Ten curious things about the Absa-Bankorp-Sarb ‘lifeboat’

The Mail and Guardian broke the news last Friday that Absa Bank could be on the hook for gains it enjoyed as the shareholder of Bankorp when it acquired it in 1992, as per a provisional report into the matter by the Public Protector. The report was leaked to the M&G.

Bankorp was previously owned by Sanlam, and the bank benefitted from assistance in the form of loans from the Reserve Bank (Sarb) from 1985-1992, and then under the ownership of Absa, from 1992-1995.

In short, the Sarb lent R1.5 billion to the bank at an interest rate of 1% pa, and using schemes to keep the loan off of the books of the bank, Bankorp then reinvested a parto of the loan (R400 million) back to the Sarb. The balance (R1.1 billion) was invested in government bonds yielding the same rate  – 16% pa.

We have identified ten curious facts that we have gathered in our attempt to understand what happened:

1. The Public Protector’s report, according to the Mail and Guardian, states that Absa repaid the capital component of the loan, but not the interest. The terms of the loan meant Bankorp was borrowing at 1% pa.
2. The assistance provided by the Sarb has been investigated before, with different conclusions.
3. In 1999, Willem Heath of the Special Investigating Unit looked into the matter, and while concluding that something unlawful had taken place, declined to institute claims on the advice that doing so might create a run on the bank with the risk of this spreading to other banks. Why a simple repayment schedule over a number of years could not be implemented for the outstanding interest (see point 1) remains a mystery.
4. Sarb governor Tito Mboweni instituted what was an exhaustive inquiry into the deal back in 2002, headed by a number of notable experts. The report justified the assistance the Sarb provided to Bankorp, but had serious reservations about the “form and structure” of the assistance provided, saying the way in which the assistance was provided was unprecedented by a central bank at the time. It identified Sanlam policy holders and pension fund members as the main beneficiaries of the deal.
5. A secretive British company headed by a former spy, Ciex, was the first to identify the controversial transaction in 1997 as part of a strategy it outlined to the new government regarding investigating the previous regime’s dealings. But the public only became aware of Ciex when Noseweek revealed it in 2010. The publication was handed five pages of an agreement Ciex had apparently signed with the South African Secret Service in 1997. Implication: the ruling party kept a report on how it should investigate and recover Apartheid-era looting secret for 13 years.
6. Following from point 5, the government did absolutely nothing about it!
7. Absa said in its reply to the leaked Public Protector’s report, that it had offered in writing last year to show the previous Public Protector, Thuli Madonsela, under whose tenure the office had begun an investigation, to personally view confidential documents it had in its possession when it undertook the due diligence of Bankorp ahead of acquiring it. Ms Madonsela did not take up the offer – probably on account of more pressing business. But neither has the current Public Protector, Busisiwe Mkhwebane.
8. The M&G quotes Mkhwebane exclusively quoting the Ciex report on the grounds for getting Absa to pay up, but appears to make no attempt to reconcile the findings in that report to the Sarb’s own exhaustive report, which you can read for yourself here.
9. Absa says there are a number of legal and factual errors in the provisional report, and the Public Protector told M&G that information from the respondents “might change the final report drastically.” So why even publish a provisional report and then ask for answers?
10. The M&G claim that Mkhwebane will ask the President to investigate apartheid-era “looting”. Why has this not been done before, and if it has, is this not just a convenient distraction from State Capture?

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