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Saturday, August 12, 2017

Comelec Chairman Andy Bautista Placed His Unexplained Wealth in a Failing Bank

Besieged  Comelec Chairman Andy Bautista claimed in an interview with ABS-CBN's Karen Davila (beginning at 21:00 of the above video) that he had been acting as "the designated family treasurer" for his parents and siblings since as late as the 1990s.

“Most of [it] belong[s] to my parents, my brother and my sister,” Bautista told the Inquirer. He was referring to his brother, Martin, and sister, Susan Bautista-Afan. Most of the passbooks were in the name of Bautista and his parents. At least one showed the name of Susan and another was a joint account with Patricia. Martin’s name was not on any of the passbooks in Patricia’s possession
Bautista said Martin was doing well as a doctor in the United States, while Susan also earned substantially when she lived in United States. Susan, a dual citizen, is now with ABS-CBN Foundation.

In a subsequent interview with GMA News, brother Martin Bautista claimed that he had at least US $1.75 million (around Php 87.5 million) with his brother Andy, earned from his successful medical practice in the US.

This information begs several questions:

Why was Andy Bautista continuing to act as a "designated family treasurer" even after he assumed very high profile government posts since 2010?

As an accomplished legal professional, Andy should be very cognizant that any money linked to him, whether from his siblings or parents, must be beyond reproach. As the former head of the PCGG, whose chief job is to go after the hidden wealth of the Marcoses, Andy chased after their money trail (which has long gone cold) and would go after any and possibly all leads that linked onshore and offshore bank accounts to the Marcoses. Was he not aware that these bank accounts could be construed as unexplained wealth? Maybe he did not think that the same standards he applied to the Marcoses could also be applied to him? Or perhaps the lessons of the Corona impeachment, where legitimately obtained assets that remain undeclared in his SALN could be severe grounds for impeachment, did not sink in?

Why didn't Andy Bautista create some form of "blind trust" for his family's money, that would erect a legal barrier between him and his family's money? As a top lawyer, he could have possibly drawn up the trust himself or gotten help from his extensive network in the legal profession.

Why didn't Andy Bautista just hand off the management of his family money to another competent financial professional when he assumed government posts way back in 2010?

As a former head of the Kuok Group Philippines and as a former international lawyer specializing in mergers and acquisitions and/or project finance, Andy Bautista would have had the network to entrust this matter to another very capable finance professional.

Why did Andy Bautista put a significant chunk of his family money in Luzon Development Bank (LDB), a small development bank?

One of the chief tenets of a treasurer is to manage risk. As designated family treasurer, he was tasked with three things:

  1. Preservation of Capital
  2. Liquidity
  3. Growth
Preservation of Capital

A cursory look at LDB's published statement of financial condition as of March 2017 would reveal that the bank is not very stable.

First of all, it is losing money at an annualized rate of -35.01% as of the first quarter 2017. At Php 620.88 million, its Gross Non-Performing Loans (Gross NPLs) is almost twice its Stockholder's Equity of Php 345.43 million. So any large write-off of these NPLs could severely impair a very large chunk of its equity. As of March 2017, LDB's Total Capital Adequacy Ratio (Total CAR), the BSP's preferred measure of financial strength, stood at 6.74, barely above BSP's minimum of 6.00 and way below BSP's recommended minimum of 10.00.

LDB has routinely been flagged by this author as one of the Top Distressed Banks in the Philippines since March 2014. As of March 2017, the ratio of its Distressed Assets to its Total Capital Cushion is 182.24%, significantly above the threshold of 100% at which a bank is considered risky.

If and when the bank goes bust, the deposits of Andy's family would be insured up to a maximum of Php 500,000.00 per depositor. So, if the bank goes bust, Andy's family deposits are insured for less than 1% of what he is purported to have just in LDB.


With only Php 5.75 billion in Assets and only Php 5.07 billion in deposits, LDB is a small bank. By depositing anwhere from Php 200 million to as much as Php 329 million in just one bank, these deposits would amount to as much as 3.94% to 6.57% of the bank's deposity liabilities. This is a fairly sizeable position in the bank. Moreover, as of March 31, 2017, the bank only had Php 141.83 million in cash. So, any substantial withdrawal (like Php 50 million or more) would cause the bank some cash flow problems. It would take a few days for the bank to withdraw some of its reserves with the Philippine Central Bank (BSP) to fund a substantial withdrawal by the Bautista family.


Since June 2013, LDB's deposits grew from around Php 2.54 billion as of June 2013 to as much as Php 5.22 billion just three years later - June 2016.

As a consequence of this rapid growth in deposits, it's loan portfolio grew very fast too, from just Php 1.79 billion as of June 2013 to as high as Php 3.49 billion in March 2015. 

However, the growth in LDB's loan portfolio was outpaced by the rapid growth in NPLs. As of June 2013, only 11.67% of the bank's Total Loan Portfolio consisted of NPLs. Today, as of March 2017, that figure now stands at its highest ever: 20.35% of Total Loans.

Since March 2015, LDB began to lose money at an alarming rate. Its Return on Equity dropped to a negative 37.77% annualized rate and has had a negative 30% handle since then.

As a result of its massive losses, LDB's Stockholder's Equity is a shadow of its former self.

Not surprisingly, its Capital Adequacy Ratios, BSP's preferred indicator of financial strength, has consistently gone downhill and has fallen below BSP's own recommended minimum of 10.00%.

Lately, its Distressed Asset Ratio has hit a new high and has climbed above 100%, the threshold at which a bank is considered risky, since March 2015.

What could explain why Andy Bautista put so much money in LDB? Thinking Pinoy has advanced one theory.

But another explanation could be much more prosaic. It's possible that LDB that in this low interest rate environment, the bank was not earning much with a Return on Equity of 1.26% as of September 2013. The bank might have been forced to jack up rates on deposits to enlarge its deposit base. That would have attracted a lot of depositors, including the deposits from Andy Bautista's family.  But LDB had to earn a spread over its jacked up rates, meaning the interest rates on its loans would have been jacked up as well. But the massive growth in deposits meant that this money had to be lent out and soon. Its lending standards could have gone down or the only borrowers who would be willing to take up the higher interest loans would have been the riskier ones. Hence, the massive rise in NPLs and losses for LDB.

Now where have we heard this story before?

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