Regarding Eric Garcia (75) and Giro Bank in Curacao

I read in NoticiaCla that Venezuelan businessman Eric Garcia was arrested for: Malversa mas di 10 miyon dollar durante tratamento di un faillesement unda cu e tabata envolvi como un di e curatornan. Probablemente e lo a haci uzo di documentonan falsifica….

So I asked one of my learned friends to educate me, what did this seventy-five year old man do, to deserve going to jail, and I got the following impressive and entertaining dissertation, which I am sharing with you. It’s an excellent read.

Of course my dear Rona, it would be my pleasure to share my thoughts on this subject with you.

Let me start out by saying that I am not the banking and financial services guru, I’m just a ‘lay person’ who reads a lot!

There is a reason why it’s very difficult for just anybody to either get a new banking license or to take over an existing firm that is already a licensed, supervised and regulated institution. One of the main reasons is to ensure that bank owners and operators are totally honest and transparent individuals who will ensure that the monies that depositors entrust them with are handled and managed in a very careful, safe and judicious manner.

Historically we in the Dutch Caribbean do not have that good a track record when it comes to letting ‘locals’ own and operate banks, with maybe one or two exceptions (read: MCB/CMB Bank in ‘partnership’ with Canada’s Scotia Bank…). Case in point, Aruba Bank (the Eman Family…) and Interbank (the Mansur Family…). Experts will tell you that ‘Old School’ banking is a very boring and mundane business because in essence depositors place their monies with your bank in return for a relatively low rate of interest (say between 1-3%) and then the bank lends it out for mortgages and personal loans (for rates from between 6-12%).

However, those who happen to own and/or operate a bank might be tempted to engage in all sorts of shenanigans because you are effectively sitting on a huge pile of cash that a great many individuals would like to get their hands on. So, legend has it that in the case of Aruba Bank and later also Interbank, ‘unscrupulous owners and managers’ would green light mortgages and personal loans for people (‘Friends & Family…’) who had absolutely no intention of ever paying this money back in return for some under the table gifts.

Now, in our jurisdiction it is the Central Bank prudential regulators who are the supervisors of financial institutions but as we have seen with the examples I have given above they usually find out that the proverbial feces have hit the fan when the damage is already done. In such case the regulator has to step in and take over management of the failing bank in question and hope to salvage depositors’ money. In the case of Aruba Bank a Dutch group called Orco Bank came in and took over the bank from the Eman Family.

But in the case of Interbank, the Central Bank and the politicians did something that in my opinion was totally disgraceful and unacceptable! Once more this particular aspect is something that professionals knows a lot more about than I do, so hopefully you will forgive me if my take is not 100% right. When a bank gets in trouble and the regulators must step in, the first thing they usually do is make an assessment of the entire Assets’ that the bank has on its books (i.e., mortgages, loans, credit cards etc.). They then divide these ‘Assets’ into roughly two separate groups; performing (i.e., ‘good’) loans, and non-performing (i.e., ‘bad’) loans. After this assessment has been completed the regulator will bundle the good loans in one group and the bad loans in another, creating what is called in banking vernacular a ‘Good Bank’ and a ‘Bad Bank.’

The good bank is usually not a big problem because other local financial institutions are usually willing and able to purchase these ‘Assets.’ However, the bad bank as Shakespeare once so aptly said; ‘is where the rub lies.’ In the case of Interbank the government of Aruba at the time had a huge problem on its hand because elections were coming up and unless they could find a way to ‘get rid’ of Interbank’s bad bank it could really blow up in everybody’s face because the prudential regulator (i.e., the Central Bank…) had failed miserably in exercising its supervisory role over many years. So, the AVP geniuses came up with the bright idea of dumping the Interbank’s bad bank right in the lap of social house building association FCCA.

Whilst it sounded like a good idea at the time, in essence it was all a trick in order to have FCCA absorb all of the bad bank’s losses so that the Central Bank (i.e., the Government of Aruba…) would not take any political hits over this disgraceful affair. When it was all said and done FCCA’s equity was depleted by almost 100 million florins, which is money that could have been spent much more productively building social housing for people in need. And nobody went to jail over any of this….

I hope you will forgive my long-winded answer to what was a rather basic question you asked about Eric Garcia and Giro Bank in Curaçao, but the Aruban example is quite instructive in that case also. Giro Bank basically got into trouble just like Aruba Bank and Interbank did a few years ago, so the Central Bank of Curaçao cleaned it up as best as they could and after this they sold the remainder to Eric Garcia and an investor group from Venezuela. Lo and behold, after just a few short years some of the same ‘shenanigans’ that I have illustrated above started to occur in Curaçao with the new Giro Bank too. So finally last year the Central Bank was forced to step in yet again because things were really getting out of hand and the bank had basically become insolvent (i.e., the Curaçao Central Bank regulators failed yet again in their supervisory role…).

However, like I mentioned before ‘usually’ when people in the Dutch Caribbean loot banks nobody goes to jail because that would create a problem for the regulator since it would highlight its failings in a potential criminal court case. But in Eric Garcia’s case they decided to go after him anyhow because in the first place he is not a native, he is Venezuelan, and in the second place he made an enemy out of the President of the Curaçao Central Bank, Emsley Tromp by starting a public and private defamation campaign against him (that was probably his Cardinal Sin….).

I hope that my little essay sheds some light on all of these twisted affairs in our financial and political system!

The more it changes…. The more it stays the same!

PS. When I say a bank’s ‘owners,’ I’m referring to the investors who put up some equity in order to purchase the shares of the bank (like Eric Garcia et al…).

The big money, of course, is not ‘owned’ by the shareholders of the bank but by the depositors.

And when it all goes to kaka, then the most the bank owners can lose is the equity that they put up, the government usually covers the losses of the depositors through some type of deposit insurance program or by making everybody whole in order to keep the financial system from blowing up altogether (too big to fail…).

Last comment from another friendly source: We understand that Giro Bank is being sold again to another set of Venezuelan investors. At this point in time, it is hard to imagine who in their right mind would agree to sell a local bank to ‘Venezuelan investors,’ anyhow. Aren’t regulators supposed to look at suitability, experience, management and source of strength (financial resources) when considering a change of control over a banking institution? If buyers do not meet these requirements the regulators are suppose to turn them down, unless the investors you the regulators a new condo on Brickell Ave in Miami, of course. But that could land you in Jail, in the US.