Has Reserve Bank Governor Chris Stals given contradictory accounts of two similar rescue packages?
DETAILS of an extraordinary secret hearing presided over by a former chief justice have thrown fresh light on the Reserve Bank’s controversial rescue of two struggling banks over the past five years.
The hearing was an arbitration of a dispute arising from the Reserve Bank’s bail-out of the Cape Investment Bank (CIB). It emerges from statements made at the secret hearing by Reserve Bank Governor Chris Stals that the bank donated money to the cash- strapped CIB.
Apart from Stals’s testimony, the hearing is significant because of almost exact parallels between the CIB package and the highly controversial Bankorp/Amalgamated Banks of South Africa (Absa) rescue. The Reserve Bank’s legal department told the Mail & Guardian the two transactions were, in principle, the same. But Stals and others have publicly described the higher profile Absa package as a loan — not a gift — which complies with international banking practice.
During the secret hearing, Stals told Judge Pierre Rabie that “like Father Christmas” the Reserve Bank can give money to whichever institution it chooses — such as the CIB which it sought to bail out to the tune of R15-million — except that the shareholder, the government, could ask questions. Rabie quoted Stals as saying the loan had been a “simulated transaction” and not a loan. Rabie concludes it was a gift and the bank never intended to make a loan.
Rabie, who retired in 1987 but stayed on as chief justice for two more years on contract, told the M&G he had conducted the arbitration in his personal capacity. The Reserve Bank said this week the reference to “Father Christmas” was “offered as a facetious example of a course of action that the bank, as a responsible corporate entity, could not contemplate following”. It said the meeting was secret to “avoid possible contravention of the Reserve Bank Act, in respect of persons other than the parties to the arbitration proceedings”.
Stals’s remarks to Rabie, who retired in 1989, cast doubt on his public explanation this year of the Reserve Bank’s R1,2-billion rescue of Bankorp, the collapsed bank swallowed by Absa in 1992. Although Stals and many others presented the controversial rescue package as a loan, many have argued it was, in fact, a gift.
In February this year, Stals told a public enquiry that the Bankorp lifeboat was a loan which, as the “lender of last resort”, the Reserve Bank had been obliged to extend to protect the rest of the financial system from the likely collapse of Bankorp.
At the heart of these “rescue” transactions is the role central banks in all countries play in helping out commercial banks. Many countries allow central banks to provide emergency loans — or “lifeboats” — to struggling commercial banks. Like all loans, these “lifeboats” have to be repaid and strict conditions are attached to them.
Despite much speculation, the Bankorp lifeboat was kept secret until last October, when Absa came clean in advertisements countrywide. Absa said the Reserve Bank had insisted on it remaining secret to prevent a run on it.
The public probing of the affair was championed by UK businessman Julian Askin, who is launching a legal attack in the British High Court against Absa for its behaviour in the Tollgate scandal. It was at an inquiry into the liquidation of transport conglomerate Tollgate that Stals spoke this year.
Askin bought control of the Tollgate consortium in 1990. Tollgate’s bank, to which it owed debts, was TrustBank, a subsidiary of Bankorp.
Askin says that when he bought Tollgate, TrustBank failed to tell him it was in trouble and was negotiating with the Reserve Bank for a rescue package which eventually became the lifeboat.
Absa then put Tollgate into liquidation and started tapping into the five year lifeboat. Tollgate was one of a string of bad debtors Bankorp was saddled with.
Meanwhile, Absa charged Askin with fraud and theft of R70-million — the same amount Askin says he found had gone missing when he was exploring Tollgate’s accounts.