Investment House in the PHL, & Banking History

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Investment House in the PHL, & Banking History

An old Chase man remininsces

A Moment in Bank History

Founding an Investment House in the Philippines

“investment house” located in Manila. The joint venture partners were to be CMB and AIG,

By Tony Lord 

In mid-1971, I was sitting in the recently established South East Asia Regional office in Hong Kong, taking care of credit, marketing, and expansion for that segment of the world. The phone rang and it was Leo Martinuzzi, calling me from his office at One CMP.

Leo advised that David Rockefeller and Maurice (Hank) Greenberg, chairman of American International Group (AIG), had reached an agreement under which the two organizations would expand worldwide together in non-commercial banking and non-insurance businesses. AIG’s most important country outside the United States was the Philippines, where AIG was the largest insurance company. Chase Manhattan Bank (CMB), on the other hand, had a small investment in a finance company, the extent of its exposure to the Philippines.

 

Leo said it had been decided that the initial joint venture would be an “investment house” located in Manila. The joint venture partners were to be CMB and AIG, with 20% each, and the Madrigal and Puyat families, who were to split the remaining 60% of the equity. CMB was to manage the newly established entity under a management contract, and yours truly was to move to Manila to establish and manage this new operation, to be known as the Philippine American Investments Corporation (PAIC). Its mandate was to compete with the leading players in the very active investment house business segment, involving approximately 14 established organizations and led by Bancom (a joint venture involving Bankers Trust).

 

In November 1971, President Ferdinand Marcos declared martial law and, the following week, my family and I arrived in Manila to begin the process of establishing this new entity. The AIG group made available the top floor of the AIG Building in Makati, formerly occupied by one of the two Yujuico families; they had not been strong supporters of the Marcos Administration, and the “Don” of that family was under arrest!

 

The Board of PAIC comprised David Rockefeller, Jim Bish and yours truly, from Chase, Hank Greenberg and Cesar Zalamea (head of the AIG Philippine operation) representing AIG, and Senator Gil Puyat and Ambassador Belek Madrigal, the heads of the two Philippine shareholder families. Hank was to be Chairman, and my instructions were to report directly to him. As an aside, while it was never formally confirmed, my understanding was that President Marcos and the First Lady owned shares in PAIC through the two Philippine families, both of which were known to be close to the Marcos family.

 

One of the many things that came as a surprise was how sophisticated the money markets in the Philippines were. Because of this, and how important money market transactions were to be at PAIC, we requested assistance from CMB New York in establishing a system to control that aspect of the business. Norman Buchan was given the responsibility of working with the team in Manila to ensure that this area of operations were effectively controlled.

 

Once the offices had been constructed, and the initial staff hired, Messrs. Rockefeller and Greenberg arrived to host the opening celebrations. I clearly recall DR’s first visit to the PAIC offices. He stood in the doorway to my office (formerly the office of the head of the Yujuico family) and said, “Young man, the only way for you is down. Your office is bigger and fancier than mine!” I hasten to say that he had a smile on his face. And, thank goodness, he didn’t see the full bathroom attached to what was then my office!

 

We had a great team at PAIC and very quickly were able to make our presence felt in the investment house market. We discovered that there was no FDIC type of government support for Peso funds deposited through the local money markets, and, as a result, Philippine families tended to spread their funds around to limit their exposure to any one institution. We also discovered that the day-to-day management of money was often vested in the women in any particular family. Soooo, we arranged to have a single red rose housed in a presentation box delivered by messenger to the home of each female depositor the morning after the initial deposit (minimum P50,000) had been made. There was a handwritten card in the box that read, “In grateful appreciation of your patronage. I invite you to visit our offices, and your Dealer (read Money Trader) and I look forward very much to meeting with you. Sincerely, signed by yours truly.”

 

 In 1972, it was almost impossible to raise a term loan in Pesos, and at PAIC we established a PAIC Prime Rate that became the Peso LIBOR equivalent, enabling the early beginnings of a term Peso loan market. The PAIC Prime Rate caused a great deal of interest in the Manila market and was quoted daily in the appropriate publications.

 

We were able to put together a terrific team of extremely capable officers, traders and staff, and, thanks to their efforts, ended the first year with a return on investment of 19.3% after writing off all pre-operating expenses. The team was also able to develop the business to the point where PAIC became the major competitor to Bancom.

 

We got great support from everyone at PhilAmLife (as the AIG local companies were called), and, it goes without saying, from everyone at CMB. Working with AIG itself was an adventure, and working with Hank Greenberg was an experience; he was very involved and might be described as a micromanager. Unfortunately, a young Filipino–the son of a Philippine Senator–was assigned to PAIC, and his ideas and mine were often at odds. This clash of personalities was not in the best interests of the joint venture operation. 

 

In 1975, I was approached by Baring Brothers and resigned from CMB to join Baring Sanwa Multinational, which had just opened its doors in Hong Kong. Randy Earman was sent to take over PAIC. During the transition, the person assigned to PAIC from PhilAmLife made a couple of lending decisions without referring to Randy or myself, decisions that unfortunately negatively impacted the future viability of PAIC and the plans of both AIG and CMB to expand together worldwide.

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Tony Lord / photo source

What is JP Morgan Chase Philippines?

J.P. Morgan in Philippines
Our commitment to Philippines. We established operations in the Philippines with a representative bank in 1961. Today, we have a fully-integrated franchise offering corporate and investment banking, commercial banking, equity, sales and trading and treasury services.

 

JPMorgan - Philippines Branch
30/F Zuellig Building Floor
Makati Avenue Corner Paseo de Roxas
Makati City Philippines 1225

Philam Tower, Makati / Philam Life Tower as viewed from street level in Valero Access Road, Makati City, Philippines.

Philam Life was founded in 1947 by Cornelius Vander Starr, the founder of AIG, and his partner Earl Carroll. Despite it being a relatively new player in the insurance in the Philippines, it quickly became the number one insurance company in the Philippines by 1949.

Philam Life was part of the American International Group (AIG) until 2008 when the company, along with other AIG subsidiaries, American International Assurance (AIA) and ALICO were placed under the administration of a special purpose vehicle in exchange for a bailout by the Federal Reserve Bank of New York.^[7] On November 3, 2009, the American International Assurance (AIA Group) bought 99.78% stake of Philamlife after approval of government regulators.^[8] On November 27, 2009, the new Philamlife bought a 51% stake in Ayala Life and formed a joint venture with the Bank of the Philippine Islands (BPI). Ayala Life was renamed BPI-Philam Life Assurance Corporation (BPI-Philam) in 2010.^[9]

As a member of the AIA group, Philam Life has earned the distinction of being AIA's Top Performing Company out of 17 countries in the AIA Group, having won the AIA Champion's League Gold Cup and the Premier League Champion Cup in 2013

> https://en.wikipedia.org/wiki/Philam_Life

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Another ex-Chase guy

Rick Sobreviñas is the Chairman of the American Association of the Philippines. His Jesuit education from getting both a high school and university degree in the Ateneo de Manila University molded him into the man he is today: a man for others.

After he graduated with a Bachelor’s degree in Economics from the Ateneo, he then proceeded to take an MBA at the University of Pennsylvania. Once he got hold of his graduate degree, his 30-year career in acquisition finance and banking began. He worked for prestigious banks like the Chase Manhattan Bank, and the Manufacturers Hanover Corporation. His in acquisition finance led him to be involved in charity fundraising events. It was then that he realized that one of the greatest joys any man could have is to help other people.

> https://www.americanassociation.org.ph/our-trustees/leadership/ricardo-sobrevinas

Chairman of Maybank - Philippines is also an ex-Chase person

                                Puan Fauziah Hisham

She started her banking career with The Chase Manhattan Bank in Malaysia (now known as J.P. Morgan Chase Bank Berhad) in 1980. Her last position there was as Executive Director and Chief Executive Officer, a position she held for four years. From 2006 to 2008, she was with Standard Chartered Bank (SCB) as Managing Director, Strategic Client Coverage Group. Thereafter, in 2008, she joined the Australia & New Zealand Banking Group (ANZ) Representative Office, Malaysia as Country Group Representative and Executive Director, Institutional Banking until her retirement in July 2014. She also served as an Independent Non-Executive Director of J.P. Morgan Chase Bank Berhad in October 2014 and subsequently assumed the position of Non-Executive Chairman of the Board from January 2015 until March 2018.

> https://www.maybank.com.ph/en/about-us/corporate-profile/our-leadership/board-of-directors.page

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MORE PHL BANKING HISTORY

(summary of Booty Capitalism - the politics of banking in the Philippines, by a friend on a Viber chat.  He called it: "xx" )

In my view the biggest mistakes were made in the 60ies.

The BSP back then was only 11y old and the second governor, Castillo, allowed to give out bank licenses without any minimal market cap for banks which meant that single families could afford make their own banks (to serve only their own interests..) and not have to combine with other families/parties which would dilute the ability to take advantage. Not only did they get licenses but they also got government deposits. 25% of the deposits in the banking system in the 60ies were from the government. They also allowed for rediscounting (I.e the central bank buys assets from the bank at a discount which allows the bank to lend out more). Normally there should be strict rules to benefit from the central bank largesse (like sectors which should be pushed and supported) but those rules were never implemented. At the same time borrowing costs were really high and there were caps on deposit rates so banking was extremely profitable.

To understand why everybody also created a bank is because in 1962 was a peso devaluation which only benefited the sugar block who had plenty of foreign exchange. All those who had expanded into manufacturing had huge issues because the imports of products/parts were more expensive. So there was a credit crunch. So when the opportunity was there to make a bank, and allocate credit to one s own businesses, they took it.. all.. only San Miguel Corp family didn’t .. they didn’t have issue getting credit anyway.

From there on all attempts to increase min market cap, supervision but also use the banking system to steer capital in the right direction have been half hearted because institutions were always much weaker then the big families. Even banking secrecy which was installed in 1955 never really got lifted and Marcos even reinforced it to avoid bank run. The idea being that it’s better that illegal money is in the banking system than outside.. anyway - look through the book. Pretty interesting and frightening how we got to today

The first Filipino bank was the PNB - founded in 1916 - 5y later it had been so throughly plundered by the elite that it failed and almost bankrupted the government and the currency.. tragic episode.

> Source: M. on viber chat

(Official PNB History - for kids):

Philippine National Bank History

Comments:

+ Love it how they fast forward from 1916 to 1963 haha 😂. The chairman when it was founded didn’t even last a year in office cos he couldn’t handle how loans were given out to affiliates of directors, connected elite etc

+ Later, they talk about a PNB Rescue without revealing WHY it needed rescuing

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This bank was founded even earlier than PNB

Maybe Tagalog speakers can tell me what happened, haha

The first bank in the Philippine was established in 1851 | Today in History

Banco Español-Filipino de Isabel II is the first bank in the Philippines and Southeast Asia was established on August 1, 1851.

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BANKING CRISIS of 2020-21... and Connection with the Past "Fixes"

The Strong Peso is not helping

https://www.elibrary.imf.org/view/IMF071/00636-9781557751874/00636-9781557751874/ch04.xml?language=en&redirect=true -

report from the IMF about the banking crisis in the 80ies in PH.

The other one to look into is during the Asian crisis. Many things are different today than back then but, should things deteriorate, we have a bit of history on how it has played out in the past. What would come at no surprise is that central bank emergency loans are extended to troubled major institutions, this is probably political too as no government wants to be blamed for large depositor losses during an economic crisis, which is already tragic enough (not to mention that bank owners have a few buddys in Congress). What does not look priced is potential currency weakness resulting from it. Further spending to save banks should eat even more into the budget deficit and concerns will rise on how this deficit should get financed. In the last 2 banking crisis the peso lost significant value (yes it had a peg back then..), this brought significant inflation over a period of time but also made the country very attractive for foreign investment and it laid the foundation for the PH to strive again.

Could that playbook repeat? Could keeping the peso strong actually be counterproductive?