Philippine Deposit Insurance Corporation (PDIC) President Jose C. Nograles said that verification conducted by PDIC deputy receivers of the 12 Legacy-affiliated banks showed overstatement of the assets in the books of the banks amounting to P18.96 billion. He further said that the banks’ financials may still be adjusted once the results of the forensic investigation being undertaken by an external audit firm on these banks are filed.

Nograles said that as of PDIC takeover in December 2008, these banks’ consolidated statement of condition recorded total assets at P19.82 billion. However, based on asset verification and valuation made by the designated deputy receivers of PDIC, the consolidated total assets of the Legacy banks as of end August 2009 was estimated at only P856 million, revealing an P18.96 billion worth of potential overstatement in the Legacy banks’ books. The overstatement implies that estimated realizable assets (ERVA) of the 12 Legacy banks combined will be less than 10% of the recorded total assets as of takeover date. Initial estimates based on examination of deposit accounts and claims filed place Legacy payouts at P10 billion with practically no recoveries. Because of this, PDIC will bear a heavy hit on its Deposit Insurance Fund (DIF). Uninsured depositors and other creditors will also be hit as recoveries from liquidation are expected to be nil. Holders of denied claims will also bear a hit.

PDIC found that the books of the banks indicated overstatements in the following accounts: real and other properties acquired or ROPA (P6.86 billion); due from banks transactions (P3.8 billion); sale contract receivables (P2.98 billion); loans (P2.49 billion), other assets (P2.3 billion); and others such as due from banks, equity investments, IBODI and FFEs (almost P500 million). The overstatement in the financial records of the banks would make it appear that these banks had adequate assets to continue doing business.

The state deposit insurer earlier took its investigation of the Legacy-affiliated banks to a higher level by engaging the services of Punongbayan & Araullo, an audit firm with expertise in forensic fraud investigation, affiliated with Grant Thornton, International PA. Forensic investigation is geared towards uncovering transactions intentionally hidden in a maze of paper trail and deleted computer files. It aims to identify and document possible fraud schemes, irregularities and anomalies that may have been perpetrated against the banks and which may be used as basis for the filing of criminal, civil and/or administrative cases. Punongbayan & Araullo is now in the thick of uncovering fictitious transactions in the Legacy banks in the form of loans, sales contract receivables (SCR) and other receivables.

As statutory receiver, PDIC is tasked to administer the assets of closed banks and maximize recovery for the benefit of creditors. The amount that may be recovered from the assets of a closed bank will be distributed to satisfy the claims of the closed banks’ creditors including depositors with uninsured deposits.

Nograles said that PDIC is now investigating and will file appropriate charges, when warranted, against accountable bank officers and employees as well as external auditors for any misrepresentations of the actual financial status of the banks. Under Section 21 (f) (3) of the PDIC Charter, any willful making of a false statement or entry in any bank report or document required by the PDIC is punishable by prision mayor or a fine of up to P2 million or both.

PDIC had filed three syndicated estafa cases vs. Legacy owner Celso G. de los Angeles Jr, his wife and son, and several Legacy officers for misappropriation and siphoning of funds of Rural Bank of Carmen in Cebu, Nation Bank in Bacolod, and Rural Bank of Bais in Mandaue. Syndicated estafa is a non-bailable offense. PDIC has likewise charged accountable officers of Philippine Countryside Rural Bank, Inc., Rural Bank of San Jose in Batangas and RB Bais in Mandaue for refusal to turnover bank records still in their possession.