For the first seven years since its reopening, from 1994 until 2001, Banco Filipino

remained profitable:
-Total Banking income was up
-Earnings were positive
It only began to lose money in 2002, when the bank had to be rescued by BSP.

Loans grew significantly, climbing 26% a year

In 1994, loans stood at Php 848.14M
By 2002, loans amounted to Php 5.40B
Deposits grew even faster ,by 31% per annum
In 1994 the deposit base was Php 660 million
By 2002 the deposit base was Php 5.75 billion

Meanwhile Acquired Assets grew just as fast by 23% a year:

In 1994 acquired assets stood at Php 580 million
By 2002 it stood at Php 3.0 billion
Acquired Assets jumped by 83% in 2001, after the BSP Comptrollership was lifted in
2000
In 2002, Acquired Assets jumped again by 45%
By 2002, Acquired Assets made up almost 25% of the banks total Asset base

Acquired assets grew so much that:

Assets sales outstripped Banking Revenues by 2001.
Banco Filipino looked and performed:
More like real estate company and less like a bank.

Without acquired assets income:

Banco Filipino was actually losing money, starting in 2000:
In 2000, Net Income without acquired asset income was a net loss of
Php 431 million
In 2001, the loss tripled to Php 1.5 billion
In 2002, it lose of Php 1.1 billion

Banco Filipinos liquidity position was severely reduced by the conversion of liquid
earning assets into Acquired Assets
Its Quick assets to total Deposits ratio, which measures the ability to meet deposit
withdrawals declined steeply
In 1994-91.6%
By 2001-22.6%
In 2001-12.2%
The largest percentage drops in liquidity occurred in 2001 (-41.6%) and in 2002 (45.8%)

So liquidity was already very poor by the time BSP extended 6a 180-day special
liquidity facility to Banco Filipino.
On dec.2,2002
-gross amount: Php 3.5 billion
-Availed Amount: Php 1.34 billion

Banco Filipinos was already insolvent by June 19,2003

-81% of its total loan portfolio was non-performing
67%- of its total loan portfolio was classified by the BSP as DOSRI
(directios,offices,stockholders,related intrest)
-DOSRI loans were concentrated amount just 17 borrowers

Banco Filipinos troubles in 2002 were not caused by:

-Poor mgt
-By a liquidity ensis
-By a smear compaign

It was caused by fraud

In 2002 and 2003, minority shareholders asked the BSP to investigate the bank
-Claimed that management and directors had:
-engaged in unsafe, unsound, and even fraudulent banking practices
-engaged in self-dealing
-violated banking laws prohibiting or limiting DOSRI transactions
-put the bank and its depositors in jeopardy
-Sued Banco Filipino board and management
-Also sued both the BSP and the Monetary board to replace current board and
management and place the bank under receivership.

The complaint documented around Php 1.915B and loans to six dummy
corporations. These six dummy corporations namely

These six dummy corporations Modus Operandi:

-Lend to Dummy Corporations affiliated with BF Vice-Chairman Bobby Aguirre
-Dummy Corporations had not financial capacity to justify the loans at the
time of loan approval
-Provide Collateral Properties from Corporations affiliated with BF Vice
Chairman Bobby Aguirre
-Appraised the collateral properties at inflated valuations
-Do not pay interest or principal on the loans

-Settle loans via Dacion en Pago within months of approval

This modus operandi became the preferred method for:

-Drawing large amounts of cash out of Banco Filipino for the benefit of BF
Vice-Chairman Bobby Aguirre
-It was a way of disposing or selling unsaleable real estate to Banco Filipino
It allowed Banco Filipino to continue to reflect a profit and deflect regulatory
scrutiny.

The decisions made by the dummy corporations explain the jump in acquired assets
from 2000-2002.
The six dummy corporations had:
-No financial capacity to justify the loans at the time of loan approval
-Balance Sheet
-Asset size was small relative to size of loan
-Paid-up capital was also small relative to size of loan
-Income Statement
-Net Sales was minimal
-Net Income was negligible or negative

The Loan proceeds were not applied to Borrowers Stated Purposes

-BF Home Depot
-Approved for Php 359 Million Loan on march 24, 2000
-Loan releases amounted to Php 315 Million
-Loan was for inventory financing:
-To stock a retail establishment that will sell home furnishings
and fixtures

-Proposed Site of BF Home Depot was to be located at the corner of

America Avenue and Canada Avenue at Southland Estate Townhomes in Talon, Las
Pinas
-BF Home Depot never paid any interest or principal on loans
-Loan was settled via Dacion en Pago on June 24, 2001
Given those dubious transactions, it is not surprising that Banco Filipino needed
BSPs help in 2002
It would not be surprising if there were many more such dubious transactions
However, BSP did nothing to address the corcerns of minority stockholders
It only reinstalled a Comptroller as a condition of the emergency loans it extended
in December 2002

Meanwhile, Banco Filipino operations continued to deteriorate:

-Losses accumulated, reaching PHP 12.1 B from 2003 to 2008
-From 2007 to 2010, Losses vastly exceeded its capital base of Php 1.6 B(as
of March 2004) every year
-Php 4.2 B as of December 31, 2007
-Php 2.37 B as of December 31, 2008
-Php 2.6 B as of December 31, 2009
-Php 2.68 B as of September 30, 2010

Banco Filipino Loan Portfolio remain stagnant despite the 9.2B growth and deposit
With NonPerforming Loans at 77.09% the bank had a very little in terms of
unencumbered earning assets to generate banking revenues and curb losses

Ponzi Scheme:
The bank was kept alive by the infusion of new deposits
Deposit base grew by Php 9.2B from Php 5.8B in 2002 to Php 15.0B at the
time of closure

It did this by offering interest rates as much as 5.75% above market

BSP had many chances to close the bank:

-In 2002, when the bank experienced a run and acquired assets were already
54% of Total Loans
-In 2004, when 86% of the loans were non-performing
-In 2007, when net losses reached Php 4.2B
-In the 1st Qtr 2009, when the bank experienced another liquidity crisis and
needed a cumulative total of Php 4.1B in Overnight Clearing Lines