Court clears way for sale of EIB

Posted at 09/24/12 7:47 AM

MANILA, Philippines - The Supreme Court (SC) has dismissed a complaint filed by a number of businesses owned by businessman William Gatchalian seeking to compel Export and Industry Bank (EIB) to assume the legal liabilities incurred by its fully owned securities broking firm, EIB Securities.

The judgment, the financial community including the Bangko Sentral ng Pilipinas (BSP) said on Sunday, paved the way for renewed investor interest in EIB, whose efforts to attract strategic partners had been thwarted by fears of legal complications arising from the Gatchalian complaint.

Without the Gatchalian complaint hanging over the head of whoever will win the public bidding and sale of the lender’s remaining assets on October 18 this year, efforts to infuse new money into EIB become less of a complication, BSP Governor Amando M. Tetangco Jr. said in a text message.

“The decision removes that obstacle in the sale of the bank now being pursued by the Philippine Deposit Insurance Corp. [PDIC],” Tetangco added.

There is a separate effort to sell EIB’s commercial-bank license, which has premium value owing to the continuing moratorium on new bank branches still in force over the regular commercial and universal banking realms.

The Gatchalian-owned firms Pacific Rehouse Corp., Pacific Concorde Corp., Mizpah Holdings Inc., Forum Holdings Corp. and East Asia Oil Co. Inc. have asked the courts to compel EIB to pay for the allegedly illegal sale of their shares in the lender by EIB Securities.

This and a number of other legal issues would later force such interested buyers as BDO Universal Bank and the Rizal Commercial Banking Corp. to think twice about acquiring EIB in its current state.

A source from the legal community told the BusinessMirror that “ExportBank obtained a favorable judgment from the Supreme Court which affirmed its position that it cannot and should not be held liable for the obligation of its subsidiary, E-Securities,” referring to EIB.

“In its resolution dated September 5, 2012, the Supreme Court affirmed the decision of the Court of Appeals [CA] dated April 26, 2012, which reversed and set aside the alias writ of execution issued by the Regional Trial Court in Makati City [Branch 66].

“In affirming the CA decision, the Supreme Court declared that the RTC’s application of piercing of the veil of corporate fiction against it and its subsidiary was inappropriate because ExportBank “was never impleaded nor did it participate in the civil case between E-Securities and petitioner-corporations, and it was involved only in the execution stage of the case, merely on account of petitioner-corporations’ motion for the issuance of an alias writ of execution against it,” the lawyers said.

Pascual M. Garcia III, president and chief executive officer at the Philippine Savings Bank, said, “If the ruling quashes his claim and effectively insulates EIB from any financial damage, it should take away the crown of potential thorns not just for BDO but the other potential acquirers. It would then shift to a stage where values of the franchise are clear without downside risk.”

Garcia would add that there remained “a lot on what PDIC could offer to further enhance value” on the remaining assets of the closed lender.

A private bank analyst welcomed this development, saying the Supreme Court decision was one “everyone waited for a long time.”

“This is positive news and attractive for those bidding to acquire EIB’s remaining assets,” the analyst said.

The bank had assets worth P25 billion when the policy-making monetary board of the BSP declared the lender insolvent and ordered it closed in April this year.

Of some P15 billion worth of deposits at the time, only P3.4 billion were covered by PDIC guarantees.

EIB has 59 branches and 47 automated teller machines.