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Delivered at the Meeting of the Rotary Club of Manila,  04 May 2000, Manila Hotel

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As you know, we are very busy at PDIC at this time. So, I do not know why I accepted this invitation today. I guess I could not say NO to a friend, Eddie Go. Also, I guess it is part of public service to share what I can with you about Urban Bank, rather than you getting text messages. Let me then go straight to the point. What do I know about Urban Bank’s closure that I can share with you? You have read about the task force that DOJ was asked to create, and the hold order issued on Archit, Ted, Cora and Renato. How and why were these done? I like to immediately say that there is no political color on these. Whatever happened or is happening to Urban Bank has nothing to do with its Chairman Emeritus, our former President FVR. We know that he was there to enhance the market image of the bank. From what we gathered, he is not involved in board or bank management. When PDIC took over as receiver in the morning of April 26, we took control of assets and records and had to seal drawers and rooms. We left the rooms of Archit and Ted until we were done with all the departments. And, we were sensitive and left the room of FVR untouched, in deference to our former president, fully aware that he is not involved in operations of the bank. However, his own people came over from Alabang to bring out his personal things, when he was told that we had taken over the bank.

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I was called to Malacaņang on May 1 by our PDIC Chair, Sec. Pardo to meet on Urban Bank after the Labor Day ceremonies. There were a number of high network individuals and corporate conglomerates who have called up and asked for help to recover their investments. Having been formerly a bank president, I am impressed with the client base that Urban Bank had developed all these years. Urban has turned out to be a real Private Banking and wholesale bank. These are the same people who have asked government to step in to investigate alleged massive fraud. They were saying that there may have been double sale on investments papers, that the NFA papers they held may have been sold to Land Bank to meet withdrawals of other investors. There were also talks that perhaps there were heavy withdrawals prior to the closure. I guess you would know more about these talks than I do. So, the task force was created to investigate these, and the hold order was subsequently issued.

Urban Bank said that their problems started in the week of March 13, when it experienced "clear and consistent trend" of withdrawal mostly from individual Filipino Chinese customers. These were caused by reports that the bank may downgrade further to a thrift bank, and by what happened to Wincorp, ASB and C&P papers. But, unlike I-Bank or PBCom, Urban Bank’s clients who approached us were literally all in shock as they never saw a long line nor a jampacked lobby of heavy withdrawals. In contrast, the two banks kept their doors open up to the wee hours of the morning until all their clients’ withdrawals were serviced. When they finally closed their doors, they still had billions in their vaults. In the case of Urban Bank, we were made to understand that the heavy withdrawals were in UII, their investment house. It was only in the last days that the bank was really affected, but still, there were no long lines because the Bank was into private banking and wholesale banking. In the last minute, the bank had to support the financial needs of the investment house. Whether this is a correct way or not is also being investigated. As you know, there must be a firewall between the bank and investment house.

When Urban Bank declared a voluntary bank holiday as of end of business of Tues., April 25, they announced that they did this after experiencing as much as P3.5 Billion run, which t hey said they were able to meet from internally generated funds and without any assistance from government. We were actually informed at PDIC mid-morning of Wednesday, April 19, that the bank wanted to meet BSP and us on Easter Monday, April 24. We immediately called Archit to find out what their needs were and he told us that all was normal with them, and that they not need any assistance. The same message came from their senior management when we visited them in the afternoon of Wednesday, April 19. All is normal. But then, I got a call from Sec. Pardo in the morning of Good Friday, April 21 and he asked me to get in touch with Archit who was then in Batangas for the long holidays. Archit passed by Tagaytay to tell Sec. Pardo that they needed some help. I finally got hold of him on Saturday, April 22. We worked over the weekend with Gov. Buenaventura to initially make P1.3 Billion available to them based on collaterals and papers they can immediately give. We got proper approvals and were ready to sign and release on Tuesday, April 25. Their signatories were in our offices to close in the afternoon, but were recalled. We were informed that they will instead go to BSP. The rest is history. Bank management instead decided to voluntarily declare a bank holiday. I was told that the primary reason was that they knew P1.3B was not sufficient. Governor Buenaventura gave me a call right after the Bank made that decision. Archit called, too and even invited me over to Urban Bank’s Head Office to address his senior and branch managers Tuesday evening, April 25, which I did. It was a friendly takeover, unlike the takeover of Orient Bank which dragged. We all expected what will happen the following day, once we have formally received the order of the Monetary Board. Most people praised us for our quick response. Others felt that we have overreacted. We were just doing our jobs. We sent about 38 people to Urban Bank’s HO because we needed at least two PDIC staff per department. We also sent at least two staff per branch. Total number of people mobilized was 188. When a bank is placed under receivership, our job is to immediately take hold of assets and records. Our fast reaction is needed based on past sad experiences where records have quickly disappeared even before we can take over the operations of the closed bank. There is also these perennial problem of "splitting of deposits" to maximize insurance coverage. Bank management virtually passing on the entire responsibility to the PDIC. It was for good for us, Urban management and their depositors that we sealed drawers and rooms very quickly. In fairness to them, I’d like to say that Archit and Ted were very cooperative.

I believe Archit and Ted were ill-advised, if ever they sought legal counsel. I think both had the impression that they will still have about a month to try to fix things up. So, Archit called in disbelief that we had to inventory his room and seal off drawers, but afterwards realized the reality of the situation and accepted the fact that the Bank is now closed.

Before I end, the other question perhaps is: "Now, how can uninsured depositors and investors get back their money?" By the way, our initial payments of insured deposits are proceeding very orderly. Many have asked us why pay only up to P25,000 and not up to the maximum cover of P100,000. The decision to initially pay up to a maximum of P25,000 was a aimed at the small depositors, to help them with their daily needs and perhaps even for tuition payments since the new schoolyear is forthcoming. We all know that PDIC is also mandated to examine the deposit accounts before payment can be made. And that is what is being done today. We are fasttracking our examination and depositors can expect the balance of the P100,000 to be released by about May 15. Rest assured we are expediting our consolidation efforts.

I could see that the uninsured depositors and investors will be able to get a better chance of recovery if Urban Bank is reopened rather than liquidated. Some people say that while the bank maybe illiquid, it is still solvent. But at the end of the day, what the depositors and investors really want is their money back. I like to reconfirm Business World’s article that there are major depositors and investors who are now getting together to discuss conversion to equity and with this, to start talking to white knight and to BSP and PDIC on the idea of re-opening the Bank. We encourage this move for we believe that a going concern will give more chances to depositors and investors, some of which are schools, pension funds, foundations.

Let me end at this point by telling you what I personally think went wrong for Urban Bank. Then, we can have the open forum, not only about Urban Bank but also about PDIC. I think Urban Bank’s mistake is that they were heavy in real estate and other investments. In Fact, more than 1.3X of their equity were on the assets. So the bank’s earning and non-earning assets were being supported by short funds from depositors and investors, a mismatched situation.

Thank you. Let me now open up for questions. Thank you.

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