"We will keep the investing public informed."
The pandemic created a tragic global milestone on the 20th year of the twenty-first century. This year also marks the centennial of a commercial bank based in Makati City which prides itself as one of the leading private universal banks in the country that has an in-depth understanding of the way entrepreneurs and businessmen do business.
Unfortunately for this alphabet bank, the year marking its centennial celebration had not been kind to the company. Instead of a grand celebration fit for the occasion, it was slapped with a double whammy instead.
The first blow. Much like the rest of the world, this centenary bank has not been spared from the onslaught of the novel coronavirus because the bank’s 140-billion plus loan exposure hit a wall named “default.”
This centenary universal bank is a mini-conglomerate of a big-ticket commercial bank, a retail bank, and an investment bank, within the umbrella of a larger conglomerate of a well-reputed investment firm with an “alphabet name” which is engaged in financing company operations. It has diversified exposure in the sectors of banking, property, and retail.
A hundred years of experience in the business of lending money made this centenary bank endowed with a lot of stories to tell of people ranging from entrepreneurs to businessmen to self-dealing bank officers and directors. A self-dealing transaction is called DOSRI which stands for “directors, officers, stockholders, and related interests.”
By BangkoSentral’s (BSP) regulation, the threshold for “related interest” is 20-percent equity. By BSP’s definition, a 20-percent equity in a bank amounts to control over the entity.
A DOSRI transaction per se is not illegal and thus not forbidden. It, however, becomes criminal if the stringent requirements of the central monetary authority, BSP, are not met. These requirements are, namely, a) approval by majority of the bank’s board minus the director, or who has a related business entity, benefitting from the loan, b) full reports characterizing the loan as DOSRI, and c) waiver of secrecy of bank deposits of the borrower.
Now, for the second blow. This writer learned that as soon as the ECQ was downgraded to GCQ, a budding entrepreneur who is into town mall development and has had a partnership-gone-sour with the “alphabet name” investment firm initiated a complaint for investigation with the Monetary Board against the top honchos of the centenary bank including more than 20 of its top-tier officers over a 4-billion worth unreported and illegal DOSRI loans.
The complainant invoked the newly minted Citizen’s Charter adopted by the Monetary Board, just last year, which pledged to the public an action on a complaint with dispatch within a period of five days. The complaint will undoubtedly test the mettle of the Citizen’s Charter and the resolve of the Monetary Board to exorcise the banking industry of recalcitrant bank directors and officers even as the industry is still smarting from the fallout of the Bangladeshi money laundering fiasco.
Documents obtained by this writer allege that the alphabet name investment firm obtained a majority equity from complainant’s firm through insidious corporate layering and an offshore corporation unregistered to do business in the Philippines on a promise of access to credit from the centenary bank wherein the investment firm has a 20-percent ostensible equity.
Upon merger, top honchos of both the centenary bank and the investment firm allegedly involved themselves in the management and operations of the complainant’s firm. One director of the centenary bank was said to have approved the disbursement vouchers of the borrower-firm and another director of both the centenary bank and the alphabet name investment firm as co-signatory in time deposits.
Legal experts consulted by this writer say the complaint for investigation now on the plate of the Monetary Board could be larger and more significant than the much-vaunted DOSRI prosecution of a defunct pre-EDSA bank directors and officers that even yielded the criminal indictment of a former cabinet member of the current dispensation.
The DOSRI investigation now being sought for may yet turn out to be the proverbial big fish in the banking industry; a befitting sampler of the central monetary authority’s revitalized campaign to rid the industry of misfits, if the complaint is proven to be accurate.
The DOSRI investigation if pursued by the Monetary Board might also give the public not only a glimpse but a front-seat perspective of the business ethics of the alphabet name investment firm and its prime leasing sister company, both of which have a market capitalization of more than P1 trillion before the ECQ.
At the peak of the quarantine, the value of these companies reportedly slashed by half in the stock market. To maintain the share price and arrest its plummet, alphabet name investment firm and prime leasing corporation was said to have unleashed their cash reserves. How long they can sustain the internal stimulus remains a challenge.
The DOSRI investigation involving the top honchos of the centenary bank and a number of its officers might not only bring about the collapse of its human resources pool but also generate a well-founded doubt on the integrity of the alphabet name investment firm as well as the way it forays into mergers and acquisitions.
This writer will continue to monitor the developments of this interesting episode in the banking industry and the equity market as well. We will keep the investing public informed. Stay safe everyone.