| Written by Free Enterprise / Jean d’Orival |
| Thursday, 16 April 2009 19:51 |
 THE good thing in a revolution is that it destroys myths and removes polluting players.If there is something we have learned (or relearned) from the current global crisis, it is that liquidity and funding capabilities are major risks to be analyzed before making any investment decision. When I started in the capital markets back in 1984 , that is the first thing you were taught. However basic, these investment criteria have been largely forgotten or ignored by the investment banks and hedge funds. The investment-bank model is dead THE world was shocked when Bear Stearns collapsed in March 2008. Then came the Lehman Brothers bankruptcy (the largest in US history) that sent shockwaves and threatened the world financial system in September 2008. This was followed by the collapse of Merrill Lynch and the quasi-collapse of Morgan Stanley. The world suddenly (and sadly, too late) realized that these banks were built on fragile and shaky grounds. What did all these banks have in common? • A low capitalization (compared with the massive risks they were taking); • Highly leveraged balance sheets; • A small and undiversified deposit base; • A large exposure on illiquid products; • Large funding needs; and • An overreliance on money markets for funding. They were structuring huge and complex deals, forcing them—sometimes willingly—to hold large positions of papers like lower-rated mortgage-backed securities while waiting to find buyers. These positions needed, of course, to be financed. I advised my clients as early as July 2007 to stop buying papers issued by US investment banks. Then, in late summer 2008, the “fear factor” set in and the funding markets suddenly froze. The explosion of the (real or perceived) credit risk led all funding markets to stop functioning. The heart of the whole financial system— the money markets—came to a halt. The banks stopped lending to each other, preferring to park their funds in government securities—even sometimes at negative yields!—or just leaving them on their current accounts. This sparked a violent reaction and affected the whole financing chain, from the banks to the financial intermediaries, down to the consumer finance companies that led to a full-blown economic downturn. The universal banks with sizable investment-banking activities were also severely hit, but managed to survive due to their bigger capitalization and, most of all, to their large and diversified retail-deposit base (UBS, Deutsche Bank or HSBC, for example). The purely investment banks with huge funding needs and overly relying on money markets, collapsed like a castle of game cards (as we say in French). The investment-banking model is dead and, given the tsunami we experienced, will never recover in its existing form. The remaining “independent” investment banks understood that quickly and morphed into banks. Goldman Sachs and Morgan Stanley are now fully licensed banks allowing them, among other things, to access the retail-deposit market. Long live the universal banks! A ‘purified’ hedge-fund model can survive THE hedge-fund model as we know it, is dead unless it transforms itself. The lack of regulation and supervision has been identified as the major factor behind their failure by all the screaming heads of government. It is partly right and needs to be addressed. But it is only one of the faces of the hedge funds evil. What happened during the crisis? First, like the investment banks, a large number of hedge funds relied on borrowings to finance their strategies. In addition, many were highly leveraged. And, cherry on the pie, they were often financed by the investment banks themselves! Imagine the minefield…. More important, and that is the main reason the hedge- fund model as we know it has to die, they showed a complete disregard for their investors. Their behavior came down to a simple sentence: “Give me your money and I will steal from you right and left, top and bottom, and front, back and center!” What many investors didn’t know, ill-advised by their greedy private bankers, is that the investment agreements for hedge funds were full of tiny written clauses allowing the funds to change the rules of the game right in the middle of the investment! The hedge funds were very imaginative in finding new concepts like market- value reduction in case of “poor market conditions.” As a result, when things turned sour, they decided overnight to freeze the redemptions, to stagger the redemptions over many months or years, or to purely and simply postpone the redemptions ad vitam eternam until conditions get better! It basically means that even if you wanted to, you couldn’t get out of your investment. What happened to the beautiful promises of weekly or monthly liquidations? Disappeared…. To add insult to injury, in many instances, the subsequent exit strategies proposed to their clients was that the client had to decide today if they wanted to sell in three months’ time at a price fixed in three months on a value, of course, entirely at the discretion of the hedge fund itself, and therefore unverifiable! It was take it or leave it. So after having stolen from their clients a first time, they did it again a second time…. The hedge-fund industry can survive but will have to be strictly regulated, much more transparent and, above everything, respect their clients. Rules to force the funds to ensure their own liquidity must be established. More important, the hedge funds must be obliged to provide liquidity to their clients according to its initial and preannounced liquidation policy and without any force majeure clause. The fund of hedge funds (FoHF) model is dead and buried FUNDS of hedge funds were very popular strategies used, among others, to diversify the risks by using many different fund managers and many different fund strategies. The FoHF would, therefore, invest in many different hedge funds, which would smoothen and level the risks and performance of the FoHF itself. But instead of reducing the risks, it multiplied the risks. The liquidity issues seen above became exponential. FoHF managers suddenly had zero control over their own liquidity and therefore couldn’t ensure the liquidity of their clients. They were completely dependant (hostages) on the goodwill of each of the underlying funds. Imagine: instead of one fund restricting redemptions, you have to deal with 20 funds, each of them having different ways of “stealing” their investors! It is obviously unmanageable but nobody thought about it before the disaster occurred. Even with very strict rules, and given what happened, this model will never recover, simply because in situations of intense stress, it becomes impossible to manage. S imple piece of advice: Do not invest in investment banks (if there are any left), do not invest in funds of hedge funds and do not invest in hedge funds until clear and mandatory liquidity rules are established. I much prefer private-equity funds: at least you know in advance that you are in for the long term, that it is a risky investment and that it has no liquidity. Analyzing the liquidity of your portfolio is something that I’ll be glad to do for you! **** Jean d’Orival is the chairman of Dorias Advisors Inc. Free Enterprise is a rotating column of members of the Financial Executives Institute of the Philippines (Finex), appearing every Wednesday and Friday. |
Wednesday, April 22, 2009
Investment banks and hedge funds: The death sentence
Peso seen hitting 46:$1 by midyear, 52:$1 by end-2009
| Erik dela Cruz / Reporter |
| Wednesday, 15 April 2009 21:09 |
THE next nine months may see wild swings in the foreign-exchange rate as the peso may gain further strength up to 46 per dollar by the middle of this year, but may eventually lose ground in the second half and end the year at 52, according to a new research report from Metropolitan Bank & Trust Co. (Metrobank).
The peso has fallen by 0.9 percent so far this year, slowly recovering after an 1.7-percent loss in the first quarter.
“Currently, the peso has been appreciating alongside other currencies as risk aversion has tapered off for now amid the big upward strides in major equity markets around the globe,” said Ildemark Bautista, Metrobank head of research.
“The question, therefore, on everyone’s mind is if this is only temporary or will depreciation still be in the cards,” he said.
The peso is bound to appreciate in the near term, he said, with support coming from remittances of Filipinos abroad which traditionally surge during this time of the year, and with dollar requirements weak at the same time.
Remittances are usually on an upswing a few weeks before the start of a new school year in June.
“In the very near term...trends point to a direction towards the 46-per-dollar level going towards midyear as OFW [overseas Filipino worker] inflows dominate amid current market optimism,” he said.
But Metrobank’s research team, he said, was maintaining its view of peso depreciation toward the end of 2009, “perhaps running as high as 52…50 per dollar, or at least going up to the 51 level.”
The continued weakness of the Philippine economy and the need to prop up growth through bigger deficit spending will contribute to weak sentiment toward the peso, Bautista said.
Demand for dollars, however, may rise even before the import season in the third quarter, capping the peso’s gains in the second quarter, he said.
With dollar requirements normally increasing and remittances slowing down in the third quarter, he said the peso may be bound to again depreciate at that time.
“Expectations such as this might temper the current peso strength, as importers might buy earlier and produce marginal dollar demand right now instead of in the third quarter,” Bautista said.
The recent rally on Wall Street reflected investors’ upbeat mood as companies start reporting better earnings, which could be the result of the relaxation of mark-to-market (MTM) rules, he said.
“MTM rules require that assets not being held to maturity should be priced at market levels, and in a poor market environment such as the one right now, this means markdowns and lower earnings [as writedowns are treaded as expenses] or lower asset prices,” he said.
“With these rules now being relaxed, it appears that markets are riding along, willing to suspend disbelief right now about how bad things might be, giving the equity markets a big boost.”
Still, he said some investors viewed the recent bull run in the US with caution as it appeared “too much, too far, too soon,” and that a correction might be in the offing.
The peso rose on Tuesday to as high as 47.65 per dollar, its strongest level in two months following the greenback’s broad weakening in the previous day, which indicated waning risk aversion.
In a report released last week, Moody’s Investors Service said the peso must be kept stable if the government wants to support economic growth.
RP deficit, US concerns drag peso lower
| Erik de la Cruz / Reporter |
| Tuesday, 21 April 2009 21:29 |
The local currency slumped to an intraday low of 48.49—its weakest intraday value since March 31 when it fell to 48.58—before settling at 48.46, down almost 0.8 percent from Monday’s close of 48.09.
“The Philippine peso has started weakening again, but this is likely to be due to domestic concerns regarding its widening budget deficit,” said Philip Wee, currency strategist at DBS Bank.
The government has further raised the deficit ceiling this year to P199.2 billion, or 2.5 percent of the gross domestic product, from P177.2 billion as it intends to pump-prime the economy despite expectations of weak revenue. The official 2009 economic growth forecast has been cut to 3.1 percent to 4.1 percent, from the previous estimate of 3.7 percent to 4.4 percent, to account for weak exports.
Concerns about the stability of US banks, which sparked selloffs in the equities markets, also weighed down the peso, dealers said. The major US equity indexes dropped by 3 percent to 4 percent on Monday.
“Risk aversion is back after weak results from Bank of America reignited worries about the US financial system and the economy, setting off a broad-based fall on Wall Street,” said dealers at Metropolitan Bank & Trust Co. (Metrobank) in a note.
The dollar rallied as the fall in equities increased the greenback’s safe-haven appeal, dealers said. On the domestic front, they said growth and fiscal concerns added to pressure the peso downward. The budget deficit hit P67 billion in the first two months of the year, more than double in the same period last year, as the economic downturn resulted in weak revenue that prompted the government to spend more to boost economic activity.
The peso is expected to trade between 48.30 and 48.60 today, said Banco de Oro chief market strategist Jonathan Ravelas. Dealers at Union Bank of the Philippines said 48.50 is the dollar’s immediate resistance level.
Metrobank expects the peso to reach 52.50 per dollar by the end of 2009, given shrinking inflows as exports contract and remittances of Filipinos abroad post flat or negative growth.
‘Sari-sari’ stores as agent banks?
| by Jun Vallecera / Reporter |
| Wednesday, 22 April 2009 21:56 |
THE Bangko Sentral ng Pilipinas (BSP) is seeking legal opinion on whether they have basis for allowing third-party entities, such as sari-sari (retail) stores, to act as agent banks.
The plan, which includes such other agents as retail chain stores and government-owned post offices, forms part of the larger program of financial inclusion.
Financial inclusion, as the term suggests, ideally includes every Filipino to have access to financial services that often leaves out the rural-based population as farmers and fisherfolk.
Deputy BSP Governor Nestor Espenilla Jr. acknowledged it took them one year to convince authorities, the policymaking Monetary Board included, to sell the idea of the e-money, or electronic money popularized by Globe Telecommunication’s G-Cash product and by Smart Communication’s Smart Money.
The hardest thing about this product, according to Espenilla, was convincing everyone they were not deposits, which then complicates regulation.
“It took us a year to put it together, including the appropriate circular,” he said.
The same thing is happening about the plan allowing sari-sari stores, retail chains such as 7-Eleven and Mercury Drug Stores and various post offices to act as agent banks.
Under the plan, the neighborhood sari-sari store is empowered to help the financial inclusion program become reality by allowing it to act as cash centers where one can buy or encash so-called e-money.
Globe’s G-Cash centers and its equivalent Smart Money services are mostly urban-based products.
According to Espenilla, the Philippines is one of the leading proponents of e-money, along with Kenya and certain other Latin American countries like Brazil.
But the Philippines has a potential to become a pioneering entity in e-money transactions because most Filipinos own a cellular phone.
In Brazil, for instance, e-money usage is via points-of-sale, or POS, which is limited in nature, Espenilla said.
When approved, Filipinos may convert hard cash into e-money in any sari-sari store and send it via cell phones to pay for utilities charges, settle a personal debt or even make a deposit, he said.
“The question now is whether we can use third-parties like sari-sari stores to act as agent banks. We are in the process of seeking a legal opinion,” Espenilla said. He ruled out authorizing sari-sari stores as deposit-taking entities, however.
“I have problems enough monitoring the activities of regular banks, I don’t want added pressures at this point,” Espenilla said.
29 rural banks closed since ’08
Written by Jun Vallecera / Reporter Wednesday, 22 April 2009 21:58
Less than 30 rural-based lending institutions have fallen by the wayside since last year but the Bangko Sentral ng Pilipinas (BSP) remains confident the banking system as a whole remains fundamentally sound.
Deputy BSP Governor Nestor Espenilla stressed this point in a text message on Wednesday soon after confirming that two more rural lenders folded and ordered closed by the policy-setting Monetary Board of the central bank.
“This is normal house cleaning,” Espenilla said.
He meant the 29 rural lenders that folded and toppled from 2008 up to present, including seven that closed since January this year.
Only one Legacy Group-linked lender folded thus far this year but the BSP refused to identify the lender because many of their owners refuse up to now to disclose their close relations with Legacy-owner Celso de los Angeles.
Twenty-two rural banks were ordered closed last year. Of this number, 12 were Legacy-linked.
“Only 10 rural banks, if you exclude those linked to the Legacy Group, actually closed last year, which is below the annual average,” Espenilla said.
He stressed both Accord Savings Bank based in Baguio City and Bangko Rural ng Bulacan of the same province were never linked to the Legacy Group of banks whose principals were headed by part-time politician and financial engineer de los Angeles.
“I’d rather characterize this as occasional closure and part of the continuing maintenance of the overall health of the banking system,” Espenilla said.
Ten rural banks closed shop in 2006 followed by 15 more in 2007 but their closure should not be missed by small borrowers in the countryside, according to Espenilla.
“Their loss has promptly been replaced by the establishment of new ones, resulting to even more new branches overall,” he added.
House committee approves REIT bill
by fernan marasigan/b.mirror/4.22.09
SUBJECT to amendments, the House ways and means committee approved on Tuesday a bill that would provide for a regulatory framework for real- estate investment trust (REIT).
The committee, headed by Lakas Rep. Exequiel Javier of Antique, approved the substitute bill to House Bills 148, 3566 and 4182, or “An Act Providing the Legal Framework for Real Estate Investment Trust,” following assurance from Philippine Stock Exchange president and chief executive officer Francis Lim that safety nets or safeguards are in place to avoid concentration of properties in the hands of a few, particularly the rich.
He was referring to the similar measure recently approved by the House economic affairs committee and was submitted to the Javier committee.
Laban Rep. Juan Edgardo Angara of Aurora said the approved bills would undergo thorough scrutiny by the committee. “They are still subject to amendments,” Angara said in an interview at the sidelines of the hearing.
“Ang worry kasi ng ways and means committee, especially ni chairman [Javier], is iyong leakage sa revenue at saka iyong law might be taken advantage of by the rich kasi iyong structure ng real estate sa Philippines is that they are owned by a small percentage of the population tapos karamihan family-owned. If you look at our top companies. . . family-owned corporations iyan na lumaki na so ’yung concern is to have a law which is sufficiently attractive to attract investors but also will not be a tax shelter for rich corporations and rich families so iyon ang balance doon,” Angara said. He also cited the proposal of Javier on the limit of ownership.
“For example, five individuals cannot own more than 50 percent of the companies, hindi niya ido-dominate iyong ownership. Kung owned by the son or family members, considered as one lang iyon in terms of the five persons para hindi limitado lang sa kanila ang ownership,” he said.
Javier, for his part, said the committee will craft its own proposed amendments on the approved bills.
During a hearing last week, Javier also questioned the proposal for the 30-percent minimum public ownership. By adopting this, the REIT will not be democratizing ownership, supposedly one of the salient features of the measure.
The bill should provide that after five years, at least an additional 5 percent should go to public until it reaches more than 50 percent.
“Otherwise, it will just be used as a tax shelter for wealthy families,” Javier said.
The REIT bill seeks to attract foreign investment, develop the capital market and provide an alternative investment instrument that has a steady income stream and has proven to have a higher interest yield than other forms of securities so that even local investors will be attracted.
Angara said the measure will also help the government put up infrastructure and democratize land ownership by corporatizing land, convert it to income-generating real estate, list in stock exchange as REIT and invite local investors to buy the stocks allowing them to be coowners of the real-estate.
Its main purpose, Angara said is to provide small and large investors alike with the opportunity to participate directly in the ownership and financing of large-scale real-estate projects at affordable rates of investment, without the disadvantages of illiquidity, high transaction and management costs, as compared to traditional private real estate ownership.
.Yields rise on deficit report
PHILIPPINE bond yields rose yesterday as the government posted a bigger budget deficit, but sentiment improved after the state said it would raise more funds abroad to plug the shortfall, traders said.
The yield on the five-year bond, the most actively traded securities, rose 2 basis points (bps) from morning levels to 6.15% after the government said that it posted a P119.7-billion budget gap in the first quarter, more than its P110-billion target.
But yields eased back to morning levels after the government said it would increase foreign borrowings and cut the amount of debt it would raise at home, traders said.
Total deals reached P29.8 billion ($614 million) by late afternoon, versus P15.5 billion at the same point on Tuesday, traders said.
"The priority right now is for the stimulus measures to move into the economy and that is being done," said Joey Cuyegkeng, an economist at ING Bank. "The market has been primed for a bigger deficit this year."
Expectations of more central bank rate cuts and a lower inflation outlook would outweigh concerns about the budget shortfall, pushing yields lower, Mr. Cuyegkeng said.
The central bank will likely cut its overnight rates by 25 to 50 bps more, while inflation will likely dip to below 5% in the next three to six months, he said.
Meanwhile, Thai bond yields fell on hopes that the central bank will ease rates to revive the economy, traders said.
The Bank of Thailand forecast the economy would shrink between 1.5 and 3.5% this year due to the political unrest at home and the global economic downturn.
Yields were 5 to 10 bps lower on average, with the five-year bond down to 2.34% from Tuesday’s close of 2.45% , traders said.
The government’s plan to cut spending and reduce the deficit for the next fiscal year also pushed yields lower, traders said. — ReutersFirst-quarter deficit over half of full-year target
First-quarter deficit over half of full-year target
LOWER REVENUES blamed on the global economic downturn and higher expenditures widened the budget deficit to P119.7 billion in the first quarter, the government yesterday reported.
The January to March shortfall accounts for 60% of the P199.2-billion ceiling set for 2009 and is more than double the P51.6 billion incurred in the same period last year. It is also higher than the programmed P110.1 billion for the quarter.
"This [deficit] is largely due to lower revenues that were adversely affected by the slowdown in economic activity as reflected in the lower imports and the decline in collections," Finance Secretary Margarito B. Teves said.
"Infrastructure spending increased by 73.5% ... while maintenance and other operating expenses increased by 41.2% ... mainly due to additional disbursements for the conditional cash transfer program."
Total revenues for the period hit P235.4 billion, lower than the target of P251.8 billion. Total expenditures amounted to P355 billion.
The tax bureau collected P154.8 billion, lower than its P165.3-billion goal, which tax chief Sixto S. Esquivias IV said was due to a law exempting minimum wage earners from income tax and slower economic activity.
Customs, meanwhile, collected P43.1 billion, also below its target of P51.3 billion. Customs deputy commissioner Alexander M. Arevalo said the shortfall was due to a decline in imports.
The Bureau of Treasury contributed P20.7 billion while other offices earned P16.8 billion.
The government has said it would have to borrow more to fund the higher shortfall and yesterday, National Treasurer Roberto B. Tan announced that this year’s borrowing mix would be tweaked to include more overseas loans.
"We will manage ... by adjusting the borrowing mix from 75-25 in favor of domestic [loans] to 72-28. The new figure for external borrowings is P174.9 billion versus P147.4 billion previously and domestic borrowing figure is now P439 billion from 442 billion," he said.
"We are looking for additional ODA (official development assistance) financing of around $500 million."
Mr. Teves said the Asian Development Bank had offered the P500 million worth of ODA but added the government was still deliberating whether to accept it. — ADBRZero growth this year for RP
BY PAOLO LUIS G. MONTECILLO, Reporter
THE INTERNATIONAL MONETARY FUND (IMF) no longer expects the Philippines to grow this year, noting the substantial impact — albeit less harsh than in advanced economies — of the global economic downturn.
Government officials discounted the forecast, however, pointing to signs of export improvements. A foreign analyst, meanwhile, said multilateral institutions were fixated on tying economic recoveries to an upturn in the United States.
In its latest World Economic Outlook where the country’s growth forecast was cut to zero percent from 2.25% previously, the Washington-based lender said the Asian region was being "severely hit by the combined effects of lower global demand and tighter credit conditions."
The same prognosis of zero growth was applied as a whole for five Association of Southeast Asian Nations (ASEAN-5) economies but the IMF’s Manila representative, Denis Botman, stressed "the Philippines remains one of the few countries in Asia to avoid [a] recession in 2009".
For the world’s advanced economies a 3.8% contraction was forecast, while for newly industrializing neighbors Korea, Taiwan, Hong Kong, and Singapore an overall decline of 5.6% was predicted.
The global economy is now expected to contract by as much as 1.3%, down from a 0.5-1.0% decline projected last month.
The IMF forecast is the latest in a series of growth downgrades for the country, among them Fitch Ratings’ 0.5% (from 2.0%) and the government’s own target of 3.1-4.1% from an earlier, and already reduced, 3.7-4.4%.
Indonesia and Vietnam were the only two ASEAN-5 countries expected to grow this year, by 2.5% and 3.3%, respectively. At the other end were Thailand and Malaysia which were forecast to suffer 3.0% and 3.5% contractions, respectively.
All five, however, are expected to grow next year, with the Philippines seen posting a modest 1% gain, the lowest among the ASEAN-5.
Government officials, for their part, said there was little reason for the economy to stagnate this year.
Noting that the first quarter result is expected to be at least 2.1%, National Economic and Development Authority deputy director general Augusto B. Santos said "The country will have to contract for the next three quarters" for zero growth to be achieved.
"There are already signs that the US economy is recovering. That is our biggest export market," he said. "Definitely, there will be a [growth] slowdown, but a contraction is unlikely."
HSBC economist Frederic Neumann, meanwhile, said the economy could still manage to gain, by at least 1% this year and somewhere between 3-4% next year.
The IMF forecast, he said, is "too conservative."
"Multilateral institutions are very skeptical on the view that markets could not grow without the US. But we think there is a genuine growth in domestic demand in Asian economies," he told a briefing yesterday.
"I think people were taken ... with [the speed at] which the recession spread [from] the US. But they forget that there are underlying forces which lead to a fundamental disengagement of the emerging markets from the developed world."
Another economist, meanwhile, said zero growth would mean more people going hungry given the country’s relatively high population growth.
"The effect is poverty is going to increase — and hunger of course," University of the Philippines economist and former Budget Secretary Benjamin E. Diokno said.
Despite the "early signs" of economic recovery in the US, an uptick in consumption is still not expected to shore up demand for exports. "The consensus is that it is going to be a weak recovery [for exports]. We cannot expect that consumption will go back up just like that," Mr. Diokno said.
Presidential economic adviser Jose "Joey" C. Salceda also expects growth lower than the official government targets, but is not as pessimistic the IMF.
"I think growth will stay in the sub-2% level, which is technically a recession since this is slower than the population growth," he said yesterday.
A "meaningful" recovery to pre-crisis levels, he said, will have to wait three more years.
The IMF’s Mr. Botman, meanwhile, told reporters that the downward revision came with prospects of continued export demand weakness and a projected 7.5% decline in remittances (from flat growth previously).
But "despite the projected decline in remittances, private consumption growth is expected to remain relatively robust as a result of lower inflation and commodity prices, offsetting the negative contribution to growth from investment and net exports," he said.
"We see a slowdown in private consumption, but it will continue to be positive, with a 2.7% growth, and contribute to growth in 2009 and 2010," he said.
"[Also], it cannot be excluded that OFWs (overseas Filipino workers) rise to the occasion once again," he said.
He said the government’s adjustment of the deficit ceiling for the year was "appropriate" and called for a "modest" expansionary economic policy up to next year. — with a report fromGerard S. dela Peña
Tuesday, April 21, 2009
BSP pushes to alter its charter
MANILA, Philippines -- The Bangko Sentral ng Pilipinas is pushing for changes in its charter to allow examiners to access deposit accounts and enable the monetary authority to gather evidence against bank fraud. Juan de Zuñiga Jr., BSP assistant governor and general counsel, said proposed amendments to the New Central Bank Act of 1993 were already pending in Congress. The changes—contained in Senate Bill No. 871 sponsored by Sen. Edgardo J. Angara, and House Bill No. 5858 filed by Rep. Jesus Crispin C. Remulla—will enhance the BSP’s administration of monetary, credit and banking system, as well as strengthen its supervisory powers. Zuñiga said the BSP would need greater authority in supervising and examining banks, and get around deposit secrecy, which has become a legal obstacle in gathering evidence against perpetrators of bank fraud. “Fraudulent transactions and unsafe and unsound banking practices, coursed through deposit accounts, have been shielded from the reach of BSP examiners,” Zuñiga said. “This limitation on BSP powers is one reason why we have problems such as (that related to) the Legacy group.” The lawyer was referring to a network of at least 12 rural banks against which the BSP has filed four complaints of syndicated estafa and two cases of falsification of public and commercial documents with the Department of Justice. Named respondents in the complaints were Legacy owner Celso G. delos Angeles Jr. and several officers and employees of the company. BSP data show that banks’ total deposits in the fourth quarter of 2008 amounted to P3.2 trillion, or 14.4 percent higher than the P2.8 trillion posted in the same period of 2007. Representing about half of the funding base, savings deposits declined year-on-year by 5.4 percent to about P1.4 trillion. |
BSP pushes to alter its charter
MANILA, Philippines -- The Bangko Sentral ng Pilipinas is pushing for changes in its charter to allow examiners to access deposit accounts and enable the monetary authority to gather evidence against bank fraud. Juan de Zuñiga Jr., BSP assistant governor and general counsel, said proposed amendments to the New Central Bank Act of 1993 were already pending in Congress. The changes—contained in Senate Bill No. 871 sponsored by Sen. Edgardo J. Angara, and House Bill No. 5858 filed by Rep. Jesus Crispin C. Remulla—will enhance the BSP’s administration of monetary, credit and banking system, as well as strengthen its supervisory powers. Zuñiga said the BSP would need greater authority in supervising and examining banks, and get around deposit secrecy, which has become a legal obstacle in gathering evidence against perpetrators of bank fraud. “Fraudulent transactions and unsafe and unsound banking practices, coursed through deposit accounts, have been shielded from the reach of BSP examiners,” Zuñiga said. “This limitation on BSP powers is one reason why we have problems such as (that related to) the Legacy group.” The lawyer was referring to a network of at least 12 rural banks against which the BSP has filed four complaints of syndicated estafa and two cases of falsification of public and commercial documents with the Department of Justice. Named respondents in the complaints were Legacy owner Celso G. delos Angeles Jr. and several officers and employees of the company. BSP data show that banks’ total deposits in the fourth quarter of 2008 amounted to P3.2 trillion, or 14.4 percent higher than the P2.8 trillion posted in the same period of 2007. Representing about half of the funding base, savings deposits declined year-on-year by 5.4 percent to about P1.4 trillion. |
Permaplans closes pre-need biz permanently
by doris dumlao/PDI/4.22.09 MANILA, Philippines—Another pre-need company, Permanent Plans (Permaplans), has lost its dealership license from the Securities and Exchange Commission.
But Permanent Plans Tuesday said that the SEC decision to suspend its license was no longer necessary because it had decided not to sell new plans given the turbulent financial environment.
The SEC announced on Monday at the resumption of the Senate probe of the troubled pre-need industry that it had revoked the license of Prudential Plans to sell pre-need plans because of a deficiency in its trust fund.
Permaplans president Juan Miguel Vazquez said that his company had already informed the SEC of its intention to stop selling new pre-need plans.
Pre-need plans (education, pension and memorial) are contracts that provide for future services or payment of money at the time of actual need.
In a statement, Vazquez said Permaplans no longer believed in the viability of the pre-need industry as currently set up amid the economic downturn.
But Vazquez said the SEC decision to suspend Permaplan’s license came as a surprise.
He said it was unnecessary given the company’s decision not to sell new plans and to limit itself to servicing all claims. Contrary to the SEC decision, the company’s contracts allow Permaplans to change the mode of payment, he said.
Payment in kind
SEC Secretary Gerard Lukban said Permaplans’ license was suspended because the regulator did not approve of its proposal to offer alternative modes of payment to plan holders.
“They were proposing a dacion en pago (payment in kind) but their plans have to be serviced in cash. This (proposal) wasn’t approved in their registration statement,” Lukban said.
Lukban said Permaplans was in a situation different from Prudentialife, as the latter had applied for flexibility under a multi-year capital build-up program while the former had not.
Undue alarm
He said the SEC had wanted to keep the suspension of Permaplan’s license under wraps to give the company time to sort out its settlement initiatives without causing undue alarm to the public.
Permaplans has 10,800 plan holders as of end-December last year, based on company estimates.
Vazquez, who is also president of Philippine Federation of Pre-Need Plan Companies Inc., said his company was concerned about the protection of all its plan holders and was committed to promptly settle their claims.
35-percent loss
“A major factor to this decision was a 35-percent loss of our trust funds last year as a result of the ongoing global financial crisis,” Vazquez said.
He said Permanent Plans would increase its capital and trust fund with additional assets in order to settle fully all the claims of its plan holders.
“We expect to pay all our plan holders in the form of cash and other assets in the next four to six months,” he said.
Vazquez apologized to the public for the inconvenience, saying that the company sincerely believed that its offer to the plan holders was the best option to protect them.
“We are not required to put in these additional assets but we are offering to do so. We also do not want to go to court for rehabilitation because this will take time and delay the payment to plan holders,” he said.
Executive session
Lukban said the SEC would hold an executive session on Wednesday to discuss the situation of the pre-need industry and determine what other measures could be taken to help the sector.
“This is an extraordinary situation. They are feeling the impact of a global financial crisis,” Lukban said.
He noted that Prudentialife, for instance, was weighed down by paper losses given the turbulent financial markets.
“It’s unfortunate that this comes at a time that the Legacy issue is there. Unlike Legacy which unilaterally ceased operations, we are in close contact with these pre-need plan companies and are coordinating to look for ways to protect investors,” Lukban said.
Memorial plans
He said there were some pre-need products, such as memorial plans, which were still selling briskly even under tough economic times.
But Lukban said that the SEC had its rules and that companies which could not follow these rules would have to face sanctions.
The Legacy Group’s pre-need firms—Legacy Consolidated Plans Inc., Scholarship Plan Philippines Inc. and All Asia Plans Corp.—ceased operations in January ahead of any sanctions from the SEC.
The three pre-need firms have P1.3 billion in obligations to more than 50,000 plan holders.
Among the Legacy plan holders are more than 12,000 police officers and soldiers, who have paid close to P320 million.
24 firms offered relief
At the end of February, the SEC approved a basket of measures seeking to perk up the sluggish pre-need industry.
The 24 providers of pension, education and memorial plans with operating license for 2009 were given the option to avail themselves of some regulatory relief.
The relief included a leeway to build up their capital over a few years, and to infuse real estate assets and unlisted shares into the trust fund.
A trust fund is an asset account that includes stocks, real estate and bonds. It must provide a sufficient source of money at any given time to pay for current and future obligations.
The pre-need firms were given until April 15 to submit their individual business plan to the SEC. “It’s not mandatory. It’s a management prerogative if they want to avail themselves of these,” he said.
2 firms meet requirements
Lukban said only two pre-need companies decided to avail themselves of the regulatory leeway by submitting a multiyear capital build-up plan—Prudentialife and Coco Plans.
Coco Plans was able to comply with the requirements but Prudentialife’s plan to use certain assets to beef up its trust fund was not approved by the SEC.
Lukban said Prudentialife’s management had assured the SEC that its trust fund was enough to cover its obligations to about 400,000 plan holders.
Prudentialife’s trust fund is estimated at about P12 billion.
Hopefully, Lukban said other pre-need companies would stay afloat.
Case-by-case basis
Asked whether the industry was still viable, he said: “It’s on a case-by-case basis,” he said.
The 22 other pre-need companies with SEC license for 2009 are: AMA Plans, Ayala Plans, Caritas Financial Plans, CityPlans, Cocoplans, Danvil Plans (formerly Berkley International Plans), Destiny Financial Plans, Eternal Plans, First Country Plans, First Union Plans, Grayline Plans, Himlayang Pilipino Plans, Loyola Plans Consolidated, Manulife Financial Plans, Mercantile Careplans, Paz Memorial Service, Philam Plans, Provident Plans International, St. Peter Life Plan, Sun Life Financial Plans, Transnational Plans and TrusteeshipStiffer sanctions on banks eyed
| by Jun Vallecera / Reporter |
| b. mirror/ Monday, 20 April 2009 23:04 |
BSP general counsel Juan de Zuñiga Jr. said some banks and financial institutions would normally rather suffer monetary penalties than waste an opportunity to earn immeasurably more by consciously breaking antiquated rules and guidelines that were imposed when the financial world was much simpler.
He told reporters the existing schedule of monetary sanctions for each violation is so puny that banks are more than willing to accept penalties or pay for them, rather than toe the line and lose untold billions.
In view of this, Zuñiga said the BSP is proposing a new schedule of fines to be determined by the policymaking Monetary Board of the Bangko Sentral to replace the hard-coded P30,000-per-day-per-violation that the banks can quickly pay for their infractions.
The proposed stiffer penalties form part of a much broader effort to empower the BSP to undertake quick-resolution schemes for ailing banks by compelling shareholders to infuse more capital, merge with stronger banks or undertake a quasi-reorganization and come out from them much stronger than before.
Zuñiga said banks are more than “happy” to receive what amounts to a mere slap in the wrist at the moment for deliberate breach of banking rules, “because the monetary penalty is just P30,000 per day per violation.”
Banks that engage in unauthorized activities, such as derivatives trading without the necessary license, earn hundreds of millions of pesos and pay only a fraction as penalty, Zuniga said.
“The proposal leaves the determination of the penalty to the Monetary Board plus possible forfeiture of profits,” he said.
The puny schedule of monetary penalties once forced former BSP governor Rafael Buenaventura to resort to a name-and-shame campaign against big-name banks who shamelessly exploited the country’s weak external sector and its sad political foibles to their advantage, forcing Buenaventura to take a defensive stance on the peso and make it more difficult for him to stabilize its value.
Buenaventura broke tradition and deliberately named the banks that took positions at the local currencies market and made the peso weaker by the minute.
Zuñiga said a higher penalty schedule for each infraction imposed in tandem with moral suasion could stop the deliberate violation of central bank rules.
Bank regulators still don’t know what to do with failed bank in Pangasinan
| by jun vallecera/b. mirror/4.15.2009 FRUSTRATION boiled over into despair among prelates in the Diocese of Lingayen whose tens of millions of pesos in the People’s Rural Bank of Binmaley has put to doubt the future education of thousands of students set to enroll in its several institutions of learning in Pangasinan province this June. They have been asking regulators why it was that the Diocese of Legazpi was paid back its undisclosed millions when the Bicol-based G7 Bank went under, while allowing thousands of Ilocano depositors to fend for themselves as the rural bank tanked a year ago this Saturday. On Tuesday the diocese, as a member of the People’s Bank of Binmaley Uninsured Depositors Association or PBBUDA, saw a glimmer of hope when President Arroyo wrote back to inform them that Malacañang had forwarded their plaintive letter to both the Philippine Deposit Insurance Corp. (PDIC) and the Bangko Sentral ng Pilipinas (BSP). But according to PBBUDA president Armi Bangsal-Lorica, the group pleaded with both institutions before to have their hard-earned money released or untangled from the mess allegedly created by self-styled financier Fidel Lo Cu, who came to the bank as a white knight. She said in a telephone interview that depositors like herself continue to believe that Malacañang has persuasive powers over BSP Governor Amando Tetangco Jr. and PDIC president and former Land Bank executive Jose “Jopot” Nograles that they will use the full force of their respective offices to come to the aid not just of the Diocese of Lingayen but also to small depositors like herself. The PBBUDA did not just ask regulators for relief but presented a proposal designed not just to help themselves as aggrieved depositors, but to make things easier for the PDIC and the BSP as well. All of them, the Lingayen prelates included, were willing to convert their deposits into equity in a resurrected People’s Bank, but have thus far heard only grunts from the authorities, according to Lorica, whose grandfather, Julio Javier, founded the original bank taken over later by Cu. Deputy BSP Governor Nestor Espenilla Jr. said in a text message that taking over a bank as investor is not a walk in the park. |
Subscribe to:
Comments (Atom)