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MANILA, Philippines - For William Endo, April 27 should have been payday, just as it had been every end of the month.
Last Thursday, he and his officemates received their pay slips - proof that the business process outsourcing (BPO) company where they worked had made good on that month's salary, ready for withdrawal the following day.
But when the 27-year-old graphic designer checked an ATM last Friday, the P500 left over from the previous month's salary had not been replenished - a problem for William who needs the cash to pay this month's rent.
“Wala naman kaming suspetsa kahapon. Pati kumpanya namin di pinagsusupetsahan ang ExportBank,” he said.
William was among 50,092 account holders - with combined deposits worth P15.98 billion - who on April 27 were shocked upon learning that Export & Industry Bank (EIB) had been shuttered that day.
"Shock" is no exaggeration, because William and many other depositors had been led to believe - mistakenly, as it turned out - that Banco De Oro Unibank Inc. (BDO) was taking over the thrift lender.
“The bad thing here was ExportBank even told our company that they would be acquired by BDO. If my memory serves me right, kinausap sila ng someone higher up sa amin tungkol sa accounts na yun last week. Dismayado din yung management na nagsinungaling sa kanila yung bangko,” William said.
In fact, no less than EIB president Juan Victor S. Tanjuatco a year ago assured depositors that "the transaction with BDO brings to full circle the efforts we started five years ago."
These efforts include the sale of 97 percent of EIB's outstanding shares to various companies in a capital reorganization that began in 2006, as well as the relocation of branches and a facelift - all meant to improve the bank’s financial condition and make it attractive to investors.
"It has been a long journey, but in the end, we are fulfilled that we are able to entrust our depositors and employees to the largest bank in the country,” Tanjuatco had said.
His statement was issued on April 13 last year, right after state-run Philippine Deposit Insurance Corp. (PDIC) approved BDO's acquisition of EIB's assets, including a 50-branch network nationwide and net liabilities worth P10.9 billion back then.
The nearly P11 billion question in the minds of many EIB depositors like William therefore is, what happened to the promised takeover by BDO?
Legal issues
To be sure, the sense of accomplishment was not one-sided. It also had been a long quest for BDO, which lost a bid in 2001 to acquire EIB's shuttered predecessor, Urban Bank, and a second attempt in 2005 for the successor's branch network.
PDIC's clearance of the BDO-EIB deal in 2011 came less than a year after the Bangko Sentral ng Pilipinas (BSP) on July 16, 2010 approved in principle the same plan, which the thrift lender's stockholders endorsed in a special meeting on September 20, 2010.
At end-June 2010, EIB’s total assets stood at P20.2 billion, not enough to service liabilities reaching P31.3 billion, of which P19 billion comprised deposit liabilities.
Regulators had ironed out the incentives that BDO would receive for acquiring EIB, including the P9-billion financial assistance that PDIC extended to the troubled thrift lender.
Based on the BSP's calculation, the P9 billion would produce an annual income support to BDO with a net present value of P5.6 billion, or below the P10.9 billion in net liabilities the banking giant would assume as of April 2011.
In his April 13, 2011 disclosure to the Philippine Stock Exchange, Tanjuatco said the state deposit insurer's approval was "subject to execution of definitive agreements and documentation acceptable to the transacting parties and PDIC, as well as the fulfillment of certain closing conditions, which include the final approval of the policy-making Monetary Board of the Bangko Sentral ng Pilipinas."
To the untrained ear, this sounded like a done deal.
Sought for comment, Nestor Tan, BDO president, told InterAksyon.com, "Our acquisition was conditional on the settlement of some legal issues that to this date remain outstanding." He declined to elaborate.
Declare bank holiday
According to monetary authorities, they had to take over EIB because the lender was poised to shut down on April 27.
In a statement issued Friday morning, PDIC said it was assuming control of EIB on that day to implement Monetary Board Resolution No. 686 dated April 26.
Hours later, the BSP released its own statement, saying its Monetary Board invoked Section 30 of Republic Act No. 7653 or the New Central Bank Act, and placed EIB under receivership on April 26.
"EIB wrote BSP to surrender the bank operations to the Bangko Sentral ng Pilipinas and to declare a bank holiday effective 27 April 2012," the central bank statement read.
Under Section 30 of R.A. 7653, the Monetary Board can place a bank under receivership if it were unable to meet its liabilities or to continue doing business without incurring losses to depositors or creditors.
The BSP further said the Philippine banking system was "sound and stable with ample liquidity and high level of capitalization."
"The closure of EIB is not expected to adversely affect the Philippine banking system considering its relatively small size," the BSP said, adding that the thrift lender's "total assets is equivalent to only about 0.3 percent of the total assets of the banking system."
In fact, hours before releasing its statement on EIB's closure, the BSP, citing end-September 2011 data, issued a separate press release saying the Philippine banking system was solvent, with capital adequacy ratios above the regulatory minimum and the international standard.
Maturing time deposits
BSP Deputy Governor Nestor A. Espenilla Jr. late Friday told reporters covering the central bank that the Monetary Board decided on Thursday afternoon to place EIB under PDIC receivership.
He said EIB was faced with P700 million to P800 million in maturing time deposits "due today and Monday" that the lender was unable to service.
At end-September last year, EIB incurred P725 million in losses, while its assets had risen to P25 billion, mostly in the form of real estate, which the bank cannot use to pay its obligations.
“It is sad. We hoped it could be fixed but sometimes you lose,” Espenilla said.
He said BDO was poised to take over EIB, but backed out, thus delaying the thrift lender's rehabilitation and compounding its problems.
"BDO had to decide, if [this was a] sound decision for them. That was a big challenge. There were many legal issues that were unresolved. BDO considered that because of delay of rehab, financial problems continued to grow. They were no longer interested,” Espenilla said.
Pressed to elaborate, the BSP official told InterAksyon.com that EIB's problems surfaced during the due diligence done on the bank.
"That's why BDO made it clear from the beginning, its entry was conditional on EIB fixing its legal problems first. EIB committed to take care of it. And they really tried to work out settlements. Kaya nga tumagal implementation," Espenilla said.
"They managed to fix most legal issues except one. But that one proved to be really difficult deal-breaker. Unfortunately, EIB ran out of time," he added.
'They should have told us'
This however is little comfort to William and other depositors.
The BPO company where William works called for a general assembly last Friday to tell employees that the firm’s fundamentals were strong and that nothing was wrong with its operations. The bad news was that they couldn’t withdraw their salaries on payday as scheduled.
William and his officemates were told that salaries amounting to P10,000 and below could be retrieved only by end-May, while amounts higher than that can be released a month later.
In a second statement issued Friday afternoon, PDIC confirmed that this was the insurance payment schedule that would be followed after the agency took over EIB.
At the bank’s Ermita branch in Manila, depositors were incensed.
“They should have told us!” one depositor complained.
William could only agree. But the question is, who was supposed to tell them before it became too late?
Under Philippine corporate law, BDO and EIB, as private firms, are accountable only to their shareholders, and are under no obligation to reveal details about their transaction, unless so ordered by regulators, namely the BSP and PDIC.
Accordingly, the BSP and PDIC are supposed to look after the welfare of banks and of their depositors.
PDIC does this by providing insurance, which depositors can claim should their bank fail to return the money entrusted to it. The state deposit insurer also extends financial assistance to troubled banks, as was the case when it lent money to EIB.
Under Republic Act No. 3591, which created PDIC, the state deposit insurer should have had access to the financial records as well as other information about the health of EIB. This information PDIC could secure from BSP, which according to law, is in charge of examining banks and other entities it supervises on a regular basis.
See and hear, but say no evil
Despite knowing about the details of bank transactions, the BSP however could not have warned depositors of EIB's impending closure.
According to law, it's a case of being able to see and hear - but not to talk about - evil.
"We're prohibited by law from revealing the condition of any bank," Espenilla said, citing Section 27 of the BSP charter.
Under the said provision of the law, BSP personnel are barred from "revealing in any manner, except under orders of the court, the Congress or any government office or agency authorized by law, or under such conditions as may be prescribed by the Monetary Board, information relating to the condition or business of any institution."
Section 9 of PDIC's charter also prohibits the state deposit insurer's personnel from divulging any information about institutions the agency supervises.
Banking experts say the secrecy surrounding bank failure is premised on preventing whatever is left of the lender's assets from dissipating through what is called a bank run. In short, the law is meant to stop something bad from turning worse.
The thousands of EIB depositors therefore would have to fend for themselves while waiting for at least a month before they get their money back.
But for someone like William who needs the cash now, this is no small price to pay.
As far as he's concerned, this whole affair of regulators knowing all along, yet having no power to prevent a problem from blowing in their face erodes a key pillar that makes the banking system work: trust.
"Some may not feel confident in leaving their money in banks anymore. That's a problem for the economy," he said.
With reports from Gerard dela Pena and Joseph Villanueva
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