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Ask StanChart no stupid questions

(Article published in the Oct 29, 2008 issue of Manila Standard Today)  

  It was a high powered pool of resource persons that Senator Edgardo J. Angara assembled for the Special Consultative Meeting on the Global Financial Turbulence held on 29 September for his Committee on Banks, Financial Institutions and Currencies.

           From government came the Bangko Sentral Governor, an Undersecretary of Finance, the Director of the NEDA, the Chairperson of the SEC, and a senior official of the Insurance Commission.

Leading the private sector attendees were Francis Lim, president of the PSE; Jose L. Cuisia, Jr., President and CEO of Philam Life IG; Pedro Florecio, Treasurer of BDO; Reynaldo G. David, President and CEO of DBP; Ferdinand Tansingco, Treasurer of MetroBank; Arlene Ureta, Legal Division of RCBC; Sanjiv Vohra, country head of Citibank; and last but not least (in fact head and shoulders above most of the others), Eugene Ellis, Chief Executive Officer and Country Head of Standard Chartered Bank in the Philippines.

The combined gravitas of the resource persons matched the weighty subject matter of the consultation.  Sen. Angara called attention to the “financial turbulence [that] is swirling around our head and all over the world.” He thus wanted the public consultation to “focus on our situation, of course, and according to the newspapers, certain Philippine banks reportedly have a total exposure of US$386”  He proceeded to mention the seven banks which were reported in the papers to have invested in Lehman Brothers, with their alleged respective exposures, naming them as follows, “Banco de Oro, 13 million; DBP, 90 million, but this has been considerably reduced according  to our chief executive Rey David; Metropolitan Bank, 71 million; Rizal Commercial Bank, 40 million; Standard Chartered, 26 million; Bank of Commerce, 15 million; United Coconut Planters Bank, 10 million.”


What Sen. Angara seemed to have wanted, in addition to the assessment of the government officials, was for the resource persons his had invited from the mentioned banks to come forward and disclose their respective exposure to Lehman Brothers.  He was, however, quick to emphasize that “the consultation was for the purpose of enlightening our public, in effect, holding their hands and not to cause any undue panic.”

“I think,” continued Sen, Angara, “the best answer to panic is disclosure and knowledge and that is our purpose.”  Taking their cue from Sen. Angara, the invited banks did their best to oblige.

Of the local banks, the Development Bank of the Philippines, represented by its President and CEO, Rey David, was quick to respond and to the point.  In Sen. Angara’s prepared background to the consultation, he mentioned DBP’s exposure to Lehman as $90 million. David’s first statement, after the usual obeisance expected of an executive official to a member of the legislative department, was to correct the good senator.  “Our exposure,” said David, “is 60 [million].  It is not 90, it is 60.”  David then proceeded to demonstrate that, comparing the small amount of the vulnerability of DBP’s investment in Lehman with the magnitude of its reserves and capital, the bank’s total exposure is only “about less than one percent of our total assets.”  Hence, the bank is safe, said David.

Mr. Ferdinand Tansingco of Metrobank, like David, also corrected the reported figures of his employer’s liability to Lehman.  The correct amount is less than reported by the papers.  “In actuality, the direct exposure to Lehman Brothers,” said Tansingco, is only $20 million.”  The balance is investments in a local Special Purpose Vehicle (SPV) that was sponsored by Lehman to buy up loans from local banks.  Tansingco disclosed that, naturally, the SPV has assets which were twice as large as its liabilities; hence, the prospects of recovery of principal and collection of income were strong.  Moreover, that local SPV was not one of the companies that Lehman declared to be bankrupt. But granting arguendo (though contra factum) the correctness of the report, such reported exposure was no more than 4% of Metrobank’s assets and the true exposure an insignificant 1%.  Thus, spake Tansingco.

Banco de Oro’s treasurer, Pedro Florencio, similarly took the position that BDO’s exposure, though the biggest among the local private banks, was “very small in relation to the total assets of the bank…at close to 700 billion.”  The exposure is adequately provisioned, following BSP guidelines and the deposit base is constantly growing.  Hence, the bank expects to earn reasonable income this year, the Lehman exposure notwithstanding.  There should be no doubt about BDO’s capability to do that; after all, the businesses of the Sys have numerous cash cows which, by themselves, can stand in good stead in servicing the requirements of most of BDO’s clients.  Henry’s bank is, now a days, as dependable store of value as gold.

Ms. Arlene Oreta of RCBC similarly stated that her bank’s “exposure is US40 million, and out of  the 1.8 billion capital, this is only 3% of our adequacy capital as well as 0.8% of our total assets.”  RCBC has a 17.91% capital adequacy ratio, obviously in excess of the BSP’s standards. 

Fifty million dollars ($50 million), said Mr. Padilla, is the Bank of Commerce’s exposure to Lehman.  Like the others who spoke before him, he says the risk has been adequately provisioned; like the other banks, the Bank of Commerce’s capital adequacy is higher than BSP’s required level, standing as it does at 30% above it.  With the entry of San Miguel, it expects a capital adequacy ratio of about 16% by early next year.

The statements of the foreign banks, who were actually asked by Sen. Angara to speak ahead of the locals, were a study in contrast.  The very first sentence Citibank’s CEO and Country Head, Mr. Sanjiv Vohra, asserted that Citi’s unit in the Philippines had “no investments in Lehman Brothers.”  Only after having cleared the air did he go into enumerating what in his view are the reasons why the Philippine situation “is pretty stable and robust in terms of meeting the current crisis.”

Mr. Eugene Ellis started where Mr. Vohra left off, on the Philippine situation. He summarized his comments with “we are not unduly concerned as to the Philippine banking scene…”  But where Mr. Vohra was categorical, Mr. Ellis was deafeningly silent.  Observers noted that, despite the brilliance of both Sen. Angara and Sen. Enrile, Mr. Ellis was able to get away with not saying how much his unit of Standard Chartered Bank was exposed to Lehman.

Mr. Ellis, of course, ought not to be accused of hiding that minor detail.  After all, anyone who was interested in the Lehman exposure of Standard Chartered Bank can easily find the information in the internet.

Neither the Bank’s London nor Philippine website reveals it, but, according to Lehman’s bankruptcy filing in New York, it owes Standard Chartered Bank  $41m by way of a bank loan and $36.1m under a letter of credit. This puts Standard Chartered Bank, like Lloyds TSB, among the top-30 unsecured creditors of Lehman Brothers. With the exposure of the mother unit exposed to the world by the British compact newspaper, The Independent, as early as 16 September 2008, what need is there for Mr. Ellis going into the exposure of the outpost he heads here in the Philippines?

What is important is that, as Peter Sands, chief executive officer of the StanChart group, “the Bank is in great shape .”  Continues Sand: “We are strongly positioned to weather the economic uncertainties and superbly placed to capture opportunities.”

This was echoed by the Philippine unit in its press statement four days before Sen. Angara held his consultation.  Said Gina Lopez to print media: ““The bank is in great shape, and we have no direct exposure to the kind of instruments that led to the current crisis.”

What Standard Chartered Bank is reported by a broadsheet to have is merely a P1.2-billion loan exposure to special purpose vehicles of Lehman Brothers in the country, such as Philippine Investment I and Philippine Investment II, Argoman Real Estate Investments Inc., Galli Poli I Real, Galli Poli Real, Lobos Real Estate, Saturn Investment and Teak Real Investment.  Apart from loans to these SPVs, the Philippine unit of Standard Chartered had no exposure to bonds or other sophisticated financial products issued or arranged by Lehman or its affiliates.  The public, of course, is not entitled to know how much, in each of the SPVs, Standard Chartered Bank Manila’s investment was.

           The important thing is that we are told that Standard Chartered Bank in the Philippines has enough money to meet the crisis, its above investments in Lehman-organized SPVs notwithstanding. That is disclosure enough. Do not take it from me; ask for yourselves those who at one time or another had acquired global third party funds through Standard Chartered Bank, ask them how much money from Standard Chartered Bank they had received for their investments.