Advising a no go - is it a wise move in business consulting? Or should you not get paid for advising so?

Every generation needs a revolution - an entrepreneurial revolution

I had a boss, the head of finance company in the govt, who requested me to do a consultancy work for a friend.  The friend was a former local top exec in an lgu in the Visayas, now a head of a regulatory unit in the govt.   He wanted to invest 8 numbers in an ailing development bank in Southern Luzon

I accepted the engagement and requested for the financial statement

There were certain anomalies noticed:

     1.  There was a negative carry for earning assets, and expense bearing liabilities.   (The time deposits were paid + 10% more than there were earning assets.   It was therefore on continuing loss with its

asset liability structure.

    2.  Large officer expenses.  This is expected considering it had extensive branch network

   3.  There was one asset item that caught my attention:   P40 million repoa.  This I should see.

I went on a trip to the head office in Southern Luzon and met its executive who looked nonchalant and undisturbed over the situation of the bank,  I guessed, after looking at the relationship between quick assets and level of liability that they must be experiencing liquidity problems and in two months time

unless PDIC or BSP steps in a bank run is there in two months time.

This post asked to be accompanied to the 8 number repoa (it was just one item)  And found out that it was supposed to be memorial park, not even 2% developed and valued at  that such huge amount, equivalent to the proposed purchase price.  It was supposed to be an asset of the owner that was booked in the bank's books.  (The owner lived in a plush MM gated subdivision)

This post advised his boss, not to go ahead with the purchase because on day one, they would have negative, or loss with a huge non earning asset in its book.  My boss was aghast since we wouldl not be paid consultancy fee.  I said it was OK

I asked what was the purpose of the fmr mayor in the buy - out.  I learned he wanted to be given the title of the banker.   It was not to earn PHP.   What was the point of being called a banker but managing or owning a losing one

Is it ok not to be paid, if you advise so that the buyer do not get burned.?   Or should you proceed with consultancy no matter how bad the subject is so that you get paidddddddddd?

BSP closes another rural bank

Every generation needs a revolution - an entrepreneurial revolution

The news that BSP closed down another troubled rura bank in Zambales made me recall the brief stint I had as a rural banker.

1.  In 1976 at the urging of my mother, I resigned from my lucrative job to be an AM of a rural bank where she was a cashier.  I had no background in finance nor in banking much less rural banking.   To make up for that weakness:   I enrolled in MBA, meticulously reviewed RA 720 (the Rural Bank Act) the CB manual of regulations, and all the related financing programs of CB (still CB at that time)

In due time, we had new programs for masagana 99, and the Babuyan, programs applicable to the town where the rural bank is located.   The fund generation was prepped up by the Tipid Program  being promoted as school.  This worked well with my work experience being a promo man at Pharma

After a year the performance of the RB yielded positive results as the PNL doubled and so with the deposits.   

I encouraged the towns folk to go for OFW jobs and invited classmates from MBA to talk about such opportunities

But my action did not ring well with the stockholders and board who said that I was their town (they are not from this town) responsible for keeping the bank alive. But I saw poor quality loans from the said now MM municipality and many ever green loans.   I convinced my parents to sell out our shares and agreed to put our local rural bank

2.   In 1977 we organized an SLA and by this time my knowledge of organization and the banking business was much better   I studied well the SLA history in the states.   I set up my system on how to run an SLA   In the seniors training program for SLA execs, this post ended one of the lecturer and many other SLA execs from Central Luzon visited our small office in this town.

In that short stint, this post had this achievements:

1.  Had 3 branches in 5 years;

2.  Had been involved in BIR tax collections (that beefed up our PNL)

3   Became No 2 bank in NHMFC mortgage origination.

4.  We attracted the attention of Housing officials that they bought us out.

The MBA helped me a lot and so did research, research, and passion for self improvement.   Certain quarters sought my assistance in acquiring troubled

We did fine with new owners but some quarters always went for shady deals through the chairman and soon we had string of troubled accounts.     Fake ICR for discounting of receivable's, watershed as collateral, scams loans (the borrower refused to pay for the loan because of an assignment - claimed he did not receive the php.  We were naive. But we were able to save a number of accounts who difficulty with their take outs   

The govt was forced to sell the SLA to private party.   But at that time there were about P100 million in deposits,, 3 branches,  and 50% liquidity.   This was offered to me first to take the deal:   pay 13 m, and then the following day, take out DOSRI loans to pay the P13 m paid.   That's what the buyer a real estate developer did and used the bank as his piggy bank for his real estate projects   He was known to live lavishly traveling in private helicopter and staying in P30,000 a day suite's   He sold to another development bank for P1.00 only.

I could see the difficulties of many rural bankers:

1.   The board does not do its job,  Most members come for the per diem.   Most of the chiefs have their board by their noses.

2.  The owners or majority stockholders use the banks for piggy bankj and use the same to save the interest of their business group.  Some love DOSRI account

3.  Most banks cant compete in the new world of fintech and low cost  high speed banking.  Without access to capital and technology, the rural banks cant compete and are bound to fail.  

4.  Need to professionalize management -  MBA continuing program of professional development for the staff  

5.  In one of the advice giving sessions, I was asked to evaluate a PDB which was for sale

     1   I predicted that its going to run out of cash in 2 months time (based on FS I had)

     2   I talked to their suit donned executives and they looked the least worried about their predicament

     3   I evaluated some of the major items in their balance sheet.  One was a memorial park in 

          SL and worth P40million and this turned out to be raw and, maybe P1M at most.    So bank

          is all ready in the negative on day 1.  It is going to take forever to erase this negative

    4.  In an alcom analysis framework, the bank was in a negative carry for 10%.   How could it survive

         (the bank was incurring 10% more interest expense than it did on its loan generation 

There was no other economical way of keeping the bank alive further.  It had to be foreclosed and true enough 2 months affer PDCI took over 

I rura banking a bad dream for Philippine banking system

I met the BSP Loan Officer Last night

                                 

Last night, I discussed with the entrep class:  the value of money, money vs currency, money creation of central bank, and the QE activities of US Fed Bank under Ben Bernanke. Massive liquidity infusion:  printing of money, buying back securities/Treasuries injects liquidity to the system.  They may be harmful to the economy.  This causes inflation and currency devaluation.

The QE in the US has resulted in stock market rally;  but not in creation of businesses and jobs.

Last night also, in the wake of a classmate in college who succumbed to a stroke, I met a former colleague in the college paper who is now a Managing Director for Loan operations.  He says he reports to a Deputy Governor who we both know, comes from the same school and was involved in activism. 

Those who sympathized with the family were mostly lawyers and bankers.  Our classmate was a lawyer, and the wife is a senior officer of PDIC.  Bank CEOs I heard visited the wake.