i’m not going to pretend i understand what’s really going on with celso de los angeles and the banking establishment. my kneejerk response when i read that his rural banks had a ponzi-like scheme going, promising high returns to depositors, higher than that offered by the big banks, i was disgusted, lalo na’t it seemed that he was counting on the pdic to bail out his depositors just in case…
but if it’s true that big banks could actually match the interest rates he offered on savers’ deposits but big banks just won’t because it would eat into their huge profits, then talaga, it’s possible that celso is the victim of a vilification campaign that was meant to panic his depositors, thus to protect the interests of big banks rather than the interests of the banking public.
makes me wonder about the senate and house investigations. sino ba talagang pinoprotektahan nila? makes me wonder too about vice-president noli de castro’s deafening silence. anyway here’s dan mariano’s column in full:
Vilification of Celso de los Angeles
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, Celsotold 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?