Report’s problems more than semantics
Anyone can make a simple grammatical error. But when a report that probes complex financial structures can’t seem to tell the difference between “borrowed” and “lent”, you have to wonder about its accuracy, pedantic as this might be. The title of the public protector’s leaked provisional report on the decades-old Bankorp “lifeboat” saga speaks of the government’s alleged failure to recover funds “borrowed” to Absa.
But the grammatical error pales in comparison with the inaccurate picture it paints of the financial and legal technicalities of the lifeboat itself. In a way, the technicalities are less the issue than the politics of the leaked report, which has fed, surely not coincidentally, into a Gupta-inspired narrative about “white monopoly capital” and how the Treasury and the Reserve Bank are supposedly shielding the likes of Absa, which bought Bankorp way back in 1992.
It’s hard to disentangle the poisonous politics around the report from simple sloppiness or inadequate understanding. But the technicalities are at the core of the issues raised in the report, which finds — without yet discussing its findings with those concerned — that the Treasury and Reserve Bank should recover at least R2.6bn from Absa. So, here are some key questions:
● How did the lifeboat actually work? Bankorp was one of the big six South African banks at the time, with a market share of about 10%. It was given to rather aggressive lending practices, which got it into serial trouble, in the troubled times of 1985-1995. Over that period, the Reserve Bank advanced it a total of R1.5bn to help bail it out. Bankorp paid an interest rate of 1% on the money, but had to reinvest it in government bonds and treasury bills, on which it earned 16% interest. So, the assistance it received was the 15 percentage point interest rate differential, which over the period, totalled R1.125bn and helped plug the holes in Bankorp’s finances.
It’s been called a simulated transaction rather than a loan because Bankorp couldn’t access the R1.5bn capital value of the loan itself, but instead benefited from the interest it didn’t have to pay. The bonds and bills were ceded back to the Reserve Bank, so the capital value was automatically repaid eventually. Most agree that the capital was repaid.
But the public protector, based on a 1999 report to SA’s intelligence agencies by private consultancy CIEX, accuses Bankorp/Absa of not having paid back interest at 16%. The report confuses the R1.125bn benefit (in foregone interest) with actual interest payments, and wants to charge accumulated interest on top of that benefit — which is how it gets to R2.6bn and how CIEX got to R3.2bn.
The detail is all in the meticulously researched 122-page report of the Davis panel of experts, which then Reserve Bank governor Tito Mboweni appointed in 1999 to probe the various allegations and reports.
● Who benefited? And by how much? When today’s banking regulators have to bail out a distressed bank, they are careful that they protect depositors, while shareholders, and these days bondholders, take most of the pain. But in Bankorp’s case, the Davis panel found that the bank’s shareholders, led by 88% owner Sanlam, were the beneficiaries. That’s because they were able to sell Bankorp to Absa at its full net asset value. Had the lifeboat not been in place, Absa would have paid much less for the ailing Bankorp or might never have bought it.
The trouble is that Sanlam at that time was a mutual — in other words, it was owned by its policyholders. Would the Reserve Bank want to be chasing elderly pensioners or their heirs with Sanlam policies going back to the 1980s to pay back the Bankorp money? Clearly not, which is why the Davis panel concluded it was simply impractical to recover any benefit, even if it were contractually possible, which was also a question mark.
The bottom line, though, is that if anyone should pay back the money, it’s not Absa. The public protector’s report doesn’t bother to rebut or even examine the Davis panel findings.
● Why did the public protector investigate such an ancient case? The answer is she didn’t. The public protector may not probe events that took place before the office was established, and the Bankorp events took place long before.
What former public protector Thuli Madonsela actually probed was the government’s alleged failure to act on the findings of the CIEX report — which is why she devotes a chunk of her report to showing that the government (in the person of former intelligence chief Billy Masetlha) did indeed contract with CIEX, paying it R10.5m for “consulting services”.
The government surely isn’t required to act on every consultant’s report. But, arguably, the Bank did act on the CIEX report — by appointing the Davis panel to examine the allegations and the very thin evidence the report contained.
● Whose is the leaked report? The report is not one of Madonsela’s better efforts, to be polite. But a big question is whether the leaked report is entirely hers or was doctored somewhat by the new public protector. Either way, it does nothing for the credibility of the office. Perhaps the final report will be better. Absa and/or the Reserve Bank will certainly be standing by to take it on judicial review if it is not rock-solid on the facts and the law.
The implications of letting the report stand in anything like its current form would be highly damaging, not just for Absa but for SA’s whole system of banking regulation, as well as for the reputations of key institutions.
HAD THE LIFEBOAT NOT BEEN IN PLACE, ABSA WOULD HAVE PAID MUCH LESS FOR THE AILING BANKORP OR MIGHT NEVER HAVE BOUGHT IT