NEWS RELEASE

_______________________________________________________________________________________________________________________

FOR IMMEDIATE RELEASE For further information,

contact:
Date: 05 April 2011 Tel. Nos. 523-62-46/ 525-
2738
Ref. Code: NR 2011-073 524-7011 locals 3025/3026

BF OPERATED AS A PONZI; NEW DEPOSITS PAID OLD ONES

Banco Filipino was operating as a pyramid or Ponzi scheme in the past

years, using new deposits to pay old ones, and with its officers paying
themselves and their lawyers much more than the bank was earning.

Their lawyers, led by Perfecto Yasay, former chairman of the Securities

and Exchange Commission, and Harry Roque were paid P245 million in
2010 alone. Of this, P131 million was paid from October to December last
year.

These legal fees alone exceeded the average gross or total income of BF
of P242 million from 2007 to 2009. On the other hand, the officers and
their consultants were paid roughly P250 million in 2010.

The owners, led by Bobby Aguirre, the bank’s directors, officers and so-
called related interests also borrowed P2.2 billion of the depositors’
money and never paid them back. These loans violated existing caps or
limits set by the authorities.

The BSP emphasized that banks are not created for the benefit of its
directors or officers. Instead, BF was being run to the “extreme prejudice
of its depositors” since it was violating various laws and BSP regulations,
including BF’s refusal to submit periodic financial statements for the few
years to hide its true financial weaknesses.

These were all contained in a 170-page Comment/Opposition the Bangko

Sentral ng Pilipinas and the Monetary Board filed Tuesday (April 5) with
the Court Appeals to respond to BF’s petition questioning its being placed
under the receivership of the Philippine Deposit Insurance Corporation last
month after it failed to fund the withdrawals by its depositors, and asking
that it be reopened.

These weaknesses, admitted by Yasay, who is also BF vice chairman, and

Francisco Rivera, executive vice president in open court, included BF’s:

• inability to generate enough income from normal banking

operations;
 • accumulated losses of P12 Billion;
• capital deficiency of P1 billion, which prevents BF from covering
deposit liabilities.
• Operations “without safety” to its creditors, depositors and the
general public;
• Failure to hold any meeting of its board of directors and the failure
of its Executive Committee or its Board of Directors to review the
financials of the bank.

Based on a Memorandum submitted by the Integrated Supervision

Department II of the BSP and the Report of Examination cited in the
Comment, Banco Filipino incurred average losses of P2.8 Billion for the
years 2007-2009.

It added that BF is actually insolvent, meaning it has P8.4 billion more

liabilities than assets. Under the law, BSP through the Monetary Board
must put an insolvent bank under receivership to protect the depositors.

The BSP examination revealed that BF’s average gross income for the
years 2007-2009 amounted to around P242.5 Million which would be
insufficient to pay the average interest expense of P1.1 Billion for the
same period.

This was because Banco Filipino, to fund its operations and pay its
officers, consultants and lawyers, offered depositors 6%-13.9% interest for
special savings deposits, while most banks were paying only 1.8%-3.3%.

Instead of investing the deposits, these were instead used to pay the
interest on old deposits and its day-to-day operations, making its
operations akin to a Ponzi or pyramiding scheme which are considered
fraudulent investment operations.

Finally, arguing against Banco Filipino’s prayer for injunction and to be

reopened, BSP argued that to issue an injunction and to reopen the bank
is to allow an unending vicious cycle of Banco Filipino’s inability to service
not only the high deposit interest rates, but also to fund the withdrawals
of the deposits.

“In no uncertain terms, Banco Filipino’s only way of operating is to

continue engaging in a Ponzi scheme where withdrawals are funded by
later deposits,” it said.

“In view of all of these undisputed facts, BSP’s action in recommending

and thereafter placing Banco Filipino under the receivership of PDIC was
the only course left in order to protect Banco Filipino’s depositors,
creditors and the public in general,” it added.

Page 2 of 2