Double whammy for banking sector Bank of Saipan supports government intervention

The Bank of Saipan’s board of directors has vowed to cooperate with a government move to appoint an outside expert to temporarily manage the banking institution’s financial affairs, amid the latter’s fears of depositors committing a bank run.

Robert Goldberg, counsel for the BoS corporation, told Presiding Judge Edward Manibusan during a hearing yesterday afternoon that the bank supports the move to tap a “receiver” to oversee the bank’s operations.

This came after the government filed yesterday a civil suit, petitioning the Superior Court for the immediate appointment of a “receiver” in a bid to prevent what it described as a “situation that may get out of control.”

The petition, which listed acting Secretary of Commerce and CNMI Director of Banking, Fermin M. Atalig as petitioner, indicated that BoS former President and CEO Tomas B. Aldan’s recent indictment in a $6.6 million wire fraud case drove the government to believe that the local bank may be in financial turmoil.

Government counsel, Assistant Attorney General Allan L. Dollison, during a court proceeding, underscored the need for a “receiver” to step in, in order to determine the “true financial health of the bank.”

The government has recommended to the court businessman and lawyer Randall Fennell to take on the task as “receiver.”

Fennell told the court that, for seven years, he previously acted on a similar capacity for the Commonwealth Bank of the NMI Inc. pursuant to Judge Hefner’s orders.

“That bank faced the same [situation] as the Bank of Saipan…it was unable to meet the demands of depositors,” Fennell explained to Manibusan yesterday.

Though the bank eventually lost its license, depositors were able to get their money back, he added.

Fennell also noted that the BoS is in no serious financial trouble, though the bank appears to be fazed with a problem on “public trust” due to recent publicity.

“It appears to me that something needs to be done,” said Fennell, who agreed to take on a “receiver’s” tasks on a short-term basis.

Manibusan was poised to rule on the government’s petition for the receiver’s appointment late yesterday afternoon.

The petition, which listed Aldan’s federal indictment as the primary cause of the action, further alleged that BoS is in direct violation of the Government Deposit Safety Act in that its statement of assets and liabilities for quarter ending March 3, 2002 only showed that $8 million of its deposits were backed by US Treasury Dept. securities as collateral.

BoS’ counsel Goldberg, however, refuted this allegation.

Court documents further showed that the BoS has $48 million in deposits as of March 2002 and approximately one-third or $16 million were Commonwealth government deposits.

According to the government public agencies with large deposits have intended to demand their deposits from the BoS as early as Tuesday morning. One such agency wanted to withdraw approximately $2.6 million from BoS.

“Each and every depositor who withdraws substantial amount from the respondent [Bank of Saipan] places other remaining depositors at a greater risk that their deposit demands will not be honored due to liquidity problems that respondent will correspondingly suffer from.

“These facts have caused petitioner to have a reasonable belief that the respondent is not in sound financial condition and that funds held by the respondent are at risk of being depleted to their injury,” read the government’s petition.

The only viable solution to the situation, according to Dollison is the appointment of a “receiver” whose tasks will be to:

• restrict the withdrawal of deposits

• take possession of assets, liabilities, books, records, papers and files of every description belonging to the bank

• collect all loans, fees and claims of the bank

• see to the payment of its obligation and debts

At the same time, the Tan family, as shareholders in the bank, stressed that their personal investments in the bank remain intact.

The banking relationship with the Bank of Saipan has been normal and the Tan family said they have not advised nor encouraged any employees of the Tan Holdings companies nor affiliates to withdraw funds. No attorney working for the Tan family, nor Tan Holdings have taken funds out of the bank as a result of the recent events.

“We value the Bank of Saipan and we are not happy with the recent events which led to the indictment of individuals who at one time presented themselves as investors interested in buying the bank. We contacted the U.S. Attorney and Banking Commissioner on this matter when we discovered irregularities,” said Willie Tan.

The recent indictments are unfortunate. However, Willie Tan and the Tan family believe this matter will be dealt with appropriately by the proper authorities.