Speaker Prospero Nograles ordered yesterday an investigation into the bankruptcy of the Legacy Group of Companies that owned rural banks and pre-need companies.
In a letter to Manila Rep. Jaime Lopez, chairman of the committee on banks and financial intermediaries, Nograles said the closure of these companies had affected tens of thousands of depositors and subscribers of education plans.
He said the investigation should be conducted “at the soonest possible time.”
Lopez has scheduled an initial hearing tomorrow on the Legacy group, which is owned by businessman-politician Celso de los Angeles.
According to Nograles’ brother Jose, president of the state-owned Philippine Deposit Insurance Corp., De los Angeles’ 12 rural banks have more than 130,000 depositors in 50 locations in Metro Manila, Bicol Region, the Visayas and Mindanao.
He said the depositors have filed claims amounting to P14.4 billion based on the maximum insured amount of deposits of P250,000.
Nograles said the Lopez committee should determine what caused the failure of De los Angeles’ banks to prevent other rural banks from similar failure.
“We really have to get into this because the allegations can have long-term effects on the viability of the rural banking system, which is the backbone of countryside development,” he said.
“The allegations raised by Rep. Teddy Locsin (of Makati) are truly disturbing, so we have to find out why these rural banks were closed by the Bangko Sentral ng Pilipinas,” he said.
Locsin has accused Legacy owners of allegedly taking advantage of the deposit insurance law by offering clients a high interest rate of 20 percent per annum provided they deposited a maximum of P250,000, the amount covered by the law.
He claimed that the owners “ran their companies to the ground.”
Nograles said the Lopez committee should summon De los Angeles, BSP officials and other stakeholders.
“These allegations of malpractice have to be fully unearthed so that we can put in place the necessary safeguards to protect and ensure the continuing viability of our rural banks,” he said.
As for the closure of Legacy’s pre-need companies, Nograles said this has jeopardized the education of children whose parents have invested hard-earned money on education plans.
De los Angeles said he is ready to face any congressional hearing to tell his side of the story and refute allegations that he is engaged in fraudulent activities for personal gain.
“I’m coming out because I want to tell my story. My friends and constituents have been egging me on to speak out and defend myself from unfair and unfounded criticisms,” said De Los Angeles, an incumbent mayor of San Jose, Albay, and former chairman of Legacy Consolidated Plans, in an interview with The STAR.
The Legacy Group includes 13 rural banks and affiliate firms which included Legacy Consolidated Plans, Scholarship Plan Phils., Legacy Card Inc., One Realty Corp., Galaxy Realty and Holdings Inc., Legacy Consolidated Asset Holdings Inc., Fusion Capital Corp., Conventional Realty Corp., Shining Armour Property Inc., and Legacy Motors Inc.
“I’m prepared to tell everything in the proper forum. I have nothing to hide,” said De Los Angeles, who insisted that he had done nothing wrong and that the businesses under the Legacy Group’s wing were legitimate.
The BSP padlocked last year 13 rural banks belonging to the Legacy Group on account of unsafe and unsound banking practices, insufficient assets to cover liabilities and poor liquidity. Banking observers estimate that around P12 billion in deposits nationwide might have gone down the drain with the collapse of the Legacy Group- affiliated banks.
These banks offered 20 percent per annum interest for time deposits.
Depositors complained that they were all induced into investing in Legacy’s pre-need plan under a “double your money in three years” scheme that paid out a 10-percent return immediately upon sign-up. The remaining 90 percent was split in 12 quarterly installments and released as post-dated checks to each investor.
De Los Angeles said there was nothing wrong with this investment scheme, which is allowed under banking rules.
“BSP rules allow banks to pay interest one year in advance. If they want to change that they should change the rule. We just wanted to be innovative. We’re a small bank and just wanted to get more clients,” he said.
De Los Angeles said the government and a confluence of other factors led to the demise of the Legacy Group’s businesses.
He said the banks would not be closed if the government granted the group’s request for an emergency loan.
“All we needed was that loan and enough time to fix our problem,” he said.
De Los Angeles said his group was in talks with prospective investors to acquire the rural banks but failed to close a deal because of reports that the Central Bank was about to shut down the operations of the banks.
“A bank from Indonesia expressed interest to acquire our banks. Just when we were about to seal a deal, the Central Bank stepped in. Had the sale pushed through, everybody would have been happy,” he said.
De Los Angeles also explained that the Legacy Group had no choice but to declare a bank holiday as reports about the Central Bank’s move to place it under rehabilitation had created a panic among investors and endangered employees.
As for Legacy Consolidated Plans which also filed for dissolution due to insolvency and bleak market conditions, De Los Angeles said he was hopeful that all plan holders would get their money back.
As of October 2008, the claims against Legacy Consolidated Plans amounted to P1.06 billion, including all contractual liabilities, whether due or not yet due.
Industry sources estimate that the firm’s trust fund deficiency as of end-October was around P20 million.
De Los Angeles pointed out that the Legacy Group has been in business since 1997 dealing with pension, educational and memorial pre-need plans, micro-financing, automobile and motorcycle financing, credit card and lending to overseas Filipino workers.
He complained of unfair media coverage, syndicates trying to extort money from the group, and the global financial crisis for contributing to the downfall of the Legacy Group.
“Investors were on edge after Lehman Brothers’ Chapter 11 filing. We don’t have investments in Lehman but our investors panicked. If big companies like that failed, what’s more (a small company like) us,” De Los Angeles said.
Palace assures policyholders
Malacañang assured policyholders yesterday that it would help them retrieve their investments or avail of the benefits given by financially distressed pre-need firms.
Press Secretary Jesus Dureza, however, said there is no decision yet from the Palace on calls for the government to bail out huge pre-need firms that have been unable to deliver on their commitments to their clients.
He said economic managers are still studying possible assistance the government can extend to the policyholders or beneficiaries.
Asked whether the government was amenable to proposals that it include the thousands of policy holders of distressed pre-need firms in its P330-billion economic stimulus program, Dureza said: “We don’t know yet what will be the action of the government along that line.”
“We know very well that if there’s a problem with pre-need companies, it affects all, especially ordinary Filipinos,” Dureza told reporters. “Those who avail of pre-need plans usually are those that would like to see that their future is secured, their children can go to school with their little savings.” – With Paolo Romero, Zinnia de la Peña, Antonieta Lopez