michael mackey and john richardslaurence crowley discussant - joe pasquariello
TRANSCRIPT
Michael Mackey and John Richards Laurence Crowley
Discussant - Joe Pasquariello
2
The Story
The Lessons - Timing/Level of Scheme Payouts
- Reimbursement factors
- International dimension
3
Background
• Founded 1972
• 5th largest privately owned bank
• 15-20,000 employees
• 80,000+ deposits/claims
• 400 branches, subsidiaries and affiliates
• 73 countries
4
Balance Sheet
Assets
US$m
Liabilities
US$m
Consolidated Balance Sheet December 31, 1989
23,000 22,000
Latest Management Information pre-closure
17,000 17,000
5
Group Structure
BCCI HoldingsLuxembourg
BCCI SALuxembourg
47 Branches in 13 Countries
BCCI OVERSEASCayman Islands
63 Branches in 28 countries
OTHER SUBSIDIARIES & AFFILIATES
260 Entities in 30 Countries
Government of Abu Dhabi(Majority Shareholder) and others
6
Causes of failure
• Losses in treasury operations and poor lending
• Frauds
• Ineffective regulation
• Bank of Choice for Criminals
7
Crisis Response
• July 1991 worldwide co-ordinated closure
• Interim legal processes – urgent control of assets/records
- investigation- rescue- restructure/sale
• Abu Dhabi
• US criminal charges
8
Abu Dhabi
• Financial interest as majority shareholder and depositor
• Location of head office and records
• Potential cross claims - proprietary claim?
- complicity in management/frauds?
• Ad hoc depositor funding
• Resolution
9
United States
• Ring fenced
• Assets of US$1 billion seized
• Criminal indictment with increasing fines – US$40 billion!!
• Investigations pursued against related parties
• Plea Agreement
10
1992 – Formal Liquidation
BCCI Holdings Luxembourg
(3 local officeholders)
BCCI SALuxembourg
(1 Deloitte, 2 local officeholders)
BCCI OverseasCayman Islands
(3 Deloitte officeholders)
Branches in England(3 Deloitte officeholders)
All worldwide branches/subsidiaries/affiliatesinvited to join Pool
11
Key features and agreements
• Pooling
• Abu Dhabi
• United States
• Asset recovery
• Claims processing and dividends
12
Pooling
• Theory - Branches of legal entity (2 approaches)- legal entities within group (1 approach)
• Branch pooling
• Legal entity pooling
• Rationale - business inextricably mixed- costs of competing for assets- costs of fighting inter-entity claims- costs through economy of scales
13
Asset Recovery
• Majority Shareholder contribution
• Loan recoveries
• Legal claims against fraudsters and others - Adham (US$165m)
- Mahfouz (US$253m)
- Pharaon (US$175m)
- Khalil (US$1bn judgment)
14
Claims Processing and Dividends
• Temporary procedures and formal liquidation hiatus
• Non standard pooling claim forms
• State of records and systems
• Global customer dealings
• Creditor apathy
• Conflicts between jurisdictions – the set off problem
• Anti-Money Laundering Regulations
15
The lessons for deposit insurers
16
Timing/Level of Scheme Payouts
• Streamline the liquidation and insurance claims process
• Consider paying small creditors in full
• Perils of rapid payment - the set off problem
• Establish risk line between liquidation and insurer
17
The set off problem
• UK branch sterling deposit January 1992
• Insurance compensation paid June 1992
• German branch DM loan discovered January 1998
• Net credit/(debt)
• UK set off results in no dividend payable
£20,000
£15,000
£(25,000)
£(5,000)
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Factors affecting reimbursement
• Currency of compensation and dividend
• Deposit claim and the liquidation claim differ
• Repayment sources different from deposits protected
19
UK Scheme Example
UK branch sterling deposit £20,000
Japan branch Yen deposit £10,000______________________________________________________________
Liquidation claim value £30,000
Insurance claim value £20,000______________________________________________________________Insurance Compensation £15,000(75% x £20,000)
Liquidation dividend @ 40% £12,000(40% x £30,000)
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Special Cases – Joint Account
A&B £20,000
Liquidation dividend paid jointly to A&BA claims B doesn’t
Alternative Scheme Rules
“For the purposes of …. they shall be treated as”as having separate deposits of £10,000 each
VStatutory split of account for all purposes
21
Loopholes
Scheme Rules – 75% of £20,000 deposit
___________________________________________________
Depositor - £100,000
Insurance claim - £15,000
___________________________________________________
Depositor assigns 4 x £20,000
Insurance claim – 5 x £15,000 - £75,000
22
International Dimension
• Judicial/officeholder co-operation
• Review effectiveness of regulation for cross border bank
• Lobby for harmonised global insolvency initiatives
- UNCITRAL
- European Insolvency Regulation
- COMI
• Lobby for harmonised global anti-money laundering requirements?
• USA
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Michael MackeyTelephone: +1 416 775 7200Email: [email protected]
John RichardsTelephone: +44 (0) 20 7429 3402Email: [email protected]
Laurence CrowleyTelephone: +44 (0) 20 7296 2000Email: [email protected]
Discussant - Joe PasquarielloTelephone: +1 416 597 4216Email: [email protected]