Editor’s note: Please refer to front page story in the 29 April issue of the Caymanian Compass for Cayman National Corporation’s comments on some of this letter’s subject matter.
Congratulations the Board of Directors and Share holders of Cayman National Corporation; condolences to the taxpayers of the Cayman Islands. CNC pulled off one of the greatest coups in the history of Cayman’s financial sector, but at the expense of the taxpayers.
How did this happen? Most probably CNC’s directors approached the Leader of Government Business and convinced him that if Government didn’t come to the rescue, then CNC would allow Cayman General to go bust.
It’s pretty amazing that no one has publicly questioned Government’s decision.
Government negotiated with CNC using the taxpayer’s money and yet it seems the terms of the settlement are confidential. Why?
It was reported in the press that CNC is planning to pay a dividend this year because its shareholders need the money to rebuild their homes. The largest shareholders (who receive the biggest dividends) don’t look like a group of people who need Government to help them rebuild their homes.
Moreover, many of CNC’s shareholders are foreign investors who are effectively being bailed out by Cayman taxpayers. How would you feel if you were a shareholder of Island Heritage or British Cayman who stumped up millions to recapitalise in order to save your company from going bust, only to see Government throw your money away to save Cayman General?
You might want to ask that if British Caymanian and Island Heritage could recapitalise, then why couldn’t Cayman General – especially with Cayman National Corporation behind them.
It is doubtful that CNC would have let Cayman General go bust if Government hadn’t bailed them out in view of the high percentage of local policy holders in addition to its largest policy holder – the Cayman Islands Government.
It is hard to believe that Cayman General and CNC would not have managed the situation even though there may have been some pain to be borne by CNC shareholders.
There are valid reasons why this bailout is bad for Cayman. Government has now set a precedent. If CNC or other local financial institutions think that Government will rescue them, then perhaps they will take more risks – i.e. carry less reinsurance than they should – which in turn would lead to greater short-term profits to the shareholders.
Another reason why the bailout is bad is because it will hurt the international credit rating agencies’ view of the Cayman Islands. The debt of the Cayman Islands will increase by the shortfall of what Government was entitled to receive from Cayman General compared to what it actually received.
Possibly, the Board of Directors of CNC put the case to Government that Cayman General could not be fixed.
If British Caymanian and Island Heritage found a solution, then why couldn’t Cayman General?
What they should have done is raise money in a rights issue to CNC’s shareholders, the proceeds of which could have been injected into Cayman General.
Just for good measure, any rights not taken up could either have been sold in the market for a token amount to be exercised by other shareholders or new shareholders.
Alternatively, the issue could have been underwritten by one or more financial institutions that have been looking to gain a retail banking foothold in the Cayman Islands.
For a company with CI$85 million in shareholders’ equity (pre-Ivan) and the capacity to earn more than CI$10 million in a normal year, such a rights issue would have been easily manageable.
Though it is not a good idea to see Government involved in the banking business (or the insurance business for that matter through its Cayman General shareholding), it would have been a much more palatable solution for the Government to have underwritten such a rights issue and several years hence sell its stake when business returns to normal.
The above was not written with political motivations in mind, but as something that the people of these Islands need to know.
Since we live in a small Island where there is no reward for making enemies, I sign:
Name withheld by request
Related Videos
