Who is the real villain? BSP or PDIC

The consultant pointed out that BSP has come out with relatively clean hands from the Legacy debacle. He said that PDIC is being vilified by the bank depositors but forget that PDIC, under its 2004 charter, could only examine the banks if directed by the Monetary Board. However a close perusal of charter's Sec. 8, article 8 shows that PDIC could on its own initiate and "conduct examination of banks with prior approval of the Monetary Board. That, to avoid overlapping of efforts, the examination shall maximize the efficient use of the relevant reports, information, and findings of the Bangko Sentral which it shall make available to the Corporation."

Here's the rub- the BSP had primary responsibility to monitor these banks, and in fact if reports are to believed, had started its investigation of Legacy banks as early as 2001. Why did it take 7 years before it concluded that these banks were conducting unsafe and unsound banking practices? If we are to believe the allegations of ex-PDIC President Ricardo Tan that it had conducted its own investigations of these same banks in 2005 where it found anomalies and irregularities, then why didn't BSP move earlier against these banks? From the aforementioned article above, BSP would have shared its 2001-2004 findings with the PDIC, and since both investigations lead to the same conclusion, then why didn't the BSP and for that matter, the PDIC file charges against the bank officers?

The consultant offered a juicy tidbit: when the combined SEC and NBI teams raided the Makati offices of the Legacy Consolidated Plans, they found several boxes of documents belonging to the Legacy banks. The PDIC got wind of this development, and requested that it be turned over to them. The SEC refused, and the PDIC had to go to court to compel the SEC for the turnover of the documents to them. Can you imagine that? SEC not cooperating with PDIC. BSP turning down PDIC's loan request of P14 billion. And who ends up the loser and victim of this inter-agency intramurals? As usual, the depositors. No wonder Celso and his ilk were and are able to milk the public: these gov't agencies cannot get their act together.

But wait... isn't that the SEC whose commissioner was tagged as having received almost P7 million worth of goodies from CGA? We heard from the grapevine that during the height of senate and congressional investigations of the Legacy mess and SEC Commissioner Jesus Martinez, big boss caused the family of Martinez to be billeted in Hongkong, shades of Jun Lozada. Rumor has it that the family of the commissioner was held hostage so as not to implicate the boss of Celso and Speaker. Jesus Martinez kept his mouth shut until death shut him up for good (or bad). If this rumor is true, then this explains why Celso is scot-free while his US counterparts- Bernie Madoff and Robert Allen Stanford- have been indicted for numerous charges, and more importantly, been stripped of their assets.

Goodfellas of the Philippines

Remember the movie Goodfellas (1990) starring Robert de Niro, Ray Llota, Joe Pesci. It was a true mobster story about three mafia gangsters. In one segment of the movie, restaurant owner Sonny tries to collect 7,000 dollars of unpaid bills from Tommie, a dangerous, disruptive and volatile criminal, who gets so angry that he breaks a glass bottle on Sonny’s forehead. In the next scene, a scared Sonny complains to Paulie, the local Mafia boss overlord. Although unaware of how to run a restaurant, Paulie promises to offer protection by becoming a partner. “Sonny is now committed and beholden to Paulie. Now Sonny’s got Paulie as a partner. Any problems, he goes to Paulie. Trouble with a bill, he can go to Paulie. Trouble with the cops, deliveries, Tommy, he can call Paulie. But now the guy's got to come up with Paulie's money every week. No matter what. Business bad? F--k you, pay me. Oh, you had a fire? F--k you, pay me. The place got hit by lightning, huh? F--k you, pay me. Also, Paulie could do anything. Especially run up bills on the joint's credit. And why not? Nobody's gonna pay for it anyway. And as soon as the deliveries are made in the front door, you move the stuff out the back and sell it at a discount. You take a two hundred dollar case of booze and you sell it for a hundred. It doesn't matter. It's all profit. And then finally, when there's nothing left, when you can't borrow another buck from the bank or buy another case of booze, you bust the joint out. You light a match.” And the restaurant is set on fire by Paulie’s hoodlums and burns down.

Sounds familiar? You bet it does. If we go by LAV’s June 12 comment in Ricky Carandang’s blog and KBP Cebu Chairman Leo Lastimosa's statement, they both say that Speaker Nograles, Butch Pichay, and other powerful people were partners of Celso de los Angeles. Here is a possible scenario: Celso runs to Prospero Nograles and company when BSP in 2003, according to Celso, starts harassing and extorting from him (remember his accusation against ex-BSP Deputy Governor Alberto Reyes and his brother, Efren Reyes). In the next scene, a scared Celso complains to Noggie, who probably gets the go-signal from his big boss. Although unaware of how to run banks, Noggie and company promises to offer protection by becoming partners. Celso is now committed and beholden to Noggie and company. Now Celso has got Noggie as a partner. Any problem, he goes to Noggie and his boss. Trouble with PDIC? Big boss says back off to Ricardo Tan, PDIC president who initiated a PDIC investigation in 2005. Tan doesn’t back off, and he gets replaced by another (who dies while holding office). Trouble with BSP? Big boss says back off and BSP backs off (according to Alberto Reyes, BSP had started its investigation of legacy banks as early as 2003 but takes five years to act on its findings). But now Celso’s got to pay his new partners. Noggie is now more powerful: not only is his brother-in-law working for the BSP, but his younger brother is PDIC president. Business bad because of financial crisis? F--k you, pay me. Launder money for them, pay their campaign expenses using legacy funds, use legacy offices and staff for their election campaigns, etc. Create so many fictitious loans using bloated collateral to siphon off money deposited by trusting and unsuspecting depositors. Come up with ghost applicants for motorcycle loans and receive hundreds of motorcycles. Print out so many CTDs assigned to the new partner’s dummies. It doesn’t matter. It’s all profit. And then finally, when there's nothing left, when you can't borrow another buck from the bank or get more legitimate deposits, you bust the banks out. Declare bank holidays. Is this a true story, too?

That one possible scenario. Here in another possible rundown: Celso himself gets tired of the payouts to and extortions from his new partners, and he himself gives up and closes all his business in one go. Celso is an AIM MBA graduate- he knows the value of banks. He would let go of his other businesses like the preneed, real estate, and credit card companies but given a choice, keep the banks. Only if he was cornered and desperate would he give up his banks, all 13 of them. He must have said, “What the f—ck!” and without giving notice to his partners, closed the whole shebang. And that explains how Noggie ended up holding P18 million of investments and CTDs (unfunded?).

An Expose of PDIC: The Makings of a Syndicate

Ricardo Tan, former president of PDIC, claimed that sometime in 2005, Nograles had invited him to dinner in Edsa Plaza Shangrila hotel but was surprised by the appearance of Celso de los Angeles. Prospero Nograles, then House majority leader, asked him to go easy on the probe of the Legacy Group because its owner was well connected with top administration officials. This dinner came after PDIC had started its own investigation of the legacy banks. “We conducted a probe based on the complaints of depositors,” Tan said.“What we found were fictitious deposits, [rotating] collateral from one bank to the other, unsafe and unsound [banking practices] and improper documentation.”

The older Nograles kept on coming up with different explanations for that meeting, and noting that if he had wanted to intervene in the Legacy case, he should have talked to the BSP and not PDIC. He is quoted as saying ““The function of PDIC is to pay depositors of banks ordered closed by the central bank which files complaints against erring banks. Filing cases is not the function of PDIC. So why should I talk to him (Ricardo Tan) when it is not his function? His job is to collate assets of closed banks and pay depositors.” Not surprisingly, Celso echoed the same line by saying “Why would I talk to Ric Tan when he was not with the BSP, and I did not have any closed banks at that time?” If Celso could play dumb on the powers of PDIC, Prospero Nograles certainly cannot get away with feigning ignorance. He was the majority leader when RA 9302, the law that restored PDIC’s power to examine and investigate banks, was deliberated on the floor and passed by the House in 2004.

We can therefore logically infer two facts from Tan’s revelations: first, that contrary to the younger Nograles’ protestations in the 2009 congressional hearings, PDIC could and had in fact investigated the legacy banks as early as 2005 and second, that Celso had powerful friends who were obviously interceding and running interference for him. Celso himself disclosed in an interview with Ricky Carandang that that he was “close” to some influential political figures like Vice President Noli De Castro, House Speaker Boy Nograles, former congressman Butch Pichay, and Environment Secretary Lito Atienza. VP Noli acknowledged that Celso was a campaign supporter in his 2004 election run for the VP position. How valuable was he to Noli de Castro? Obviously a big-time contributor- it was De Castro who recommended that De los Angeles be appointed in 2004 as chairman of the National Home Mortgage Corporation. Nograles admitted that he was a legacy preneed investor before 2004 and still had a collectible of P18 million in legacy investments. Legacy bank insiders revealed that the Speaker had availed of the bank’s car promo plan under its 6-year DYM time deposit. The Speaker has admitted to attending parties thrown by Celso. Carol Hinola, former president of the Legacy group, alleged that Congressman Ed Zialcita received a monthly stipend of P100,000 as consultant fees. Patricio Mangubat of the New Philippine Revolution wrote that the Paranaque congressman “is not just a silent investor but a very active one.

Obviously, these powerful friends had to ensure that the golden goose would keep on laying the golden eggs. Having influential partners and backers was not enough to keep the money machine operating. It needed inside men to ensure that BSP, PDIC and SEC would not spoil the party. The critical roles of BSP and PDIC as potential spoilers in the grand scheme are axiomatic; what is not evident is the function of the SEC. Most of the bank depositors confidently deposited their hard-earned money into the legacy rural banks, not only because of the high interest rates offered but because the banks were part of a conglomerate that included supposedly profitable sister companies engaged in preneed plans, motorcycle dealerships, credit cards, etc. Celso and his friends could not allow the SEC to close down these companies and therefore bring down confidence in the legacy “business model” that Celso kept on mentioning during the initial senate hearings. This was the business model that was making it possible for the legacy banks and preneed companies to rake in billions of pesos.

Enter SEC Commissioner Jesus Martinez, close cousin of congressman Zialcita. Hinola had narrated that during lunch on Feb. 14, 2006 at a Japanese restaurant at the Shangri-La hotel in Makati, Martinez, who was accompanied by Zialcita, has asked her “ if we have any problems with the SEC that he [Martinez] could help us with and at that time…” Martinez must have been a big help because Hinola accused him of receiving a Ford expedition in 2007 and a P5 million house in 2008, all courtesy of legacy funds. One potential problem (SEC) dealt with, two (BSP and PDIC) to go.
Very few people are aware that Prospero Nograles has a close relative working in the BSP. His name is Manuel Bendigo and he is the brother of the wife of Nograles. Though the BSP started investigating the legacy banks as early as 2004, it would seem that the legacy banks were always one step ahead of the investigative team. Would it be farfetched to believe that this brother-in-law played a key role in keeping Celso abreast of BSP’s findings and plans? Two down, one to go.

For refusing to play ball and go easy on the legacy probe, Ricardo Tan was replaced as PDIC president by Michael Osmena, who died in office. On December, 2007, Jose Nograles, an unheard-of Senior Vice President of Landbank and more importantly, younger brother of the House of Representatives’ majority leader, was appointed as PDIC president. It would seem that the younger Nograles had two marching orders- the first and immediate priority was to set aside and bury the adverse findings of PDIC’s 2005 investigations of the legacy banks. He obviously accomplished his first mission. Ricardo Tan said in an interview with the Inquirer ““When I left PDIC [in April 2006], our exposure to [De los Angeles’] 12 banks [in terms of insured deposits] was P4 billion,” “Since then, PDIC’s exposure has risen to P14 billion.” What was the new PDIC president’s second mission? That in case the some of the legacy banks failed, PDIC, in compliance with its overall mandate, would pay the depositors promptly and expeditiously. Remember his older brother’s quoted job description of the PDIC president? “His job is to collate assets of closed banks and pay depositors.” A month after the legacy banks’ closure, Celso announces that PDIC will soon be paying the bank depositors. Swift deposit payouts would have avoided unwanted attention into legacy bank anomalies and the criminal negligence of the regulatory agencies. But the syndicate did not take into account the one flaw in its grand plan- PDIC had no money to pay out and the BSP inexplicably refused to lend it money. How and why did this happen to the PDIC that had boasted that it had a DIF of P61.5 billion pesos? Part 4 will reveal the hidden interests of the big financial institutions that caused the drying up of the govt-controlled private funds.