Caledonian: Shortfalls to creditors outlined

The former directors of Caledonian Bank estimate only 40 percent to 70 percent of most of the bank’s loans will be recovered.  

While one single $93 million loan, which makes up more than half of Caledonian’s outstanding loans, is fully cash collateralized, the directors believe that for the remaining 63 loans, only 40 cents to 70 cents on the dollar are recoverable. Fixed assets, including Caledonian House in George Town, were valued by the directors at $10 million – $3 million less than their book value.  

The statement of affairs, which sets out the directors’ view of the company’s assets and liabilities at the day of the liquidation, was presented by the bank’s liquidators at the first meeting of creditors at the Marriott resort on Thursday.  

“Overall, based on the statement of affairs, there will be a shortfall to creditors of $27 million before any costs of the liquidation are included,” said liquidator Claire Loebell. 

Because they had received the report only a day earlier, neither Ms. Loebell nor her co-liquidator Keiran Hutchison commented on whether they believed that the directors’ estimates were accurate. 

Most of the bespoke loans are related to real estate developments in a number of jurisdictions, but it is not a typical bank’s mortgage book, Mr. Hutchison said. “We are working through that in order to ascertain how best to deal with it.”  

Caledonian Bank has cash or cash equivalent assets of $290 million, which are in the process of being repatriated, and bond assets of $92 million, which can be realized as cash within three days. 

To bring the money back to Cayman, the liquidators have started proceedings in the United States and Australia which recognized the liquidation process in the Cayman Islands and prevented creditors from bringing legal action against the bank in these countries.  

Similar recognition proceedings are under way in the U.K. and Ireland. However, the repatriation of U.S. funds is still held up by the U.S. courts because a group of investors objected to the money being moved out of the country. This group has now withdrawn its objection and the liquidators hope to receive the court’s approval to repatriate the funds to Cayman at a hearing next week. 

For smaller amounts held in Switzerland and Canada, the return of funds will depend on a cost-benefit assessment and the trade-off between legal costs and the amount of money held abroad. 

Distribution to creditors 

The liquidators outlined that the bank’s 1,284 depositors from 90 jurisdictions will be paid in several phases.  

The distribution process is due to start in six to eight weeks and most significant distributions will be paid out within a matter of months, Mr. Hutchison said. 

However, several loans are long term and could take longer to recover, although every effort will be made to renegotiate repayments or to sell the loan book. This is likely to mean in both cases that discounts need to be given and the full value cannot be realized. 

Depositors and creditors will be treated equally, except that eligible depositors have a right to priority distribution of up to CI$20,000 under Cayman law. Any amount over CI$20,000 will be paid out subject to the extent of the asset recovery. 

In their attempts to maximize the bank’s assets for creditors, the liquidators have received 40 inquiries and four firm bids from parties interested in buying the banking assets of Caledonian. A decision on the sale will be made in the next four to six weeks.  

Intervention by regulators questioned 

Mr. Hutchison said efforts had been made to settle the lawsuit brought by the U.S. Securities and Exchange Commission to avoid extensive litigation costs, but the U.S. regulator indicated it would be difficult to reach an alternative resolution process. 

The liquidators ruled out the option of suing the SEC, which directly contributed to the failure of the bank with a large freezing order of $76 million that was later reduced to $7 million. Mr. Hutchison said regulators such as the SEC enjoy a degree of immunity, and successful litigation would require proving an act of malice by the regulator. Based on legal advice he has received, Mr. Hutchison said, “this is a high bar to jump over.” 

The liquidators were also confronted by creditors with the question of whether the Cayman Islands Monetary Authority had acted appropriately and in the interest of depositors, given its knowledge of the lengthy U.S. investigation into the affairs of Caledonian Bank and Caledonian Securities. 

Mr. Hutchison said, from his experience dealing with regulators in several countries and “given the circumstances of what happened, it is not surprising to me CIMA took the action it did in appointing controllers.” 

He added that the bank’s troubles were due to its small size rather than an issue of Cayman bank regulation. “A very large portion of the bank’s assets was actually held in cash. I am not sure that the banking operations themselves were necessarily risky,” he noted.  

However, in the business of international securities trading and banking, “you are at the risk of a regulator taking action.” He said, similar action had been taken against many major banks worldwide, but these banks were larger and therefore better able to absorb the risks of litigation and the effects of temporary restraining orders. 

Another issue raised by creditors at the meeting was the treatment of foreign exchange risk as a result of the translation of all assets and liabilities into U.S. dollars at the beginning of the liquidation process on Feb. 10. 

The liquidators noted that they are conscious of the currency risk for depositors but said this was an issue for the depositors to address. Active hedging of the foreign exchange risk would entail costs, and the priority – and the bigger challenge – for the liquidators is to bring the funds back to Cayman, convert them into U.S. dollars and distribute them to creditors. 

Caledonian House on Dr. Roy’s Drive, George Town. – PHOTO: TANEOS RAMSAY


  1. The directors’ estimation of the loan book recovery is NOT based on the credit quality of the loans. It is based on an assumption that the loan book would be subject to a "bulk sale" within 6 to 8 weeks, as the Liquidators are looking to make cash distributions around that time.

    People need to do the math. There’s about USD$385m in cash (or equivalent) and USD$455 of depositors (after subtracting the single cash backed loan). Even if they get only USD$30m for the loans, and USD$10m for the building, that’s USD$425m. The SEC freeze is USD$7m. Assume liquidation fees are USD$10m (very generous) – that leaves USD$408m in cash left over to satisfy USD$455m of depositors. That’s about 90 cents on the dollar. If the loan book is sold in the ordinary course and not bulk sold, the recovery, even after the SEC and liquidation costs would be closer to 100%.

    This bank was extremely liquid. Look at the info already provided. 82% net liquidity. This liquidation process should be simple and quick.

  2. Gabriel, I’m trying to figure out what your point is. I’m just going to assume you didn’t read the article, because it clearly states the liquidators expect a total shortfall of $27 million before liquidation costs. Even if liquidation costs are $10 million, then their calculation is more advantageous than yours. And you say people need to do the math? Maybe you need to slow down and read.

  3. Christoph – the liquidators” estimates do not provision for any SEC holdback. Also, I have rounded my numbers for convenience. That would explain the difference.