A hesitant Government closes four banks, liquidating two, creating uncertainty

November 30, 2009

One week after intervening the four banks related to Ricardo Fernandez Barrueco with open doors, the Venezuelan Government surprised everyone by announcing that it would continue the intervention under closed doors and that two of the banks, BanPro and Canarias, would be liquidated and the other two, bolivar Banco and Confederado, would be “refloated” in the near future.

The decision, as well as the way it was handled, shows a high level of uncertainty on the part of the Chavez administration on how to handle the crisis, which was caused by the lax supervision of the authorities and Chavez’ backing of the main actors of this sorry episode.

The day began with an improvised press conference by the Minister of Finance announcing the measure, with few details given out, other than the banks would not open and that there would be differential treatment given to them.

This was easier said that done, as the shut down and the lack of details created panic among depositors who did not know what would happen to their savings. According to Venezuelan law, the Depositors Guarantee Fund has to pay up to Bs. 10,000 per account (US$ 4,651) up to 21 days after the intervention, but even this simple information was not communicated in the early press conference, confusing and scaring depositors.

And most of what followed in a string of press conferences was not much better, as information was mixed and the Government clearly realized that it had a real financial crisis in its hands as well as a public relations disaster that it had to address.

But having multiple spokesmen (and bad ones at that!) at each press conference (all broadcast live, of course) did not ease tensions or clarify much.

The truth is that in our opinion, the Government has been acting hastily on this matter. Independent of the reasons why Fernandez’ financial empire was intervened (Chavez has claimed HE ordered the intervention) the original decision to intervene all four and leave them open, still seems to be the correct one. By shutting them down today, panic was created and it is unlikely that any of the banks will ever be floated again.

One would have thought that someone in the Government would recall the 1994 financial crisis, when interventions shutting down the banks did not work, and it was only when interventions were done without shutting down banks or migrating deposits to other financial institutions that the crisis eased.

What happened at the time was that as the Government began shutting down banks, people began speculating who would be next in the process and begin withdrawing their money from what they perceived to be the weakest banks. Some banks which were not strong, but did not have to go under, did fold and it was not until intervened banks were kept open that things calmed down (Even if the currency devalued a factor of almost three in a few months in the process)

Tonight, in yet another press conference it got a bit more confusing, as the Superintendent of Banks said that accounts from the banks to be liquidated would be migrated to Banco de Venezuela, which is not what the law says. In fact, this would have been a cleaner solution, to have announced a week ago that all accounts would be migrated to Banco de Venezuela and the four intervened banks would be no more.

Because after Chavez said on Sunday that he is ready to nationalize the banking system, it seems hard to believe that anyone, absolutely anyone, would be interested in buying the banks that the Government wants to “refloat” The bank buying bubble in Venezuela is over, four to five times book is no longer a possibility, as it should be. Look for book value to be “fair” for a while.

And the Government wants people to believe that this was a problem of capitalism. But this is a problem of XXIst. Century Socialism, Protectionism and lack of supervision which is why I have been calling all of these guys the “robolution” for quite a while.

Because none of these robolutionaty bankers meant to make money the capitalistic way. They meant to make money by playing the most savage financial engineering in the world. There is even a new verb for it in Venezuela, you buy a bank “para ahuecarlo” to make a hole in it. That is the true reason these four banks are worthless, they were “holed’ really badly only because there was no supervision and Fernandez Barrueco had protection from a very high authority: Hugo Chavez Frias.

In June and July of last year, I wrote a few posts on the structured notes, which was how these noveau bankers began holing Bolivar, Confederado and Banpro. Like all bubbles, you knew they were there, but you did not know when they would explode. The Government decided to protect its own, prolonging the explosion of the bubble. It is my belief that we have only seen the very beginnings of it.

Because while these banks were “small” and some of the irresponsible Chavistas, like former Minister Cabezas, have made a point of this, these four banks are not the only ones that are worthless and the handling or mishandling of the crisis is not going to help the process.

And not only are other banks going to fall, but broker U21, fully owned by Banco Canarias and fully “holed” by the robolutionaries, is also insolvent via the shenanigans of the robolution in ways we will only find out about in the next few days. Thousands of investors are soon going to find out that their investments are worthless. Sadly, U21 was created originally to service the battered Venezuelan academic community, this long forgotten ideal only exists in the memory of those that witnessed it being decimated by the robolution. Sadly,as U21 falls, other brokers with loans and deposits with it, will also be hurt.

Like all financial crisis, we all know where this one began, but no one, absolutely no one, can tell us where it will end.

Least of all, those that today tried to cover up their ignorance by repeatedly addressing the country.

And it will end up badly in any case..

28 Responses to “A hesitant Government closes four banks, liquidating two, creating uncertainty”

  1. moctavio Says:

    Hope cartoon readers will find this one appropriate

  2. moctavio Says:

    And yes, there is a contest pending.

  3. dillis Says:

    Apparently the Government are preparing to intervene in Banco Federal within the next few days/weeks as well

  4. Roger Says:

    From what I read of yesterdays Chavibabble, He wants to nationalize all the banks that don’t loan money to the poor. Noble thinking but that is what got the present economic crash going. More likely, Chavez thinks just a few more malatins and he can create his Bolivarian Universe! So He is going to drill a hole in all of them. When he drills the ones that have the Drug Cartel money in them plan on a few drive by shootings!

  5. mrodriguez26 Says:

    So it happen Again!! (Bank liquidating by insolvent ) by corruption issues, I’m 27 years old, in the 90 years I didn’t understand nothing about economy or investment. But I’ve read some books and articles about Venezuelan Economy and Petroleum business at it. Then I see this government has made the same things that CAP I government did, high inflation with extraordinary revenues from petroleum (Venezuela Saudita), high levels of corruption, distortions of monetary and fiscal politics, government grow in economy’s activities, high debt grows while oil prices were high, new rich men were made. Bank’s interventions by insolvency (holed) when Own and Boards Bank’s Directors were friends of high government’s officials(CAP I and CAP II) and this officials always knows everything all time.

    This kind of practices, were lesson for future at that time, and I think than Latin American Governments leaders learned it very well, and how we all know, country like Brazil, Chile, Peru, Colombian and Paraguay has today stable democracies, with good economy grow and some one very Strong (The Green Giant). But seems that HCF forgets that part of our history and things happens again like the 70 and 90 years. Yesterday He said that He is, the post Fidel time, He is the next Fidel of the World.

    Then what can We do wiht this guy? import balls from Honduras?, maybe Cadivi will block our credit card for it!!. Really is that We have to resolve our own problems, no one else will do by us.

    Thanks Miguel by your article, I Always read it when I may.

  6. deananash Says:

    Miguel, shouldn’t there be an immediate run on banks as people move to get their money out while they can? And by banks, I mean just about all of them. I wouldn’t leave more than Bs 10,000 in any of them.

    If I’m right, then things should get much worse very quickly – I mean tomorrow. Or am I missing something?

    If you feel comfortable answering, do you have money in Venezuelan banks? (I’m betting you don’t, or not more than Bs 10 grand in any account.)

  7. dillis Says:

    Deananash, I personally have heard stories through friends today that have lost a lot of money in these banks that folded. It is too much of a risk to keep more than 10,000Bs in any one bank, you would think people would learn from what happened here in the 90’s and also in Argentina a few years ago, and open up several accounts!

    Going back to my comment on Banco Federal, I would advise anyone with lots of money in that bank to move it out asap! This comes from a very good tip off……

  8. framethedebate Says:

    I have written many articles regarding bank failures in the U.S. Policies created by an earlier administration shifted the risks taken by investment firms to taxpayers. The destruction of the Glass-Steagall Act along with the promotion of more liberal lending standards created an environment where bankers practically extended loans to anyone with a heartbeat. After leveraging capital 30-1 with toxic paper, our money center banks were appropriately labeled “Walking Zombies.” As the crisis unfolded, financial regulators that came from inside the financial industry urged and promoted the governments bail-out programs for the insolvent institutions. Today, these same institutions are paying record bonus and salaries to the same executives that were responsible for the meltdown. Many savy historians are calling the bailouts (with taxpayer dollars) the greatest transfer of wealth in American history. They may be right when one considers actions like funneling $ U.S. billions in funds through AIG to cover counter party contracts with Goldman Sachs. I mention the aforementioned as it will be intersting to see who the bagholders are at the end of the day in Venezuela. In the U.S. we have witnessed inexplicable rewards for those that assisted in creating the problems. I happen to believe that Chavez will not follow a similar path as history suggests he must blame and continue blaming. Whether he can completely silence those that he must blame is another story altogether. Time will tell who falls under the house of cards.

  9. island canuck Says:

    Dillis Says:”Going back to my comment on Banco Federal, I would advise anyone with lots of money in that bank to move it out asap! This comes from a very good tip off……”

    And change it into US$ or Euros while the price is still low.

    It looks like it’s going to be a black Christmas.

  10. moctavio Says:

    Dean: I keep the minimum necessary in the bank, typically less than the amount you cited. I don’t think the crisis will escalate until people realize they will not get their money back. With the intervened banks, people will get up to Bs. 10,000 per person, those that have more will lose a lot, including thousands of small merchants that worked with Canarias for years. But it will be when people realize they lost what they had in U21 and others bank fold or are folded that the run will really begin.

    Frame: The difference is that here the banks are not being saved so that the same people can run them. The owners lost it all and are not bankers anymore. But the Government on day one could ahve announced that all operations would be folded into Banco de Venezuela, which is run by the Government, it would have avoided the panic.

    Island: There are many banks in trouble, I will not cite names in public, but yes, keep a minimum in local currency and in the good banks. Venepiramides which I believe is in the blog roll has a ranking of banks, it’s pretty good and agrees mostly with my opinion, with minor differences.

  11. liz Says:

    Miguel, it seems like the government took all of his money out of those 4 banks, before monday morning .
    Also: Why did they change the ‘encaje’ last week??

  12. AnonIII Says:

    Is that 10,000 bolivares or 10 million bolivares?

  13. framethedebate Says:

    Miguel
    In my post I am suggesting that two similarities exist to the extent that the banks were destroyed from within (unchecked as well) and details regarding the “bailout” meetings that took place between Treasury Secretary Paulson and the leaders from major financial institutions are to this day shrouded in silence. I believe their will be significant differences in who will be hurt by the two fallouts. In Venezuela, depositors are likely to be severly damaged by the inept action of the government and its’ regulators. Here, shareholders and creditors were wiped out as a result of the mismanagement of the crisis by the FDIC, OTS and Treasury. The lack of details regarding both crisis are likely to persist. In the end, everyone can smell the smoke, but details regarding the fire are never exposed.

  14. Arturo Says:

    You seem to forget that Banco Latino dragged the whole system down in 1994 as the biggest bank and that the collapse was triggered by a move in concert by the bankers themselves to defraud the depositors.
    This time the damage appears to have been limited to Canarias and Banpro which, according to Utimas Noticias of today had to be lquidated since they owed more than they actually had on deposit. The fact that accounts willbe migrated to banco de venezuelaand that Foghade appears to be acting quickly should calm the situation. However, media and comments such as yours can only serve to inflame the latant panic (which is what you really want). We will have to wait a few days to see what casualities emerge such as U21 but remember, Venezuela runa on rumors which for the many stupoid in thsi country of ours are tantamount to facts.

  15. island canuck Says:

    As I predicted earlier today the parallel rate is rising with about a 4% change as of 2.30 PM.

    It will only accelerate in the coming days.

  16. Arturo Says:

    Well, you were wrong about the structured notes more than a year ago (you predicted US$11 billion in losses) and you will be wrong about this disaster – which it is. It’s bad enough having two banks liquidated but it’s a good thing that action is being taken against the bankers (whatever political color they are).

    You problem, Octavio, has been and always will be calling the apocalypse of chavismo whatever problems the government runs into. This has badly fucked your credibility over the years and you seem incapable of learning as any mature person should.

    It’s obvious that the government is going to go after all the directors and suplentes of Canarias and Banpro. Why? at o5:45am this morning on RNV all the names were read outlive offering a red carpet leading into La Planta or el Rodeo.

    I am not defending the bolibankers and am certain that many will follow Fernández Berruecos into the cells. Chavez has no option since if this cancer spreads to other banks the PSUV will lose many, many seats at the AN elections.

    Chavez will nationalize the banking system but only after winning the 2012 presidential elections. That’s my prediction. In the meantime he put the fear of God into the bankers on Sunday which will at least encourage them to try and put their house in order – otherwise it will be the Helicoide for them as well.

    I predict a purge of the capitalist chavistas as Caracas Gringo calls them and all will be in low profile mode from now on. In fact, based on Chavez’s tone on Sunday any financial institution which runs into problems risks having its directors jailed.

  17. Robert Says:

    How does a banker that has robbed his bank blind put his house back in order? Does he fly the dollars back from Miami in the night and somehow magically reconvert to Bs? Sneak into the vault and put them back when no one is looking?

    Certainly these questions are over simplified but not by much.

  18. deananash Says:

    Arturo, no one is going to bat a thousand. Not even me. (Haha, I’m joking, of course.)

    So you’re partially right, he has lost credibility. Since “you can’t win them all,” anybody who takes a stand will lose some. This includes Miguel. But in my book, he has lost more integrity than any Chavista has ever had.

    Translation: Miguel has tons more integrity than any Chavista. So much more, that even the amount he has lost is greater than the amount that any Chavista has ever had.

    And this isn’t just my opinion. We could talk about literacy, housing units built, corruption – at all levels, etc… Talk about integrity killers.

  19. Arturo Says:

    Robert – I am not talking about the four banks in trouble I mean the rest of the banks whose directors may know that they are somehow overexposed. Obviously, if it can be proven that a banker has robbed his bank then he has to go tojailand not Pass Go and not collect $200. I think that wecan all be confident that the authorities know what is happening after this initial scare with other banks.
    Now, we need to know what happened to the money, deposits etc. Was it straight robbery or hige losses?

  20. HalfEmpty Says:

    However, media and comments such as yours can only serve to inflame the latant panic (which is what you really want).

    Indeed. I’m here to point out that the banks and the states are in steady hands. Nothing to see here. The author has been wrong 3 times this year already… keep moving…. nothing to see here. This way to see the fine egress!

  21. Gringo Says:

    Arturo: I think that we can all be confident that the authorities know what is happening after this initial scare with other banks.

    If the authorities knew what was happening, then why did things reach such a mess?

  22. NotGomezLopez Says:

    Confident?

    What a strange word to use.

    This is the Government that allowed it bankers to lose Banco Industrail capital, TWICE

    This is the Government that has allowed Fernandez Barrueco, Torres Ciliberto, Zambrano, Arne Chacon, Julio Herrera, Gonzalo Tirado and other to become millionares not in the dozens but in the HUNDREDS and BILLIONS

    That has allowed CADIVI corruption

    BONDS

    STRUCTURED NOTES

    Merentes back after “losing”, what was it 3 billion $, or was it 4?

    Remember the Antonini case, peanuts in the end, just a few million dollars in cash smuggled out once in a while. Miguel, what a waste of your time that was, just peanuts.

    Oh, and is that Barinas family which goes by the name Chavez related? They own a third of that state by now.

    And the sugar concerns, was it 500 million they ripped off? Can’t remember.

    I could go on there are hundreds of posts here on all these subjects, hich by the way, you dont even seem to read well.

    Confidence.

    Time to laugh Arturo.

  23. Ignoramus Says:

    What is apocalypse in this context? 50% inflation rather than 30%? 25,000 dead in homicides rather than 15,000? 10% GDP contraction rather than 5%? ten banks intervened rather than 5? 10 billion $ stolen rather than 5 billion $? 800% devaluation in ten years rather than 500%? 2 million barrel a day production, rather than 2.5 million? No water, rather than water rationing? No electricity, rather than electricity rationing? 5 hours of traffic each day, rather than 3 hours? 50% interest rates rather than 30%?

    Just wondering, I fell like I live in hell, which to me is not different than apocalypse.

  24. NicaCat Says:

    So, excuse me for being ignorant: why is ANYONE putting ANY money into ANY ALBA/Bolivarian/whateverthefuck banks? I just don’t understand this?!?

  25. Arturo Says:

    The “illegal operations” (I have yet to read what they were) at the four banks intervened should be clarified. If operations took place outside banking law, people have to go to jail. Whether they will or not is an open question in Venezuela.

    The harping on about chavistas owning banks and doing deals should not be confused with who carried out the illegal operations and cause the collapse of these banks. Just because you don’t like Arne Chacón or Diosdado does not mean that they are automatically “guilty” of worngdoing. This has to be proven but the impression I get is that the opposition is happy to score political points with media condemnation on the characters involved in the ownership of these banks.

    Chavez must know that whether friend or political foe, people have to be investigated and brought to justice and it remains to be seen how many people will be sacrificed for the sake of the “revolution” and next year¡s elections.

    Just pointing a finger and blaming Chavez for everything will not get the opposition anywhere, a lesson that they have yet to learn after 10 years of failure.

    Let’s see if there are any bank runs today. Yesterday there were massive lines outside agencias del Banco Federal. Confidence is pretty low and I’m just happy to have my bs in Banco de Venezuela.

  26. moctavio Says:

    They used depositors money to buy banks. They did it to buy Banpro and Confederado, (That was what the structured notes were all about) they did it to buy Canarias and they were doing it to buy Digitel. Read my post in how to buy a bank without any money. This is more of the same, creative accounting with a different name.

  27. Isabel Says:

    A full dossier with all this was presented by Ismael Garcia to the Fiscalia three weeks ago, you want to play dumb, do it.

    But let me put it simply: What part of where did Arne Chacon get 500 million dollars don’t you understand?

  28. hasta la vista, baby Says:

    Arturo incoherently babbles that:

    You problem, Octavio, has been and always will be calling the apocalypse of chavismo whatever problems the government runs into. This has badly fucked your credibility over the years and you seem incapable of learning as any mature person should.

    If this is the way you really feel, what on earth are you doing ahere at all?


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