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…

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13 Responses to “Chavez’ Banco del Tesoro is not much of a Treasure…”

  1. victorio Says:

    Boy Guzman Blanco did it before….not to talk about la Guanabana….Of course I agree with M.Caballero, they were amateurs (robagallinas). What will they call it now Viernes Heroico? El dia nacional de la nacionalizacion de la banca? probably will not be a Friday everybody will be at a Party. Pobre ve.
    later
    v

  2. Omar Says:

    Well, my guess is they will be forced to devalue for fiscal reasons in the last trimester of this year. But I’m more concern now of the potential inflationary effects of the monetary expansion (cut bank legal requirements/liquidate BCV CDs) to make room for the huge new internal debt. Its just insane to add 20% of the M2 when the demand for BsF is falling…

  3. EG Says:

    Omar, MO,

    Yes. You are correct I had forgotten about debt and nationalizations. Nothing major…However in regards to suppliers like drillers, wouldn’t that come out of PDVSA’s pockets? (I have no idea if they have any money left. By the looks of how they are paying their suppliers I would guess not much)

    All kidding aside, I guess what I am trying to get at with all this back and forth is: what is our best guess of what the government has available to them (MO has answered this to a large extent) and how much can the government hang in there, behaving in the most irresponsible manner. You know: paying only what is unavoidable and using reserves as “savings”.

    We know, government has no plan at this point other than buying time hoping that oil price increases (dramatically) and/or that someone gives us money.

    They will HAVE to pay major international suppliers directly linked to oil production. Otherwise it’s game over. Either this comes out of PDVSA’s pockets or the Government’s but they can not afford not to pay.

    I am certain; however, they will not pay the nationalizations. None of them. They will just delay and use their usual anti-imperialistic rhetoric.

    They will keep paying debt until the very last minute. The consequences are just too immediate, but may declare a certain amount “illegal” like pal Correa did in Ecuador.

    They will approve Cadivi dollars only for the most essential items. All others will be out.

    By doing this, and assuming oil remains constant at $50 (not a bad guess at this point), does anyone have a best guess of when crap will hit the fan?.

    I guess we will have to define the crap-hitting-the-fan moment first….

  4. Omar Says:

    EG:
    From the external sustinability analysis you have imports, but also have to add external debt service and other foreign currency denominated liabilities, I’m talking here the nationalizations bill (estimated to be around $10b) and payments to external suppliers (think of pdvsa drillers and Odebretch). I can assume that geopolitical external transfers to ALBA allies can be cut, but who really knows.

  5. EG Says:

    OK OK. I understand. Let’s look then at the expenditure side. We imported about $55 bill last year. It will be lower this year. To what? $45 bill (20% reduction)? Seems dramatic enough…This still can’t be covered by oil income plus funds so we would have to dip into reserves. Not good.

    How much of the $55 billion last year was in essentials (food and medicine mostly although there are plenty of oil related industrial goods that are essential to maintaining the current capacity whatever it is?).

    Cheers.

  6. EG Says:

    I understand reserves are there backing the money supply. They are not “savings”.

    I was just lumping everything together particularly because reserves, in a squeeze, WILL be treated as if they were saving – the consequences of doing this be damned. It effectively has been done with the $12 bill. transfer.

    What about the Miranda Fund? You say this is in BsF. You are correct, the problem is in foreign currency, but theoretically, at least, it could be exchanged for dollars, right?. Let’s put aside the legality of such a move aside for a minute (not far fetched considering how laws are treated here). Also the question is, is this money there really? Anyway to gauge this? You have to pardon my “suspicacia” but I find hard to believe there is carryover money in this country.

  7. EG Says:

    MO,

    Sorry I forgot to add the inetrenational reserves to your amount above to make it all consistent. So we have three numbers then: $49 billion, $78 billion and about $90 billion.

    Intutively and depending on what happens to oil prices $49 bill. will take us until, maybe, the end of this year before all hell breaks loose. $78 bill. will buy us half a year more. $90 bil will give us until the end of 2010.

    Where are we standing?

  8. EG Says:

    MO,

    I’ve been interested in how much “money in the bank” Venezuela has (so to speak) for some time. I’m am surprised (and perturbed) by how widely the estimates vary.

    If I understand correctly you seem to think that Venezuela has between reserves, FONDEN and others about $20 billion. The goverment, through different channels has floated an amount close to $90 billion in the not too distant past, and bloggers such as Oil Wars (who, yes, is left leaning but seems reasonable, intelligent and analytical) has put it at about $78 billon (FONDEN $20 Billion, China Fund $12billion, Miranda Fund (unspend money (really?) $16 billion and Reserves $30 billion).

    I mean, these are not small discrepancies. These are not $1 or $2 billion dollar discrepancies. These put us in vastly, vastly different scenarios short term (we all know the medium to long term outlook).

    Is there a way that we can gather the numbers, from whatever sources they may originate, analyze and break them down so we can come up with the most objective number possible?

    Is this feasible with the information available?

  9. ElTanke Says:

    why do you think so?

  10. ElTanke Says:

    So how was El Banco del Tesoro a good idea AT ALL?
    I mean basically te pagas y te das el vuelto tu mismo. Instead of making a bank why not just tight up the grip of the law and do what they are supposed to do which is to uniformly distribute the money trough our banking system. Am I mistaken?
    Nunca le encontre ni pies ni cabeza.

  11. Alex Dalmady Says:

    So much for cutting out the middleman!

  12. moctavio Says:

    I think if you click here:

    http://www.asobanca.com.ve/data/archivos/2000/Bco_Tesoro_2009-1.pdf

    it will download them for you.

    Deposits remained huge even when oil was low and production dropped in 2003. LOt’s of graft going around…

  13. Mr Danger Says:

    It not so surprising that government deposits have been filling up the banking system. The government was hit with a tidal wave of oil money. Banking systems in the Gulf have had the same experience.

    Can you link directly to the bank’s balance sheet? I can’t read spanish but I might be able to guess my way through it.


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