The Legacy Bank Mess: Victims Twice Over (Part 6)

In a press conference in March, 2009, Jose Nograles said PDIC suspected that over P6 billion of an estimated total of P14 billion in deposit claims by clients of 12 foreclosed Legacy banks were fraudulent because they lacked supporting documents. This revelation cropped up just several days after BSP rejected his loan proposal of P14 billion: how convenient for the state insurer looking for a way out. He explained that six supporting bank documents are required to validate a deposit but accused legacy bank personnel of hiding and losing these bank documents. He then appealed to them to turn over the documents in their possession or face charges in court.

Nograles has the temerity to ask depositors whose accounts cannot be validated due to incomplete documentation to run after their agents and solicitors. Nograles has the gall to advise powerless depositors to file non-litigable cases against non-banking people when the PDIC itself, after five months of forensic investigations, has not fined or charged any banking officer who they said had hidden pertinent bank records. Under PDIC’s charter, bank officials who refuse to surrender pertinent documents could be fined from P50,000 to P2 million and/or penalized a long jail sentence.

Nograles said missing bank documents could indicate the theft of depositors’ money by bank officials, or that missing records could also indicate the deposit claims were fictitious. Whatever it indicates, bank depositors are entitled to full compensation of their insured and legitimate deposits. Of the six so-called required documents, five of them are under the control of bank personnel. So even if a depositor has only one of them- the Certificate of Time Deposit or passbook- and matching proof of actual funds inflow, then PDIC is bound to return the money of the depositor. In a speech delivered before a joint meeting of the MAP, PCCI and the MBC on August 28, 2000 at the Hotel Intercontinental, then PDIC President Norberto Nazareno shared his experience with the closed Rural Bank of San Miguel (RBSM). As in the case of the legacy banks, Nazareno said that “anomalous accounts, splitting of deposits and the conversion of manager's checks into split accounts have hampered its [PDIC’s] audit and consolidation of the records leading to the delay in the servicing of insured deposits’ of RBSM depositors.” He said, "As we paid the depositors, they come with their certificate of time deposit but we see that is not recorded in the bank's records." He then admitted to having “to pay their insured deposits since the certificates were signed by authorized signatories, but only after they execute affidavits to support our cases against owners and/or managers.” This precedence underscores DEADBOL’s stand that missing documentation of bank records attended by fraud was not and should not be a reason nor an excuse for PDIC to avoid paying the valid claims of legitimate bank depositors holding official certificates of time deposits. If in 2000 the PDIC paid the RBSM depositors under such circumstances, there is no reason why the PDIC of today cannot pay the legacy depositors. Unless, of course, if the PDIC is illiquid and insolvent- which we have already established and proven.

In fact, the younger Nograles’ accusations of fraud and creation of fictitious accounts by legacy bank officers calls into play the well-established principle that records that would otherwise be conclusive evidence may be attacked as fraudulent. Depositors’ records (CTDs, passbooks, canceled checks) should be considered as evidence, as what PDIC’s Nazareno did with RBSM. Even the Federal Insurance Deposit Corp. of the USA recognizes form of documents which would be considered as conclusive proof, in the event of the liquidation of an FDIC-insured bank when the bank's records are either missing, incomplete, or incorrect. In a FIDC Advisory Opinion, the Assistant General Counsel wrote that in such cases “where the records of an insured bank differ from the records of the account holder, ... the FDIC will accept as conclusive the genuine, unaltered records of the account holder, maintained in good faith and in the ordinary course of business.” The UK’s Financial Services Compensation Scheme “give investors the chance to agree the balance of their own account before accepting payment, or ask them to submit any relevant documentary evidence where they believed a discrepancy existed which we would then investigate further.” PDIC, as an insurer, should not be allowed to escape paying the legitimate claims of depositors who relied on its statutory backing of their accounts and on the ability of their banks to fill out deposit records properly.

Nograles tested the heights of absurdity by claiming “The depositors and the PDIC are both victims here.” How could PDIC be a victim when it supervises banks, and can examine and investigate its records? How could it be a victim when it can fine erring bank officers and owners a maximum amount of P2 million? How could it be a victim when it has the legal power to impose prison mayor on banking personnel who violates its rules? PDIC has all these powers when a bank is operational and open to the public. Just imagine what it can do when the bank has closed and is placed under its total control, and yet Nograles has the audacity to preposterously claim that it is a victim, too.

There is no doubt that legacy bank depositors are victims of Celso de los Angeles and his banking minions. However, as events are shaping up, the legacy bank depositors are now being victimized once again, by the younger Nograles of PDIC. He is not only reneging on PDIC’s basic mission of protecting insured depositors, but his press releases and pronouncements seem to blame the legacy depositor for patronizing these banks. Blaming the victim is a common resort of the guilty. And Jose Nograles is certainly guilty. He is guilty of not acting on PDIC’s 2005 findings of anomalies and wrongdoings in the legacy banks. He is guilty of not continuing the examination of bank records to ensure accurate and complete recordkeeping as provided by the PDIC charter. He is guilty of not filing charges against legacy bank officers for hiding bank documents. He is guilty of not ensuring that the cash reserves of the DIF were enough to pay insured deposits of the legacy banks. He is guilty of not being able to borrow funds from the BSP to pay the insured legacy depositors. And because PDIC is insolvent, he is guilty of coming up with all kinds of excuses in order to unconscionably delay and avoid paying legitimate depositors. He is guilty of erosion of public confidence in the rural banking system. And soon, he will be guilty of ruining the lives of people from all walks of life. Part 7 will give real-life examples of how the younger Nograles is trampling the lives of individuals and families.