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Monday, 23 April 2012

When proven in the court of law, the Vestia case would show the moral bankruptcy of some business banks. ‘Should we pull the plugs the next time when such a bank needs government money?’


It was clear from the beginning that the Vestia case would be baffling from a Dutch point of view, due to the enormous amount of money that was involved in it (€2.5 bln and probably more) and the fact that one of the counterparts of Vestia was the stateowned Dutch bank ABN Amro. However, the latest sequence of events, since last week, is even shocking me.

With the arrest of Marcel de Vries of Vestia and Arjan Greeven of FiFa finance a cesspit of iniquity has opened that should send shockwaves through the banking world and European politics.

Last week, I was still assuming that the commission fees of ten times the normal amount that were paid on the interest rate swap transactions between Vestia and a number of business banks were like a one off-incident. Reprehensible, but a relative exception.

The fact that De Vries had been treated like a VIP in London on a number of occasions was also disturbing, but seemingly not uncommon as the anonymous wittness of Deutsche Bank in the following snip was treated accordingly:

“Marcel was sitting at the table next to us in the exclusive Japanese restaurant Nobu in the London City, together with a few employees of Deutsche Bank and about ten callgirls. He was having a wonderful time’. This was told by a customer of Deutsche Bank, who was also present at the time.

However, a story in yesterday’s Volkskrant (www.vk.nl) seems to point out that the ‘process of putrefaction’ had been much longer present in the relation between Vestia and its business banks. Here are the pertinent snips of the newsitem:


Legal battle around possibly objectionable bankers

For years, Deutsche Bank and other international business banks have paid secret commissions on behalf of Vestia concerning the very hazardous transactions, involving billions of Euro’s.

In the derivative contracts that Vestia entered into with bankers from the London City, the banks remitted commission fees between tens of thousands and hundreds of thousands of Euro’s to broker Arjan Greeven in Laren. These payments were invisible for the supervisors at Vestia and were also not stated in the official contracts that were signed by top executive Erik Staal of Vestia.

Broker Greeven declared to the public prosecution that he let through many millions of Euro’s of these secret commissions to the meanwhile arrested treasurer of Vestia, Marcel de Vries.

This is disclosed from conversations with sources from circles surrounding the investigation into massive fraud and bribery at Vestia. The largest building cooperative in The Netherlands (90,000 tenants) was on the brink of defaulting, as a consequence of its enormous derivative portfolio, built up by Marcel de Vries.

The 42 year old Arjan Greeven, that worked for a company called FiFa Finance, received more than €10 mln between 2005 and 2010 for bringing together Vestia and the banks. The Vestia deals were arranged between sales agents of a.o. Deutsche Bank and Marcel de Vries.

The suspected flows of commission fees are investigated by the public prosecution and Vestia itself. Possible objectionable actions of the banks are crucially important for the question where the final bill for the disaster will land: at the tenants of Vestia banks or at the London Bankers.

This is exactly why I called this a process of putrefaction: banks that bribe executives of wealthy companies at key positions to deliberately risk their company through extremely hazardous and large trades. It’s truly disgusting.

In the continuing story on Vestia, the names of four banks have been mentioned: 
  • Deutsche Bank
  • ABN Amro bank
  • Barclays
  • BNP Paribas 

Of these four banks, the ABN Amro is a stateowned bank, while Barclays and BNP Paribas received many billions of Euro’s in state aid. Deutsche Bank is the only bank that did not receive state aid yet, but when its exposure to PIIGS sovereigns goes awry, it might also need state aid.

These are the same banks that seemed to have:
  • bribed people with money and other favors;
  • made fraudulent commission payments;
  • laundered money;
  • forged contracts by leaving crucial parts concerning these excess commission payments out; 

This presumed behavior of these state-supported or even stateowned banks triggers some very disturbing questions on the building cooperatives and the banking industry as a whole.

Questions that rise after the Vestia affair are:
  • Is this the tip of the iceberg or is Vestia the only building cooperative with whom this happened
  • What about other parties with extremely large sums of money to spend?
  • Is the problem that is disclosed by the Vestia affair a structural problem?
  • What should be the consequences for the banks involved? 

My take on the first question is: I am absolutely convinced that the Vestia affair is the proverbial tip of the iceberg. Why shouldn’t banks have tried this before?! Building cooperatives are parties with huge amounts of money to spend that range from tens of millions to billions of Euro’s. These are geese with golden eggs that are too juicy to let them go unharmed.

The banks that are involved have seemingly paid petty cash (a few million Euro’s) in order to reel in serious money: litterally to the amount of billions of Euro’s.

Besides that, if there is something that could have been learned from the Dutch CRE fraud affair that has been shortly described in the 2nd episode of Getting rich with real estate, it is that the amount of money involved in the real estate business is just too large to keep everybody honest.

Towards the second question, I would say that I would not bet a Euro-cent on the general honesty of all people involved in organizations with billions of Euro’s in cash to spend or invest.

I want to state: most people are definitely honest and the majority of the people working for these companies and establishments can definitely be trusted! 

However, I’m sure that many of these companies or establishments host people that are not so honest and when they are in the position to arrange these kinds of fraud, they might. So I expect that the worst has yet to come.

Third question: this is definitely a structural problem in my opinion. In theory, it should be harder to perpetrate this kind of fraud in the computer age, as the automated controls in the computer systems of banks, building cooperatives and pension funds should earlier disclose anomalies with fees and arrangements.

However, especially with these large amounts, these are always actions of humans and if the humans are flawed, so is the system eventually.

What makes this case even more worrisome is that most banks have four-eye or even six-eye controls for transactions of more than €250,000. This means that the Vestia case cannot be a case of just the proverbial ‘rogue trader’ at a further honorable bank.

If the case of Vestia can be proved towards (at least one of) these four banks, this would mean that the process of putrefaction has entered into the core of these banks.

Fourth question: When proved beyond reasonable doubt (!), these actions of these banks are a cancer in the financial system. If it is not treated, it might kill the whole financial industry.

Therefore I see only one possibility:
  • Investigate if this is a running practice within the suspected banks;
  • Remove the cancer: the people that did this within these banks.Put them in jail, just like what happened in the Enron case;
  • If there are too many people that did so within these banks, subscribe a kind of chemotherapy by putting the bank under legal restraint and subsequently fire and prosecute everybody that is involved. Don’t let the managers and executives escape.
  • If all else fails, withdraw the banking license of the business parts of these banks.
If the authorities fail to do so, the next Vestia case might be a matter of years or even months.

Concerning the final question, the one from the title, I would say: “if such a fraudulent bank needs government money to survive, it doesn’t deserve to exist. Pull the plugs…”

3 comments:

  1. zei goed, Ernst

    ReplyDelete
  2. Als je even googelt op "Arjan Greeven" "ABN" vind je dat dhr Greeven regelmatig samen met of op instigatie van ABN Amro optrad op congressen voor managers finance en treasury in de publieke sector. Misschien geldt dat ook voor de andere banken. Door dhr Greeven werden "risico management" producten behandeld. Het is voor de banken natuurlijk prachtig als rente swaps en andere ingewikkelde constructies worden aanbevolen door een zgn "onafhankelijke adviseur". Dat is wel een onderhands douceurtje waard. Ergo: natuurlijk komt dit vaker voor. Benieuwd of de verantwoordelijke mensen van de bank nu ook worden aangepakt!

    ReplyDelete
  3. Really interesting comment. I will dig deeper into this subject tomorrow.

    ReplyDelete

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