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After the Urban Bank debacle, is your money safe in trust?

(Article published in the November 29, 2000 issue of TODAY, Opinion Today Section)

For many years now, the Bangko Sentral has been annually declaring a Trust Consciousness Week during which leaders of the trust industry conduct seminars in urban centers to make investors more aware of the benefits of putting their money in trust. During the open forum, the question is invariably asked: "Is my money safe in a trust?" Very quickly, the natural answer is "yes", followed by the litany of legal, regulatory and business practice safeguards designed to protect the trust investor. In the years that I have had the privilege of joining those presentations, I have not seen anyone stand up to contest the standard response.

When the trust industry goes through its Trust Consciousness rituals in the coming year, I am no longer certain the audience will be as easily convinced. All it will take to cast doubt on the safety of trusts is the sad story of just one or two of the three hundred investors who were not able to encash their manager's checks, all told amounting to Php 1.3 billion, issued to them by Urban Bank as of 25 April 2000 in payment of their withdrawals and preterminations of their accounts in Urbancorp Or the testimony of trustors, beneficiaries or owners of funds, amounting to Php 5.2 billion, that were managed by Urbancorp as of the same date, presently still under trust but without a trustee. Hopefully, by the time Trust Consciousness Week comes next year, the proposed rehabilitation of Urban Bank and Urbancorp shall have been underway, and the trust investors taken care of to their satisfaction. Until then, however, the trust regulators and industry players would do well to focus their attention on another structural fault exposed by the Urban Bank closure.

Based on the Progress Report of the SEC-appointed Interim Receiver for Urbancorp as of 30 June 2000 and filings of officials of Urban Bank who are respondents in the case brought by the Bangko Sentral and the PDIC against Arsenio M. Bartolome III, et al, docketed by the Department of Justice as I.S. No. 2000-1512, loans held by URCOIN, the common trust fund managed by Urbancorp, amounting to over Php 2.8 billion were transferred to Urban Bank on 19 April 2000. On the same day, about Php 1.8 billion loans were bought from Urban Bank.

Part of the transactions on 19 April 2000, was a total of Php 228.2 million loans that were purchased by Urban Bank from Urbancorp, as trustee for URCOIN, and then returned to Urbancorp. on the same day. A similar purchase and sell back combination amounting to Php 1.1 Billion is reported to have occurred six days later.

These transactions apparently were concluded without proper documentation. Urbancorp's Corporate Secretary, lawyer Corazon M. Bejasa admits that "there were no documents executed at that time to cover the sale/purchase transactions" and glossing over the lack of documentation, Bejasa maintains that "what is important is that there was delivery of the consideration for the transactions and there was a due and proper recording of the transactions in the books of both UII and the Bank".

I leave it to our fellow lawyers to comment on the correctness of her statement and to relevant government authorities to sort out the legal and regulatory consequences of these transactions. What bothers me, and a number of the trust investors is the relative ease with which trust assets were moved by the trustee to its mother company (Urbancorp is owned 40% by Urban Bank) and in fact, to and from on the same day, without their owners knowing it and, presumably, without the Bangko Sentral getting wind of it.

A regulatory issuance, I believe, is called for, at the very least, that would alert the supervisory authorities at the Bangko Sentral to what may be going on. A twenty-four hour reporting requirement that is as detailed as the recent regulations cracking down on foreign exchange transactions on all transactions, above a certain threshold, say, 10% of an individually managed fund, or 15% of a common trust fund or 20% of a trust institution's entire portfolio under management, is appropriate at this time. This should be coupled with advice to the trust clients themselves, within the same time, either by e-mail, fax, personally delivered notice or publication in a newspaper of general circulation.

Trusts are long-term arrangements and trust investments should be made on the basis of a long-term time horizon. Any major departure from this posture should be able to stand the immediate scrutiny of regulators as well as those who stand to be prejudiced by it.

(Reynaldo G. Geronimo's e-mail addresses are: (a); (b); and (c) Copies of this and other articles and lectures by R.G. Geronimo may be downloaded from