Double bank deposit loss

After months of uneasy operation, Export and Industry Bank (EIB) finally threw in the towel last week.

It informed the Bangko Sentral ng Pilipinas it had insufficient assets to meet maturing obligations to its depositors. Rather than declare a bank holiday, which can turn messy if not properly handled, EIB asked that it be placed under receivership by Philippine Deposit Insurance Corp.

Almost a year ago, there were reports that EIB was in trouble. The rumor gained some credence when the country’s biggest banking conglomerate, BDO Unibank Inc., expressed interest in acquiring EIB’s assets and liabilities.

With more than 50 branches strategically located around the country, EIB was a perfect fit for BDO’s banking network. However, after months of negotiations, even with the BSP assisting at the sidelines, the deal did not push through.

BDO’s due diligence examination of EIB’s books showed it had serious problems that could negate whatever benefits the takeover may bring.

The scuttlebutt in the banking community was, BDO sought some credit concessions from the BSP to help mitigate the adverse effects of EIB’s precarious financial position to BDO’s operations.

No dice. The BSP did not want to go out on limb for EIB which might create a precedent for future bank mergers and acquisitions.

With no white knight willing to throw it a lifeline, EIB had no choice but cede control over its assets and liabilities to the government.

Repayment

The recent bank closure is like a story twice told to the depositors of the defunct Urban Bank before it was taken over by EIB in 2001.

It will be recalled that, in April 2000, Urban (then a middle-sized bank that was closely identified with former President Fidel Ramos) declared a bank holiday for the same reasons that EIB closed shop.

At the time the BSP took over Urban, the maximum bank deposit insured by PDIC was P100,000 per depositor per bank, as against today’s P500,000 coverage.

Although payment of small deposits was relatively quick compared to past bank closures, the big depositors had to wait for almost a year before a schedule of repayment was worked out for them.

EIB emerged as the new owner of Urban’s assets and liabilities, but under terms and conditions that the unpaid depositors had neither say nor choice except to swallow.

The remaining depositors had to suffer a 40-percent haircut, i.e., only 60 percent of their deposits were to be repaid and with no interest at all. The amount was computed as of the date Urban declared a bank holiday.

In addition to the diminution in deposit value, 50 percent of that amount was converted to EIB stocks computed at its price at the time of the conversion.

Staggered payments

At that time, EIB’s stock price was quite low, P1.50, which is understandable because it was a newbie in the banking community.

The cash portion of the repayment was not paid in one sitting. It was given out in tranches over one year and the depositors had to personally get them at designated payment centers.

The reduction in deposit repayment was bad enough; it was made worse by compelling the depositors to spend time, money and effort to receive the deposit crumbs.

Since the validation of the identity of the depositors had already been completed, it would have made more sense if the check payments were sent by courier to their payees or deposited to their bank accounts.

Not wanting to get burned again, many of the depositors turned down EIB’s offer to open new bank accounts with it to which the repayment shall be credited.

Those who availed themselves of this arrangement quickly withdrew their money as soon as the amounts were credited to their ATM accounts.

Certificates

The EIB stocks issued to the depositors in partial payment of their deposits made them co-owners of the bank. Under ideal times, that would be cause for hope to either being able to sell the stocks or to receive dividends in the future.

The problem was, even if the depositors wanted to sell the stocks to be able to recover part of their unpaid deposits, there was little interest in EIB stocks.

Although listed on the stock market, EIB stocks were barely, if at all, traded. The investors did not think highly of the company. Why throw good money after bad?

In May 2009, EIB stocks were delisted by the stock exchange for failure to submit the required reports. At the time of the suspension, the stocks were valued at P0.26 per share.

Not surprisingly, cash dividends, the only possible saving grace for EIB stocks, were never declared by the company.

Bottom line? The depositors were given useless pieces of paper as consideration for giving up part of their deposits in the former Urban Bank.

In street language, the EIB depositors were natanso or naonse.

Hopefully, when the accounts of the present EIB depositors are settled by PDIC, they will not suffer the same fate as the original Urban bank depositors.

This is not meant to be a brief for the country’s big banks, but given the EIB experience and that of recently shuttered Banco Filipino, depositors cannot be faulted if they entertain second thoughts about depositing their hard-earned money in medium- and small-sized banks.

True, EIB was a small player in the banking industry. But let’s not forget that small holes can sink big ships.

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