Confusing the issue

It is unfortunate that a plan to raise the maximum deposit insurance coverage (MDIC) from P250,000 to P500,000 via an amendment of the law may be sidelined until after the Lower House conducts an investigation into the failed Legacy group of rural banks owned by administration ally Celso delos Angeles.

Prudence dictates that the approval of the proposed enhancements to PDIC’s charter should not hinge on these investigations as the amendments are targeted more toward bolstering confidence in the stability of the banking system and hampering the ill effects of the global financial crisis.

The charter enhancements sought by PDIC will not only have bank deposit insurance coverage but equip the insurer with powers to closely monitor the country’s threatened banking system (the rural banking sector in particular) in tandem with the Bangko Sentral ng Pilipinas.

PDIC, through its president Jose Nograles, has time and time again made it clear that the Legacy group will not benefit from the charter enhancements.

Nograles has stressed that the proposed MDIC increase will only cover banks closed after the amendments take effect. Thus, claimants like those affected by the simultaneous rural bank closures that started in Dec. 2008 will only be getting up to P250,000 coverage.

To top it all, the PDIC chief even supports congressional initiatives to look into alleged irregularities of the Legacy group-affiliated banks recently placed under PDIC receivership.

It is hoped that Congress would take the investigation into the Legacy group-affiliated banks as a separate issue in approving of the PDIC Charter as the amendments sought are more geared toward creating buffers for the crisis.

Neighboring countries like Malaysia, Singapore, Taiwan, and Hong Kong already implemented full guarantee on bank deposits to last up to 2009 or 2010. The US also increased its MDIC, while countries in Europe either provided blanket guarantees or increased coverage.

Those who fear an abuse in case of increased coverage can take refuge in the assurance that the proposed institutional and financial strengthening measures serve to mitigate risk of moral hazard which may accompany any increase in deposit insurance coverage.

PPI’s white knight

Investment banker Noel Onate took the pre-need industry by surprise when his group acquired Pacific Plans, Inc. (PPI) from GPL Holdings (GPLH) of the Yuchengco Group of Companies for P250 million lock, stock and barrel.

After all, the Onate-led Abundance Providers Investment Corp. (APIC) will not only take over control and management of PPI and continue to sell and service its education, pension, and memorial plans; APIC will also service the problematic traditional education plans (PEPTrads) of the company.

Onate is well-known for establishing Asian Spirit Airlines in 1995 and growing the business from a fleet of two small planes servicing missionary routes to a competitive international airline servicing the region. Just last year, he sold the company reportedly for P1 billion to AMY Holdings of businessman Alfredo Yao, whose flagship business was juicemaker Zesto-O. The airline was later renamed Zest Air.

Cash-rich, Onate could have chosen to retire and live a more relaxed life. But being the pioneering entrepreneur that he is, he took on the challenge presented by the local pre-need industry as an opportunity.

He believes that PPI can recover with a good business plan, an improvement in the global financial market over time, a good conservative management of the trust fund assets, and a pro-active planholder management which invites and encourages dialogue and participation in company initiatives.

PPI planholders, numbering around 300,000, have nothing to fear. GPLH chose Onate from a number of prospective buyers due to his track record of success, his strong financial standing, and his vision for the company and its planholders.

The PEP Coalition, which represents less than one percent of all PPI planholders, must also bear that there is a court-approved rehabilitation plan that addresses the problems attending the PEPTrads by conserving the trust fund assets. And the new owners, led by Onate, are committed to abide by this rehab plan.

So what opportunities does APIC see in acquiring PPI? For one, the latter has more than 300,000 customers that are a rich source of future business for cross-selling new products and services. Second, it has an over 10,000-strong sales force nationwide trained to sell not only pre-need products but other financial services products. Third, the wide reach of PPI is an advantage in any new business expansion. Fourth, there is an efficient operating structure in place. Fifth, the memorial business for one is a very profitable venture. The fact that PPI is the pioneer in memorial pre-need is a significant leverage in this business.

Among the various pre-need firms, Onate is said to have become interested in PPI given its strong asset base and its P12-billion trust fund, its profitable operations in its other product offerings, and the viable court-approved rehabilitation plan for the company.

PPI was among the leaders in the pre-need industry, but like other industry players, encountered difficulties with its open-ended educational plans when government reversed a policy of keeping yearly tuition fee increases to 10 percent as it allowed schools to charge as much as they want beginning in 1990. However, the company’s memorial, pension, and fixed-value educational plans remained viable.

With Onate’s strong background in finance, sales, and marketing, PPI no doubt is in good hands. The trust assets are more than sufficient to meet PPI’s legal obligations, but the new owners are committed to bring in more funds into the company if needed. And like the planholders that have invested their money, Onate’s group stands to gain a lot if this new venture of theirs works, and succeeds, and lose a lot if it fails. Given this, there is no doubt that Onate will make sure PPI under its new owners and management succeeds.

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