Edition: March / May 2017
Call back the past
To act on the “remedial action” proposed by the new public protector will be to hurt members of pension funds, and to hurt them hard. It’s absurd.
Like a hand arising from the grave is the report leaked through the office of new public protector Busiswe Mkhwebane into the lifeboat assistance extended by the SA Reserve Bank to Bankorp, then a Sanlam subsidiary later absorbed into Absa, more than two decades ago. Back in the grave is where it belongs.
Today it has no practical significance save for political outrage. There’s zero cause for Absa to pay back anything on a covenant long-ago extinguished. There’s only delight, for those who want it, to scream that “state capture” wasn’t a concoction of the present government.
Throw in terms such as “apartheid-era looting” by “white monopoly capital” and a toxic cocktail is exploded into an emotive arena; the more so because of the headline treatment as the dispute between the Gupta family and the Finance Ministry was coming to court.
In such a fraught environment, the fact of the report being provisional is relegated to trivial. But being provisional means precisely that responses from affected parties – SARB, National Treasury and Absa critically amongst them – had still to be canvassed or considered.
Once they are, there’s scant chance that the provisional report by then public protector Thuli Madonsela (if indeed this is the same as the leaked report) will remain unchanged. And yet Mkhwebane has proclaimed that Absa, which had bought Bankorp in 1992, could be forced a refund (in effect to SA taxpayers) of some R2,25bn if the remedial actions proposed in the report “remain unchanged”.
To illustrate the ridiculousness of this argument, assume that Absa is forced to pay. Today its main shareholders, aside from Barclays, are the asset managers of pension funds in whose names the funds’ Absa shares are registered. The managers include the Public Investment Corporation, Stanlib, Investec, Old Mutual, Prudential and Allan Gray.
It might be helpful if Mkhwebane were to explain why wholly-innocent members of these pension funds should take a hit. Or indeed whether she’s given an iota of thought to this critical consequence.
How did the whole brouhaha begin? Where does it lead?
Firstly, according to the Mail & Guardian, it started with a request by advocate Paul Hoffman in 2012 for Madonsela “to investigate the alleged failure by the democratic government to recover the funds borrowed by Bankorp (now Absa) from the apartheid regime”. These allegations had been made by CIEX, a UK company of intelligence operatives.
Secondly, CIEX had clearly gathered much of its information from Julian Askin. This is evident from the disclosures in Dangerous Deceipts by Frank Welsh that HarperCollins published in 1999. It reads as a thriller. Even discounting some of its more conspiratorial Broederbond theories, it contains substance for assessing a relevant side to the present lifeboat controversy.
Thirdly, Askin was exceptionally wealthy from the sale of a UK business that he’d dramatically revamped. Shareholders who’d participated in his good fortune respected his financial acumen and elected to follow him into the consortium he led for the acquisition of Tollgate, an SA conglomerate, in 1990. Members of the consortium comprised a galaxy of British individuals and institutions that included Flemings and Warburgs.
Trust Bank, part of Bankorp, was heavily exposed to Tollgate. It welcomed the consortium’s acquisition. There was anticipation that Askin’s turnaround skills would be replicated. Askin, mindful that a post-isolation SA would open fresh business opportunities, was confident of significant value from recapitalising and enlivening Tollgate.
However, he has long contended that he would not have bought Tollgate had he known of the lifeboat being negotiated that allowed Trust’s successor Absa to liquidate Tollgate with impunity. Whether there was good cause for the Tollgate liquidation became the most contentious aspect of the lifeboat fall-out.
After its liquidation, Askin reluctantly settled civil claims against him. Despite allegations of fraud, prominently ventilated in the media, he has never been criminally charged. There’s never been an application for his extradition from the UK either.
Fourthly, in 1990 there was no legislation governing the surplus apportionment of pension funds. If the new Tollgate owners had an eye on the fund of Tollgate, a century-old company which once had over 20 000 employees, there’s been no suggestion of it.
Fifthly, the Absa of 2017 is completely different from the Absa of the early 1990s. Its culture, board and shareholders bear no similarity. So too with its management. Present chief executive Maria Ramos has as much in common with first chief executive Piet Badenhorst, nicknamed for good reason as ‘Bliksem’, as a spaniel with a jackal.
Bankorp was the last group taken into Amalgamated Banks of SA (Absa). A holding company for Trust Bank, Senbank and Mercabank, Absa already comprised United Bank and Allied Bank (having been converted from building societies) and Volkskas. It’s probably because Rembrandt had a persuasive shareholding in Volkskas that CIEX takes the long shot of targeting the Ruperts for involvement.
In the present imbroglio, it’s apparent that Madonsela had been spurred by volunteered information from CIEX. A contract between CIEX managing director Michael Oatley and SA intelligence chief Billy Masetlha, representing government, had been signed in October 1997. They agreed that CIEX would be paid £100 000 monthly for consultancy services, these payments later to be offset from commissions on monies or 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. Government couldn’t have been much surprised. It was receiving the accounts of inquiries, with varying briefs and conclusions, by the Heath, Hoberman and Browde investigations.
So, wanting to effect closure, in 2000 SARB governor Tito Mboweni appointed a panel of experts under Judge Dennis Davis. The panel found that the manner whereby assistance had been extended to Bankorp was “seriously flawed”, was a disguised grant or donation (which presumably carries tax implications), and that the assistance was in the form of an “unlawful agreement” which rendered it void.
Further, the essence of a lifeboat is to protect depositors. In the Bankorp instance, it protected shareholders. They’d suffer no loss because the interest-rate differential, between the soft rate on the SARB loan and the yield on government bonds where the loan proceeds had to be invested, was sufficient to eliminate the costs in writing off Bankorp’s doubtful debts. In effect, these costs were borne by SARB.
Back then, the ultimate Bankorp controlling shareholder was Sanlam. A mutual society, having already ploughed millions in policyholder funds to keep Trust Bank afloat, it was attempting to extricate itself from the brinkmanship legacy of executive chairman Fred du Plessis. This constrained its ability fully to support another Bankorp rights issue.
Were there neither a rights issue nor assistance from SARB, a failure in such a weak Bankorp entity as Trust Bank might well have sparked risks to depositors and the banking system. One of SA’s largest retail banks, under Du Plessis the strategy at Trust Bank (as previously under Jan Marais before it was salvaged by Bankorp) was to push for market share at the expense of loan quality.
Where does this leave anybody on the core issue of recovery? In all likelihood, nowhere.
Forget, for the moment, whether prescription applies after all these years. Forget, also for the moment, the different computations on the extent of assistance that had begun in 1985 (when Bankorp first salvaged Trust) and continued for a decade. Focus, for the sake of simplicity, on the R1,1bn package applied to Bankorp in 1992.
The R1,1bn equates to the price that Absa paid the Bankorp shareholders for it. The implication is that, without such assistance, Bankorp was worth zero. This speaks for itself on the financial vulnerability of Bankorp’s components.
Fundamentally then, the SARB assistance was to Bankorp and not to Absa. Logically, if there is to be recourse, it should be sought not from Absa but from the shareholders of Bankorp.
However, Bankorp no longer exists. Moreover, this whole saga took place prior to the demutualisation of Sanlam. In other words, it had no shareholders. It was owned by people who’d taken life-assurance policies and the pension funds under its administration.
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 in that, to effect recovery of the lifeboat loan, 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 that it would have received no value, or less value for its shareholding absent Bankorp assistance.”
Back to the CIEX documentation that reads like a tender proposal to revamp all manner intelligence structures and operations for the good of post-apartheid SA. Yet its self-interest in extracting reward was implicit in its remuneration arrangement. Additionally, it makes broad claims on the present-day value of Sanlam’s holding in Absa which “could be claimed by government on behalf of the taxpayer”.
Really? In 1998, coinciding with Sanlam’s demutualisation and JSE listing, CIEX put the value of Sanlam’s shareholding in Absa at R3,8bn. Whether accurate or otherwise, when it comes to recovery today the number is academic.
Aside from the Davis arguments, any investment by Sanlam in Absa cannot be particularly significant. Absa doesn’t feature in the latest Sanlam annual report. In the 2016 Absa annual report, neither Sanlam nor any of its operations (such as asset management, whose shares don’t belong to Sanlam anyway) are amongst Absa’s 10 major shareholders. The smallest of Absa’s Top 10 was shown as Allan Gray with 1,48%.
Further, CIEX claims that it discovered the purported lifeboat during 1995 when working on behalf of UK investors in Tollgate. This is a curious claim because, in February 1992, Finance Week broke the lifeboat story. As explained in the accompanying box, it had damaging ramifications not then foreseen.