Archive for November 24th, 2009

As Chavez skirts responsibility, other “noveau” bankers may be worried about their future

November 24, 2009

When Hugo Chavez said that he personally had ordered the intervention of the banks “belong to those filthy rich bankers”, he was playing the usual “Yo no fui” (It wasn’t me) card he uses for everything. Everything is someone else’s fault in Chavez’s world. He and his Government bear no responsibility for anything that goes bad or unsupervised in his fiefdom.

Except that this was clearly his fault and that of his Government. In May of last year, the Superintendent of Banks “discovered” the myriad (and billions) of “structured notes” in the Venezuelan banking system, most of which were subterfuges for funneling depositors money for other purposes, mostly buying other banks, but not restricted to that.

Recall that in June 2008, I wrote a series called Guisonomics on the many scams of Chavismo entrepreneurs (not all are Chavistas, many are simply opportunistic). In part III of that series, I explained how you buy¬† a bank without using your money and described “how the money disappears under the magical world of structured notes”.

At the time the authorities asked banks to remove those notes from their balance sheets, agreeing to “negotiate” in those cases where this could become problematic.

Some bankers, put their money in their pockets and covered the losses, others removed them magically and mysteriously from the balance sheets, others tried to get more creative an use them to buy even more banks and Fernandez Barruco or his front men had to negotiate. The reason was simple, all the banks were as broke then as they are today. Negative equity, worth zipo, zilch.

But Chavez and his Government allowed the beat to go on and Fernandez tried to go even further buying Digitel and Banco Canarias. He obviously felt untouchable, after all how many more businessmen have received the endorsement he got from Chavez on live TV?

So, Chavez is being his usual irresponsible self, blaming others while the whole affair is his fault, not only the lack of supervision, but the fact that his Government looked the other way. Billions have been ripped off from depositors via these structured notes and bank acquisitions. And some of those billions belong to the Government, as most of these banks are rich (or poor now) with Government deposits which were directed there because commissions were paid to have them diverted there. (Fernandez Barruecos’ banks had on average 30% of their deposits in Government deposits)

So, this was not new, something clearly had to happen, whether war between groups or simply a falling out as Barruecos got too powerful, we may never know.

What we do know is that this could get tricky going forward, intervening four banks is no easy matter anywhere, particularly if they are totally bankrupt. Moreover, there are similar cases out there, the whole thing is interrelated, all the actors are somehow connected. Fernandez could say so much, that may be the only defense left to him.

And Chavez may actually get away from his usual irresponsibility, unless the whole thing blows up in his face spreading further into the financial system. For the other “noveau” bankers, Chavez may have become a threat, no longer a friend. They may be now his biggest enemies.

What will they do now? Step back and watch or fight for their empires?

It will be interesting to watch.