RP BANKS SET ASIDE $94.7 M TO COVER EXPOSURE TO LEHMAN COLLAPSE
MANILA, SEPTEMBER 17, 2008 (STAR) By Ted Torres and Des Ferriols - The country’s two largest banks, Metropolitan Bank and Trust Co. and Banco de Oro, said yesterday they were setting aside provisions totaling $94.7 million to cover their exposure to the Lehman Brothers’ collapse.
“Due to the uncertainty relating to the financial condition of Lehman Brothers, Banco de Oro Unibank Inc. is setting aside provisions totaling P3.8 billion ($80.7 million) to cover its exposure to said entity,” the No. 2 lender said in a disclosure to the Philippine Stock Exchange.
Metrobank, the country’s biggest bank in terms of assets, said it has “made provisions equivalent to $14 million” for its direct bond exposure of $20.4 million.
It told the PSE of a separate lending of P2.4 billion to a Lehman subsidiary in the Philippines.
“The loan status is current and the company is in normal operations,” it said.
Banco de Oro did not disclose the extent of its exposure to Lehman, saying only that its balance sheet should be “adequately covered from potential losses arising from its Lehman exposure.”
“The provisions will come from reallocation of excess reserves and from additional provisions in the current period,” it said.
Bangko Sentral ng Pilipinas Gov. Armando Tetangco said the central bank is ready to assist local banks that might get affected but that there might be no need for such action because “some banks” exposure was small.
“Our banks are benefiting from the banking reforms we’ve already made, particularly the increase in their capital,” Tetangco said. “This was meant precisely to improve banks’ capacity to absorb shocks like this one as well as better risk management.”
Should things get worse, Tetangco said the BSP has a standing repurchase facility that troubled banks may tap to tide them over the current turmoil.
“But its use is unlikely because there is enough liquidity in the system,” Tetangco said.
“Nevertheless, we are monitoring the situation particularly for any other potential effects that may arise from recent events,” he said.
Banco de Oro and Metrobank said they expect to be in the black at the end of the current calendar year.
Metrobank said it “believes it is still on track with its income expectation for the whole year of 2008.”
Banco de Oro said it expects to post a “reasonable net income for the year.”
Metrobank, with a market capitalization of P66.9 billion, ended 10.8 percent down to P33.
Banco de Oro, capitalized at P89.8 billion, closed 15.4 percent down to P33.
Meanwhile, the Philippine American Life and General Insurance Co., or Philamlife, said yesterday it is insulated from the financial difficulties of its major shareholder, American International Group Inc. (AIG), Dow Jones Newswires reported.
“While AIG is our parent company, we are separately capitalized ... the largest and strongest capital base of any insurance company in the Philippines,” Philamlife president and chief executive Jose Cuisia said in a television interview.
“There is no impact of what’s going on in the US on the Philippine operations. Most of our investments are in government securities and prime equity blue-chip stocks, local stocks not US stocks,” Cuisia clarified.
Insurance Commissioner Eduardo Malinis also vouched for Philamlife’s capability to survive despite AIG’s travails.
“Philamlife remains to be the largest insurance company in the Philippines with the strongest balance sheet in the industry,” Malinis said.
“Philamlife is adequately capitalized and its customers’ and policyholders’ interests are protected with the company’s financial strength,” he said. “With its vast resources, Philamlife is capable of meeting it commitments and obligations to its clients.”
Sun Life Financial also admitted that it holds $334-million worth of Lehman bond securities and approximately $15-million net value of Lehman derivative instruments.
Sun Life’s Philippine subsidiaries include Sun Life of Canada (Philippines) Inc.
As of June 30, Sun Life Financial group’s total assets under management stood at CDN$413 billion.
Finance Secretary Margarito Teves, meanwhile, said Lehman Brothers’ financial troubles could stem investment flows to the Philippines but he said the problem would be “temporary.”
“There could be some risk aversion towards emerging markets, including the Philippines, due to the financial troubles of Lehman Brothers which again shook the global financial markets, but we expect this to be temporary,” Teves said.
“We hope that when the global markets finally smoothen out, investors would look at the Philippines favorably given the country’s resilience and stronger macroeconomic fundamentals due to the fiscal and economic reforms that we have been undertaking,” Teves said.
Lehman Brothers, an investment bank established before the US Civil War, filed the largest bankruptcy in the US as Merrill Lynch, another giant, was bought out by Bank of America.
Clear picture sought
Senators want the Government Service Insurance System (GSIS) and the Social Security System (SSS) to bare their exposures in Lehman and AIG as well as how they intend to deal with an emerging global financial crisis.
“They should disclose their investments and how these affected their books, the trust fund of their members,” Sen. Manuel Roxas II said.
Roxas said the appeal was meant to ensure that the people’s money is protected and not to hold SSS or GSIS liable for any wrongdoing.
“What’s important is to guard the people’s money. GSIS and SSS were allowed to invest internationally. At that time, many were saying they should go slow because we were not sure of what was going to happen in the international (investment market),” Roxas said.
“They should just invest here but were allowed to go international so they should explain if they were affected,” he said.
Sen. Loren Legarda also urged the BSP, Insurance Commission and the Securities & Exchange Commission to ascertain the effects of Lehman’s and AIG’s problems on local financial institutions and deal with them promptly.
In September last year, GSIS said it would stash up to $1 billion overseas under its global investment program, Legarda said. Sen. Francis Escudero said GSIS actually got $4 billion in investible funds.
“We are not that concerned about entities listed in the PSE, since they are compelled to quickly report any material events affecting them, as what BDO and Sun Life just did. Our concern is more with respect to entities that are covered by less rigorous disclosure rules,” Legarda said.
“If any banks, insurers, pre-need providers or other institutions take a direct or indirect hit from Lehman’s failure, then they should be required to address those losses right away, such as by raising additional capital, or putting more cash in their trust funds, if necessary, to safeguard depositors and investors,” Legarda said.
GSIS denies AIG exposure
The GSIS said it has no investments in AIG. “That is ridiculous,” Winston Garcia, GSIS president and general manager, said of reports that GSIS invested part of the state workers’ pension funds in AIG.
The GSIS chief admitted that the current financial turmoil in the US would definitely have an impact on the local stock market and on the foreign exchange market in the Philippines.
“The GSIS has no investments with AIG and Lehman, and is thus not directly affected by the worrisome developments concerning said US companies,” GSIS spokesperson Estrella Elamparo said.
Elamparo said that while GSIS has allocated $1 billion to fund its Global Investment Program (GIP), the amount is equivalent only to approximately 12 percent of its total loans and investment portfolio. With Iris Gonzales, Aurea Calica
Chief News Editor: Sol Jose Vanzi
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