The Bangko Sentral ng Pilipinas (BSP) and the Philippine Deposit Insurance Corp. (PDIC) contend that the officials conspired to misuse P2.8 billion of funds of the Urbank Bank Inc. (UBI).
Respondents, according to official documents, defrauded or prejudiced the interest of Urbank Bank, stockholders and their own depositors, to be able to pay and benefit selected clients and investors of their 40 percent-owned affiliate, Urbancorp Investment, Inc. (UII).
There was also the curious case of the spouses Francisco Eizmendi Jr. and Aurora Eizmendi who are joint holders of time certificates of deposit amounting to P3.5 million and P1.5 million.
Without the couple’s knowledge, much less consent, their time deposits were pre-terminated by Urban Bank on April 25, 2000. The termination was made upon the instruction of Urban Bank president Teodoro Borlongan.
The manager of Urban Bank’s Ortigas branch, Ma. Cristina Louise Lagdameo, claimed her signatures on the trading orders are forgeries.
According to Borlongan, he kept the money for safekeeping and was ready to divert it to the Eizmendis anytime they would ask for it. Borlongan reportedly tried to return the money to Eizmendis.
But that is what makes the Eizmendi’s case curious – and remarkable. No less than the bank president pre-terminated the time deposit and encashed it without the knowledge and consent of the Eizmendis. Now apparently the bank manager’s signature was also forged.
This is just a minor detail compared to the collapse of the bank. Especially as the collapse is perceived to be largely due to questionable – if not illegal - acts of its officers, prejudicing hundreds of small and medium depositors.
More direct to the point, the BSP and the PDIC claim that the allegedly fraudulent purchase benefited the relatives of Bartolome.
According to the BSP and PDIC, the respondents "sacrificed the interest of the bank to unduly favor and benefit clients of UII, who are not creditors of UII, among whom are the relatives of Bartolome, directors and officers and notably numbered accounts whose faces have yet to be unmasked and thereby also distributed and upset the property rights of UBI, its depositors and creditors."
But according to Borlongan, he and Bartolome discussed the transfer of loans from UII to UBI with BSP and PDIC before UBI’s bank holiday. "In the meeting on April 23 at the Manila Golf Club, we discussed about the financial assistance from PDIC which would only be P500 million to finance the trust withdrawals of UII," Borlongan said. The loan from PDIC would have to be secured by acceptable receivables with at most 80 percent loan value, and could only be coursed through UBI, as PDIC was constrained in lending to banks only, he said.
The BSP and PDIC debunks the counter-affidavits of the respondents, calling them misplaced.
Respondents argued that the receivables were acquired and are fully collaterized. The BSP and the PDIC say this argument is misplaced, saying "No person in his right mind would convert his cash into doubtful/ past due receivables at the time he needs urgently cash to meet liquidity requirements without any discount or reserve for possible losses. The value of the collateral in such instance is of no moment."
Some of the receivables purchased are either past due, restructured or renewed two or three times, and some have been classified as substandard. The financial statements, appraisal reports, credit investigation reports, and the real estate tax receipts of the receivables are not updated. Some borrowers have registered losses in previous years, exposing the payment for the loans at great risk, government counsels de Zuniga and Romero argue.
For example, they say, borrower AIC Corp. is highly leveraged, meaning the ratio of its liability over its capital is abnormal. The three TCTs as collaterals of Asiaworld Properties are not on file. Columbian Motors has negative net worth whole loan with other banks are for restructuring, its promissory notes having been renewed two or three times.
Tritran, Inc. has negative net worth, its financial statements not updated. The REMs of 196 TCTs out of 431 TCTs of Prime East Properties are not registered/annotated in favor of UBI. The mortgage of its insurance for two helicopters has expired and has been the subject of two restructuring with no payment on the principal.
Marilaque Land, Inc. defaulted on two semi-annual payments of amortization, partially secured as only 77 TCTs out of 197 TCTs are covered by a real estate mortgage (REM) contract. Puerto Azul Land, Inc.’s account has been past due since 1998 and its unpaid principal and interest inclusive of penalties is more than 20 percent of the outstanding loan balance. Its loans with other banks are also for restructuring.
The real estate mortgages of Ray Burton Development Corp. are not annotated. The REM of Phil Realty & Holdings is registered in favor of both UBI and UII and posted losses in 1997 and 1998. The loan of Universal Rightfield is restructured without paying 25 percent payment on principal as required.
Respondents Bartolome, Borlongan and Bejasa were members of the credit committee of UBI, principal officers of both UBI and UII and directors of both UBI and UII, the BSP and PDIC point out. Hence, the UBI officers should have first ascertained that the debtor is capable of fulfilling his commitment to the bank.
According to the arguments by the BSP and the PDIC, because of the adverse classification of the loans and the shaky financial conditions of the borrowers, "respondents violated the General Banking Act in purchasing the receivables of UII to the damage and prejudice of UBI."