $326.9m was due from Angostura in relation to the Belvedere acquisition. We were informed that the amount of $25m from Dalco Capital Management represents funds used for the purchase of CL Marine. However, no supporting documentation was provided for this.

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Sundry debtors and prepayments Sundry debtors and prepayments – Net (per Management accounts) Total provision for losses Sundry debtors and prepayments - Gross Breakdown: Total intercompany/related party receivables Third party receivables Investment – Bond (reclassified under Investments in SoA) Total - Gross Adjusted balance (per SoA)

598,791,539 73,050,658 671,842,196

633,345,049 35,049,058 3,448,089 671,842,196 9,590,286

The adjusted balance of $9.59m was the only third party receivable that was supported by documentation . All other balances were aged more than one year as well as there was no specific supporting documentation provided. There was an Investment (i.e. Bond account) included under Sundry debtors and prepayments in the Management Accounts. This specific Investment account was reclassified under Investments. For the inter-company and related party transactions, there was little evidence presented to suggest that these amounts can be repaid. Consequently ,only the $9.59m was included which represented the outstanding award (from the Court of Appeal) in favour of CIB payable by a third party.

► The net receivables as per the CIB Management accounts was $598m. There were provisions in CIB’s management accounts of $73m which, when added back to this amount, resulted in a Gross position of $671m, of which $633m are intercompany or related party balances. The major intercompany/related party balances under Sundry debtors and prepayments were: ► The largest balance was $492.62m for the mark to market loss on JMMB shares. CL Financial “purchased” the shares from CIB in 2007 and guaranteed the price movement. Hence this represented a receivable from the CLF. Given the financial state of CLF and our discussions with the Group CFO, it appeared unlikely that CLF would have the financial capability to repay this balance and hence the full amount was provided for. This appeared to be a duplicate entry and was related to the $828.5m receivable from CLF. ► Listed as part of the intercompany/related party receivables balance was an amount recorded as “Other Income” totaling $131m listed as Intercompany transactions for which supporting documentation or explanations were not supplied by the AVP Accounting at CIB. Hence the total amount was also provided for. The amounts making up this total were recorded as journal entries in 2007 without support as to whom the receivables were from. No payments were received for these amounts up to the date of completion of our work in June 2009. ► Also included in the balance were a number of payments made on behalf of CLF and its subsidiaries.

Page 27

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Investments

Reliance Restricted

28

Investments CIB Target Portfolio as per Investment Guideline Sovereign debt

►

The investment portfolio as at 31 January 2009 was $7.3b as per CIB’s management accounts. Included in this balance was $6.25b (86%) in investments in subsidiaries and associates. With this heavy weighting in CLF Group investments by CIB, the generation of market returns and healthy cash flows in order to service CIB’s liabilities was challenged.

►

The CIB target portfolio was significantly different to the actual portfolio allocation.

►

The investment profile consisted of:

Corporate debt

Mortgage backed securities Equities Derivatives

Investment in associates

Money market

Other 10% 20%

5%

25% 20%

10%

5%

5%

CIB’s Actual Portfolio Allocation Sovereign debt

Corporate debt

Mortgage backed securities

Equities

Derivatives

Investment in associates

Money market

Other

1% 1% 7%

5%

17%

Page 29

► Money market funds – 25% (these included all commercial paper, CLICO repurchase agreements, CL Financial promissory notes and liquid funds in Unit Trust Corporation, Roytrin and Vining Sparks). ► (“Other”) Investment Participation Certificates (IPC) – 17% (these were short term unsecured investments which continued to roll over at maturity and all were related to related party investments). ► Corporate debt – 7% (these were bonds such as Home Mortgage Bank and three other foreign bonds). ► Equities – 5% (96% represented related party/affiliated shareholdings).

-1% 43% 25%

► Investments in associates and subsidiaries – 43% (as classified by CIB). This included RBL shares.

► Mortgage backed securities – 1% (these were U.S. Federal agency bonds). ► Sovereign debt – 1% (these included various bonds and notes from Antigua & Barbuda, Dominican Republic, St. Kitts and Nevis, Belize and Argentina).

Inquiry into Clico Investment Bank Reliance Restricted

29

Investments EY Revised Investment Balance

Third party

Related party

►

Commercial Paper assets – These comprised of an initial principal amount and subsequent rollovers with interest; $238m inclusive of interest in the name of CLICO, Trinidad Distillers Ltd, C L Financial Ltd (majority of total at 89%).

►

CLICO Repurchase agreements – $1.45b backed by RBL and OCM shares.

►

CL Financial Promissory note – $501m, this was part of a transaction where on the liability side of CIB’s Balance Sheet there is a corresponding long term note payable to CLICO.

►

Corporate bonds – $10.5m (in the name of HCL).

►

Equity – $753.6m: shares in the name of CL World Brands - $155m, HCL- $186m, Islamic Banking Services-$4.3m, MTS & Associates. There was a major upward movement in CIB’s equity holdings at the end of 2007, with the transfer via a declaration of trust from CL Financial Limited of 20.33m of CL World Brands shares and 12.9m of HCL shares. This movement was carried out to ensure that CIB would be compliant with statutory requirements and was treated as an equity injection.

Investment in associates 12% 29%

59%

►

When all categories of assets were broken down by related party or investment in associates only 12% of the entire portfolio was invested in strict third party investments. This therefore illustrates the concentration risk to the CLF Group.

►

The major related party/intercompany investments included: ►

Investment Participation Certificates – $1.26b inclusive of interest (in the name of RBL, Trinidad Distillers Ltd, Angostura Holdings Ltd (majority of total at 89%). The largest IPC is $1.01b which was issued for the purchase of LDM shares and was later transferred to CLF. No repayment was made on this amount nor was a plan presented by the CLF Group CFO to repay.

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Investments The adjustments made by EYSL comprised of:

CIB Investment portfolio

Ref 1

Sovereign Bonds

Bal as per general ledger system Adjusted balance 50,979,845 33,240,787

1.

Sovereign Bond adjustments were based on revaluation of the bonds to market value which was not reflected in CIB accounts. The largest other adjustment was the provision for APUA (Antigua Public Utility Authority) bonds which were in default and the Trustee could not advise on the possible recovery.

2

212,965,064

76,957,854

Structured notes

3

558,289,419

379,274,920

Corporate bonds

4

147,547,966

99,636,721

774,049,047

365,120,001

2.

232,259,145 501,304,000

-

Mortgage backed securities were disposed of in January 2009 but not recorded.

3.

1,443,026,908

1,036,433,500

Structured Notes, matured and were not recorded as well as revaluations as per the Broker statements.

9,509,868

5,281,741

4.

1,257,715,847

-

Corporate Bonds – revaluations were done, additionally some disposals were not recorded.

3,256,435,515

2,996,435,314

5.

(1,143,989,708) (1,131,300,066) 6,168,792,851

-

Commercial Paper Assets – The pie chart at left shows the related party balances held with CIB (excluding RBL shares). These amounts were in the Commercial Paper Assets, Investment Participation Certificate and Long Term Promissory Notes . None of the material entities within the CLF group provided any evidence of the ability to repay at the time of the completeness of our work.

6.

Repurchase agreement was with CLICO and revalued at the market value of the underlying assets .

7.

Investment Participating Certificates. These amounts are mainly US$162m from Angostura for LDM purchase. See details in Significant Business Transactions section.

Mortgage backed securities

Equity Commercial Paper assets

5

Long term Promissory note 6

Repurchase agreements Money market funds Investment Participation certificates

7

Investment in associates Other Clearing accounts

4,992,380,837

Source: Management accounts

2%

5%

4%

6%

0%

6%

Related Party Investments

45% 32% CL Financial Ltd Trinidad Distillers Ltd CMMB

Page 31

CLICO Home Construction Ltd RBL

Angostura Holdings Ltd CL World Brands Other

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31

Investments Allocation of the RBL shares pledged

► The investment in associates included:

Citibank 7%

18%

17%

54%

The major investment in associates was RBL ► Caribbean Money Market Brokers (CMMB) – 45% shareholding (valued at $194m)

4% European Investment bank RBTT

► RBL – 22% shareholding (valued at $2.7b, the largest single investment) ► CIB holds 35.8m shares in RBL, with 28.52m pledged as follows: ►

2.776m to HMB on behalf of CLICO and CL Financial Ltd loans. This therefore represented the pledging of CIB assets for a liability outside of CIB. When these liabilities were in default, these assets were a loss to CIB without a commensurate decrease in liabilities thereby decreasing the Net Asset Value of CIB

►

17.6m to RBTT Trust for a CIB issued bond (USD75m) as overdraft facilities for CIB and CL Financial Ltd

►

6.68m to Citibank

►

1.5m to the European Investment Bank as security for onlending by CIB

Home Mortgage bank

►

Page 32

CIB had three wholly owned subsidiaries which also held RBL shares: ►

Add. Venture Capital Fund Ltd – A value of $3.2m was being recorded with respect to this company. No supporting documentation was seen for this investment.

►

TT Investments Ltd holds a balance of about 1.9m RBL shares.

►

First Company Ltd holds a balance of just over 14m RBL shares.

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32

Investments Derivative financial instruments/Derivative liability ►

CIB entered into a cross currency, fixed-floating swap (USD and Japanese Yen). This was represented as a derivative asset of 89.7m in the CIB management accounts; however, the third party valuation as at January 2009 was a liability of $84.6m. This swap was out-of-the-money at 31 January 2009, resulting in the establishment of a liability of $84.6m and significant losses to CIB.

►

In general, there was a mismatch in the cash generating profile of CIB’s investment portfolio (frequency and quality) and investment allocation (most of investments were long term) versus the short term funding liabilities of CIB. This would have challenged CIB’s ability to generate positive operating cash flows.

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Loans and advances

Reliance Restricted

34

Loans and advances ►

Loan Portfolio Profile: CIB - TT$ Loan Profile - Total TT$499M 4%

15%

2%

0% 0% 2%

CIB - US$ Loan Profile - Total TT$1,277M 1% 2% 0% 2%3%

7% 7%

0% 76%

16%

8% 55% ADVANCES INSTALLMENTS MORTGAGES SETTLEMENT ACCOUNTS NON- PERFORMING LOANS

►

►

INCOME FLOW LEASES REVOLVING CREDIT CLEARING ACCOUNTS ALLOWANCE FOR LOSS

ADVANCES INSTALLMENTS REVOLVING CREDIT NON- PERFORMING LOANS

INCOME FLOW LEASES SETTLEMENT ACCOUNTS CLEARING ACCOUNTS

CIB’s Loan Portfolio was dominated by “Advances” which are typically short-term facilities(1-2 years) . However, these loans were actually bridging finance for real estate developments which in some instances were over 5 years. CIB’s US$ total loan value was more than double that of itsTT$ total loan value.

Page 35

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Loans and advances Loan Portfolio allocated by use of proceeds Real estate development

Business investment

Capital expansion

Business development

20%

40%

20%

CIB’s loan portfolio was dominated by a few large loans; 20 of the largest loans constituted 74% of the portfolio (i.e. $1.6b). CIB’s largest loan was a bridging finance facility extended for a mega mixed-use tourism development and was 21% of CIB’s total loan portfolio and over 50% of the capital base of the Bank. ►

CIB’s top 20 loans were concentrated in real estate developments in economies within the Caribbean. 65% of the top 20 loan balance represented regional clients.

►

40% of the top 20 loan balances related to financing of real estate developments (under construction) within the Caribbean. Many of these were tourism projects.

20%

Trinidad

Other caribbean

35%

65%

Geographic composition

Page 36

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36

Loans and advances CIB’s Break down of loan portfolio

Clearing accounts Third Party Related Party

These projects were delayed significantly and hence large amounts of interest were capitalised. Since they were deemed project financing, these loans were not categorised as non-performing even though projects were significantly delayed. No documentation was seen on file assessing the ongoing feasibility of the projects or the funding plan to completion.

►

Securities held on the top 20 loans (i.e. debentures over fixed and floating companies’ assets, real estate) were illiquid, making any short term liquidation recovery a challenge.

►

Recovery efforts were almost non-existent until 2008.

Non Performing Loans Intercompany

6% 9%

►

2%

11%

72%

Page 37

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37

Loans and advances Key Loan issues and exceptions ►

Control and checks over loan origination and administration were deficient.

►

There was evidence of loan proceeds being disbursed months before loan accounts were established on Bankmaster.

►

Significant increases in real estate project bridging financing without further equity injection from promoters.

►

Accrued interest of $12.78m was not applied to Stone Street Capital Limited until the loan was transferred to First Capital Limited.

►

A loan for $15m was advanced to a director of CL Communications Limited without a corresponding loan account being created.

►

HCL had nine short term facilities totaling $84m for which no loan accounts existed.

►

Loans totaling $65m were paid off before 31 January 2009 but were still included in the Management accounts as at that date.

►

Loan payments on staff loans were not applied since 2005.

►

Customer loan balances at 31 January 2009 were highly unreliable given the issues raised above.

►

Short term facilities were being rolled into long term facilities.

►

Project delays on bridging financing facilities increased the risk of default as well as deferred the cash inflow from interest income. The interest on most facilities was capitalised instead of paid.

►

Loan recoveries and security maintenance functions were inefficient.

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38

Loans and advances Key Loan issues and exceptions (cont’d) ►

There was evidence of incomplete security files.

►

CIB’s arrears listing did not reflect all past due loan accounts.

►

Customer loan statements were not prepared on a regular basis.

►

There were a number of loan accounts with credit balances as well as inactive loan accounts with old brought forward debit balances.

►

CIB’s loan arrears listing failed to provide a complete and accurate picture of non-performing loans.

►

Loan recovery efforts appeared ineffective; a dedicated Loans Recoveries Officer was only appointed in 2008.

►

There were a number of unsecured significant loans as well as loans with security that was not perfected.

►

In our analysis we reclassified $262m in interest receivable for loans into the loan balance and we assessed the recoverability and provision against the principal and interest. The majority of this balance was interest accruals in the incomplete real estate projects.

►

Bankmaster inaccuracy in interest calculation was the key reason for differences between customer and Bankmaster balances. A total of $34.7m was adjusted due to inaccuracies.

These issues increased the risk of misstatement of the book value represented by CIB on its loan portfolio.

Page 39

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39

Loans and advances Summary of adjustment to CIB’s Loan balance at 31 January 2009 Loans and advances - Management accounts Interest receivable - Management accounts Additional loan provisions Top 20 loans – Third party Top 20 loans – Intercompany Top 20 loans – Related party Other non-performing loans Total Provisions Other adjustments to Loans and advances Other adjustments to Interest receivable Total adjustments Statement of Affairs – Loans and advances and Interest receivable

2,110,909,939 262,245,610 (943,216,711) (161,961,366) (133,917,327) (266,745,911) 1,505,841,315 285,237,559 (39,517,993) (1,260,121,749) 1,113,033,800

►Given the lack of funding to finish the major real estate projects, the provisions made for these loans were based on an “As is “ value of the developments and estimated time to sell the project, as well as the value of the collateral and the quality of the security agreements.

Page 40

► CIB’s loan provision was $186.8m (approx 9% of total loans) ► Additionally, there was a group of loans totaling $47.6m which were classified as nonperforming and fully provided for. These loans had been inactive, some for periods of over ten years. ► However, our work in assessing the realisable values of CIB’s top 20 loans as well as a number of other large loans resulted in an adjustment to CIB’s loan provision of an additional $1.5b. ► Other adjustments to CIB’s loan balance were necessary to address various management reporting inaccuracies including – loan repayments, booking of capitalised interest, and unmatched clearing account differences. ► Total adjustments to CIB’s loan balance were approx $1.3b (50% of original balance at 31 January 2009) as a result of recording errors and additional provisions. Details on the significant loans are listed Appendix1.

Inquiry into Clico Investment Bank Reliance Restricted

40

Significant business transactions

Reliance Restricted

41

Significant business transactions RBL share sale ► In 1999, CLICO transferred 19.6m RBL shares to CIB in exchange for fixed deposits at CIB. A mutual arrangement was reached to equate interest payable on the fixed deposits to the capital depreciation or appreciation of the RBL shares plus any dividend income. In a year where there was a depreciation in the value of the RBL shares, CIB would have booked higher profits as the value of the fixed deposit liability would have been reduced; however in times of capital appreciation (as in 2008) the interest cost to CIB would have been significant. As at 31 January 2009, an interest payable amount of $145m was due to CLICO for that year, but previous amounts accumulated to over $300m. Additionally, a 2% management fee was charged by CIB to CLICO. The terms and conditions of this agreement placed significant volatility on the earnings of CIB. Any fees or expenses related to this transaction were recorded as payable or receivable in CIB’s financial statements; it does not appear that balances in recent years were settled with cash.

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42

Significant business transactions Belvedere ►

Belvedere was a publicly traded company on the Eurolist B market which in April 2006 acquired Marie Brizard & Roger International. Between July and August 2006, Angostura Holdings Limited (AHL) launched a public tender offer for Belvedere. AHL proceeded into a transaction to purchase share warrants and bonds of Belvedere S.A.

►

Belvedere S.A the company which was to be acquired, placed EUR25m as an INC with CIB through CMMB before the acquisition was conducted and these funds were also utilized as financing for the deal. Although the INC was established as EUR25m only EUR17m in cash was actually transferred to CIB with the remainder being directly wired to CL Financial Ltd. This INC remains as a payable in CIB’s books.

►

To record the outgoing funds from CIB for Angostura to make the investment, Investment Participation Certificates (IPCs) were issued to CIB by Angostura. Subsequently, some of these IPC’s were converted into Belvedere shares. A British private equity fund (Maple Leaf Fund) also provided funding of EUR28m which had to be repaid in a short time frame. Angostura defaulted on this loan which was due on 11 January 2007. CIB transferred funds of EUR10m on 15 January 2007 to partially repay this amount. The funding of this EUR10m (as alleged by Belvedere) came from Marie Brizzard & Roger International, a subsidiary of Belvedere which placed an INC with CIB for the same amount for a period of 6 months. This deposit was made just prior to CIB making the said related payment on Angostura’s behalf.

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Significant business transactions Belvedere (cont’d) Angostura Receivables ►

It was also alleged that Angostura was unable to repay its debt and hence used the funds of Belvedere to repay the financing. This EUR10m plus interest of EUR2.2m is listed as an IPC issued by Angostura (i.e. under Investments) in CIB’s records. Even though this IPC has matured, it was still outstanding at 31 January 2009.

►

Belvedere S.A commenced an action in France against Angostura Holdings Ltd, CL Financial Ltd, Angostura Limited, CL World Brands Ltd, Colonial Life Insurance Company Ltd and CLICO Investment Bank in relation to this transaction.

►

There was a shareholder disagreement between the shareholders of Belvedere and CL Financial early in the transaction and the shares, warrants and bonds were sold back to the shareholders of Belvedere at a profit. However, the funds received from the sale were not used to repay all debts outstanding to CIB. Consequently, there was still in excess of $486m outstanding from Angostura to CIB from this transaction. Included in this amount was a guarantee from CL Financial for the price at which the Belvedere shares were sold. This was calculated as $60.99m which was recorded as a receivable from CLF in 2007 and confirmed by letter dated 5th December 2008.

►

Based on discussions with CLF’s Group CFO, the collection of this receivable was unlikely, since at the time Angostura was in financial difficulty and strapped for cash. Further, the INC that was placed by Belvedere in CIB was still outstanding but reported as a payable in CIB’s accounts as the INC was formally requested to be broken and repaid since 2007.

Page 44

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Significant business transactions Lascelles deMercado ►

On 17 December 2007, Angostura Holdings Limited(“AHL”) in conjunction with CL Financial Limited launched a formal bid for the acquisition of the outstanding shares of Lascelles de Mercado of Jamaica. AHL offered a price of approximately USD9.25 per share which at that time was a significant premium over the traded price per share. At the completion of our work, this share was trading at around USD3.30 per share on the Jamaica Stock Exchange. Although approximately 87% was purchased for USD627m.

►

The entire transaction was purchased in two tranches. The first tranche was arranged through CIB with funds being attained from Angostura – USD43m, HMB – USD47.4m, CLF – USD80m, CIB – USD148.3m. The second tranche was through Citibank.

►

The USD148m raised by CIB was facilitated through a number of INCs invested by CLICO and a USD75m bond issued by CIB and arranged by Citibank. RBL shares were pledged for the Bond. Additionally, the CL Financial loan of USD80m was secured by:

►

►

450,629,764 JMMB shares valued at USD48m (which CLF transferred from CIB to CLF via a Declaration of Trust at TT$828.5m)

►

A CIB fixed deposit at RBL for USD10m

►

A guarantee from the HMB for USD22m secured by 1.9m RBL shares belonging to CIB

Based on correspondence reviewed and an agreement with Home Mortgage Bank (HMB), HMB was engaged to underwrite the entire transaction which was estimated to be approximately USD627m.

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Significant business transactions Currency: USD$ CIB funds transferred to: Angostura

Interest (from date of Investment disbursement Maturity amount to Aug 2008) amount 138,502,158 6,154,435 144,656,593

Home Mortgage Bank fees Mayberry Investment fees

4,352,401

149,055

4,501,456

2,260,432

63,868

2,324,300

Lone Star Capital

1,079,616

28,775

1,108,390

CIB fees

2,160,000

56,430

2,216,430

Lascelles de Mercado (cont’d) ►

The amounts raised plus fees for all parties was set up as an IPC from Angostura, which was essentially unsecured in the amount of USD162m($1.02b). Based on discussions with CLF’s Group CFO as well as Angostura’s Accountant, this amount had not been recognized in the financial records of Angostura and, as such, was transferred to CLF.

►

With the exception of USD47.3m contributed by HMB, funds were raised from within the CLF Group. HMB earned fees equivalent to 1.25% of the total amount of USD627m even though this amount was not raised by HMB.

154,807,169 Total accrued interest from August 2008 to Jan 2009 (180days) Total value of IPC Source: CIB Treasury dept Schedule

Page 46

7,353,341 162,160,510

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46

Significant business transactions Use of CIB to enhance statutory requirements of CLICO ► Repo transaction - CIB entered into a Repo transaction with CLICO where 9.7m and 2m RBL shares owned by CLICO were held in trust for CIB as security for loans to CLICO and in return CLICO was given fixed deposits in CIB. There was a 1.5% - 2% interest margin on the transaction in CIB’s favour. This instrument was short term in nature and was usually rolled over with capitalized interest hence there was no cash flow from the transaction. There was also a similar transaction which is backed by 1.3m One Caribbean Media (OCM) shares. The fixed deposits were held in the statutory fund of CLICO. The net effect of this transaction was a receivable from CLICO of $269m as the value of the repo liability was now more than the fixed deposits. The facilities which were backed by the 2m shares in RBL and 1.3m shares in OCM matured on 29 January 2009 and 26 January 2009 respectively, but were not repaid. ►

In 2002, CIB issued a bond for the purpose of CLICO being able to place the instrument in its statutory fund. The bond earned 6% which was paid by CLF and CIB held CLICO Promissory Notes. CIB earned a 5% management fee for the transaction which had been accumulating in receivables. There was approximately $100m owed to CIB in fees for this transaction. In order to complete this transaction an intermediary International Bank of Miami was used. This bank later came out of the transaction by exercising a put option which led to CIB holding the CLICO Promissory Notes which are recorded in Investments.

These arrangements above resulted in CIB being disadvantaged either from a cash flow or a return perspective.

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Liabilities

Reliance Restricted

48

Liability Summary Customer Deposits Balance per Mgmt A/c's (Jan 2009)

6,157,709,045

Reclassification

Adjusted SOA balances (Jan 2009)

960,893,725

-

653,069,986

Clearing accounts to be cleared Adjustments

Other Fund Raising Funds under Instruments Mgmt

ST & MT Borrowings

Interest payable

Notes payable & LT debt

1,700,167,363

116,434,141

1,236,241,881

(653,069,986) (501,304,006)

501,304,006

(203,366,674) 260,501,439

188,849,469

285,089,960 (90,319,301)

14,611,827

6,067,389,744

1,913,665,498

33,326,160 33,326,160

342,426,697

376,935,580

1,926,395,356

The management accounts had a number of accounting and classification errors that had to be reclassified or adjusted: ►

Customer Deposits –Included in the management accounts were a number of clearing accounts (with balances related to deposits that were not included in the Bankmaster deposit listing) foreign exchange adjustments and some deposits that should have been rolled over but were treated as matured. The balance used in the SoA was based on the customer deposit listing on Bankmaster, which was tested for accuracy and was cross checked with the exercise performed by CBTT for transfer to FCB.

►

Other Fund Raising Instruments- the management accounts had a number of account mapping errors with a number of clearing accounts and other accounts being included in the balance. Additionally, $653m was included in Short and Medium Term Borrowings that related to INC’s under 90days and hence was reclassified.

►

ST & MT Borrowings- The management accounts included INC balances as well as the long term debt with CLICO of $501m. In addition, an adjustment was made to reflect a $121m repayment in January 2009 of a margin balance that was still recorded as outstanding. After all the adjustments were made the balance outstanding is the margin account held with Deutsche Bank.

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Deposits

Related party deposit balance Third party deposit balance Total deposit portfolio

Total % of portfolio 4,402,907,608 72.6% 1,664,482,135 27.4% 6,067,389,744 100%

Source: Management Accounts & Bankmaster Status Listing as at 31 January 2009

Review of the fixed deposit system revealed the following: ► ► ► ►

Broken and matured deposits that were still recorded in the system Unrecorded deposits Deposits that were converted to INCs but were still listed as deposits Matured deposits that were to be rolled over remained in a clearing account and not reinstated

►

The deposit portfolio maturity was short term in nature with a large USD portfolio. Therefore the liabilities from a foreign exchange exposure were not matched to the currency exposure of the investment and loan portfolios. Whilst the loan portfolio was largely USD, there was very little cash inflow from it to provide USD in the event that repayment of liabilities were needed. Furthermore , CIB did not have a significant steady USD cash inflow. There was therefore a significant liquidity and foreign exchange exposure.

►

Average rate on deposits was 7.95% and the term was typically one to two years.

►

CLICO was the single largest related party depositor with $4.2b. This amount was included in CLICO’s statutory fund.

►

There were instances where CLICO’s funds were used to fund acquisitions by placing the funds in CIB fixed deposits which then funded the acquisition through CIB.

1-Year customer fixed deposit 2-Year customer fixed deposit Customers fixed deposit - over 5 years Total TTD deposits Customer deposit - 180 days 1-Year customer fixed deposit 2-Year customer fixed deposit US sure deposit - non registered - over 3 years

TTD TTD TTD

Deposit value (TT$) 1,197,794,443 1,404,831,068 252,000

USD USD USD USD

2,602,877,512 343,976 1,128,134,020 2,320,178,852 8,146,190

Total USD deposits 2-Year customer fixed deposit

Average Number interest rate of accounts (%) 2,579 7.98 2,773 8.22 4 11.94

1 367 671 1

8.50 6.66 7.00 8.50

0.0% 18.6% 38.2% 0.1%

1

5.00

0.1%

7.95

100.0%

3,456,803,038 EUR

7,709,194

Total deposit portfolio 6,067,389,744 6,397 Source: Management Accounts & Bank Master Status Listing as at 31 January 2009

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% of portfolio 19.7% 23.2% 0.0%

50

Other fund raising instruments – INC’s ► In addition to fixed deposits ,CIB engaged in offering an investment product called “Investment Note Certificates” (INC).

2,500,000 2,000,000 $'000

1,500,000 1,000,000 500,000 Dec03A

Dec04A

Dec05A

Dec06A

Dec07A

Year

Other Fund Raising Instruments

Pledged Inv estment Securities

Notes in Audited Financial Statements ‘$000’ Other Fund Raising Instruments (INCs) Pledged Investment Securities

Dec 03

Dec 04

518,433 715,508 976,261 404,000 688,000

Source: Audited Financial Statements

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Dec 05

47,000

Dec 06

Dec 07

1,837,184 2,362,317 37,000

124,900

► Based on the disclosure included on the INCs, this instrument was marketed as a secured investment to which securities were to be assigned to the investor. However, no evidence was provided of INC security assignments. The audited financial statements disclosed pledged securities in 2003; however, this was quickly reduced over time as illustrated in the graph at left. ► The total INC liability was $1.9b, 94.2% of which was USD denominated. Of this amount, 92% was held by two state controlled entities. Only 4.2% was held by related parties and in fact CLICO converted most of its INC’s into fixed deposits in 2008. ► Interest rates varied widely with one large investor earning a rate of 8.55% on a 90 day deposit of $3.5m. ► The interest rates offered on these instruments were very competitive - averaged 6.35% on TTD INCs and 5.33% on USD INCs.

Inquiry into Clico Investment Bank Reliance Restricted

51

Funds under Management 31 January 2009 Funds under Management Active pension plans BWIA GTM BWIA - Flight Attendants Terminated plans Agostini Insurance Brokers Pension Plan Amoco Pension Fund Plan Caribbean tyre co ltd pens. Plan Hydro Agri Pension Fund Trust of WITCO Factory Pension Fund Trust of WITCO Staff Pension Fund IBS Trustee/ paying agency

25,303,551 3,526,979 1,006,797 346,485 (1,751,003) 4,893,351 33,326,160

Pension Plans, Trusts, and Paying Agency This classification of “Funds under management” represented funds that CIB held in various bank accounts on behalf of the various funds that they managed. This does not represent the total amount of the various funds managed by CIB for these entities. This is related to CIB’s Trust and Asset Management (TRAM) services. There were three distinct products or services: ►Pension Fund Management ►Paying Agency Services ►Other admin services associated with wills, escrow, trusts and pension administration CIB also provided custodial, registry and trust services. Moreover, CIB also offered a product known as Islamic Banking Services (IBS) tailored to meet specific needs of the Islamic Community. The balances represented for Funds under Management were derived based on the financial accounts of the individual pension funds and IBS fund. These amounts also included cash balances obtained from the various bank accounts maintained for these funds by CIB. USD deposits accepted on behalf of these funds were deposited into CIB’s operating bank accounts, since there were no USD bank accounts established for these funds. Therefore, reconciliations were prepared by CIB in order to reflect this “co-mingling” of funds. Since these funds represented off-balance sheet transactions, there was no balance represented for CIB’s Funds under Management in its Management accounts. However, for the purpose of the SoA, it was recognized as a liability for CIB.

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Notes payable and Long term debt Notes payable and Long Term Debt Citibank fixed rate bond (US$ 75m) CIB Secured (7.5%) Tranche 1 Bonds 2005-2015 CIB Secured Tranche 2 Bonds 20052015 CIB Secured Tranche 3 Bonds 2005 – 2015 EIB Loan Long term Promissory Note SoA balance

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Adjusted Balance 328,980,750 156,657,500 537,500,000 313,315,000 88,638,100 501,304,006 1,926,395,356

This balance consisted of: Bonds totaling $1.3b as follows: ►

CIB issued over USD250m in long term debt through Citibank. USD175m was issued in 2005 and USD75m in 2007. The USD175m debt was issued in 2005 with a bullet due at maturity of 2015. The only bond holders of this instrument are NIB with USD25m, Citicorp Merchant Bank $537.5m (amount outstanding from USD100m) and CMMB for the remainder. The security for this liability was 5,763,000 RBL shares.

EIB loan relates to funding received from European Investment Bank for on-lending to CIB customers. Long term promissory note related to a USD80m unsecured bond issued by CIB. This bond was a 6% fixed rate bond with a tenor of 10 years, expiring 2012. CLICO bought 100% of this bond.

Inquiry into Clico Investment Bank Reliance Restricted

53

Creditors and accruals Amounts making up Creditors and accruals Belvedere Outstanding Cheques CBTT Accrual - included in Mgmt. Accounts Deposit Insurance Coverage Payables from activity subsequent to Jan 2009 Payables related to Loan balances Payables from Funds under Management Stale dated cheques SoA balance

Adjusted Balance 212,375,700 67,284,256 2,537,124 240,000 19,818,644 15,613,409 1,831,241 15,576,845 335,277,218

Adjusted Payables of $335.28m included the following: ►Payable to Belvedere of $212.38m, or EUR26.1m, being the EUR25m INC plus interest earned which was created as a result of the Belvedere transaction. ►Outstanding cheques of $67.28m aged six months and under per the bank reconciliations received from Management. ►Payables from activity subsequent to but related to prior January 2009, already included in management accounts $2.54m ►Deposit Insurance Coverage - $240k ►Payables from activity subsequent to January 2009, not recorded in management accounts - $19.82m ►Payables included in Funds under Management - $1.83m ►Payables from loan related balances - $15.61m ►Stale dated cheques - $15.58m

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54

Other balance sheet accounts

Reliance Restricted

55

Property and equipment (fixed assets) Adjusted Fixed Asset Balance - $71.81m ►

Land and Building - $58.53m ►

►

Furniture and Fixtures - $3.05m ►

►

This balance was adjusted to exclude $274k of Stone Street Capital furniture and fixtures per the Fixed Asset Register.

Motor Vehicles - $6.23m ►

►

We have maintained the value of Land and Building per the Management accounts, which incorporates the property valuation updates in March 2008.

The adjusted Motor Vehicle balance is based on the vehicles confirmed by HR and CBTT. The net book value of these vehicles as at January 2009 is $6.2 million compared to a balance of $3 million per the Management Accounts, resulting in an adjustment of $3.2m.

Office & Computer Equipment - $3.92m ►

This balance was adjusted for negative asset values in the fixed asset register which resulted from incorrect depreciation formulae.

Land & Buildings Furniture & Fixtures Motor Vehicles Leasehold Improvements Office & Computer Equipment

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Management accounts Jan09A 58,525,252 3,324,511 3,022,947 91,442 3,526,761 68,490,912

Inquiry into Clico Investment Bank Reliance Restricted

Adjustments (273,856) 3,203,039 390,052

SoA January 09 58,525,252 3,050,654 6,225,986 91,442 3,916,813 71,810,147

56

Appendices

Reliance Restricted

57

Appendix 1 – Loans and advances details

Reliance Restricted

58

Loans and advances

Review of top 10 major non-performing third party loans NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE

DRAWDOWN PAYMENTS RECEIVED ACCURED INTEREST CAPITALISED INTEREST TOTAL INTEREST EARNED CUSTOMER STATEMENT BALANCE BANKMASTER BALANCE DIFFERENCE ($) DIFFERENCE (%)

1 Advance/Bridging finance St Lucia Real estate development Tourism 82,000,000 4.5% or 3,800,000 USD 12.0% USD 73,371,464 (6,282,170) 894,059 19,432,548 20,326,607 87,415,901 70,860,776 16,555,125 23.4%

TTD 459,767,605 (39,365,962) 5,602,442 121,770,176 127,372,619 547,774,262 444,034,882 103,739,380 23.4%

LAST PAYMENT DATE 7/27/2007 LOAN STATUS: Project was put on hold. Facility not fully drawn. Interest continues to be capitalised. Further funding required to remobilise works on site. Source: CIB Loans Department

► Mega mixed-use tourism development in St Lucia ► 2004 – Initial loan approved for USD9m (90% of land acquisition) ► 2005 – Loan increased to USD17.6m ► 2006 – Loan increased to USD53m ► 2008 – CIB approached a major regional financial institution with an offer to participate in the loan; the institution rejected the offer on the basis of concerns that only USD3.8m was injected by the project’s promoters as equity as stated in a due diligence report performed by a ‘Big four’ accounting firm for the financial institution. This report indicated that:

► ► ► ►

► Soft costs incurred in the project (consultancy fees, marketing etc.) was 34% of total cost incurred to date. The report stated that the industry average was 16%; ► Professional fees payable to the shareholders by the borrower was treated as equity, this totaled USD3.8m. 2009 – Built value was estimated at USD38m by quantity surveyors; Reported market valuations differed significantly with “As Is” value in 2007 reported as USD75m, while market valuation reported in 2008 was USD255m; The only payment made to CIB was USD6.3m from some presales and deposits from purchasers of residential units (a component of the development); No additional equity injections were made by promoters;

► CIB sought to increase this facility to USD81m. It applied to CBTT in July 2008 for approval for the extension of credit facilities to this borrower. In August 2008, CBTT responded with a request for additional information in order to process the approval. Our understanding is that this approval was not obtained as at completion of our work.; ► Promoters could not find another equity partner and CIB was not in a position to extend further credit on this facility; ► Security – charge on floating assets of borrower; charge on shares of borrower; charge on land housing the project; shareholder guarantees.

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Loans and advances

Review of top 10 major non-performing third party loans NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE

1 Advance/Bridging finance Antigua Real estate development Commercial Real estate 23,000,000 Land contributed -value unknown USD 10.5%

DRAWDOWN PAYMENTS RECEIVED ACCURED INTEREST CAPITALISED INTEREST TOTAL INTEREST EARNED CUSTOMER STATEMENT BALANCE BANKMASTER BALANCE DIFFERENCE ($) DIFFERENCE (%)

USD 27,678,993 555,442 3,357,663 3,913,105 31,592,098 28,518,318 3,073,781 10.8%

TTD 173,444,875 3,480,566 21,040,124 24,520,690 197,965,566 178,704,333 19,261,233 10.8%

STATUS: Facility over-drawn. Project incomplete. Interest continues to be capitalised. Source: CIB Loans Department

► Mixed-use commercial/retail development in Antigua extended to a state owned entity. A design-construct-finance contract was awarded to a Trinidad based construction company. ► 2006 – Initial loan approved for USD23m . ► 2008 – Loan increased to USD28m. ► Project was projected to be completed in two years (i.e. 2008). ► Additional funding was required to finance cost overruns; there was no evidence that additional equity was extended to cover overruns. ► As at 21 January 2009, borrower had not signed off on term sheet for the additional USD5m; despite this, USD3m in drawdowns were extended out of the additional funding. ► At January 2009, total drawdowns stood at USD27.6m. ► Based on an independent third party Quantity surveyor’s report (QS report) dated January 2009, the value of works on this real estate project was USD21.3m, with approximately 32% attributed to soft costs. ► The January 2009 QS report noted the project was 79% completed and an additional USD11.3m was required to complete the project. ► No market valuations were seen. ► Security – first charge on fixed and floating assets of borrower; charge on shares of borrower; charge on leasehold land housing the project; revenue assignment on lease revenues.

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Loans and advances

Review of top 10 major non-performing third party loans

NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE

DRAWDOWN PAYMENTS RECEIVED ACCURED INTEREST PRIN AND INT ARREARS DEFAULT INTEREST TOTAL INTEREST EARNED CUSTOMER STATEMENT BALANCE BANKMASTER BALANCE DIFFERENCE ($) DIFFERENCE (%) TOTAL ARREARS

1 Advance Martinique Real estate development Tourism 19,900,000 7% or 1,592,000 USD 11.1% USD 15,915,694 400,374 3,540,666 392,941 4,333,982

TTD 99,732,511 2,508,866 22,186,876 2,462,289 27,158,031

20,249,676

126,890,542

15,523,117 4,726,559 30.4%

97,272,507 29,618,034 30.4%

► Hotel development in Martinique. ► 2006 – Initial loan approved for USD19.9m; equity injection of USD1.59m. ► This loan was extended for the purpose of acquiring 300,000 shares in an entity owning a hotel and other lands. ► The intent of the borrower was to liquidate this facility via a long term loan from another financier. ► There was no market valuation seen on file . ► There was little documentary evidence on file regarding the progress on this transaction, including recovery efforts. ► This loan was never serviced. ► Security – there was no evidence that security was maintained for this facility. There was an email from CIB’s Security Officer to CIB’s attorney requesting confirmation of security. However, the response from the attorney indicated that the security stated in the executed loan agreement was not maintained.

22,186,876

STATUS Facility never serviced. Security documents appear not to have been perfected. Source: CIB Loans Department

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Loans and advances

Review of top 10 major non-performing third party loans

NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE

1 Advance Jamaica Capital expansion Beverage 8,940,000 31% or 4,060,000 USD 11.8% USD 8,004,234 2,152,387 2,152,387

TTD 50,156,932 13,487,504 13,487,504

CUSTOMER STATEMENT BALANCE

10,156,621

63,644,437

BANKMASTER BALANCE DIFFERENCE ($) DIFFERENCE (%)

10,404,035 (247,413) (2.4%)

65,194,802 (1,550,366) (2.4%)

DRAWDOWN PAYMENTS RECEIVED CAPITALISED INTEREST TOTAL INTEREST EARNED

STATUS Loan has not appeared in Arrears Report. Interest continues to be capitalised on this facility. There was a moratorium on principal for one year only, according to the loan terms. Therefore this loan should be in arrears, since no payments were received.

► Bottling plant in Jamaica. ► 2006 – Initial loan approved for USD8.9m for start up of operations and purchase of major plant equipment . ► Loan represented 69% of total funding required of USD13m. ► The tenor on the facility was six years, with interest capitalized for one year and a one year moratorium on principal payments. ► Annual payments should have commenced in 2008 but no payments were made against the facility; however, the loan was not included in the arrears report ► Security – first charge over fixed and floating assets of borrower; three acre property owned by the borrower; chattel mortgage over equipment; guarantee from borrower’s parent company ► Unaudited financial statements at 31 December 2007 for borrower’s parent company was the most recent one seen on file. This showed a 2007 loss of USD146k and accumulated losses brought forward of USD2.5m; long term debt was USD29m and shareholders’ equity was USD2.3m (without reserves).

Source: CIB Loans Department

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Loans and advances

Review of top 10 major non-performing third party loans

NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE

DRAWDOWN PAYMENTS RECEIVED ACCURED INTEREST PRIN AND INT ARREARS DEFAULT INTEREST TOTAL INTEREST EARNED CUSTOMER STATEMENT BALANCE BANKMASTER BALANCE DIFFERENCE ($) DIFFERENCE (%)

1 Advance Grenada Real estate development Tourism 7,164,000 12% or 949,000 (Land contributed valued at 680k plus equity of 269k). USD 12.0% USD 6,968,322 300,625 2,731,989 899,204

TTD 43,665,597 1,883,807 17,119,461 5,634,685

3,931,818

24,637,953

10,900,140

68,303,550

10,386,406 513,735 4.9%

65,084,334 3,219,216 4.9%

TOTAL ARREARS 17,119,461 STATUS CIB’s effort to collect on this loan was blocked by a Court order. This loan was not being serviced. Source: CIB Loans Department

► Retail development (inclusive of a branded hotel) in Grenada. ► 2002 - bridging facility of USD5.5m extended for one year for Phase I of the development. ► Disbursements were made to the borrower up to April 2004. The land (treated as equity) was owned by the borrower, this was valued at USD 0.68m in 2002, an additional USD0.269m in personal funds was also invested by the borrower, into the project. ► 2003 – Construction started and the scheduled completion date was April 2004; delays extended the completion date to 2006. ► 2004 – CIB approved an additional USD800k to complete construction and the facility was increased to USD6.3m. ► Project was 85% completed prior to Hurricane Ivan (in September 2004). After Ivan, the facility was restructured into a USD7.2m facility to accommodate additional costs of USD850k, interest in arrears and some legal fees. This new facility had a tenor of one year. ► 2005 – According to a Credit Memorandum Summary dated January 2005, a shortfall of USD1.38m was expected from the new facility, since the project’s valuation at that time was below CIB’s standard 66 2/3 lending margin. However, the new facility was approved by CIB’s Credit Committee and signed by three Board members without any further owner equity injection. ► The last disbursement to the borrower was June 2006, according to the customer statement prepared by the Loans department. ► No payments were received on this facility; unaudited balance sheet for the borrower, at December 2006 indicated an accumulated deficit of USD 0.8m. Furthermore, management accounts for the first four months of 2007 (i.e. high season) showed a further loss of USD 0.56m . ► 2008 – the owner of the company/borrower was arrested for fraud. ► An open market valuation was done by Terra Caribbean in May 2008. The value indicated was USD 9.74m. ► A demand letter dated 31 July 2008, was issued by CIB to the borrower; the borrower disputed the amount. Legal action was commenced by the borrower to prevent CIB from appointing a Receiver. The Court ruled in favour of the borrower and CIB was enjoined and restrained from appointing a Receiver over the borrower. The Judge in the matter raised the concern that CIB never tried to recover the money outstanding. ► Security – first charge development; directors’ guarantees .

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Loans and advances

Review of top 10 major non-performing third party loans

NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE

3 Advances and a revolving loan Suriname Capital expansion Beverage 7,900,000 Unknown USD 11.8% - Advance and revolving loan

DRAWDOWN PAYMENTS RECEIVED PRIN AND INT ARREARS

USD 10,608,985 (3,836,540) 1,359,436

TTD 66,479,085 (24,040,909) 8,518,631

CAPITALISED INTEREST

4,064,679

25,470,496

DEFAULT INTEREST TOTAL INTEREST EARNED CUSTOMER STATEMENT BALANCE BANKMASTER BALANCE

133,477 5,557,592

836,410 34,825,537

12,330,037

77,263,713

8,343,782

52,284,640

DIFFERENCE ($)

3,986,256

24,979,073

DIFFERENCE (%)

47.8%

47.8%

LAST PAYMENT DATE 7/27/2005 TOTAL ARREARS 3,391,268 STATUS Loan has been in arrears for over two years. Customer has disputed outstanding balance. It appears that there were no active recovery efforts on this account over the years.

►

Beverage company in Suriname.

►

The following facilities were outstanding at January 2009 for this borrower: ►

In May 2003, a revolving credit was established for USD500k but increased to USD1m, around 2006, to cater for additional working capital demands. There was one payment evidenced in 2005.

►

In 2006 a refinanced facility was established for this borrower for USD6.9m. This represented a consolidation of loans extended for the construction and establishment of a bottling plant in Suriname. This amount was further increased to USD7.4m in June 2006. No payments were made against this loan.

►

According to a Recoveries Report prepared by the Recoveries Officer, dated 4 August 2008, attempts were made to contact this customer on outstanding arrears. According to the Report, the customer was noted to be in disagreement with the arrears position reported by CIB. A transaction history should have been sent to the customer for review. There was no subsequent response from the customer noted on file.

►

Security – First charge over property in Suriname; parent company guarantee.

►

The market value of property noted at 2006 was USD9.3m.

Source: CIB Loans Department

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Loans and advances

Review of top 10 major non-performing third party loans

NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE

DRAWDOWN PAYMENTS RECEIVED ACCURED INTEREST PRIN AND INT ARREARS CAPITALISED INTEREST DEFAULT INTEREST TOTAL INTEREST EARNED CUSTOMER STATEMENT BALANCE BANKMASTER BALANCE DIFFERENCE ($) DIFFERENCE (%) LAST PAYMENT DATE TOTAL ARREARS

2 Revolving loan Grenada Business development Banking 6,000,000 None USD 9% and 10.5% USD 6,012,639 (154,800) 167,894 2,186,750 482,675 2,837,319

TTD 37,676,998 (970,022) 1,052,074 13,702,830 3,024,585 17,779,489

8,695,157

54,486,465

7,782,979 912,179 11.7%

48,770,481 5,715,984 11.7%

►

Privately held commercial bank in Grenada.

►

2004 – CIB approved a revolving credit facility for USD5m to bank for the purpose of on-lending to small businesses in Grenada.

►

Another revolving credit facility was advanced for USD1m for on-lending and to meet the working capital needs of the bank.

►

2007 – Bank was experiencing higher than usual withdrawals of deposits and early termination of fixed deposits.

►

2008 – Bank was put into receivership

►

CIB applied a USD1.4m deposit held at CIB in favour of the borrower to settle outstanding facility.

►

Security – First charge over fixed and floating assets of bank.

1/16/2005 13,702,830

STATUS This customer is in receivership. The facilities were in arrears for over two years.

Source: CIB Loans Department

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Loans and advances

Review of top 10 major non-performing third party loans

NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE

DRAWDOWN PAYMENTS RECEIVED CAPITALISED INTEREST TOTAL INTEREST EARNED CUSTOMER STATEMENT BALANCE BANKMASTER BALANCE DIFFERENCE ($) DIFFERENCE (%)

1 Advance Trinidad Real estate development Tourism 5,500,000 0.15% or 8,000 USD 11.0% TTD 8,037,981 3,417,451 3,417,451

USD 50,368,399 21,414,773 21,414,773

11,455,432

71,783,172

7,535,023 3,920,409 52.0%

47,216,715 24,566,457 52.0%

STATUS CIB’s attorney was advised to initiate actions to call this facility.

► Villa development in Trinidad. ► 2004 – Initial loan of USD5.5m was granted for the purchase of land for a 40 villa development; moratorium of 12months was given. ► It was expected that the loan would be paid off in one year via the sale of villas . ► The value of works which was confirmed by third party in 2005 was $2,454,159 (VAT exclusive). By this time, however, only one villa was completed. ► In 2006, CIB offered an indicative term sheet for new financing - USD8.7m to refinance the existing facility. This was accepted by the borrower. There also appeared to be a further extension of credit agreed in February 2008 to USD10.8m. However there were no formal approvals for either increase seen on file. ► Project delays occurred throughout the process. In fact the borrower blamed CIB for these delays, due to allegedly slow remittance of drawdowns. Consequently, the relations between CIB and this borrower were strained. ► In 2006, contractors on site threaten to pull out because of lack of disbursements. ► In March 2007, the project was 95% completed when heavy rains destroyed roadworks. In June 2007 there was a premature demobilisation from site by subcontractors. The borrower requested a further TT6.2m (US$975K) for final funding in order to commence villa lot sales. ► CIB stopped further disbursements and the borrower was told that CIB would undertake a full independent evaluation of the project.

Source: CIB Loans Department

► In 2008 a letter sent by borrower to CIB, the former expressed that it was no longer interested in obtaining additional financing from CIB. A letter was sent from CIB requesting a firm proposal from the borrower for settlement of loan. ► In July 2008, CIB initiated collection proceedings; the borrower requested a meeting with CIB to mutually agree the way forward. There was no other correspondence indicating the outcome of this dispute. ► Security - First charge over fixed and floating assets of borrower; first charge over property; personal guarantees; assignment of sale proceeds of the lands and villas. According to legal correspondence dated January 2008 to CIB it appeared that there were two lis pendens recorded over some parcels.

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Loans and advances

Review of top 10 major non-performing third party loans

NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE

DRAWDOWN PAYMENTS RECEIVED CAPITALISED INTEREST TOTAL INTEREST EARNED CUSTOMER STATEMENT BALANCE BANKMASTER BALANCE DIFFERENCE ($) DIFFERENCE (%)

1 Advance Antigua Real estate development Tourism 5,660,800 21% (Land contributed-estimated value 1.5m) USD 11.0% USD 3,653,715 784,134 784,134

TTD 22,895,276

4,437,849

27,808,895

4,859,102 (421,253) (8.7%)

30,448,592 (2,639,696) (8.7%)

4,913,619 4,913,619

STATUS Project was put on hold. New designs and revised costing were requested from Developer.

Source: CIB Loans Department

► Hotel and villa resort development in Antigua. ► 2005 – Loan of USD3.5m was advanced (two year tenor with interest capitalised) to finance 70% of the development of Phase I. The cost of Phase I was USD4.94m; borrower equity was by way of the development’s land . ► Phase II of the project was expected to be financed via villa pre-sales; these pre-sales were also expected to liquidate the Phase I loan. Total cost of all phases was USD10.64m. ► In 2006 – According to a file note, the borrower had expressed dissatisfaction over the lack of funds and slow disbursements from CIB. However, correspondence on file, dated November 2006, stated that CIB funding was not used as agreed. The facility was exhausted without having any units available for sale. Villas sales therefore never materialized. ► The contractor halted works in September 2006. ► Request for an extension of the loan facility was approved by CIB in March 2007, in order to complete the model villa. The facility was increased to USD5.66m in April 2007 (for one year), in order to complete Phase I. ► The lead contractor was dismissed in November 2007. A new contractor was shortlisted and chosen to complete the model unit. The plan was to resume construction in January 2008 for completion of the model villa by July 2008. ► Based on a third party quantity surveyor’s report, dated March 2008, the gross value of works to date was USD1.87m versus the USD2.3m paid to the contractor between 2006 and 2007. Some correspondence on file suggested that there might have been some re-working of the original development plans with increased density (greater units) on the site. There was no evidence that approvals or final plans have been obtained for this re-worked plan. CIB did not approve the new designs. ► The facility was never serviced. ► Security – First charge over fixed and floating assets of the borrower; charge over property; assignment of sale proceeds of the lands and villas.

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Loans and advances

Review of top 10 major non-performing third party loans

NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE

DRAWDOWN PAYMENTS RECEIVED ACCURED INTEREST PRIN AND INT ARREARS DEFAULT INTEREST TOTAL INTEREST EARNED CUSTOMER STATEMENT BALANCE BANKMASTER BALANCE DIFFERENCE ($) DIFFERENCE (%) LAST PAYMENT DATE

3 Advance Cuba Business development Communications-Government 2,699,635 None USD 15% - Advances USD 2,669,635 (209,398) 1,770 2,339,765 1,285,783 3,627,318

TTD 16,728,733.80 (1,312,152.82) 11,091.35 14,661,671.86 8,057,102.40 22,729,866

6,087,555

38,146,447

4,528,088 1,559,468 34.4%

28,374,355 9,772,092 34.4%

►

Government ministry in Cuba.

►

2001 – Initial facility (bills of exchange) was granted to facilitate payables by a government agency in Cuba but drawn in favour of the borrower and endorsed to CIB.

►

The purpose of the facility was for infrastructure and services upgrades of the borrower and government agency.

►

CIB managed this Cuban facility through an agent who was responsible for collections of all bills of exchange issued against CIB’s Cuban loans.

►

The bills of exchange outstanding at January 2009 were as follows: ►

October 2001 – Advance of USD970k; tenor was two years. Interest was payable quarterly with principal repaid at maturity;

►

January 2003 – Advance of USD970k with a maturity at 30 April 2005. Interest was payable quarterly with principal repaid at maturity;

►

May 2003 – Advance of USD729k; tenor was three years. Interest was paid quarterly and principal paid in two equal tranches October 2005 and April 2006.

10/14/2003

►

The only payments received on these facilities were $1.3m (USD209.4k)

14,661,672 STATUS There has been no active recovery effort for this customer for some years. Loans appear to be unsecured.

►

There has been no active recovery efforts on these facilities for some years.

►

Security – These facilities appear to be unsecured.

TOTAL ARREARS

Source: CIB Loans Department

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Loans and advances

Review of top intercompany/related party loans NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE

DRAWDOWN PAYMENTS RECEIVED ACCURED INTEREST PRIN AND INT ARREARS CAPITALISED INTEREST DEFAULT INTEREST TOTAL INTEREST EARNED CUSTOMER STATEMENT BALANCE BANKMASTER BALANCE DIFFERENCE ($)

HOME CONSTRUCTION LIMITED 14 Advances, discount loans and bankers acceptances Trinidad Real estate development Real estate 138,824,937 Unknown TTD 9% - (6) BA's, 11%-(4) Advances, 14% (1) Advance, 11%- (2) Income flows TTD 148,649,655 1,447,694 22,859,907 4,780,564 2,802,226 31,890,391 189,846,706 173,576,110 16,270,596

DIFFERENCE (%)

9.4%

TOTAL ARREARS

22,859,907

STATUS Multiple facilities all in arrears. New facilities were being extended even though old ones were not being serviced. HCL balance represented does not include the loans transferred from Premium Management International (company owned by Michael Fifi).

Home Construction Limited (HCL) – $173.6m ►

There were 14 facilities extended to this borrower over the years. For the most part, funds were disbursed for financing of various real estate developments as well as for financing of shortfalls in working capital at various periods in time. There was also at least one occasion where short term funding was provided to HCL in order to meet interest payments on one of its bonds.

►

HCL was the highest intercompany borrower as at 31 January 2009. These facilities were not being serviced.

►

Some of HCL’s existing loans at 31 January 2009 included: ►

A $40m facility, the largest HCL facility, was used by HCL to acquire 3,490,030 shares in Agostini Limited, in 2006 (July 12th). This facility had a tenor of just one year.

►

A $3.5m advance issued in July 2003 to finance partial payment of land in Toco purchased from Michael Fifi. This facility matured in 2007.

►

A $16.5m advance issued in January 2005 to finance the construction of 21 townhouses in Orange Grove, Tacarigua. This facility matured in November 2007.

►

A USD1.68m advance issued in July 2005 to finance 63% of an equity investment payable by HCL to Digicel Trinidad and Tobago Limited. This facility matured in July 2007.

►

A $5.3m advance issued in 2004 to settle outstanding commitments owed to PMI/Michael Fifi with respect to receivables to him from HCL.

Source: CIB Loans Department

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Loans and advances

Review of top intercompany/related party loans NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE

DRAWDOWN PAYMENTS RECEIVED ACCURED INTEREST PRIN AND INT ARREARS CAPITALISED INTEREST DEFAULT INTEREST TOTAL INTEREST EARNED CUSTOMER STATEMENT BALANCE BANKMASTER BALANCE DIFFERENCE ($) DIFFERENCE (%)

HOME CONSTRUCTION LIMITED 14 Advances, discount loans and bankers acceptances Trinidad Real estate development Real estate 138,824,937 Unknown TTD 9% - (6) BA's, 11%-(4) Advances, 14% - (1) Advance, 11%- (2) Income flows TTD 148,649,655 1,447,694 22,859,907 4,780,564 2,802,226 31,890,391 189,846,706 173,576,110 16,270,596 9.4%

Home Construction Limited (HCL) – $173.6m (cont’d) ►

Additionally, at 31 January 2009, HCL was indebted to CIB by way of six bankers acceptances. These short term facilities were reinstated at maturity, many times over. These facilities were unsecured. The bankers acceptances were issued to meet working capital needs. These totaled $36.4m at 31 January 2009. There were also three other facilities (one advance and two bills discounted) which expired between 2007 and 2008.

►

Loan Security included: ►

In the case of the $40m loan, the assignment of Agostini Limited shares was obtained. A copy of the Trinidad and Tobago Central Depository Limited’s pledge registration form dated January 2007 for 3,490,030 shares was seen on file.

►

There were also some promissory notes in the security as well as loan files for this borrower.

►

There was an assignment of receivables in favour of CIB on the sale proceeds of one of HCL’s housing development. The facility associated with this assignment matured in 2007 and the sale proceeds were not sent to CIB as assigned.

TOTAL ARREARS 22,859,907 STATUS Multiple facilities all in arrears. New facilities were being extended even though old ones were not being serviced. HCL balance represented does not include the loans transferred from Premium Management International (company owned by Michael Fifi). Source: CIB Loans Department

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Loans and advances

Review of top intercompany/related party loans STONE STREET CAPITAL LIMITED NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE

DRAWDOWN PAYMENTS RECEIVED ACCURED INTEREST PRIN AND INT ARREARS DEFAULT INTEREST TOTAL INTEREST EARNED CUSTOMER STATEMENT BALANCE BANKMASTER BALANCE DIFFERENCE ($) DIFFERENCE (%) TOTAL ARREARS

1 Advance Trinidad Business investment Financial 31,640,032 Unknown TTD 12.0% TTD 31,640,032 362,767 949,703 791 1,313,261 32,953,294 31,645,032 1,308,261 4.1%

Stone Street Capital Limited – $31.6m ►

This company is owned by Andre Monteil.

►

This loan facility was extended to the borrower for the purpose of acquiring 5,708,893 shares in Flavorite Foods Limited from various parties: CLICO, CL Financial Limited, Viveka Holdings Limited and Investor Holdings Limited.

►

The loan amount approved in 2006 for a $28.8m advance for a period of three years at 10.5% interest with monthly interest due. This original loan was disbursed as: (1) cheque in favour of CLICO for $7.57m and (2) fixed deposit at CIB in favour of CLICO. At the time of approval the market value of Flavorite Foods Limited was $5.05/share (i.e. total value of $28.8m). Based on a customer statement prepared for this advance, three payments totaling $5m were received. These payments represented dividends from Flavorite Foods Limited.

1,552,339

STATUS This facility is not being serviced. Facility was refinanced in 2008. Prior to that it also wasn’t being serviced.

Source: CIB Loans Department

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Loans and advances

Review of top intercompany/related party loans STONE STREET CAPITAL LIMITED NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE

DRAWDOWN PAYMENTS RECEIVED ACCURED INTEREST PRIN AND INT ARREARS DEFAULT INTEREST TOTAL INTEREST EARNED CUSTOMER STATEMENT BALANCE BANKMASTER BALANCE DIFFERENCE ($) DIFFERENCE (%) TOTAL ARREARS

1 Advance Trinidad Business investment Financial 31,640,032 Unknown TTD 12.0%

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►

Loan Security included: ►

Promissory note signed by Stone Street Capital Limited in September 2008.

►

Assignment of 5,708,893 Flavorite shares. There was a document on file titled “Declaration of Trust” dated March 2006. This document stated that the vendors of the Flavorite shares have sold 5,708,893 shares to Stone Street Capital. The document further stated that since all shares were in fact pledged elsewhere, vendors could not transfer shares to CIB at the date of sale. Additionally, in consideration of the payment of shares, the document stated that the vendors had declared themselves Trustee of the assigned shares. The share certificates on file from vendors only totaled 3,885,155. There were Flavorite share certificates in favour of Stone Street Capital Limited totaling 480,518 seen on file.

►

There was a Trinidad and Tobago Depository Limited pledge registration form in favour of CIB for 5,708,893 shares on file. This pledge form was dated October 2008. The market value of these shares at 10 June 2009 was $5.30/share, this equates to a market value of $30.3m.

TTD 31,640,032 362,767 949,703 791 1,313,261 32,953,294 31,645,032 1,308,261 4.1% 1,552,339

STATUS This facility is not being serviced. Facility was refinanced in 2008. Prior to that it also wasn’t being serviced. Source: CIB Loans Department

Stone Street Capital Limited – $31.6m (cont’d)

►

The facility was refinanced in September 2008 to $31.6m (the original loan amount plus capitalised interest). The new loan was set up as an installment loan at a 12% interest rate with 32 quarterly installments commencing in December 2008. Based on a review of Bankmaster, no repayments were noted against this loan, since being refinanced.

Inquiry into Clico Investment Bank Reliance Restricted

72

Loans and advances

Review of top intercompany/related party loans FIRST CAPITAL LIMITED NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE DRAWDOWN PAYMENTS RECEIVED ACCURED INTEREST PRIN AND INT ARREARS DEFAULT INTEREST TOTAL INTEREST EARNED CUSTOMER STATEMENT BALANCE BANKMASTER BALANCE DIFFERENCE ($) DIFFERENCE (%) LAST PAYMENT DATE TOTAL ARREARS

1 Advance Trinidad Business investment Financial 78,000,000 Unknown TTD 10.5% TTD 78,000,000 (1,011,807) 3,913,000 13,221,961 939,390 18,074,351 95,062,544 89,777,904 5,284,640 5.9% 1/20/2009 13,221,961

STATUS Loan transferred from Stone Street Capital Limited. First Capital Limited (both owned by Andre Monteil) was sold to Dalco Capital Management Limited (owned by Lawrence Duprey). Source: CIB Loans Department

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First Capital Limited – $98.7m ►

In 2007 $78m was advanced to Stone Street Capital Limited for the purpose of financing 70% to 80% of the cost of 7,000,000 shares in Home Mortgage Bank (HMB) from CLICO. An advance was extended for five years from the first drawdown with interest payable semi-annually at 10.5% and a single bullet payment at maturity.

►

Copy of the cheque dated February 2007 for $78m payable to CLICO, was seen on file. However, the loan facility was only set up in Bankmaster in December 2007.

►

There was a deed of charge between CIB and Stone Street Capital Limited dated December 2007 for $21m fixed deposit (certificate #033427, set to mature on 29 December 2008) as well as an executed deposit pledge dated February 2007 for this deposit. There was also a charge of shares agreement dated December 2007 from Stone Street Capital Limited in favour of CIB for the 7,000,000 shares in HMB. These represented the security held against this initial advance.

►

In 2008, however, this facility was transferred to First Capital Limited, a wholly owned subsidiary of Stone Street Capital. First Capital Limited is registered in St Lucia. An Amended and Restated loan agreement dated July 2008 among Stone Street Capital Limited, First Capital Limited and CIB was executed. The amount stated as the loan amount in this new agreement was $78m. However, the interest payments under Stone Street Capital Limited were not serviced. In fact, at the time of transfer, there was a brought forward interest in arrears of $12.8m. This amount was not included in the new loan agreement; however, this interest in arrears was transferred to First Capital Limited’s loan account in Bankmaster. This amount was treated as capitalised interest (i.e. added to the $78m transferred balance).

Inquiry into Clico Investment Bank Reliance Restricted

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Loans and advances

Review of top intercompany/related party loans FIRST CAPITAL LIMITED NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE DRAWDOWN PAYMENTS RECEIVED ACCURED INTEREST PRIN AND INT ARREARS DEFAULT INTEREST TOTAL INTEREST EARNED CUSTOMER STATEMENT BALANCE BANKMASTER BALANCE DIFFERENCE ($) DIFFERENCE (%) LAST PAYMENT DATE TOTAL ARREARS

1 Advance Trinidad Business investment Financial 78,000,000 Unknown TTD 10.5% TTD 78,000,000 (1,011,807) 3,913,000 13,221,961 939,390 18,074,351 95,062,544 89,777,904 5,284,640 5.9%

First Capital Limited – $98.7m (cont’d) ►

When this loan was transferred, there were deeds of discharge executed to release both securities: $21m fixed deposit and HMB shares in order to facilitate the amended loan agreement. These deeds were dated July 2008. These securities were never reinstated in favour of CIB as security for the transferred loan balance. In fact, the HMB shares were subsequently sold without the proceeds being used to liquidate this facility. Instead, a charge was created in July 2008, by First Capital Limited for 337,269 shares in CL Financial Limited in favour of CIB, in order to secure this facility. There was no valuation seen for the CLF shares.

►

There was a lump sum payment of $1m made against this loan by First Capital Limited in January 2009. This represented a dividend payment received from C L Financial Limited. This payment was posted against the interest in arrears account. No other payments were recorded.

►

In July 2008, the ordinary share in First Capital Limited was transferred for USD1.00 to Dalco Capital Management Limited. Dalco Capital Management Limited is owned by Lawrence Duprey.

►

Loan security included only 337,269 shares in CL Financial Limited. The facility, therefore, which was secured by a $21m CIB fixed deposit and HMB shares now had a collateral of little or no value given the financial state of CLF.

1/20/2009 13,221,961

STATUS Loan transferred from Stone Street Capital Limited. First Capital Limited (both owned by Andre Monteil) was sold to Dalco Capital Management Limited (owned by Lawrence Duprey). Source: CIB Loans Department

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Loans and advances

Review of top intercompany/related party loans LAWRENCE DUPREY NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE

DRAWDOWN PAYMENTS RECEIVED PRIN AND INT ARREARS DEFAULT INTEREST TOTAL INTEREST EARNED CUSTOMER STATEMENT BALANCE BANKMASTER BALANCE DIFFERENCE ($) DIFFERENCE (%) TOTAL ARREARS

4 Advance Trinidad Business investment Financial 64,932,050 Unknown TTD 9.9%- (4) Advances TTD 64,932,050 2,318,186 Not applied 2,318,186 67,250,236 64,932,050 2,318,186 3.6%

Lawrence Duprey – $64.9m ►

This customer has a total of four active loans, as at 31 January 2009. Three of the four loans are TTD loans all advanced for the purpose of financing the borrower’s personal investments. There was no information on file detailing the nature of these investments. These loans were extended as advances for a period of one year at an interest rate of 9.9%, with a single bullet payment of principal at maturity and monthly interest payments.

►

The TTD loans included: ► ► ► ►

►

Loan security included: ►

Assignment of dividends and bonus payments due from CLICO for 2008. Letter from CL Financial on file confirming that proposed dividends and bonus payments to the borrower would meet debt repayment commitments. There was no independent assessment completed to determine whether proposed dividends and bonus payments were likely to be realised.

►

Promissory notes signed by borrower.

2,318,186

STATUS Facilities are not being serviced.

Source: CIB Loans Department

►

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Loan 1 - $16m approved in September 2008 Loan 2 - $12m approved in November 2008 Loan 3 - $15m also approved in November 2008 A USD loan was extended in August 2008 for USD3.5m. One of the purposes of this loan was to liquidate a TTD advance for $10m disbursed in 2008.

All facilities of this borrower were repaid subsequent to our reporting date.

Inquiry into Clico Investment Bank Reliance Restricted

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Loans and advances

Review of top intercompany/related party loans PREMIUM MGMT INT'L LTD NO. OF FACILITIES TYPE OF FACILITY LOCATION PURPOSE INDUSTRY CREDIT AMOUNT EQUITY CONTRIBUTION LOAN CURRENCY INTEREST RATE

DRAWDOWN PAYMENTS RECEIVED ACCURED INTEREST PRIN AND INT ARREARS DEFAULT INTEREST TOTAL INTEREST EARNED CUSTOMER STATEMENT BALANCE BANKMASTER BALANCE DIFFERENCE ($) DIFFERENCE (%) LAST PAYMENT DATE TOTAL ARREARS

3 (all PMI) Advance Trinidad Business investment Real estate/Property management 33,654,399 Unknown TTD 11%- (2) Advances, 10%-(1) Advance TTD 47,865,042 (19,215,160) 108,794 8,858,636 1,237,471 10,204,901 38,854,783 25,965,886 12,888,897 49.6% 10/11/2007 8,858,636

Premium Management International Limited (PMI) and Michael Fifi – 25.9m ►

Company was owned by Michael Fifi.

►

The total loan balance consisted of facilities previously extended under Michael Fifi, which were transferred in 2006 as well as advances made to PMI.

►

Facilities were advanced for various reasons including purchase of properties, and vehicles as well as other business investments.

►

Servicing of these loans was not made in accordance with the stipulated repayment schedules and the loans built up arrears.

►

In 2008, all loans under PMI were transferred to HCL. However, there was no evidence found on file to confirm HCL’s acceptance to assume PMI’s loans. Further, the transferred facility was done without any transfer or assignment of security and is now an unsecured loan of HCL.

►

It appears that this transfer was a directive from senior executives and not independently assessed. CIB’s facilities were fairly secured prior to this transfer to HCL. However, CIB is now in an unsecured position.

STATUS These facilities have been transferred to HCL. The security has apparently not been transferred.

Source: CIB Loans Department

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