Archive for April 16th, 2009

Chavez’ Banco del Tesoro is not much of a Treasure…

April 16, 2009

I was going to write a somewhat geeky post (ok, a totally geeky post) on the financial statements of our own Banco del Tesoro. But after looking at it, the whole thing is so absurd, that rather than giving you a detailed blow by blow account, I will give you some of the highlights.

The real reason I began to look at the recently published financial statements of Banco del Tesoro was that Government institutions hold their investment trusts at Banco del Tesoro, so twice a year you can look at what is or not there and get an idea of what the Government has in terms of those hidden resources that it is always boasting about.

Just to remind you, Banco del Tesoro was once a good idea. When Hugo Chavez got to power, official (Government) deposits in the private commercial banking system, were less than 5% of all deposits in the Venezuelan banking system. Within five years, they had ballooned to over 30% of all deposits. Why? Simple: Graft. Banks were paying Government institutions commissions to make deposits. With spreads as high as 15-18% points at the time, paying 5-6% points in commissions to get fairly stable deposits was good bussiness for certain banks, not precisely the best ones.

Thus, it was suggested that a Banco del Tesoro would be created that would concentrate all of these deposits and at the same time operate as a commercial bank. The first thing that mystified me was why a new institution had to be created given that the Government already owned Banco Industrial de Venezuela and Banfoandes. I heard that this would be a “different” bank, but after a few years I fail to note any so far.

You can find the financial statements of banco del Tesoro here. First of all, it’s a small bank despite its grandiose name. It has Bs. 3.27 billion in deposits (US$ 1.52 billion) (Banesco, the largest bank in the system has ten times more deposits). Thus. clearly it has failed to concentrate Government deposits in it as originally envisioned. (Put in another way, the graft lives on!)

But what truly amazed me, was to learn that Banco del Tesoro has Bs. 1.64 billion of its assets (US$ 760 million) and  Bs. 3.3 billion (US$ 1.53 billion) from the trusts it holds for other Government institutions deposited in other local private commercial banks! This gives some Bs. 4.9 billion or US$ 2.23 billion for which Banco del Tesoro rather than lending it in the wonderful projects of the revolution or in Government bonds, it takes the money and deposits it into a private bank, so that those banks can turn around and lend or invest in Government bonds. Weird, no? Not really, the truth is nothing has changed. Looks to me like someone at Banco del Tesoro is making a lot of money out of this.

To give you an idea, Banco del Tesoro has deposits in some 25 local commercial banks. How does it decide which ones to use? You would think the money would be more or less uniformly distributed in our banking system. Well, the blog Venepiramides (in Spanish) a while back created its own ranking system for local banks, by splitting them into three groups: Refuge banks (8), so-so banks (7) and Zombie banks (the rest which were not named). While we don’t agree in the details of the ranking, differences are small. But what is truly curious, is that of the 25 banks which Banco del Tesoro uses, only three appeared in Venepiramides’ ranking (Only in the second group) and one of them had only a tiny deposit. You can reach your own conclusions…

What this clearly shows is that creating the bank has truly been a waste of time. First, its deposits are small. Second, rather than lend money it simply deposits it in other banks. Third, it seems to concentrate part of the old problem (Government institutions depositing money into private banks) in a single institution, and Fourth, it does nothing different than the other banks, except that it holds in trust all of the money from other Government institutions, which was why I started looking at this in the first place…and that is part two of this post:

The first thing you find out is that at the peak of oil prices in the second half of 2008, assets in trusts went from US$ 21.5 billion to US$ 14.03 billion a loss of US$7.5 billion.

Who owns these funds? If I understand it correctly: Fonden US$ 8.7 billion, Bandes US$ 4.3 billion, Others US$ 903 million. While an agreement to hold the China fund in trust is mentioned, there is no evidence of ir in the investments.

Of the money in trust as of December 2008, US$ 1.543 billion was in Bs. not US$, which leaves US$ 12.5 billion.

Problem is when you try to delve into the “investments” of the funds. About US$ 8.7 billion is in short term investments. The rest however is  a bunch of structured notes some of which originate from the Ecuador bonds Venezuela used to own or notes issued by Lehman Brothers which went under and have been “exchanged” for a new note which will depend on how much can be recovered. There is peanuts (US$ 100 million) in Bolivian bonds and surprise, surprise, the Argentienan BODEN are nowhere to be seen, unles they were exchanged for some of the notes listed.

Thus, Venezuela either took a huge loss (part of the drop from June to December in assets?) or exchanged them for notes that may not be worth as much as it says.

Thus, there is little one can say about all this, other than there were US$ 8.5 billion overall on Dec. 31st. 2008 between Fonden, Bandes and the rest. Add to this, the US$ 12 billion in reserves transferred to Fonden from the Central Bank and that seems to be the extent of how much the Venezuelan Government had in mid-January: US$ 20.5 billion in foreign currency, somewhat below the US$ 50 billion plus usually touted by various officials.

This implies that there willl not be enough dollars to import and at the same time supply the swap market in 2009. (Which by the way seemed to do today what everyone had been expecting for weeks…)

So, hold on to your seats..or your pockets…or simply pray…