http://www.bworld.com.ph/main/content.php?id=8270
Calling A Spade... -- Solita Collas--Monsod
Part III The story thus far: From a memorandum sent to the Central Bank governor, signed by all his deputies, by his special assistant and his assistant, and by the head of the Department of Commercial and Savings Banks, we find that:
1) On the day of the bidding for GenBank (March 28, 1977), the CB governor had issued a new and very stringent bidding requirement -- that the bidders had to present a formal commitment from the banks of their choice that they were prepared to issue a standby letter of credit for the amount of P310 million, that would be needed to pay the obligations of GenBank to the CB.
2) That the memo writers were able to convey this information to only two of the four interested bidders (and Lucio Tan was not one of them).
3) That Lucio Tan was the only one of the four who met the deadline and the new requirement (even though the memo writers were not able to contact him).
4) That the standby Letter of Credit issued by PNB in favor of Lucio Tan violated three major existing CB regulations on the issuance of domestic letters of credit.
In this Part III, three documents are presented (thanks to Catalino Generillo), which show that:
1) Tan had been given advance information about the new requirement.
2) That PNB issued the commitment letter, even if it must have known that it would be in violation of existing CB regulations.
3) That the CB Monetary Board subsequently further accommodated Tan by dispensing with requirements and more than doubling the length of the repayment period.
"FORTUNE TOBACCO CORPORATION
"March 26,1977 (please note that the date is a Saturday)
"MEMORANDUM for --His Excellency The President
Re: General Bank and Trust Company
"We were advised today by the Central Bank that not later than 7:00 P.M. on Monday, the 28th instant, sealed bids to purchase all the assets and assumes (sic) all the liabilities of General Bank and Trust Company shall be accepted and open (sic). Among the required conditions are
"1) All bids must include a letter of commitment from a bank acceptable to Central Bank to secure the advances of the latter in the amount of approximately P310 million by means of a stand-- by letter of credit.
"2) The winning bidder shall then be granted a new commercial banking license to operate.
"For the very first requirement, we felt that within a very limited span of time (until Monday, the 28th instant), such a condition is extremely difficult to comply except perhaps if given at least 90 days to do so. While we are confident we can raise the funds within 90 days may we request your Excellency for your valuable assistance to persuade the PNB to issue the letter required by the Central Bank. On the other hand, we are submitting to PNB a proposal to guarantee their exposure under the letter of commitment in which they are adequately protected. (emphasis supplied)
"As a result of this new development, we intend to offer only P300 million for the equity portion. In accordance to the last Memo which I received from Mr. Ramon Orosa on this basis, the purchase is now a reasonable package.
(signed) LUCIO TAN"
It is clear as day from this letter that Lucio Tan knew about the new requirement on March 26, even though CB Governor Licaros issued instructions to his underlings about the new requirement only on the morning of Monday, March 28, or two days later. He had advance information. It is also clear that the relationship between Tan and President Marcos were such that not only could Tan write a letter to the President on a Saturday, but that he could be sure that the letter would be received on the same day -- direct access -- and that Tan was comfortable enough to ask Marcos what amounted to an outrageous request. Finally, it is clear, that the letter was keeping Marcos abreast of new developments -- which means that Marcos must have known beforehand what Tan’s plans were. Now read on, dear reader.
PHILIPPINE NATIONAL BANK
(Official Depository of the Republic of the Philippines)
March 28, 1977
Central Bank of the Philippines
Manila
Attention: Mr. Amado Brinas
Senior Deputy Governor
Gentlemen:
At the request of and for the account of Messrs. Lucio Tan and Willy Co, we are pleased to advise that within 90 days and upon receipt of the advice of the Central Bank, the Philippine National Bank is prepared to establish a Standby Letter of Credit in favor of the Central Bank under such terms and conditions that will be approved by the Board of Directors and which are acceptable to the Central Bank to secure the Commitments of Messrs. Tan and Co in connection with their bid to purchase the General Bank and Trust Company, as follows:
Amount: P310,000,000.00
Interest:12% per annum
Repayment: Quarterly as to principal and interest
Very truly yours,
(sgd) P.O. DOMINGO
President
Do you think, dear reader, that P.O. Domingo would have, or could have committed to issue a P310 million letter of credit, which exceeded 15% of his bank’s net worth, and which was violative of the CB’s regulations, almost immediately upon Lucio Tan’s request, or within the same working day that it was requested -- unless he was under instructions by a higher up (Marcos)? Another aside: P.O. Domingo much later was made president of the University of the East, which had been acquired by Lucio Tan. But read on, dear reader:
Confidential (stamped)
Monetary Board of the Central Bank of the Philippines
Min. No. 25 -- July 1, 1977
1245. Allied Banking Corporation--Dispensation from the requirement that ABC and the Lucio Tan and Willy Co Group submit a standy irrevocab le letter of credit to secure the emergency advances assumed by ABC and extension from two to five years of the period of payment of the balance of the emergency advances.
ACTION TAKEN:
The Board decided to amend paragraph F, page 5 of the Memorandum of Agreement among the Liquidator of the General Bank and Trust Company, the Allied Banking Corporation (ABC) and the individual members of the Lucio Tan--Willy Co Group, dated May 9, 1977, so as:
1. To dispense with the requirement that ABC and the Lucio Tan and Willy Group submit a standby irrevocable letter of credit to secure the emergency advances assumed by ABC, subject to the following conditions:
a. ABC shall pay to the Central Bank P100 million of the total emergency advances on or before July 15, 1977
b. The Central Bank shall hold a second mortgage on all the collateral securing the credit lines of the Fortune Tobacco Corportion with the Philippine National Bank (PNB) appraised by PNB at P546 million and which as a loan value of P286 million;
c. The Central Bank shall secure a first mortage on the additional collater offered by the Fortune Tobacco Corporation appraised by PNB at P202 million and which has a loan value of P108 million
d. PNB shall submit to the Central Bank a monthly report on the value of the raw leaf tobacco inventory of the Fortune Tobacco Corporation covered by a continuing chattel mortgage.......In the event the value of said inventory is reduced to an amount that will result in a collateral deficiency, ABC and/or Fortune Tobacco Corporation and/or the Lucio Tan and Willy Co Group shall immediately submit additional collateral to cover said collateral deficiency; and
2. To extend from two (2) years to five (5) years the period of payment of the balance of the emergency advances assumed by ABC, to be paid in (20) equal quarterly installments.......and said balance to be secured by the mortages mentioned above.
(sgd) FE D. BARIN
Secretary
There you have it. In one fell swoop, the CB dispensed with the requirement which had scared off the other bidders (who had been told of it), accepted as collateral tobacco inventory instead of real estate mortgages or government securities (in violation of its own requirements), took a very relaxed attitude in case there was a collateral deficiency (instead of foreclosing immediately, they were content with an "immediate" submission of additional collateral, and as if that were not enough, extended from two to five years Lucio Tan’s repayment period. The MB decision shot two birds with one stone: it accommodated Lucio Tan, and it got PNB off the hook.
You have got to admit, this comes pretty close to being the mother of all sweetheart deals.
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