In his press conference the LP leader was all out in defending his main financier, the BAI . He gave some concrete examples of “the politics of revenge” , the vengeful act that led to the destruction of the BAI. The closure of the BAI group and revocation of Bramer Bank’s licence following persistent liquidity and regulatory capital shortages was indeed mismanaged. He gave some examples of the efforts undertaken by BAI ,when he was PM, to comply to concentration limits in related party investments etc..
But what NR did not tell us was why was this policy of forbearance applied to BAI ?
Was it not true that the Group’s true financial situation was being concealed by a myriad structure of interlinked companies, displaying high and recurring fair value gains to systematically inflate investments. ?
The Consolidated financial statements at the domestic level were no longer available as from 2010, while a healthcare subsidiary was running sizeable deficits. The consolidated accounts at the level of the ultimate holding company in the Bahamas revealed huge annual losses, of over USD 100 million, in 2011 and 2012. Can NR deny that ?
What about the IMF reports ?
In 2012, the IMF had reminded us that the issue of the insurance company with a substantial proportion of its assets invested in related companies has not been resolved. Moreover, they also warned us that these issues are potentially serious for the policyholders, depositors and investors and the weaknesses that allowed the problem to remain unresolved for so long, could result in more serious failure of a systemic nature.
Yes efforts were made under Clairette Ah Hen-a committed and talented CEO of the FSC- to allow the insurance company time to comply with the investment concentration limits !
But what NR does not tell us , the political factors ultimately prevailed.
Amendments to banking legislation were tailor-made to facilitate BAI business. The Banking Act was amended to relax the limitation on investments and non-banking operations, and allow financial institutions to buy, sell, hold or manage pools of assets. A credit book of hire-purchase clients could thus be securitized and sold to a bank as an investment product, to ease the bank’s lending without infringing on related party limits. There were also attempts to merge FSC with BOM to dilute the former’s effectiveness (which was rejected by the IMF). The process of regulatory capture reached its peak with the appointment of a Deputy Governor at the Bank of Mauritius at the discretion of the financial conglomerate.
What about the N’Tan Report ?
The N’Tan Report concluded that there were growing evidence of massive corporate mismanagement and fraud at the BAI Group, with some features of a Ponzi scheme also present. Like, in the infamous Madoff case, not a single investment had been made on behalf of clients in 13 years. Like Madoff however, the BAI Group managed to hide losses for years, and hoodwinked the regulators by adopting equivocal accounting practices.
Yes it is true that closure of the BAI group was mismanaged. Instead of bursting the BAI/Bramer Bank bubble, a clear rescue plan could have been devised and implemented by the Ministry of Finance, in coordination with the Financial Services Commission, the Registrar of Companies, the Financial Reporting Council and the Bank of Mauritius.
But BAI was a disaster waiting to happen!
The activities of the BAI as a financial conglomerate, engaged in both banking and insurance activities, was a long-standing source of concern. The insurance company offered investment rather than insurance products, made excessive related party investments, and presented solvency issues. The return to policy holders was unrelated to the performance of the insurance company’s assets. BAI’s banking and insurance operations sustained an excessive concentration of investments in the Group’s related activities, which were mostly non- performing.
Watch out what is happening in horse racing !
Despite all the lessons drawn from the BAI saga , the cycle of regulatory capture resumes anew with a new regime and a new upcoming group/conglomerate . “The gambling mogul is to MSM, what BAI was to the LP !”
(All these points have been raised in a previous article; I'll repeat it for the number of years it takes for the sake of those still caught in identity politics-the one track mind !)
