VBS: How far will state’s bill stretch?
The government is “going to have a lot to say” about the VBS Mutual Bank saga, at the upcoming medium term budget policy statement, new finance Minister Tito Mboweni said this week.
Hopefully this will include details on the costs of the damage which are unlikely to be insignificant.
The state’s exposure — through the fiscus, local municipalities and state owned companies — appears to be around R2-billion.
Municipal deposits trapped at the bank as of April 30 amounted to R1.2-billion, according to advocate Terry Motau’s report on the affairs of the bank.
The total amount also includes investments and deposits made by the likes of the Public Investment Corporation (PIC) and state entities such as the Community Schemes Ombud Service (CSOS), as well as what the state will provide to cover small depositors.
The PIC gave VBS a R350-million revolving credit facility and invested R18-million to acquire a 25% stake in the bank on behalf of its major client, the Government Employees’ Pension Fund, according to its most recently published schedule of unlisted investments.
In addition, according to the auditor general’s report on its latest financial statements, the PIC stands to lose about R82.9-million on its 30% share in the Bophelo Insurance Group (BIG). This group had “material deposits” in VBS when it was placed under curatorship by the South African Reserve Bank earlier this year, according to the report.
As a result, the Financial Sector Conduct Authority stopped the Bophelo Insurance Group from issuing new insurance business as there were concerns about financial soundness and the entity not meeting the capital adequacy requirements.
The PIC has revalued its investment in the Bophelo Insurance Group at nil.
The PIC’s head of corporate affairs, Deon Botha, said the Bophelo investment was held by PIC Corporate, and not on behalf of its clients.
“It is necessary to state that BIG continues to operate and provide services to its clients,” he added.
When asked whether the PIC expected to recover any of its direct investments in VBS, Botha said: “The curator appointed to deal with VBS is yet to present a final report on the bank and we wish to give that process a chance.”
Meanwhile, the Reserve Bank, through the treasury, has covered retail deposits at VBS up to the value of R100 000. The treasury has said it is difficult to quantify the state’s exposure fully until all the legal processes for VBS have run their course.
But in a press briefing earlier this year, the Reserve Bank said the treasury guarantee provided to the Reserve Bank would cover roughly R336-million worth of deposits, or about 97% of the funds retail depositors held with the bank.
The CSOS, which deals with disputes involving owners of communal housing schemes, such as townhouse complexes and residential estates, has raised an impairment amounting to almost R82-million. It had deposited surplus cash at VBS without properly informing the board, or getting the approval of its political principal, Human Settlements Minister Nomaindia Mfeketo, or the treasury.
After the Mail & Guardian reported on this in June, the CSOS board suspended its acting chief ombud, advocate Seeng Letele, and its chief financial officer, Themba Mabuya, on allegations of “gross negligence, dishonesty and dereliction of duty”.
Meanwhile, the Free State Development Corporation (FDC) suffered an impairment of just over R10-million for money it had deposited with the bank. The corporation had also placed another R100-million with the bank but this, it said, was repaid to it with interest before the close of its financial year.
VBS was placed into curatorship earlier this year with the aim of trying to save the institution. But Motau said in his report, VBS Mutual Bank: The Great Bank Heist, it seemed clear “there is no prospect of saving VBS”.
“It is corrupt and rotten to the core. Indeed, there is hardly a person in its employ in any position of authority who is not, in some way or other, complicit.”
The treasury said this week that the forensic investigation recommended that it should institute an auditor’s liability claim against the bank’s external auditors, KPMG, and also seek to recover money from implicated individuals.
The circumstances of the municipalities that placed money with VBS in contravention of the Municipal Finance Management Act (MFMA) and treasury directives are perhaps the most dire. Some of the municipalities were already facing serious financial difficulty. But earlier this year, in a presentation to Parliament, the treasury said that repayment to the affected municipalities is “highly uncertain”.
The treasury said in response to questions that it had issued a circular in early August advising affected municipalities how to deal with the VBS matter, including “advising their executive mayors and municipal managers to initiate the implementation of financial misconduct proceedings … against all officials implicated in this matter”.
According to the treasury, under the MFMA, the municipal council, as the executive authority, is required to institute disciplinary procedures against officials for financial misconduct when they fail to perform the responsibilities that are placed upon them by the Act or any of its supporting regulations.
The fate of private commercial deposits with VBS is also in serious doubt, most notably that of about R370-million in funds meant for widows and orphans of former mineworkers. The money is linked to a pension fund and its administrator, the Bophelo Beneficiary Fund and Bophelo Benefit Services.
The entities, both formerly subsidiaries of the company Mvunonala Holdings, have themselves been placed under curatorship by the Financial Sector Conduct Authority after it emerged that a reported R255-million had gone missing.
Olano Makhubela, the divisional executive for retirement funds at the authority, said it was considering the matters raised in Motau’s report and “regulatory action will be considered after full analysis of the report and any investigations conducted”.
The curator of the Bophelo Beneficiary Fund and Bophelo Benefit Services would also be considering his legal remedies in attempting to recoup the lost money in VBS Bank, said Makhubela.
“[The Financial Sector Conduct Authority] continues to engage with the … treasury and other interested private sector companies to establish how best to secure financial assistance for the beneficiaries,” he said.
“This is, however, a complex process which will require time to resolve.”
Mboweni, in an appearance before the parliamentary standing committee on finance on Tuesday, said: “There is no way [that] the staff of the central bank will be everywhere, every time, all the time.” As a result, a huge amount of trust was placed on both the internal and external auditors of a bank, as well as its board of directors and audit subcommittees, he said.
In the case of VBS, “we were failed” by the auditors, who were “clearly in cahoots with the management”, he said.
He added that he could not “give any sense of credit to the board sub-committee for audit and compliance, because they seem to have been part of the heist as well”.