Experiencia del IPAB en la Gestión y Venta de Activos


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  • In the midst of a crisis it is common to seek ways to explain its causes. Regulators fault bank mismanagement. Bankers point to inadequate laws, ineffective government policies, and macroeconomic volatility. Journalists and opposition political parties signal crime and corruption. Finally, economists place special emphasis on inadequate incentives for effective bank management. Today it is accepted that these episodes of systemic crisis are usually the result of a combination of macroeconomic and microeconomic factors. Microeconomic factors include deficient bank management, lack of effective regulation and supervision, excessive government intervention, credit granted to persons with ties to banks, politically motivated loans, insurance offering total coverage for deposits, and deficiencies in the legal and judicial framework. Macroeconomic factors include falling exchange rates, rising inflation, accelerated growth in credit to the private sector, unexpected capital flight, and economic recessions.
  • The drop in the value of financial assets generated a systemic crisis and a sizeable negative net worth in the banks’ balance sheets and an impending sector insolvency.
  • Debtor support programs: Provide incentives to help debtors that had opted to now pay, to return to the negotiating table and resume payments (i.e. prevent a generalized non-repayment culture). Depositor support programs: Long-standing tradition of honoring all bank obligations, had to be upheld to preserve confidence in the financial system. Meanwhile, the recapitalization and management of banks would remain where possible, in the private sector. Some banks failed to recapitalize, leaving the government to either liquidate or recapitalize the banks for further sale. Financial sector was opened to foreign investment to facilitate re-capitalization and re-configuration of the industry.
  • In essence, IPAB administers a bank deposit insurance system that guarantees payment of obligations for an amount of up to 400 thousand price adjusted units of account known as UDIs per natural or legal person. This figure is currently equivalent to approximately 146 thousand US dollars.
  • IPAB plays a fundamental part in implementing the bank resolution methods established in the LPAB and in the Law of Credit Institutions as timely and effective mechanisms for financial strengthening and liquidation of full service banks with financial problems that can affect their solvency, in order to provide maximum protection for the interests of the saving public and minimize the negative impact on other institutions in the banking system. IPAB has the authority to take charge of the sale and administration of assets associated with bank resolution programs and those associated with debt management, such as: portfolio, moveable and real assets, and stocks, for which it administers and sells them, seeking to obtain the highest possible recovery value, negotiating the best possible terms of sale. Finally, in its financial management and administration functions, IPAB administers a debt made up of its Financial Strengthening and Refinancing Programs. To engage in refinancing operations, IPAB issues debt on the market through Savings Protection Bonds and has the authority to contract credit with financial institutions.
  • Along with IPAB, in 1999 the Mexican Congress created CONDUSEF, the National Commission for the Defense of Consumers of Financial Services. The creation of the IPAB and CONDUSEF completed the current architecture of the Mexican financial safety net, which in addition to IPAB and CONDUSEF, is complemented by the central bank, the ministry of finance, and the banking and securities supervisor.
  • For purposes of the LPAB, according to Article 5, subsection IV, Assets are deemed to be: i) loans, rights, shares and other assets of any nature with respect to which full-service banks and other corporations where the Institute holds an interest in their capital are titleholders or owners, and ii) goods and rights of any type that the selfsame Institute acquires to attain its purpose, except for those directly related to its administrative operation. In comparison, for purposes of the transitory provisions of the LPAB, ASSETS are deemed to be: Shares of full-service banks, brokerage firms and other corporations that are titleholders of the Trusts indicated by Article 122 of the Credit Institutions Law and Article 89 of the Securities Market Law in force until the date when this Decree comes into effect; The beneficial rights under a trust regarding which the Trust is the titleholder, as indicated in Article 122 of the Credit Institutions Law in force until the date when this Decree is enacted, in order to receive the proceeds of the recovery of loans designated in the agreements executed with full-service banks under the programs to capitalize and restructure such institutions that the financial authorities have implemented, as well as the rights vested upon such fund by the aforesaid agreements; Other goods and rights owned by the Trusts indicated by Article 122 of the Credit Institutions Law and Article 89 of the Securities Market Law in force until the date when this Decree comes into effect; Loans, rights and other assets regarding which full-service banks and other corporations indicated in subparagraph a) of this article are titleholders or owners, and Other goods and rights of any nature related to the management and conclusion of the programs set forth in this article." As already stated, the nature of transitory provisions is temporary, derived from the moment when the transactions implemented by the FOBAPROA and the FAMEVAL and, thus, the term of five years as of the date when the LPAB came into effect applies to such transactions because these acts were performed precisely before the cited law became effective.
  • The LPAB sets forth, in its thirteenth transitory article, the terms so that the Institute may carry out the recovery of the Assets: five years as of the date when the LPAB comes into effect, except for assets of Institutions that were taken over by the CNBV not subject to liquidation proceedings, in which case, such recovery shall be concluded within a term not exceeding three years. Pursuant to this legal ordinance, the Institute shall manage and sell the Assets and other assets in order to obtain the maximum potential recovery value and, to this end, it shall proceed to sell them, procuring that this sale is made under the most advisable economic and financial terms, and procuring at all times the best conditions and the shortest terms of recovery. To this purpose, the law orders the Executive Secretary of the Institute to prepare a Program for the Sale of Assets which shall address the following elements: (i) General diagnosis of the condition of Assets to be sold; (ii) Guidelines of the strategy to sell them or to delegate the administration thereof; (iii) Objectives and goals of the program; (iv) Criteria and guidelines for the participation of third specialized parties that act as coadjutors in order to comply with the purpose of the Institute; and (v) Procedures for block sales of Assets. It must be stated that, under the thirteenth transitory article of the LPAB , only Assets and assets derived from the transactions implemented by the FOBAPROA and the Securities Market Support Fund (Fondo de Apoyo al Mercado de Valores or FAMEVAL) shall be regulated, as well as all existing transactions at the moment when this article was enacted. Therefore, this transitory article does not apply to assets derived from processes or transactions implemented subsequently to the enactment of the cited article.
  • For purposes of the thirteenth transitory article, ASSETS shall be exclusively understood as those defined by the Sixth Transitory Article of the same LPAB , and thus, its scope of application is limited to the regulating presumptions in those transitory provisions. In relation to the definition of ASSETS, we must start from the premise that they only make reference to transactions made by the FOBAPROA or the FAMEVAL prior to the date when the LPAB came into effect. On the other hand, according to the provisions of the seventh and thirteenth transitory articles of the LPAB , the Institute assumed the ownership of the transactions derived from financial restructuring programs different to the programs of capitalization and portfolio purchase by the FOBAPROA and thus, any references made to the trusts mentioned by the seventh transitory article, in laws, regulations, decisions, official letters, registrations and agreements that make reference to the management and operation of such trusts shall be understood as references to the Institute. As can be observed, the Institute is not considered as universal successor-in-interest regarding the transactions made by the FOBAPROA, inasmuch as the transactions of the programs of capitalization and portfolio purchase have been excluded. Due to the fact that the transitory articles make reference to transactions made prior to the date when the LPAB came into effect, the beneficial rights under a trust derived from transactions implemented by the Institute shall not apply for purposes of the thirteenth transitory article, as well as any type of assets directly owned by the Institute and acquired subsequently to the date when the LPAB came into effect. Taking as basis the definition of Assets, and once the preceding conclusions have been expressed, for purposes of the terms set forth in the thirteenth transitory article, particularly regarding the indication related to the fact that the Institute shall conclude the recovery processes within a term not exceeding 5 years as of the date when the LPAB came into effect, the assets subject-matter of such term are those assets derived from the Restructuring Programs implemented by the FOBAPROA.
  • Program of Capitalization and Loan Portfolio Purchase or New Program was designed so that the participant institutions are able to strengthen their financial position by substituting non-productive assets (portfolios with recovery problems) for promissory notes issued by the FOBAPROA, transferring to the latter the right over the flows obtained from collecting the loans and sharing the loss of amounts not recovered. In exchange thereof, their shareholders would contribute new capital to the pertinent Institutions. Subsequently, as informed in the proper subsection, the Institute instrumented the “New Program” on June the 13th and 14th of 2004, within the meaning of the Fifth Transitory Article of the LPAB . The purpose of financial assistance programs is to grant financial support so that Institutions could comply with their obligations with savers and prepare them for subsequent sale or merger with other full-service banks. Institutions in liquidation participated in the Restructuring Programs implemented by the FOBAPROA, and their management was also taken over by the National Banking and Securities Commission but failed to regain viability. The Ministry of Finance and Public Credit proceeded to revoke their authorization, and the Institute assumed the role as liquidator under the LPAB. These transactions were assumed by the Institute, under the provisions of the seventh and thirteenth transitory articles of the LPAB.
  • In addition, the Institute carried out transactions according to the terms set forth in the LPAB and within the framework of the following programs: Restructuring Programs concluded by the IPAB: The Institutions which restructuring was not concluded or where such restructuring was not enough, have received financial support from the Institute to recover their stabilization so that they would be able to fulfill their commitments, and would eventually be sold. It must be noted that in these cases, the recovery of assets is not subject to the terms established by the thirteenth transitory article of the LPAB , due to the legal considerations expressed herein below. IPAB’S Liquidation of Institutions: Regarding the institutions which transactions were not assumed by the Institute, but were taken over by the CNBV , a technical study was conducted under the terms of Article 28 of the LPAB to assess the advisability to grant some type of financial support. Given their financial position, the Institute concluded that the least expensive option was to pay guaranteed obligations under the Second Title, Chapter II of the LPAB , and proceed to liquidate them. In these cases, the recovery of assets is neither subject to the terms provided for by the thirteenth transitory article of the LPAB , and the recovery of the assets of such institutions is not subject to the Third Title, Chapter II of said ordinance, due to the legal considerations expressed hereinbelow.
  • The strategies and procedures observed to recover the assets depend on the original program in question. The foregoing, pursuant to the legal system that applies to them, as well as the entity that directly conducts the recovery transactions. The Institute, through an administrator Directly Owned The Institute, through an attorney-in-fact acting as liquidator IPAB’S Liquidation of Institutions The Institute, through Specialized Third Parties IPAB’s Restructuring Programs The Institute, through an attorney-in-fact acting as liquidator FOBAPROA’S Liquidation of Institutions The same institutions that received support FOBAPROA’s Restructuring Programs The same institutions that received support New Program Entity Responsible Program
  • In the case of the New Program, which was implemented using the Program of Capitalization and Portfolio Purchase, and the FOBAPROA Structuring Programs as starting basis, these are the Institutions that participated in such programs, which managed and adopted the recovery decisions observing the same policies they use for their portfolio and/or assets; this, in view of their responsibility to act as trustee and/or contractual agent. The liquidation of the FOBAPROA Institutions is entrusted to the Institute which, in turn, has appointed an attorney-in-fact to act as liquidator. The recovery of the assets of Institutions in Liquidation has been determined through an Operative Liquidation Program, which observes the provisions of the Program for the Sale of Assets of the Institute. In the programs where the responsible entity is the Institute, the strategies and procedures to recover Assets were designed with the premise of generating an incentive for the greater possible number of interested parties so as to promote competition, and thus, optimize their value of recovery, possibly involving specialized mechanisms suited to the characteristics of each asset.
  • The mechanisms used to conduct the recovery of loan portfolios are as follows: Direct or Non-recourse Sale. Consists in the sale of a specific loan portfolio through competitive bidding with sealed bids addressed to companies that manage portfolios and/or other financial entities. Assignment of Rights and Administration. Consists in tendering the rights to manage the portfolio and to participate in the flows derived from the collection thereof. The companies that successfully bid are those that offer the highest bid for such rights, and which comply with the technical requirements to conduct such administration. Assignment in Plain Administration. Consists in hiring a specialized third party to manage and recover loan portfolios and other assets through competitive bidding with sealed bids, where the successful bidder is the participant that offers the lowest fees. When the Institute initiated the assets recovery activities, no consolidated secondary market existed to allow the placement of blocks of loan portfolios. In this respect, the role of the Institute was essential to generate the conditions for placement of loan portfolios. However changes to the existing legal framework were necessary, including amendments to the tax code to create a special system for companies that manage portfolios, and the integration of special investment vehicles to allow for participate in these type of processes.
  • Variables that have affected the degree of progress Other variables have had an impact on the evolution of recovery processes. In particular, the market conditions for the management of loan portfolios have given rise to adjustments in the performance of the processes of sale, such as: i) rescheduling of auctions; ii) substitution of loans in portfolios subject to auctions; and iii) negotiations that entail advanced recovery payments? . Moreover, based on the information regarding past sale processes in charge of some banks, we have learned that the prices they have achieved are consistent with the ones obtained by IPAB; which means that the market is functioning in a proper manner and that the objective of conducting transactions in the best economic conditions possible is being met. Amongst the factors of supply and demand that had an impact, and still have an impact to conclude the recovery processes, we stress the following: Characteristics of the loan portfolio to be placed, type of loan, amount of portfolio, value and feasibility to enforce guarantees. Size and degree of progress of the market for portfolio managers. Entrance of new offerors such as banks, a government entity also engaged in mostly non-financial? assets (Asset Management and Divestment Service or SAE) and of new investors. Development of innovative products that draw the attention of both current participants and new investors.
  • Considering both the significance and the complexity posed by some cases of Partnership Interests and Corporate Loans denominated as strategic assets, the Institute actively participates and, within the scope of its authorities and competent jurisdiction, reconciles the ownerships of other shareholders and/or creditors, while performing different processes with the authorities in order to implement custom recovery strategies. Payments in cash, and accord and satisfaction. Used when debtors or interested third parties state to have enough liquid resources or real estate in order to submit proposals of payment to liquidate their indebtedness. Financial Restructuring. Implemented when debtors state they are willing to pay, have financial capacity to pay, and provide alternative sources of payment (guarantees) acceptable to creditor Banks. Capitalizations. Implemented when debtors state their willingness to pay and have future projections of favorable development, but do not have enough financial capacity to pay the debt in full. In these cases, the amount of the debt that cannot be paid is converted into shares property of the Institutions where the Institute has either a direct or indirect interest.
  • The mechanisms used to manage and recover corporate loans are: In the case of Partnership Interests, the recovery has been mainly performed through the following mechanisms: Sale through public auction. Withdrawal and/or reductions of capital. Liquidation of the corporations and collection of shareholders' equity. Key assets, such as the equity of banks subject to some kind of financial support (Grupo Financiero Serfín, BanCrecer, Grupo Financiero Bancomer y Scotiabank Inverlat) have been divested through Competitive Bidding processes with Sealed Bids.
  • Variables that have affected the degree of progress Corporate Assets The processes to recover Corporate Assets have been affected by different factors, such as: i) legal progresses, and the outcome of judicial proceedings; ii) the decision of legal and tax matters with authorities; iii) the design and implementation of processes of private auctions; and iv) the alignment of recovery strategies of the different Banks involved in one same company or borrower. In the particular case of the management and sale of Equity Interests and Other Securities, a series of obstacles have been faced, which delay the deadlines scheduled for the recovery and which have also hindered that the processes may be conducted in an effective and efficient manner; amongst them we stress the following: The complexity of the liquidation processes of some corporations in which the Institute holds an interest in its capital stock has delayed the conclusion and, thus, it has not been possible to recover the shareholders' equity until fiscal and judicial matters have been solved. The rights to repurchase shares by the original shareholders have extended or prevented the initiation of processes for their sale. In the case of Banks in Liquidation and in Bankruptcy, the Institute is unable to freely dispose of assets making use of its capacity as Liquidator or Receiver to collect the indebtedness that these institutions maintain with the Institute, as long as the rights of the other creditors have not been defined with accuracy. In some cases, the interests of minority shareholders are not acknowledged by majority shareholders in equal manner. This has made difficult to recover equity interests where the Institutions or the Institute do not hold the majority. The deceleration of economic growth and the slow growth of the Gross Domestic Product also have an adverse effect, which in effect means that sales have to be “timed” in relation to the business cycle.
  • On the other hand, corporate loans have also faced a series of obstacles, making them difficult to manage, delaying their recovery. Most loans have been recovered through judicial proceedings, an alternative option for Banks with low or null certainty regarding the time that the process to obtain a solution can last, regarding the outcome of the action in each one of its stages, and the status that the company or guarantee will have at the moment when the action is decided. The initiation of the recovery of loans through judicial proceedings has two purposes: 1. To forestall the disposal of assets and resources by the debtor, as well as to preserve the status of the guarantees of the Bank regarding other creditors. 2. To pressure the debtor to submit a proposal of payment acceptable to both parties, avoiding greater costs and the deterioration of the assets moral standing and financial position due to lack of financing sources. The great deal of time that judicial proceedings imply has been used by debtors to attempt to negotiate minimum payments regarding the capital owed, or even to continue under the scheme of suspension of payments under which they do not face any financial burden. The prevailing legislation, in its section of Bankruptcy, sets forth that: “Debts in suspension of payments shall cease to accrue interest with respect to the estate". The adverse environment to solve and recover loans (high interest rates, reduction of capacity of guarantees, decrease in the income of companies, etc.). The implementation, operation and administration of loans poses certain deficiencies that make their recovery difficult or, if applicable, prevent the use of judicial proceedings: i. Promissory notes not filled in correct manner upon their drafting, with mistakes in the name of borrower or interest rates, as well as promissory notes cancelled by mistake, or that have been misplaced. ii. Ill-established Guarantees. Lack of supervision on the progress of works, registration mistakes upon granting the loan, guarantees with prior encumbrances. iii. Impossibility to issue statements of account or accounting certifications to attach them to the complaint.
  • The recovery of moveable and real estate assets, including works of art, has been conducted through public auctions with appraisal values established by specialized third parties, based on the criteria set forth by the supervisor. The mechanisms of recovery, in view of the characteristics of the goods in question, are the following: Individual Sale. Auctions for assets that, due to their significance and nature, allow for the maximization of their recovery on an individual basis. Major Real Estate Assets with Commercial Potential. Real estate Assets whose value exceeds 10 million pesos (approx. USD 0.9 million) are defined as major real estate Assets. These may be an individual real estate property or a natural complex. An individual real estate asset can also be a set of properties in a single location whose value, exceeds the above figure. Minor Real Estate Assets with prior offer. This strategy aims to sell minor real estate properties that had a specific purchase proposal which may be unanswered due to the suspension of sales decreed once the bank was taken over. Special Personal Property. This group of Assets require a specialized marketing process. Such is the case of vessels, luxury automobiles, certain types of machinery, jewelry, works of art, and membership rights to the access and use of clubs and associations. Works of Art catalogued and recognized. A specialized auction house must be contracted to sell these types of assets. Regularly, decorative works with artistic value are added to auctions held for works of art to draw the attention of another sector of buyers. Sale in block or lots. Collective auctions, where the quality of the assets makes it difficult to recover them on an individual basis and, thus, blocks of Assets with similar characteristics are formed, therefore maximizing the probability of being sold. Minor Real Estate Assets in block. This strategy intends to sell in masse real estate properties with scarce or null commercial potential. Some auctions have resulted in no divestments due to lack of interested parties. Sale of lots of personal property located in warehouses. These Assets are characterized as assets of common use, and do not require a specialized process to be sold; amongst them we find furniture and office equipment, fabrics, household items, construction material, automobile spare parts, electric material, communications equipment, computer equipment, waste related assets, etc.
  • The sale of these types of assets have faced the following challenges: i) a great number of participants, some formal and other occasional ones; ii) the same diversity of assets that make up the inventory of real estate assets and personal property; iii) the marketing conditions of the Institute, this is, the sale through public auctions; and iv) restrictions to potential purchasers, since they must comply with the conditions set forth in the Program for the Sale of Assets. As already stated, it is important to take into account that transactions regarding the real estate industry are made through negotiations of price and terms of payment between the purchaser and the seller, who can sell even by means of credit systems or deferred payment plans that have no restrictions to sell to the best offeror, regardless of the offeror's creditworthiness or background, taking into account only the economic capacity of such offeror. In the case of moveable assets, a great volume of inventory of the Banks in Liquidation, is formed by property which is evidently in conditions of obsolescence and deterioration (furniture and office or computer equipment) that make difficult their marketing. For these types of assets, the natural market is represented by merchants that purchase by lots or sell substandard assets that, in turn, resell the merchandise in street markets or other informal markets, where it is not possible to transfer the value added tax?. There are also assets classified as used industrial machinery and equipment, with scarce or null specialized maintenance, that can only be sold to going concerns that are able to use them. All assets are scattered in different cities, and sometimes their concentration is more expensive than the amount that can be recovered as result of their sale.
  • The economic situation of Mexico during the middle of the nineties led to a sharp drop in the value of banks’ assets. Unemployment doubled in less than a year, which made more difficult the servicing of bank debtor obligations, leading to the sharp increase in bank’s past due loan ratios, deteriorated asset values and a generalized sub capitalization problem in the financial sector. Some intermediaries faced important solvency problems. As is probably known, this made it necessary for authorities to put in place a series of measures aimed at protecting the interests of banking depositors and debtors. Since the IPAB deposit insurance law came into effect, and in terms of the Assets provisions in this law, IPAB must manage and divest Goods (as these are defined in the law) with the intent of obtaining the highest possible recovery value in light of the commercial characteristics of the operations, sound business and banking practices, the location of the goods, and general and particular conditions of each operation. When LPAB came into effect in 1999, IPAB had a large inventory of Goods for management and divestment, and there was no existing secondary market capable of liquidating such volume of assets in the terms specified in the law. This market has been since taking hold.
  • Experiencia del IPAB en la Gestión y Venta de Activos

    1. 1. Asset Management and Sales IPAB’s experience Institute for the Protection of Banking Savings DICJ, Tokyo, Japan, February 2008
    2. 2. <ul><li>1994-1995 financial crisis overview </li></ul><ul><ul><li>Origins </li></ul></ul><ul><ul><li>Key variables </li></ul></ul><ul><ul><li>Consequences </li></ul></ul><ul><li>Mexico’s Government response to the 1994-1995 financial crisis </li></ul><ul><ul><li>Policies adopted in response to the crisis </li></ul></ul><ul><ul><li>Original Policies Responses </li></ul></ul><ul><ul><li>IPAB’s establishment as a Deposit Insurance Agency with extended powers </li></ul></ul><ul><ul><li>IPAB´s Contribution to Financial Stability </li></ul></ul><ul><ul><li>IPAB´s Main Functions </li></ul></ul><ul><ul><li>IPAB´s Assets Recovery Organizational Structure (1999, 2002 and 2007) </li></ul></ul><ul><ul><li>CONDUSEF </li></ul></ul>Index
    3. 3. <ul><li>Regulatory Framework </li></ul><ul><ul><li>Law Banking Savings Protections (LPAB) </li></ul></ul><ul><ul><li>Assets Regulatory Provisions within LPAB </li></ul></ul><ul><li>Assets Origin </li></ul><ul><ul><li>Programs </li></ul></ul><ul><ul><li>Origin of de Assets by Program </li></ul></ul><ul><ul><li>Assets Classification </li></ul></ul><ul><ul><li>Initial Inventory </li></ul></ul><ul><li>IPAB´s Assets </li></ul><ul><ul><li>Assets Categories </li></ul></ul><ul><li>Strategies and Procedures for Assets Recovery </li></ul><ul><ul><li>Assets Management </li></ul></ul><ul><ul><li>Sale Process </li></ul></ul><ul><ul><li>Loan Assets </li></ul></ul><ul><ul><li>Corporate Assets </li></ul></ul><ul><ul><li>Real State and Moveable Assets </li></ul></ul><ul><li>Closing Remarks </li></ul>Index
    4. 4. <ul><li>Bank Nationalization followed by a privatizing process </li></ul><ul><li>Inadequate supervisory / regulatory framework </li></ul><ul><li>Macro-economic imbalances 1994 peso devaluation </li></ul>1994-1995 financial crisis overview Origins Severe fiscal cost: 17% GDP (as of 2004)
    5. 5. 1990=100. Increase denotes depreciation. Source: Bank of Mexico. 1994-1995 financial crisis overview Key variables
    6. 6. 1993=100. Source: INEGI. 1994-1995 financial crisis overview Key variables
    7. 7. <ul><li>Threatened financial system </li></ul><ul><li>Need to support debtors affected by severe income and price effects </li></ul><ul><li>Undercapitalized banks </li></ul><ul><li>Threat of bank runs </li></ul>1994-1995 financial crisis overview Consequences
    8. 8. <ul><li>Retention of the blanket guarantee (transition plan) </li></ul><ul><li>Immediate and long –term actions were deployed: </li></ul><ul><ul><li>Debtor relief programs </li></ul></ul><ul><ul><li>Depositors support programs </li></ul></ul><ul><li>Permission to foreign capital to invest in the banking system </li></ul><ul><li>Modernization of the supervisory / regulatory framework </li></ul><ul><li>Bank collateral adjudication reforms to promote lending </li></ul>Mexico’s Government response Policies adopted in response to the crisis
    9. 9. <ul><li>Originally, two entities (FOGADE, Deposit Guarantee Fund and COREBI, Asset Recovery Commission) would replace FOBAPROA, but legislative passage failed </li></ul><ul><li>These entities would be separately in charge of deposit insurance and assets recovery </li></ul><ul><li>An eventual legislative compromise assigned both responsibilities to a single new entity, IPAB </li></ul>Mexico’s Government response Original Policy Responses
    10. 10. <ul><li>The 1995 economic crisis and its effects made clear the need for a new deposit insurance system </li></ul><ul><li>In January 1999, a new deposit insurance law came into effect </li></ul><ul><ul><li>IPAB began operating in May 1999 as a decentralized agency of the Federal Government </li></ul></ul><ul><ul><ul><li>Own Law </li></ul></ul></ul><ul><ul><ul><li>Own Budget </li></ul></ul></ul><ul><ul><ul><li>Governing Board with independent members </li></ul></ul></ul><ul><ul><li>Clear, explicit regulatory framework </li></ul></ul><ul><ul><li>Limited and explicit protection aimed at small and medium-size depositors </li></ul></ul>Mexico’s Government response IPAB’s establishment as a Deposit Insurance Agency with extended powers
    11. 11. Gradual Transition to Limited Coverage Creation of Incentives for Financial System Consolidation Flexibility in the Institute’s Debt Management Orderly & Efficient Asset Alienation System Financial Stability IPAB contributes to the stability of the financial system Proactive Risk Monitoring Mexico’s Government response IPAB contribution to Financial Stability
    12. 12. Resolves Banks in distress and manages the Deposit Insurance System Designs and implements assets sale programs Liability management Mexico’s Government response IPAB Main Functions
    16. 16. <ul><li>Mexico’s Financial Ombudsman main objects: </li></ul><ul><ul><li>Promote, give advice to, protect and defend the interests of financial services users; </li></ul></ul><ul><ul><li>arbiter differences between consumers and providers; and </li></ul></ul><ul><ul><li>supply financial educational content in coordination with other authorities </li></ul></ul>Mexico’s Government response CONDUSEF
    17. 17. <ul><li>IPAB must administer, recover and sell assets , which it does mostly through the rehabilitated institutions and/or via specialized third parties. </li></ul><ul><li>According to IPAB’s law, IPAB must aim at obtaining the highest possible recovery value of the assets in the shortest possible timeframe, taking into account prevailing economic and financial conditions. </li></ul>Regulatory Framework Law of Banking Savings Protection (LPAB)
    18. 18. <ul><li>Article 5, fraction VI: Assets are “credits, rights, securities, and other assets of any kind held or owned by institutions and other corporations in whose capital, in terms of LPAB, IPAB participates, as well as any other assets and rights that IPAB may acquire to fulfill its purpose and exercise its functions, except those directly related to its administrative operation.” </li></ul>Regulatory Framework Law of Banking Savings Protection (LPAB)
    19. 19. <ul><li>Transitory Article 5 : This article establishes an option for institutions which participated in the Capitalization and Loan Purchase Program to decide between: </li></ul><ul><ul><li>Keep operations with FOBAPROA in its original terms, or </li></ul></ul><ul><ul><li>Cancel them and establish new operations with IPAB </li></ul></ul><ul><li>Transitory Article 7: This article foresees two events : </li></ul><ul><ul><li>The assumption , by IPAB, of the financial assistance operations undertook by Fobaproa and Fameval </li></ul></ul><ul><ul><li>The assumption of the operations of institutions under intervention by the supervisor, CNBV; subject to certain exceptions and conditions </li></ul></ul><ul><li>Transitory Article 13 : Establishes the length of time devoted to assets recoveries and orders IPAB to produce an Assets Sale Program </li></ul>Regulatory Framework Law of Banking Savings Protection (LPAB)
    20. 20. <ul><li>Articles governing Assets management and sales: </li></ul><ul><li>Art. 61: IPAB must manage and sell assets seeking to obtain the highest possible recovery value…, </li></ul><ul><li>Art. 62: IPAB may opt to entrust asset recovery, sale and management processes to the banks supported or… to third parties when it proves advantageous, </li></ul><ul><li>Art. 64: Assets will be sold by public auction, unless the Governing Board considers that due to the nature of specific assets or prevailing sale conditions, such process would not obtain the best economic terms </li></ul>Regulatory Framework Assets Regulatory Provisions within LPAB
    21. 21. <ul><ul><li>Capitalization and Loan Purchase </li></ul></ul><ul><ul><li>Financial Assistance </li></ul></ul><ul><ul><li>Liquidations </li></ul></ul>Assets’ Origin Programs
    22. 22. IPAB operations - Serfin - BanCrecer FOBAPROA operations - BBV - Santander - Inverlat - Confia - Atlántico - Promex - Banpaís - Bancen Financial assistance for subsequent sale programs <ul><li>Banamex </li></ul><ul><li>BBVA Bancomer </li></ul><ul><li>BITAL (HSBC) </li></ul><ul><li>Banorte </li></ul><ul><li>(Program concluded) </li></ul>Intermediaries in liquidation Programs Capitalization and loan purchase program <ul><li>Brokerage houses: </li></ul><ul><li>Bursamex - Arka </li></ul>IPAB operations <ul><li>Quadrum </li></ul><ul><li>Anahuac </li></ul><ul><li>Industrial </li></ul><ul><li>Sureste </li></ul>FOBAPROA operations <ul><li>In liquidation: </li></ul><ul><li>Capital </li></ul><ul><li>Pronorte </li></ul><ul><li>In bankruptcy court: </li></ul><ul><li>Unión </li></ul><ul><li>Obrero </li></ul><ul><li>Cremi </li></ul><ul><li>Interestatal </li></ul><ul><li>Oriente </li></ul>Brokerage houses: - Mexival – Estrategia - Valburmex Assets’ Origin Origin of the Assets by Program
    23. 23. In exchange for the financial assistance that has been extended to Institutions or as a result of liquidation or bankruptcy processes, the assets that must be managed and/or sold by IPAB* can be classified in: 1. Loan portfolios 2. Corporate assets 3. Real and moveable assets * Directly or through the proprietary banks of the assets. Most of these assets are property of the Financial Institutions that originated them, even though IPAB is the beneficiary of their cash flows. Assets’ Origin Assets Classification
    24. 24. The recovery value of the initial inventory of assets assumed by the Institute since the date when they were originally registered in IPAB’s financial statements totals MXN 107,251 million (approx. USD 9.75 billion 1/ ). The following graph shows the composition of the initial inventory by type of program assumed by IPAB. To December 31, 2007. Assets’ Origin Initial Inventory
    25. 25. <ul><li>56 percent of the assets assumed by the Institute have been managed indirectly through the supported institutions. As shown in the previous graph, Fobaproa financial assistance programs constituted the largest source of assets to be recovered. </li></ul><ul><li>The composition of the initial inventory by type of assets can be observed in the following graph. Loan portfolios represented 53 percent of the initial inventory: </li></ul>Assets’ Origin Initial Inventory
    26. 26. Assets’ Origin Initial Inventory
    27. 27. IPAB’s Assets <ul><li>Assets subject to management and sale by IPAB, under LPAB terms may be grouped as follows: </li></ul><ul><ul><li>Rights </li></ul></ul><ul><ul><li>Loan portfolios (commercial, mortgage, credit card and consumer) </li></ul></ul><ul><ul><li>Real estate and moveable assets (foreclosed properties, payments in kind and others) </li></ul></ul><ul><ul><li>Stocks and other securities </li></ul></ul>Assets Categories
    28. 28. <ul><li>Mandatory requirements for third parties in relation to loan portfolio management </li></ul><ul><ul><ul><li>Assets valuation </li></ul></ul></ul><ul><ul><ul><li>Clear goals and objectives </li></ul></ul></ul><ul><ul><ul><li>Loan portfolio sales versus other assets </li></ul></ul></ul><ul><ul><ul><li>Execution Framework and Timeline </li></ul></ul></ul>Strategies and Procedures for Assets Recovery Assets Management
    29. 29. <ul><li>Loan Portfolio Sales </li></ul><ul><ul><ul><li>Transfer of rights and management (including loans, guarantees, rights, etc) </li></ul></ul></ul><ul><ul><ul><li>Assignment to a third party of loan’s management for subsequent sale and collection </li></ul></ul></ul>Strategies and Procedures for Assets Recovery Assets Sale Process
    30. 30. The divestment of loans was carried out through 51 processes executed from 1999 to 2007 Strategies and Procedures for Assets Recovery Assets Sale Process
    31. 31. *Conversion made using yearly average exchange rate Strategies and Procedures for Assets Recovery Assets Sale Process
    32. 32. Definition 1 Preparation of the portfolio Hiring third parties Publication Definition of the Legal Package Filtering process of interested parties Acceptance or rejection of interested parties Due Diligence Receipt and review of economic offers Payment and loan portfolio transfer 2 3 4 5 6 7 8 9 10 Strategies and Procedures for Assets Recovery Assets Sale Process
    33. 33. <ul><li>Corporate Assets </li></ul><ul><li>Loans with a value exceeding 200 million pesos (currently equivalent to approximately USD 18.2 million) </li></ul><ul><ul><ul><li>Financial restructurings </li></ul></ul></ul><ul><ul><ul><li>Payments in cash and in lieu of cash through </li></ul></ul></ul><ul><ul><ul><li>Capitalization </li></ul></ul></ul><ul><ul><ul><li>Public auction </li></ul></ul></ul>Strategies and Procedures for Assets Recovery Assets Sale Process
    34. 34. <ul><li>Corporate Stock recovery works through the following means: </li></ul><ul><ul><ul><li>Public auction </li></ul></ul></ul><ul><ul><ul><li>Capital withdrawal </li></ul></ul></ul><ul><ul><ul><li>Capital reduction </li></ul></ul></ul><ul><ul><ul><li>Sale through the stock market </li></ul></ul></ul><ul><ul><ul><li>Liquidation of the corporation’s salvage equity value </li></ul></ul></ul>Strategies and Procedures for Assets Recovery Assets Sale Process
    35. 35. Strategies and Procedures for Assets Recovery Assets Sale Process
    36. 36. Strategies and Procedures for Assets Recovery Assets Sale Process
    37. 37. <ul><li>Real state and moveable assets </li></ul><ul><ul><ul><li>Individual Sales (Major / Minor real estate; Specialty Assets; Catalogued works of Art) </li></ul></ul></ul><ul><ul><ul><li>Package or batch auctions (Minor real estate in batch; Assets in warehouses; decorative items) </li></ul></ul></ul><ul><ul><ul><li>(Pools sorted by type of real estate and by geographical location) </li></ul></ul></ul>Strategies and Procedures for Assets Recovery Assets Sale Process
    38. 38. <ul><li>To January 31, 2008, 23,376 real estate assets have been sold (through 608 sales processes, in package or individually, via public auctions) as well as 637,932 moveable assets of a varied nature (through 64 auction processes) </li></ul><ul><li>Of the 608 processes, 7 involved sales of real estate packages including 13,463 goods from banks in liquidation and bankruptcy as well as from banks Serfin and Bancrecer </li></ul><ul><li>5 other sales involving 2,802 moveable, real estate and rights assets from the New Program and 7 package sales comprising 7,580 moveable, real estate and rights assets from financial rehabilitation programs were carried out. </li></ul>Strategies and Procedures for Assets Recovery Assets Sale Process
    39. 39. Closing remarks <ul><li>Mexico’s economic situation in the 90s led to a sharp drop in the value of banks’ assets </li></ul><ul><li>1995 a drop of 6.22% of Mexico’s real GDP. </li></ul><ul><li>Faced by solvency problems of the intermediaries, the authorities established measures to protect banking depositors and debtors </li></ul><ul><li>By law, IPAB must manage and divest Assets to obtain the highest possible recovery value . </li></ul><ul><li>Sales must be carried out under public auction , while sales values must reflect market condition appraisals </li></ul><ul><li>In 1999, there was no existing secondary market capable of liquidating such volume of assets. </li></ul><ul><li>The value of credit assets tends to deteriorate rapidly. </li></ul>
    40. 40. Institute for the Protection of Banking Savings www.ipab.org.mx February 2008