A Public Protector provisional report investigating an apartheid-era financial assistance package to Bankorp Limited, which was later purchased by Absa Bank, has been leaked. While investigations are underway to figure out how the document made its way into the public domain, Justmoney answers the questions you may have about the report and what this means for Absa.
What is the report investigating?
From 1985 to 1992 the South African Reserve Bank (SARB) provided financial assistance to Bankorp. Following the acquisition of Bankorp by Absa, SARB offered further assistance from 1992 to 1995. The Public Protector’s office is investigating the financial assistance offered by SARB, with the primary focus of determining whether or not shareholders of Bankorp, and later Absa, unfairly benefited from this, as well as whether there are any outstanding funds that Absa owes with regards to the interest charged on the financial assistance.
Absa has offered to provide documents with regards to the acquisition of Bankorp to the Public Protector in a bid to show that everything is above board and no funds are outstanding by the bank. In a statement released by Absa it said: “These documents pertain to, among others, due diligence performed by Absa prior to acquiring Bankorp. Bankorp starting receiving SARB assistance in 1985. Absa acquired Bankorp in April 1992 at a fair value. All the obligations pertaining to the SARB’s assistance were discharged in October 1995.”
What does Absa owe?
If we were to believe Absa, the bank doesn’t owe anything because the money owed to SARB were repaid by October 1995, there are claims that it needs to repay the interest that was charged on the financial assistance offered.
According to a report on Fin24, the Public Protector’s preliminary report recommends that Absa pay R2.25 billion for what it calls an unlawful bank bailout. A separate report on Business Live, published the same day, stated that Public Protector Busi Mkhwebane has advised SARB and National Treasury to go after Absa for outstanding interest of R1.225 billion owed for the initial capital investment offered by SARB in the 1980s and 1990, as well as the interest that has accrued on that amount in the time since.
However, former SARB governor Chris Stals, has come out refuting the Public Protector’s claims of Absa owing money, which are based on an interview Stals had with previous Public Protector Thuli Madonsela who started the investigation. Stals stated that Absa is not liable for any outstanding interest on the assistance offered.
In the Business Live interview, Stals said: “Absa settled all is obligations in 1995 and to think that a successful claim against it can now be made is naïve.”
What is the history of this report?
The bailout deal between SARB and Bankorp/Absa has been under investigation for some time. In June 2000, then governor of SARB Tito Mboweni appointed a panel of experts to investigate SARB’s role in relation to the financial assistance package offered to Bankorp.
The panel (The Davis Panel of Experts) were set five tasks, according to the executive summary of its report. These were to determine:
- Whether SARB, in providing financial assistance to Bankorp, has contravened the provisions of the SARB Act, No 90 of 1989, or any other Act;
- Whether the financial policies and procedures of the SARB with regard to financial assistance have been adhered to in the case of the Bank’s assistance to Bankorp;
- Whether the SARB’s conduct in the provision of financial assistance to Bankorp was in accordance with internationally accepted principles of best practice; and
- Guidelines and best practice with regard to possible future conduct of the SA Reserve Bank with regard to banks in distress.
On 16 February 2001 the Panel’s terms of reference were expanded to include:
- In the event of a finding by the Panel that the assistance to Bankorp by the SARB was ultra vires (beyond one's legal power or authority) the power of the Bank, the consideration of whether restitution can be claimed, and if so, the manner thereof.
Absa noted that the panel “found that Absa’s shareholders did not derive any undue benefit from the SARB’s intervention and as such no claim of restitution could be pursued against Absa. We emphatically agree with this position.”
Is this the final decision?
The preliminary report is not final and the recommendation that Absa should pay R1.225 billion plus interest may change. Absa and other parties still have the opportunity to submit more information.
Absa stated: “It is regrettable that the Public Protector’s Report has been leaked before further submissions and finalisation because in its current form it perpetuates an incorrect view that Absa Bank Ltd was the beneficiary of undue SARB assistance.”
An investigation is currently underway to find the source of the leak of the Public Protector’s preliminary report.