Cover-up seen in rush to merge DBP, LBP

By Riza Lozada 

Malacañang’s “undue haste” in merging the Development Bank of the Philippines (DBP) with Land Bank of the Philippines (LandBank or LBP) has raised suspicions of a possible cover-up of irregularities involving billions of pesos of behest loans and other anomalies in one or both of the two state-owned banks.

President Aquino raised a lot of eyebrows on Feb. 4 when, out of the blue, he issued an executive order (EO) for the merger that would effectively dissolve the DBP.

Finance Secretary Cesar V. Purisima was among those who strongly lobbied for Mr. Aquino to sign the EO, although there is already a pending bill in Congress that mandates the merger of the DBP and LBP.

“The apparent haste to effect the merger is raising speculations of a cover-up. Is the outgoing administration trying to sweep under the rug some questionable deals made by DBP officials? Who benefited from these deals? What will happen to the questions raised by the Commission on Audit on DBP’s losses and disallowances involving billions of pesos?” asked former Budget Secretary Benjamin Diokno.

Valenzuela City Rep. Sherwin Gatchalian, spokesman of the tandem of independent candidates Senators Grace Poe and Francis “Chiz” Escudero, also questioned the President’s rush in issuing Executive Order 198 to allow the merger “even before the Bangko Sentral ng Pilipinas (BSP) and members of Congress came to know about it.”

Gatchalian expressed apprehension that once the merger is completed, all records of performances and even illegal transactions in the two banks would be erased.

“For example, the DBP’s non-performing assets or bad provisions would be greatly reduced in terms of ratio to performing assets once they are diluted or merged with those of the LBP,” he said, adding that a merger of two large institutions should have undergone a lengthy and comprehensive process of due diligence.

Normally, the operational merger of the two state banks is “subject to the written consent of the Philippine Deposit Insurance Corp. (PDIC) and approval of the Bangko Sentral ng Pilipinas (BSP)” but since an EO was signed for it, it is already good as sealed.

In 2011, a year after Mr. Aquino assumed the presidency, controversy erupted at the DBP when Chairman Jose Nuñez took office. Nuñez was a nominee of businessman Salvador “Buddy” Zamora who has been a prominent financier of Mr. Aquino and the Liberal Party (LP).

Zamora was also rumored to have “gifted” Mr. Aquino with a Porsche shortly after becoming Chief Executive.

Zamora, who is into heavy industries, apparently owed the DBP P3 billion upon the assumption of Nuñez. To pay off the maturing loans, Zamora reportedly applied for new loans with the same bank. But a majority of the bank’s board rejected Zamora’s loan bid, an action that allegedly infuriated Nuñez, after being reportedlydressed down by Zamora.

Nuñez, in retaliation, launched what is now being termed as a “witch hunt” that was reportedly meant to purge the DBP of his foes, officials and all, by implicating them in alleged questionable deals forged during the previous administration.

In the haste to “uncover” a “so-called anomalous deal,” Nuñez and his group trained their eyes on a loan totaling P600 million incurred by former Trade Minister Roberto Ongpin for his business ventures. Described as a “behest loan,” it was said to have been approved in one day.

Documents were then circulated among DBP officials to “affirm the questionable nature” of the loan. The intense pressure on DBP officials applied by Nuñez supposedly resulted in the suicide of Benjamin Pinpin, a DBP lawyer.

In March 2015, employees of the DBP filed a graft complaint with the Office of the Ombudsman against 14 of their senior executives for allegedly shortchanging the government in the “wash sale” of P14.3 billion worth of treasury notes earlier in the year.

A “wash” transaction occurs when an investor or a group of colluding investors sells security (stock, bonds, options) at a loss and repurchases it at a bargain, for the purpose of claiming a capital loss and tax deduction later or of creating the impression of active trading.

It is prohibited because the activity has the effect of manipulating market processes like the prices and volume of traded securities despite there being no true changes in their ownership.

The activity is also detrimental to unsuspecting investors who may rely on the prices established by these illegal trades to price their own transactions.

In a joint complaint-affidavit, representatives of the DBP Employees Union (DBPEU) and the Association of the DBP Career Officials (Adco) said the government incurred P717 million in actual losses from 28 “illegal transactions” entered into by bank officials from January to March 2014.

“The DBP suffered huge losses from those transactions. This money belongs to the people. That was our money,” DBPEU President Rudelito Tirado Jr. said.

Besides engaging in the illicit practice, Tirado said the DBP hired and assigned personnel that were not licensed to engage in trading activities, as required by the Securities and Exchange Commission (SEC).

“We are asking the Ombudsman to look deeper into this because no one will believe that nobody benefited from the money that was lost in the transactions,” said Adco President Francis Romulo Badilla Jr.

He said there was “reason to believe” that some unscrupulous DBP officials “earned something” from the anomalous sale of the government securities which, he suspects, could also be happening in other state-owned financial institutions.

According to Badilla, the DBP could have turned over to the government more than P5 billion in earnings in 2015, had it not been for the losses it suffered from the wash sales.

The complaint was spurred by a Commission on Audit (COA) report that questioned the suspicious transactions, to which management has replied that the trades were done “in good faith.”

The bank employees said in their complaint that the COA resident auditor sent an audit observation to Buenaventura on Jan. 9, 2015, citing the “highly questionable sale” of P14.3 billion worth of government securities belonging to the bank.

Diokno further questioned Mr. Aquino’s issuance of an EO to effect the merger saying the President pushed his executive action beyond it limit, as he action usurped the powers of Congress to legislate.

“By ordering the dissolution of DBP and the transfer of its functions to LBP, the President in effect performed two distinct legislative acts: first, he repealed the law that created DBP; and second, he amended the charter of the LBP by expanding its functions,” Diokno said.

The power to legislate is reserved only to Congress and to the people, through the process of initiative and referendum.

“The Supreme Court made that clear in its recent decision on the constitutionally infirm Disbursement Acceleration Program (DAP). The High Court stated that only Congress, acting as a bicameral body, and the people, through the process of initiative and referendum, may constitutionally wield legislative power and no other,” Diokno added.

“With four months to go before he exits Malacanang, why is President Aquino in a rush to marry the two government banks? It is quite reasonable to conclude that the merger won’t be completed before June 30, 2016, the end of his term,” Diokno said. “Uncertainties are magnified by a ban on personnel movements during the election period. What if his successor and the new Congress have other ideas in mind?”