PDIC and BSP allowed Legacy to Swindle Depositors

The second DEADBOL meeting was attended by a prospective member, who aside from having time deposits in legacy banks, was a VP-Marketing for legacy bank products. Gi had worked for legacy since 2002 and had more information regarding Celso and the legacy operations.

She confirmed that Celso or CGA paid CTDs to his employees as separation pay, but unlike her subordinate who was led to believe that the banks would be kept open, she was called in the early afternoon of December 4,2009 by the cashier of Dynamic Bank that the banks would be declaring holidays. That during Sat, Dec. 6 and Sun, Dec. 7, bank employees were working overtime inside Rural Bank of Paranaque (RBOP) offices doing cleanup operations (she didn't know what that meant). Bank clerks were also typing the CTDs for separated legacy employees, including themselves.

We were puzzled when Gi said that a lot of time deposits in RBOP were owned by depositors located in Cebu, Gen. Santos, and especially Davao. She explained to us that there wasn't any legacy bank in Davao- constraining so many Davaoenos to course their deposits mainly through legacy offices in Davao. There were also depositors who did not want to travel long distances to open new accounts, so they placed their money through the nearest legacy offices. These "remote" depositors were issued legacy ORs, aside from CTDs which were delivered by the respective banks several days later. We then asked ourselves the obvious question: is it possible that these banks actually received the funds or did they issue the CTDs even if unfunded? It turned out that the answer to these questions did not matter. Gi recounted that she had a client who had been a depositor of the defunct CGA-owned Center bank (closed in 2006). He had personally opened his first P100,000 account but when the PDIC maximum was increased to P250,000, he deposited another P100,000, but through the legacy Makati office. PDIC honored the first account but denied his claim for the second, for the reason that the legacy office remitted the day's collections as an aggregate amount, without a breakdown of the names of the depositors. These transactions were done daily by the legacy offices, making it difficult for PDIC to ascertain who owns what, especially if legacy offices did not deposit collections daily or if the deposited funds did not match office collections.

What hit us is that CGA knew that these remote deposits would not be acceptable to PDIC, but still continued on with this scheme, but on a grander scale: from a one-unit bank to 12 banks with more than 109 branches. His greed knew no bounds, creating hundred, perhaps thousands of despairing depositors with probably no chance of getting back their hard-earned money. After this mind-boggling insight, we were hit by another lightning bolt of an idea: the PDIC allowed legacy offices to continue collecting remote deposits. It is quite impossible that PDIC or the BSP had not heard that legacy offices continued to receive money meant as bank deposits, but had obviously tolerated its practice. PDIC had not issued any circular or memo warning depositors to avoid this kind of remote banking which would not be covered by PDIC insurance, and we are sure that the BSP or PDIC had not issued any cease-and-desist order to the legacy banks and offices.

These insights lead to one inescapable conclusion- that Celso could not have pulled off his "business model" without collusion from these so-called regulatory bodies. Was this the organized syndicate that BSP Deputy Gov. Nestor Espenilla, Jr. was alluding to "that from day one was created to exploit human nature and weak links in the legal, regulatory, and enforcement framework of our banking and financial system.”

The irony of it all is that Davao is the bulwark of Speaker Prospero Nograles. Did he imagine that his kababayans would be the biggest victims of this innovative scheme to swindle depositors? Has his younger brother, PDIC President Jose Nograles, come to realize that most of the claimants of these remote deposits are Davaoenos?

The Legacy Bank Mess: Tragedies and Broken Lives (Part 7)

Mrs. AL, a 64-year-old woman, tearfully narrated how on Friday, May 15 she went to the PDIC Makati office begging and crying for the release of her checks. She got the standard reply: wait for our letter or call advising you of the status of your claims. She had six time deposits ranging from P50,000 to P100,000 per CTD, in her name, her husband’s name, and four of her children’s. They were depositors of the Rural Bank of Paranaque (RBOP) since 2002. Her 67-year-old husband is stroke-incapacitated, and the interest payments from their time deposits were their major source of income. She worked as a seamstress, working up to midnight. They had filed claims last March 24, 2009. She is scheduled for a breast biopsy: she is not only frightened that she may have cancer, but scared that she would not have money to pay the medical and surgical costs. Her husband needs his medicines. After almost two months of waiting, they are desperate.

Distraught would be a good way to describe two ladies, Mrs. P and Mrs. M. Both retired, they too were RBOP depositors. ”Nagkakasakit na nga kami sa kakaisip, (we're getting sick just thinking about this),” they said. Family members, including Mrs. P’s daughter who lives abroad, had placed their savings in the bank. These ladies don't belong to the “small depositors” category (below P100,000) whose claims the PDIC said it would service first. After all, both were successful professionals during their active years: one was an IT executive for a universal bank and the other a top marketing director of a distribution firm. They decided to invest their money in the rural bank because aside from having been around for decades, it offered double-your-money-in-six-years schemes. They figured it was prudent- there were no risks because the bank, as all banks are, was under the regulation and supervision of the BSP and PDIC and in a worse scenario case, their deposits were insured with the PDIC.

Vicky and Irene, long-time family friends, were also officemates in Angola, an insurgency war-torn country that is 7,000 air miles from the Philippines. They had deposited most of their hard-earned savings in Dynamic bank and RBOP. Irene wrote, “I have been working in Angola since 2003. Now that my work is in jeopardy due to global crisis, I'll be left with empty pocket after all those blood and sweat of hard work abroad!” Vicky, a single mother, has been working in Angola for 15 years running and was looking forward to retirement in a year or two, and finally spend all her time with her children. With the loss of income from those high paying deposits, she is resigned to working in Angola for several more years. However, she is now worried and angry that PDIC, based on Nograles’ press releases, may not pay her time deposits, money that she had slaved and saved for 15 years.

My husband is in US as an immigrant with a low profile job. He went there last year just to renew his greencard, but when RBOP closed down, he was forced to stay there to support me and our two children who are only 5- and 2-year-old girls. We don’t want to leave our country but because of what happened, we lost hope not only in PDIC, but in the government and so we decided to go after US citizenship in the future. CS said, “Our country is hopeless with all the corrupt officials everywhere. I don’t want our children to grow seeing this kind of [moral] environment . Our ROBP CTD was everything we had. And now, all i can do is pray that we can still recover it.”

Joe L. is a naturalized American citizen from California who mortgaged his home and put his entire 401K retirement funds to invest with legacy CTDs. He counted on PDIC’s protection. If PDIC renege on their responsibility he is thinking of bringing the matter to U.S. EMBASSY so they can issue a warning to all Americans to refrain from doing business with all Phillipine banks because Philippine government insurer is corrupt. To him this is not just a domestic issue but economic sabotage.

SB is a Briton who retired in the Philippines, and this is what he wrote: “I borrowed money against my house to pursue 'good' interest rates in what was 'sold' to me as safe deposit instruments. I was never a rich man by UK standards. I used to be secure, but now I am back where i was 20 years ago, struggling… I now face losing the house if I cannot recover a high percentage of the money.” DW, a Briton living in the Visayas who had deposited most of his savings in legacy banks, had lost a substantial part of his passive income with the closure of the banks last December. He has accumulated a huge debt with monthly interest for the hospital and funeral expenses due to the long hospitalization and eventual death of his Filipina mother-in-law. Now he has to postpone heart surgery that he urgently needs. He lamented that “finding money to pay bills and for food and water to live off, let alone pay the hospital, the doctors, the funeral” bills are his priority.

J. Basco encapsulates what most, if not all, of the 60,000 legacy bank depositors with an estimated 135,000 accounts are now thinking and feeling, and we quote him: “Today I asked my sister for a loan to leave this country, legacy has (sic) all I have ever saved, I now leave this country and my wife as a broken man, too old to find work and no trust in anyone, an old fool who trusted the PDIC." There are no categories- sophisticated and unsophisticated, small and big depositors, locals and foreigners- only trusting depositors who had faith and confidence in the banking sytem, who entrusted their hard-earned money into rural banks, regulated by the BSP and PDIC, who guaranteed that their deposits were insured.

A total of 13 legacy banks closed last December, 2008. PDIC could not raise the funds to pay the P14 billion or less (if we eliminate the fictitious and fraudulent accounts) of these rural banks’ insured deposits. Another 2 rural banks in Pampanga and one in Mandaue city closed in January, 2009. This May, two more rural banks were placed under PDIC receivership; its two affiliated rural banks have been redflagged by the BSP. There are another two rural banks in Cebu that have not paid the interests due on time deposits, and may be candidates for receivership. Its depositors would soon join the swelling ranks of the great unpaid, which will inexorably lead to the erosion and possible collapse of public confidence in the rural banking system.

Why are the banks failing? Because BSP and PDIC were remiss in regulating and supervising these banks. Why cannot PDIC pay up? Because it is insolvent. Why is it illiquid? Because most of its funds are tied up in long-terms loans to, non-performing assets from and equity in the commercial banks. Why cannot it borrow? Because BSP refused to lend it more money. Why? That is a question that is simple yet difficult to answer. Perhaps BSP Deputy Gov. Nestor Espenilla, Jr. wanted us to read between the lines when he said in a congressional hearing that “we are dealing here with an organized syndicate that from day one was created to exploit human nature and weak links in the legal, regulatory, and enforcement framework of our banking and financial system.”

Last month, we were passing by a newly constructed mansion sitting in a big corner lot in Molave St, Ayala Alabang; we just could not help but ask its neighbor’s security guard who owned this compound made up of two beautiful houses. The guard said that all he knows is that “a Central Bank official owns it.” There may be no story here, or is there?

The Legacy Bank Mess: Half-truths are Whole Lies (Part 2)

George Orwell wrote that “We have now sunk to a depth at which the restatement of the obvious is the first duty of intelligent men.” Ordinary depositors who are alarmed and dismayed by the actions and actuations of PDIC formed a group called DEADBOL (Depositors Enabling All Depositors of Banks of Legacy,). The members call on PDIC to fulfill its overall mandate of protecting depositors. The group demands that PDIC performs its own published mission of adopting “responsive resolution methods” and ensuring “prompt settlement of insured deposit.” So far, five months have passed since the closure of legacy banks, and depositors, who had put their faith in PDIC, are starting to believe and realize that PDIC does not intend to honor its obligations to its insured depositors. PDIC is spouting a lot of half-truths so as to condition the public and we now see that it is DEADBOL’s duty to expose these irresponsible statements of commission or omission, and restate the truth.

Congressmen, senators, and media have the mistaken notion that PDIC is funded by people’s money; PDIC is content for reasons of its own not to disabuse them of this misinformation. PDIC is a government agency that administers a fund that does not use taxpayer’s money. Except for the initial seed money of P3 billion pesos from the government, the Deposit Insurance Fund (DIF) is basically funded from premiums paid by all operating banks. You can be sure that the banks have found out a way to pass on these assessments to the depositors who absorb these hidden costs. To characterize the DIF, which has grown to more than P61 billion pesos, as government funds is a half-truth. That is like saying that SSS and GSIS funds are also owned by the government. Fortunately, the truth is that these funds are private funds but unfortunately, managed by government officials who are driven by dark motives and hidden interests.

On February 9, 2009, PDIC came out with a press release that it is “prioritizing the claims of depositors with regular savings accounts of P100,000 and below in keeping with the state deposit insurer’s mandate to protect small, unsophisticated depositors. “ Nograles further qualified this half-truth by saying that “in keeping with the PDIC’s mandate to protect the small, unsophisticated depositors” and that “stopping the payouts as some quarters have suggested will be prejudicial to small depositors who have valid deposit insurance claims.” Nowhere in the PDIC charter can one find the words “small” and “unsophisticated” but the PDIC president used both words to describe a depositor that his organization is supposed to protect. Now that the maximum insurance coverage is P500,000 per account, will Jose Nograles in servicing future claims say that a 100,000 pesos and below account represents a small depositor; P250,000, medium; and P500,000, big? Does having a small deposit make you an unsophisticated depositor? Where is Nograles getting his lexicon? Yes, we recall Senator Mar Roxas, during a senate hearing on the legacy mess, first using the words sophisticated and unsophisticated to describe both bank depositors and preneed investors. And the younger Nograles latched on to these words, as if to ingratiate himself with the legislative investigators. Labeling is a cognitive distortion which can lead to logical fallacies.

The truth is that the pdic is chartered “to promote and safeguard the interests of the depositing public by way of providing permanent and continuing insurance coverage on all insured deposits,” regardless of the size of the deposit but up to the statutory insurance coverage per account. It is a fact that this is the first time that PDIC has differentiated and prioritized claims according to the size of the account.

In congressional and senate hearings, Deputy Governor Espenilla, Jr. said that the BSP began investigating the Legacy banks as early as 2005. When a congressman asked Nograles why hadn’t PDIC earlier conducted its own investigation of the legacy banks, we heard Nograles mumble that due to bank secrecy laws, PDIC could only examine individual bank accounts only after a bank has been placed under receivership. This is a half-truth. BSP Governor Tetangco, Jr. in a August, 2005 speech to a financial forum says that he is “happy to report ……, our partnership with local financial regulators (SEC, IC and PDIC), is now fully operational with major projects currently underway. These projects include conglomerate mapping, information sharing, joint examination arrangements, rules harmonization and financial literacy.” The PDIC Forum 2004 proudly announced that RA 9302, the Amended PDIC Charter signed into law on July, 2004, enhanced “PDIC’s capability to minimize risks to the DIF by reinstating its authority to examine banks subject to prior approval of the Monetary Board” and investigate complaints related to unsafe and unsound banking practices. The PDIC newsletter trumpeted that this authority will fortify the financial sytem’s safety net by “allowing prompt remedial intervention.” Dictionaries define prompt as “performed with little or no delay” and remedial as “tending to improve or rectify.” Given then PDIC’s enhanced examination powers, did PDIC examine the books of the banks before the banks actually closed? And if it did, did it delay intervention until it was too late? Part 3 will attempt to provide answers to these burning questions.