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Two friends and Two Rivers

(Article published in the Nov 16,2011 issue of Manila Standard Today) 

One would have thought they were Damon and Phythias; Roberto V. Ongpin and Rey G. David, based on their public statements, were indeed the best of friends; unthinkable, even for a fleeting moment, that one would desert the other, even when the going gets rough and the rough gets going. 

In his letter of 01 June 2011 to Lala Rimando of Newsbreak, Ongpin made a robust defense of David: “Rey David has been accused of many things including irregularity in providing me loans, bad banking practices, insider trading and all kinds of other hogwash.  I have known Rey David for something like 30 years starting from our days in Hong Kong and I respect him as one of the most capable and intelligent bankers in the country.  He made no irregular loans to me no matter how hard you and a lot of others want to make it appear; all loans he made to me were fully secured, were charged interest at the normal rates charged by DBP and were repaid in full before maturity.  Why do you and others persist in damning Rey David because he made a ton of money for DBP?”

And in his paid advertisement of 13 October 2011, Ongpin described David as “one of the smartest bankers in the country.”

It was no wonder then that Ongpin, though he needed not to (assuming Ongpin was really convinced of the stellar banking acumen of his friend and thus of its capability to stand on its own merits), came to David’s rescue as he justified David’s decision to sell to him 50 million shares of DBP’s Philex shares at Php 12.75 per share in the late 2009.  His defence was, in effect, that great minds of great friends run together; independently of each other, they, each one of them, by the use of their own respective and respectable genius, had arrived at the same conclusion about the value of said Philex shares.


The underlying defence strategy of Ongpin, which ought not escape the keen observer, was to save himself and David from charges of insider-trading by claiming self-generated knowledge, not knowledge born of being an insider.  The legal basis for that stance is Section 27.1 of the Securities Regulation Code which does not proscribe all trading by an insider based on all kinds of material non-public information.  Under Section 27.1, the insider-trader can go scot free if he is able to prove that, among other grounds, “the information was not gained from such [insider] relationship”. Stated positively, there is no insider trading when the information is the result of one’s own research and analysis of publicly known data.  

Consequently, again using our basis of Ongpin’s thinking his letter of 01 June 2011 to Rimando, we find Ongpin explaining his own genius as follows: “I started acquiring Philex shares in early 2007. At that time, after detailed analysis, I decided that Philex was greatly undervalued and this was because the market sentiment was that the mine life was only up to 2014.  I concluded, however, that the rise in commodity prices principally copper and gold which was Philex’s principal products, would continue to strengthen not only due to the demand from China in the case of copper, but also due to the shaky financial status of a number of countries resulting from the financial nervousness at that time.  Under those circumstances, gold is always a safe haven.”

He explained further: “When I started buying Philex shares, gold was trading at about US$600 an ounce (vis-a-vis USD1,500 per ounce today [June 01,2011]).  Any analyst worth his salt would easily conclude that metal prices, even if Philex were to do nothing else, would surely result in an extension of the mine life because in the mining business, the higher metal prices are, it becomes possible to mine profitably even lower grade ore.  Thus, I never worried about the inevitable extension of Philex’s mine life.”

Under the protective umbrella of self-generated insight, he sought also to shelter David.  David, said Ongpin in his October 13 paid ad, “was also accumulating Philex shares for DBP on the same theory as myself, that they were undervalued.  I believe that by sometime 2009, DBP had accumulated for its proprietary trading position almost 120 million Philex shares.”

David, for his part, was just as laudatory of Ongpin, almost to the point of veneration.  During the joint investigation of the Senate committees last October 14, he admitted to having been invited to join the Philex board by Ongpin whom David conceded was a friend. David did not go as far admitting Ongpin to be a “good friend”; but was candid enough to admit to Senator Juan Ponce Enrile, that Ongpin was “a friend” nevertheless.  And in addition David in several instances willingly conceded Ongpin’s sovereignty over him.

There seems to be a crack though in the Ongpin-David friendship monolith. While the minds of the two friends were together in the buying of Philex, they apparently did not have the same thinking in the selling.  For David, it was time to sell when the price of DBP’s  Philex shares which had been acquired at the average price of about Php 5.07 went up to over 100% of cost.  Thus, David was willing to have DBP part with 50 million of its Philex shares  at Php 12.75, the actual closing price of at the open market on November 4. By doing so, DBP, David surmised, had not only have made more than double its cost but also, as a consequence, had assured that whatever would be generated by a future sale of the remainder was “gravy”. 

But what was good enough profit for David, but was not good enough profit for Ongpin. Ongpin told Rimando: “I accumulated Philex shares on the basis of fundamentals...AND [all caps, mine-RGG] the fact that the group of Manny Pangilinan had acquired a major stake in Philex.  It does not take a rocket scientist to know that the First Pacific group and MVP always want to have a full control and so I felt that at some point Manny would want to increase his stake and have full control as opposed to just being on par with SSS, the other major shareholder of Philex.  I was convinced that, sooner or later, MVP would offer to buy my stake, and obviously, he would have to pay a premium, since it would enable him to take control.”

This assessment Ongpin apparently did not share with David. David is to later swear before the Senate committees that he “did not know” of MVP’s desire to eventually control. Thereby David admitted to his discredit that he was not into rocket science.  David claimed he did not realize (nor was he informed by Ongpin that their shares (DBP’s and  Ongpin’s) could constitute an attractive block which Manny Pangilinan would find attractive to buy in order to gain control of Philex.  Instead, Ongpin, by way of preparation, sought to convince his friend David to divest himself of part of the latter’s Philex holdings.  And sell them to him.

How Ongpin got DBP’s 50 million shares from David is an exhibition of the art of friendly persuasion.  Narrated Ongpin to Rimando: “I insisted that DBP finance me the Php510 million or some 80% of the value of the transaction.  He [David] agreed provided I paid an additional cash collateral of Php 127.5 million.  At that point, the value of my collateral was 2.8 times the amount of the two loans totalling Php 660 million (my collateral was worth Php 1.8 billion, Php 1.2 billion in Philweb shares and Php 600 million in Philex shares.)” 

This exercise of friendly persuasion paved the way for the profitable transaction of Ongpin with Manny Pangilinan. And Ongpin, getting friendly with David once more, insisted on DBP tagging along with the remainder of its Philex holdings.   There must have been great rejoicing when two roads that diverged in the woods, albeit only temporarily, reunited again in the flowing waters of Two Rivers.