Archive for December 6th, 2009

As the Venezuelan Government intervenes more banks, its strategy remains unclear and uncertain

December 6, 2009

So, the leading theory of why Chavez decided to apply his now famous praying mantis strategy and eat his banking buddies goes as follow:

The bolibourgeois bankers were annoyed that the Superintendent of Banks had not approved most of the transfers of property of their banks. Thus, they decided to get rid of Hernandez Behrens and replace him with the Head of the Comision Nacional de Valores. Everywhere you rea, it said that Hernandez Behrens was out.

Except that Hernandez Behrens is married to the sister of the wife of Ronald Blanco La Cruz, a former Governor who is not only loyal to Chavez and related to Hernandez Behrens, but belongs to the same evangelical church. Blanco la Cruz had a report on the banks written by Cuba’s intelligence services the infamous G2 and asks to see Fidel and carries the report with him to show to the bearded Dictator.

Fidel sees him and calls Chavez and tells him that these bankers are a cancer and he has to get rid of them

And the rest is supposedly history.

Is this true? If it is, then Chavez will announce in the next few days the intervention of even more groups and he is going by size, from the largest to the smallest. First Fernandez Barrueco, the big enchilada, second Perucho Torres and Arne Chacon and there are two or three more groups, which while much smaller, are part of the same Mafia, even if they may be independent of each other.

Because it is impossible for Chavez not to know what was going on. Chavistas want to forget that it was Chavez that made Fernandez barrueco a billionaire and a banker and he even defended him publicly. In November 2005, Arne Chacon said that he was pro-Chavez, had a right to become rich and make money and it was “normal” that if he was pro-Chavez that Government institutions would deposit money in his bank, except his brother. Chavez had to know about these non-revolutionary statements, but seemed to have done nothing to stop him.

Which shows how unethical the robolution is that this is considered “normal”. What Arne may not know, is that in 1998 when his leader Hugo Chavez became President, only 4% of the deposits in the private commercial banking system were  Government deposits. These reached as high a percentage as 32% and have gone down, but remain high, near 20%, as they have become one of the biggest scams in the country: Government official deposits money in bank x at 12%, he gets paid 4-5% in cash for the “favor”. That is how all of these little banks have managed to increase deposits. I think it was Banco Confederado that at one point had 70% of its deposits be Government ones. This is one of the biggest multi-billion dollars scams of the Chavez robolution.

So, strictly speaking, if Chavez wanted to “clean up” the system, he should next intervene the other banks in the hands of the bolibourgeois and later those banks whose official deposits are too large as a percentage of its size. There are many of them. Look it up!

By now, everyday we hear a different story and the description of a different strategy.

First Canarias and Banpro were going to be liquidated and Bolivar and Confederado would be refloated. Today, Chief Economist Chavez said that some of these banks would be merged to become one, but failed to mention Bolivar.

And then, of course, on Friday Ali Rodriguez announced that the Government was intervening Banco Real, Central Banco Universal and Baninvest, all belonging to Pedro Torres and Arne Chacon. Additionally, the Government would also take over Seguros la Previsora, bought by Chacon and Torres, as part of their US$ 500 million buying spree earlier this year. Apparently a piece of change for the robolution, remember that a judge in Andorra had “billions’ of dollars belonging to robolutionaries frozen in that country. We still don’t know who they were and neither Chavez nor the Comptroller has said anything about this official decision by the Andorran Court.

The problem is that this is going too slow. While I welcomed the intervention of the new banks, as I have stated before, it should have been done with open doors. And I don’t see the point of creating new Government institutions, if Banco Industrial has gone broke twice and Banco de Venezuela has lost almost 3% of its market share since it was nationalized, it is clear the Government does not have the people to run more banks well.

And so far, except for U21,the Government has done little about the brokers involved in helping out banks buy themselves. There are many problems there. First, the loss is over US$ 200 million and all brokers put together have equity of about US$ 360 million. But nobody knows which brokers were involved. Then, there is the problem of custody. Custodian Caja de Valores said it clearly on Friday: They guarantee the ownership of the bonds in the name of the clients at the Caja de Valores, except that the Government never made it obligatory for brokers to transfer custody to Caja de valores, while it sold some US$ 37 billion in bonds. And while only a small fraction of the people buying the bonds kept them, a small fraction of US$ 37 billion is still a large number.

But nothing was ever done by the Government “of the people” to protect the small investor. Cemex was taken over by the Government and the law was ignored. Same with Fabrica Nacional de Cementos and Banco de Venezuela. At least in the last case in the end Bandes bought small investors out, but while Banco Santander was paid in US dollars, second class  Venezuelans citizen were paid the same but in Bolivars at the official rate of exchange.

And in two ironic twists, the man that presided over most of this as President of the Comision Nacional de Valores (Our SEC equivalent), Fernando Candia, was President of Banco Confederado when it was intervened, and the current President, who was clearly at fault for not supervising U21 closely enough, was named to be in charge of the intervention committee. I guess the fox was put in charge of taking care of the hens.

What else is new?

And to add insult to injury all of the “work” done in intervening the swap market to lower it to Bs. 5 by selling over US$ 8 billion in bonds was wasted with the whole bank crisis and the way it has been mishandled. Not that these bond offerings really lower the rate, it is more that people believe it does. So now, the rate is near 6 (Oh my God, I said it!) and the pressure is high.

Because as Bolivar liquidity got tight in the last few days, banks and brokers sold lots of dollar bonds, to generate dollars to generate Bolivars, which were sold in the swap market.  Despite this, the rate was up almost all days but Monday and Friday, so, imagine what will happen when this “supply” disappears.

And I see more jitters down the line as people worry about other banks and we don’t know the impact on the brokers and its clients.

So, the crisis may be pushed into 2010 by the ignorance and incompetence of the Government.

And it did not have to be this way. But the more banks that are shutdown, the more people and companies who will find their money stuck in the banks shut down and the more the flight to quality to other banks or other currencies will intensify. Hopefully it will eventually stopped, but the cost to the country, in money lost and its impact on future inflation is already too high.