Indeed, because of the irregular way the purchase was made, there was probably no sale at all. According to the BSP and PDIC, "None of these four pieces of papers (the four manager’s checks used in the transaction) proves the purchase by UBI and the sale by UII."
At the time of the sale, the government argues, UBI was "financially hemorrhaging" and "to meet UBI’s critical liquidity and deficient capital" was borrowing in the interbank market from February to April 2000 an average of more than P5 billion a month.
It borrowed P5.897 billion in February, P5.731 billion in March and P5.794 billion in April.
Borlongan claims that UBI has always maintained the required reserves except during its last three banking days only. A normal indicator of illiquidity of a bank is its ability to meet minimum required reserves against its deposit liabilities consisting of cash in the vault and in BSP and reserve-eligible government securities.
Borlongan mentions the Supervising and Examination Sector (SES) Report that UBI would have incurred reserve deficiencies "had it not resorted to interbank borrowings." The report dated April 26 recommended to the Monetary Board the closure and receivership of UBI.
In the legal tussle, the respondents now claim they have done nothing wrong. The regulators continue to see it otherwise.
In a counter-affidavit, for example, Borlongan pointed out that borrowing from the interbank market is an industry acceptable alternative in sourcing funds.
Indeed, there are several commercial banks — among them the government-owned Philippine National Bank — that regularly borrowed in the interbank market during the same period of February to April 6, Borlongan said. "It does not follow that these banks were having liquidity problems," he added.
"To put things in proper perspective and calculate for the correct daily interbank activity, one should get the volume of daily interbank borrowings, less the volume of daily interbank lending, and divide it by the number of banking days in the reference period," Borlongan said. By this calculation, if UBI’s net interbank volume was P5.897 billion and P5.731 billion in the 20 banking days of February and the 23 banking days of March, respectively, UBI borrowed a net average of only P295 million and P249 million per day in February and March, respectively.
The net average per day "is a small fraction of UBI’s total borrowings of about P9-10 billion," Borlongan said.
But the BSP and the PDIC stand pat on its allegation, calling the purchase or transaction unprecedented. And that in the world of interlocking directorates, it benefited UII directors, officers and associates.
The government argues, respondents in April 19 "knowingly and willfully" purchased P2.8-billion "questionable" receivables, inclusive of accrued interest receivables. Based on available records, "A transaction of this magnitude in one day has no precedent."
According to Anne Belinda N. Hinola and Maileen D. Manaig of PDIC, UBI purchased the receivables "so that it can service or pay investments or placements with UII, especially those of its own directors, officers, associates and related entities thereby subjecting UBI depositors and creditors to losses and damages as UBI became unable to pay them.
"Obviously, the transaction was resorted to by UBI as a facility to siphon UBI funds into UII," Hinola and Manaig said in a joint affidavit. Hinola is the Supervising Accounts Management Specialist, PDIC Special Actions and Assistance Group and Manaig is the Senior Accounts Management Specialist of Field Examination Group. "And the fact that UBI and UII have interlocking directorate and common officers has only facilitated and expedited the respondents’ manipulation and fraudulent conversion of UBI funds."
If anything, the government position is that the purchase goes against conventional logic.
According to de Zuniga and Romero, the purchase "cannot be considered an ordinary operating function. No prudent bank officer, while the bank is suffering from serious illiquidity and borrowing to meet its needs, would convert its limited cash into substandard or doubtful receivables with high collection risk." Among others, a bank needs cash to service its deposit liabilities.
And the government continues to insist that the purchase was anomalous and fraudulent — and thus illegal.
The BSP and PDIC claim the respondents "do not deny that there are no deeds of assignment and/or no approvals of the Trust Committee of UII Trust to sell. There was no approval of the UBI Credit and Board to purchase. Hence, "the purchase and sale of receivables is anomalous and fraudulent."
Indeed, at the very beginning, it now appears that there was no legal basis for the purchase at all.
The credit authority of UBI is vested on the Board of Directors which delegated the same to the Credit Committee composed of all senior vice presidents with UBI Chairman Bartolome and chief executive officer Borlongan as, respectively, chairman and co-chairman. According to UBI’s Manual of Credit Policies and Procedures, all approvals of the Credit Committee shall be reported to the UBI Board of Directors for confirmation.
Notwithstanding the purchases were not approved by the Credit Committee nor confirmed by the Board of Directors — and the absence of UII Trust Committee’s approval to sell — "all the respondents participated in the fraudulent purchase and sale leading to the exit of funds from UII," according to the BSP and the PDIC.
"Respondents treated UBI, UII and the UII Trust Department as one and the same. UBI, UII and the UII Trust Department have common officers and staff, holding offices in the same building, using the same documents," the BSP and PDIC argue.
"This fact is unorthodox because UBI has a personality separate and distinct from UII or UII Trust Department. UBI owned 40 percent of UII but UBI has a separate personality and distinct from UII. UBI’s depositors and creditors have claims separate from claims with UII."