The Commission on Audit (COA) has issued Notice of Charge against treasury officials of the Development Bank of the Philippines (DBP) for alleged losses arising from the sale of P876.712 million worth of government securities.
COA Director IV Emelita Quirante said the sale of government securities booked as available for sale (AFS) to one and the same counterparty resulted in losses totaling P876.712 million and gains amounting to P609.580 million, or a net loss of P267.132 million.
The COA action centered on the loss sustained by the bank out of the same-day sale and purchase to one and the same counter party.
“We are of the opinion that the officers of the Treasury Group should be made personally liable for having entered on behalf of DBP into the said transactions that were manifestly and grossly disadvantageous to the government whether they profited or will profit thereby,” the COA said
“We recommend that management conduct an independent investigation on the foregoing strategy implemented by the trading group and file appropriate charges if the circumstances warrant against the persons determined to be liable,” Quirante said in a letter to DBP President Gil Buenaventura.
The COA said total gains would had been greater by P267.131 million had there been no such losses.
Their actions could have violated Section 3 of Republic Act 3019, otherwise known as Antigraft and Corrupt Practices Act.
The Risk Oversight Committee (ROC) approved the general strategy to shift peso denominated government securities from AFS to held-to-maturity as proposed by Treasury Group, as evidenced by ROC resolution 001. This would prevent further mark-to-market losses and preserve DBP’s capital subject to a maximum loss limit of P800 million and a target portfolio duration of approximately seven years old.
The Corporate Governance Office said the apparent losses should be appreciated within the context of the strategy to avoid a bigger unrealized loss on the bank’s AFS portfolio and that the isolated losses that the COA cited may be construed as initial losses incurred during the first few months of Treasury Group’s total trading portfolio for that year.
ROC said the intent was to minimize losses and preserve the bank’s capital adequacy ratio in accordance with Basel 3 standards. Thus, it follows that the subject trades were not undertaken precisely to create a false or misleading appearance of active trading. Hence, there is no apparent evidence of manipulation of security process under the Securities Regulation Code.
There was also no proof that the officers involved in the subject transactions profited personally. Also there was no indication that the questions trades caused any market disruption nor were there any findings of market manipulation.
“By way of Auditor’s Rejoinder to management reply, we acknowledge that trading gains at the end of 2014 aggregated P421.706 million, however, this amount is net of the trading losses that resulted from the same day sale and purchase deals to one and the same counter party,” the COA said. A DBP official said the individuals concerned have already received their notices and COA will hear their side on this matter.