Landbank to sue Urban Bank

The Land Bank of the Philippines (Landbank) is contemplating legal action against Urban Bank to recover anywhere from P300 million to P400 million it had lent to the closed commercial bank a day before it declared a bank holiday.

In an interview with The STAR, Landbank president Florido Casuela admitted that Landbank has an exposure to Urban Bank initially estimated at between P300 million to P400 million, "which could go higher or lower upon further verification of the bank's records."

Casuela explained that Landbank is following all the legal procedures before it finally decides to take legal action against Urban Bank.

Landbank was apparently kept in the dark by Urban Bank on its intention to declare a bank holiday when it borrowed from Landbank through the interbank call loan market. It appears, however, that Landbank was not the only one fooled by Urban Bank.

San Miguel Corp. (SMC), in fact, has already instituted legal action against Urban Bank for fraud.

Aside from Landbank, several other firms have also big exposure in Urban Bank.

According to banking sources, these include the Manila Electric Co. (Meralco) with an exposure of close to P300 million and the Philippine Stock Exchange with around P100 million.

SMC's exposure to Urban Bank is P176.9 million. It already had nine manager's checks covering the amount and was in the process of negotiating the transfer of the funds when Urban Bank declared a holiday on April 26.

Sources said that during Urban Bank's last two days of operations, it was borrowing heavily to pay off maturing interest and obligations.

Even a loan it had released supposedly to Puerto Azul Land Inc. (PALI), sources said, may have actually been diverted to pay off investors in Urbancorp Investment Corp.

The BSP and the Philippine Deposit Insurance Corp. (PDIC) are still checking all the records and financial transactions of Urban Bank up to the day it was closed.