Absa report: It’s a long story

Other than as some half-baked bid to show "white monopoly capital", it’s unclear why new public protector Busisiwe Mkhwebane should have allowed the leak of a provisional report on the assistance the SA Reserve Bank gave Bankorp more than 20 years ago.

Her contention that Absa could be forced to refund (taxpayers) an effective R2.25bn if the remedial actions proposed by her

predecessor, Thuli Madonsela, "remain unchanged" is mere bluster. For a start, there’s little chance the report will stay unchanged. It’s a provisional report because parties — such as Absa, national treasury and the Reserve Bank — haven’t commented.

So what’s this all about? Between 1985 and 1992 the National Party-led government provided a series of bailouts at a preferential interest rate to Bankorp, a bank holding company that consisted of several banks, including Trust Bank, Senbank and Mercabank. It’s contended that the R1.1bn assistance given to Bankorp in 1992 led to a R2.25bn profit on the preferential interest rate. In 1992, Absa bought Bankorp and was substituted into the agreement, essentially benefiting, according to Mkhwebane, from the "lifeboat" granted to Bankorp.

Since then, debate has raged about whether government should seek to recover this amount. In 2002, a panel led by Judge Dennis Davis found the bailout was "seriously flawed" and "illegal", and explained why it would be impossible to recover that money from Absa or its majority shareholder at the time, Sanlam.

However, Madonsela relied on an alternative report by a shadowy company called Ciex, run by former UK intelligence operatives. In 1997, the government (represented by spy chief Billy Masetlha) hired Ciex to probe Bankorp at £100,000/month for consultancy services, to be offset from commissions on assets successfully recovered from "misappropriated public monies and assets".

First in the Ciex firing line was the "illegal gift to Bankorp/Absa of R3.2bn, dressed up as a lifeboat" on which Ciex had presented "a full account" to government in January 1998.

The essence of a bank bailout should be to protect depositors. In the Bankorp case, it protected shareholders — the main one being Sanlam. Then a mutual society attempting to extricate itself from the legacy of executive chairman Fred du Plessis, it’s unlikely that Sanlam was in a position to support a Bankorp rights issue.

So, without the Reserve Bank bailout, any failure in one of the weaker Bankorp units, such as Trust Bank, could have sparked risks to depositors and the banking system.

Fast forward to today, and where does this leave anybody on the core issue of recovery? Perhaps nowhere.

Forget, for the moment, that claims of this sort may prescribe after a certain time. Forget also, for the moment, the different computations on the extent of assistance that had begun in 1985 and continued for a decade.

Focus, for the sake of simplicity, on the R1.1bn package given to Bankorp in 1992 when Absa bought it for this amount. The clear implication is that without such assistance, Bankorp was worth zero (which speaks for itself on the financial vulnerability of Bankorp’s components).

If there is to be recourse, it should be sought not from Absa but from the shareholders of Bankorp — particularly Sanlam. This gets tricky because at the time Sanlam didn’t have shareholders: it was owned by policyholders.

A quarter century on, it’s a practical absurdity that they be penalised — not only because the individual beneficiaries would be impossible to identify, but also because they couldn’t be held liable under a contract void for illegality.

Davis was explicit that, to recover anything, there had to be proof that a beneficiary existed: "Absa paid for the continued assistance of Bankorp by the Reserve Bank and could not be regarded as beneficiaries of the Reserve Bank assistance package. Absa paid fair value for Bankorp ... Sanlam, the major Bankorp shareholder, was aware it would have received no value, or less value, for its shareholding absent Bankorp assistance."

Back to the Ciex report, which reads more like a tender proposal to revamp all SA’s intelligence structures, so overt was Ciex’s self-interest in seeking reward.

Ciex makes broad claims on the present-day value of Sanlam’s holding in Absa, which it says "could be claimed by government on behalf of the taxpayer".

Really? In 1998, coinciding with Sanlam’s demutualisation and its JSE listing, Ciex put the value of Sanlam’s shareholding in Absa at R3.8bn. (Today, that number is academic, as Sanlam sold its stake in Absa years ago.)

Rather, shareholders who would lose from any successful claims are members of pension funds whose Absa shares are held by a variety of SA’s largest asset managers.

Ciex claims, rather disingenuously, that it discovered the "lifeboat" in 1995 when working on behalf of UK investors in Tollgate, at a time when Tollgate was a client of Bankorp-owned Trust Bank. This is a curious claim because, under my editorship in February 1992, Finance Week broke the lifeboat story. In fact, Ciex’s report was sparked by Absa’s liquidation of Tollgate — a substantial group of industrial companies that banked at Trust Bank (then part of Bankorp). Tollgate had been bought in the late 1980s by a consortium of UK investors led by British entrepreneur Julian Askin.

Askin, a close friend of mine, had every reason to feel aggrieved by the liquidation, which took place, it seemed, as one of the unintended consequences of the lifeboat. Soon, unsubstantiated claims were made that he was a crook, prompting him to

flee to the UK.

Absa’s first CEO, Piet Badenhorst, was outraged by the Finance Week exposure of the lifeboat. He immediately cancelled an advertising contract.

A more damaging consequence of the lifeboat was that the liquidation of Tollgate, through which Trust Bank had warehoused a portion of my Finance Week shares, caused me to lose the magazine. But this paled in comparison to the harm that the liquidation inflicted on Askin financially and to his reputation. It has yet to be remedied.