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If you are convinced that Celso de los Angeles is as guilty as sin,
read no further.
Off the bat, let me say he is a former classmate
of mine. I still regard him as a friend even if these past couple of
weeks he has not replied to my calls, text messages and e-mail.
Given the pressure he is under, I don’t fault him at all.
As Celso’s friend, I am ready to give him, if
not sympathy, then certainly the benefit of the doubt. I am still so
prepared—even in the current lynch-mob atmosphere created by
certain central bank officials and other quarters.
Not too long ago, Celso told some of his friends
he was anxious about a plot to shut down his businesses. The rural
banks he set up, for instance, were offering depositors interest
rates on their savings that the big banks could not—or simply
refused to—match lest it cut into their profit margins.
As a result, the number of depositors in
Celso’s banks, which were spread out across the archipelago, grew
at such a rate that the big banks began to feel genuinely
threatened.
Serves the big banks right, I thought. Their
interest rates were so tiny they did not even allow their
depositors’ savings to keep pace with inflation. Keeping your
money in one of those big banks was only a bit better than stuffing
cash into your mattress, but it still was a losing proposition for
the average depositors. I had thought that the aggressive marketing
tack taken by Celso’s banks would ultimately stir the big banks
into giving their customers a similar or an even better deal. I had
hoped the big banks would finally wake up and realize that they now
face a serious competitor.
Boy, was I wrong.
Instead of stimulating the big banks’
competitive instincts, Celso’s rural banks—along with his
“preneed” ventures, which formed an integrated business—became
the object of what amounts to corporate murder. The big banks
decided to deal with the competition the only way they knew
how—elimination at all costs.
For months, articles and columns were caused to
be printed in newspapers and aired on radio and TV questioning the
“unsound practices” of the rural banks identified with De los
Angeles. Predictably, politicians saw a chance to draw free
publicity to themselves and grabbed it.
In what seemed like the blink of any eye Celso
had become one of the most vilified men in the Philippines.
Even before the hatchet job was completed,
enough of the rural banks’ customers had been so unnerved that
they understandably withdrew their money.
Result: A bank run triggered, not by the lack of
assets or fraudulent business practices, but by negative publicity
and intimidation by officials—far too many of whom look forward to
a cushy sinecure in conglomerates that own big banks after
retirement.
But was there anything intrinsically illegal in
how Celso’s banks and preneed companies operated?
For an answer let me quote excerpts from a
column written by Dean de la Paz in the Busi-nessMirror. Last
Friday, de la Paz wrote in part:
“Despite the absence of an elementary preneed
code, regulators and Monday-morning quarterbacking politicians cry
illegality. Because there are no laws, to declare criminality
requires some amount of creativity for the charges to stick if fraud
and malice are to complement illegality.
“Let us examine a hypothetical preneed
offering and see whether those are present.
“Matching revenues against costs is critical
in the preneed industry. Where revenue sources and fund providers
are one, through a virtual holdout feature, risks of defaults are
mitigated, collections more efficient and the matching of revenues
to costs closer. Note that here we have a preneed subscriber as
clients of either a credit-card company or borrowers in affiliated
banks.
“By enhancing this financial model, either
through a compounding mechanism on the invested fund where interest
earned is compounded monthly, quarterly or even semiannually, a
doubling of earnings can be achieved.
“For instance, a credit-card holder paying an
effective annual interest of 36 percent, or 3 percent monthly,
quickly covers a holdout on the same individual whose funds provided
costs a nominal 12 percent annually. By tying an investment that
earns 12 percent annually to a debt, or a revenue source that earns
36 percent within the same period, a financial institution can earn
300 percent over the same base. Depending on the compounding
schedule-doubling can occur in less than five years.
“In the preneed industry, a hypothetical
educational plan can be offered featuring a front-end 20-percent
rebate. With warrants that allow repurchases where credit-card
companies buy the plan via postdated checks [PDCs], a
double-your-money instrument can be offered.
“Should the plan holder liquidate prior to
maturity, the 20-percent front-end rebate and the PDC repayments
that double the plan’s initial value count as the cost of the
investment. Matched against the credit-card company’s
36-percent-per-annum revenue, the cost of the assignable preneed
plan can adequately be covered under normal circumstances.
“When offered as a contiguous package, is this
patently illegal? Was fraud the intent? Are these designed to steal
from plan holders? Or were they meant to offer yields matched
against specific revenues?”
Some commentators bewail the fact that the
deposit insurance cover for the customers of Celso de los
Angeles’s rural banks will cost taxpayers some P14 billion.
Yet some of the same pundits remain mum on, say,
the billions of pesos in kickbacks from World Bank projects that
were reportedly cornered by a close relative of a high-ranking
government official.
Now, why is that?
dansoy26@yahoo.com
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