Bank ‘crippled’ by $68 million run

| 17/02/2015 | 0 Comments

(CNS Business): Caledonian Bank has now filed for bankruptcy in New York following a crippling run on the bank last week triggered by the news that the US Securities and Exchange Commission had sued the bank over a $75 million penny stock scam. In his ruling regarding the appointment of controllers by CIMA, the chief justice said some $68 million worth of requests were made by depositors for their money last week,  as one of the oldest offshore banks in Cayman was brought to its knees.

On Monday lawyers representing Caledonian’s interest in New York, where the bank holds accounts at Northern Trust International Banking Corp. and Morgan Stanley Smith Barney LLC, said a waiver of the freeze had not calmed customers, who made “a substantially larger number of withdrawal requests than expected”. The asset freeze “had a crippling effect on debtor’s liquidity”, the lawyers said in the documents filed with a Manhattan court.

The bank filed for court protection under Chapter 15 of the Bankruptcy Code, which shields US assets of insolvent companies overseas. The bank has about 1,550 customers and almost 1,900 active accounts, with around 51 per cent of its assets in the US.

Following the ruling by Chief Justice Anthony Smellie that the controllers appointed by the Cayman Islands Monetary Authority (CIMA) and not the bank’s voluntary liquidators should oversee the situation, a report is to be filed with the court and CIMA shortly. Despite the appointment of controllers instead of liquidators, the bank is essentially finished. Cayman’s top judge noted a number of factors that suggested the “inevitability of the winding up of the bank” and pointed to attempts by bank officials to try and move assets.

The chief justice also noted concerns about the implications of Caledonian’s troubles on the rest of Cayman’s banking sector and its ultimate insolvency. Once the report is submitted to CIMA and the court, it is likely that the controllers from Ernst & Young will be appointed as the liquidators.

As they begin their work to assess the financial situation, Sterling Financial Group in The Bahamas revealed this past weekend that it has agreed to terms to purchase Caledonian Trust (Cayman) Limited and Caledonian Directors Limited, subsidiaries of the bank. The sale is now waiting regulatory approval from CIMA. The firm said that if the transaction succeeds the offshore entities will be re-named Sterling Trust (Cayman) Limited and Sterling Directors Limited, but Sterling said it would maintain the current offices and staff.

“Once the approval of the Cayman Islands Monetary Authority is obtained, the new parent company expects to invest heavily in additional technology and infrastructure,” officials claimed.

Caledonian Bank was established in 1970 by the late William Walker, one of Cayman’s original architects of its offshore financial services sector. However, the bank was purchased by New World Holdings Inc, a privately held investment company based in the Cayman Islands, less than four years ago.

Interested parties can contact the controllers via Barry MacManus at

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Category: Finance, Financial Crime, Financial Services

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