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BFCSA: TROUBLE for South African banks

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Judgement opens a world of trouble for SA banks

Posted 20 May 2013 Written by Arlene Levy

" Johannesburg High Court Judge Selby Baqwa has just handed down written reasons for a verdict that could shatter confidence in the South African banking system and opens the way for criminal charges being laid against the banks and their senior office bearers, according to non-profit group New Economic Rights Alliance (NewERA).

The judgement opens up a world of trouble for the banks. Judge Baqwa ruled that the banks’ securitisation vehicles are “subsidiaries” of the banks. This doesn’t sound like a bombshell judgement, but it confirms a central pillar of NewERA’s argument: that banks’ securitisation vehicles are subject to the same laws as the banks themselves.
NewERA a non-profit group with 135,000 members, is involved in an ongoing legal battle with the banks over what it says are shadowy and secretive practices such as "securitisation." It says the judgement effectively means the banks’ failure to disclose their securitisation activities places them in violation of the Banks Act, Consumer Protection Act and several other statutes...." 

" Most SA banks participate in securitisation schemes, a practice that is being shredded by courts overseas. Recently, banks in the US were ordered to pay aggrieved homeowners $8,5 billion. This was one of many other such settlements involving the securitisation process which brought the global economy to its knees in 2008."

"It will be difficult for South African courts to ignore these international developments. The verdict by Judge Baqwa now paves the way for NewERA to have the substance of its case heard by the court, something it has been unable to do so far. The banks have managed to frustrate its court actions on technical points."

“NewERA, however, is overjoyed with one part of the judgment. A High Court judge has effectively proven that the banks are dealing underhandedly,” says Dicks.

Pull up a chair, folks, and grab the popcorn. This is going to get interesting."
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  • doyla66
    doyla66 Friday, 07 June 2013

    Raymondt Dicks, ---NewERA’s legal advisor

    NewEra on Securitisation: Is this the biggest fraud in history? "..the dark alley where I am shining a torch on the legal deception that has allowed banks to on-sell mortgage and other loans by way of securitisation; .. These transactions are done to shift assets off balance sheet, which reduces the prudential (reserve) requirements imposed on the banks by the Reserve Bank. "

    Dicks: " We want three things:---
    1. Historically, we want justice for people disadvantaged because of securitisation;
    2. We need to correct the fact that from 2004 to now, the banks have been acting as agents – with all the financial benefits that accrue from that position – without disclosing this to their borrowers or the public at large;
    3. Then looking to the future, how do we correct this and build a strong and sustainable banking system based on fairness and transparency?

    Argument of Agency:- (reporter asks) Acts: " Before FAIS (Act), you had insurance companies selling products through advisors -- 'who pretended to be independent' -- but were actually flogging products that were not in your best interests, but certainly in the interests of the insurance company."

    Dicks: " Why, when insurance companies and people selling financial products, in terms of the FAIS Act (SA), ---are (now) required to disclose that they are 'acting as agent', should the banks be treated any differently?

    Dicks: " Let's also not forget that the money they make on securitisation is then recycled through the banks, allowing them to lend under the fractional reserve system up to 10 times that amount, which they then again securitise and repeat the process. "

    Dicks: (other) Acts: " We checked the Prevention of Organised Crime Act, and it does say that two or more people acting in concert to deceive for gain is a criminal racket, or words to that effect.

    High Court: " The result was that he confirmed that these SPVs are subsidiaries of the banks; ..If these SPVs are subsidiaries of the banks, the ramifications are huge. It means the banks are selling assets to themselves; means they are not disclosing the full extent of their transactions; ..they are acting as agent and principal in the sale of these assets; they are breaking the law all over the place; ..They are not reporting these transactions to a credit bureau as a change in ownership of a loan as required; .. These transactions are done to shift assets off balance sheet, which reduces the prudential (reserve) requirements imposed on the banks by the Reserve Bank. "

    " Why was this -- 'securitisation' -- allowed to continue this way for so long? My opinion, --several banks in SA had already failed. The only way to cover this was to allow securitisation to continue.

    " So basically, you have had this undeclared, unregulated but massively profitable enterprise going on and no one asking too many questions – until we (NewERA) came along. "

    " The NPO is the voice of the people who cannot speak for themselves;
    ---These people stand on brink of eviction.
    ---Do you think they have the money to bring their own cases? "

  • doyla66
    doyla66 Friday, 07 June 2013

    Wonderful news from South Africa - well done New ERA :)
    Securitisation was a "covert operation" in Australia as well. Secrecy rings alarm bells with some borrowers and investors. It was "our business" especially if we entered into contracts lacking that might have been a deterrent.
    How was securitisation then legalised? Because every bank was doing it?
    I wonder how FOS/COSL would receive these arguments in support of a larger case for fraud?

    In Australia research costs money. Is ASIC saying "stay out of our business sector records unless you can pay for it"?
    Despite this an examination of the boards of directors for the Credit Provider, and/or "the lender", the SPV Trust, the Trustee for that Trust can be predictably enlightening. So can the major shareholders of each company and subsidiary companies involved as the overall operation aims to minimise risk. To top it all off seek information on the board of the Loan Insurance companies and their trustee relationships and subsidiaries. This includes off shore registered entities and no doubt plenty of unseen business. There are so many places where an Australian corporation can hide assets and capital - especially with international affiliations.
    Now, wouldn't you think that our corporate regulator ASIC or APRA would have some say in this?
    So long as there is full disclosure ... nothing unusual to see here. Move on ...
    How about the ATO? They know about it ... but right now they're too busy coping with our little tax returns, following up on late BAS returns and collecting the fines from onshore Aussies. Maybe they'll get the budget for more staff and international travel to track down the big players one day ...
    As if ...

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