Sunday, January 08, 2006

The City of the Heartless (Makati Myth Part Three)

Everyday someone's house is getting foreclosed by a bank, and it will be matter of time before the house's owner is evicted from his home after foreclosure has commenced. A business gone awry, a partner stealing the profits, or a sudden drop in the dollar exchange -- it doesn't matter what your story is. To Makati banks with branches nationwide and even worldwide, the story is simple: You put your house on the line for loan. You don't pay, you lose your house. End of story.

Since many of the nation's premier banks house their head offices in Makati, a lot of Makati office people work to implement the story of every loan. In good times, people borrow money, banks collect. People borrow again, banks collect again. Happy cycles can be all alike. But once payment is missed, Makati banks rage.

When the peso made the sudden drop from PHP 26 to PHP 40 to a dollar towards the end of the Ramos presidency, Makati fought a war hitherto unknown. It was a war to collect from the losers of the foreign exchange crisis. Businesssmen who hedged on dollar loans doubled their liabilities overnight, and their collaterals became insufficient. Soon they would miss their amortizations. And so, bankers knocked on their doors, peppered them with phonecalls, and congested their beepers. The word of the day was "pay".

Freddie felt the receiving end of this war. A currency trader by profession, Freddie had been the darling of a Makati bank (the “Bank”) during the boom years. The Bank gave him a dollar credit line that he used to settle accounts. He was given 30 day term for his business, and at the end of each term, all he needed to do to renew his line was call, and his line would be revolved. His line was not renewed without his call, and he called only when he needed to do so. He made small margins on his trades. But the heavy volume of trading accounts were worthwhile.

The day the Thai baht (which in better times was trading 1 to 1 with the peso) slid to the dollar, the pressure was on the peso to slide down as well. Elsewhere, Mahathir of Malaysia imposed capital controls to isolate the Ringgit from speculators. In the Philippines, Pres. Ramos maintained his free market philosophy, and shrugged his shoulders as the peso soon tumbled to its all time lowest rate. Freddie saw it coming but the impact on his business caught him unprepared. As days went on, he was down 2 million US dollars on his line. He continued to trade, losing sleep at times but hoping he could recover it inch by inch. Then, he forgot to call. As the term was up on his line, the non-extension of the loan triggered an invoice for payment in a few days. With no inventory in his books, he missed his due date, the first time he ever did.

His default triggered a meeting among the junior and senior officers of the Bank. A month earlier, a simple call from the account officer would have been enough, but then the peso had slid down to PHP 40 to 1. Freddie’s loan was now equivalent to 80 Million pesos, and Freddie was not the only one with that problem.

Freddie was summoned to a meeting in the big board room of the Bank in the main branch in Makati. When he entered the room, six bank officers in nice suits and ties met him, asked him to take his seat right across the air-conditioning and directly against a strong lamp.

“You owe us mister. When will you pay us?” one of the men in suits started.

“I know your family. I can hunt you down,” shouted another.

The meeting went on for an hour, and Freddie was dumbfounded all through out. The group made no physical contact. But they called him names and yelled at him. All Freddie could do was reassure them that he was going to pay. They made him sign documents and post dated checks, as additional assurance that he would pay. Normally, he would have stood up and left the room, but there was something about the strong air-conditioning and the blaring lights caused him to do as he was told. Besides, it was really his loan.

I learned Freddie’s story from Jason, one of the men in suits in that room. Freddie was only one of six other persons who were subjected to the “work-out” meeting that day. It was something that they did on a regular basis on defaulting borrowers, but the Asian crisis, made them do it more frequently than usual. Later, Freddie’s home was foreclosed, and subpoenas for violating the bouncing checks law started to arrive. Freddie became a court regular.

The Bank was just one of the many banks based in Makati that unleashed their army of collectors and lawyers against Freddie and his similarly-situated borrowers. The process was heartless. Bank employees and officers had their jobs on the line, and their orders was not to stop until their banks got their money back one way or another. Some borrowers found a way to fight, employing lawyers adept with the art of delay. Others fled the country. Some ended it all with a bullet in their heads. But Makati's army was not allowed to rest until the debtors paid.

"How does it feel to be always on the wrong side?", a defendant in one of the cases I was handling for one of the banks asked me once. I brushed off the question then; I didn't feel anything. It was a job. Like many others doing work in the financial district, we were trained to think and mute our feelings. If we found a guy who defaulted on his car loan parking the car on the parking lot of a mall, it was automatic to call the sheriff and make sure the car was towed to the bank's garage. If house and lot had been foreclosed, it was automatic to secure a writ of possession and evict anyone found in the house, physically, if necessary. For at the end of the day, lawyers like the rest of the workers of the financial district, would be judged by the value that they bring to their employers. The value that made it possible for the rich to go to their offices in chauffered cars from the manicured lawns of Forbes Park, the value that made it possible for them to stay in the hotels and treat their friends to the big restaurants that only Makati could house, the value that allowed them to pay the brightest executives and lawyers to give their debtors the work-out they deserve, that was the value that mattered.

ONE MORNING AS I entered Makati through the corner of Ayala Avenue and EDSA, the rows of tall buildings on both sides of the avenue revealed themselves as a long dark tunnel. And at the end of the road was the majestic PS Bank Tower, looking like a jewel as it sparkled in the morning sun. It was like a vision from a dream. But not everything is what it appears to be. And most certainly, Makati, enclave of the rich, betrays the eye. Beware the myth that is Makati, for beneath the facade of splendor and wealth is the slow drag of the working class, learning that where the big players play, the small players don’t.


Arbet said...

I hate big banks. They serve corporate and big customers like they were royalty. They treat small depositors like beggars. And the measly interest they pay small depositors is way below they charge loans.

The average interest rate for savings accounts is 1%, less withholding tax. Average loan interest rate (eg, housing loan) is 10% on the 1st yr, subject to change without prior notice.

And they earn Php 1Billion as net income.

Shows you that banks do not care at all. All they care about is the money.

But when they close down, the first to lose are the lowly depositors.

marvin said...

big banks -- that's what Makati is all about

james abram said...

I agree with you Arbet, but I think it depends on the employees of that bank how they will treat the small depositors.For legal problems, jist visit NDV Law.