Almost-Forgotten Emails (Part 2)

DEAR INVESTOR JUAN

As I was trying to reduce the number of unread emails in my inbox, I discovered a handful of emails from almost half a year ago. Here's my attempt to make up and apologize for the oversight.

***

Dear Investor Juan,

Helpful po talaga yung blog mo. Mejo nagiisip isip po ako ngayon. Kasi ang balak ko po is to invest or purchase ng units every month sa bpi equity ko, im planning 2k-4k per month. And Im planning to do it for a long time. Tapos I have a friend na gusto mg invest sa individual stocks, yung kuya nya kasi ganun yung gngwa. Citisec po yung broker nla and I saw there EIP na 5k ang starting investment then pwd rn mgaadd anytime na gusto mo. Im thinking of investing din sa individual stocks kng san alam ko n tatagal and lalaki p yung company. 

My question is, kung papasok ako sa individual stocks, baba po yung ilalagay ko sa equities ko, and sabay ko po silang lalagyan ng pera monthly ? Should I just focus on equities or I can also try individual stocks? And do you have feedback about Citiseconline? 

Thank you IJ. 

Rek
February 6, 2013


Dear Rek,

Stick to the equity fund. Investing in individual stocks is too risky. There's not fool-proof way to pick stocks that will consistently outperform the market index or diversified equity funds. Also, by investing in individual stocks, you subject yourself needlessly to unique risk, which I have discussed in this post.

Finally, try to convince your friend to move to an equity fund, if it's not too late already.

***

dear investor juan,

good evening sir.
i've been reading your blogs a lot since i stumbled into it last week. i love your blog! it's been a great help.
from reading your blogs, i was already decided this morning on investing 1M on bdo equity funds.
but when i asked for an opinion from a metrobank investment officer about investing in equity funds now,she said it's better if i wait for the market correction. and it's too expensive now.
when i checked bloomberg.com just now,it increased by 1.27%.
what is your take on this sir?
i'd love to hear from you.
thank you.

kristina

February 18, 2013

Dear Kristina,

Well, in hindsight, the investment officer that you talked to appears to be a genius since the correction that he mentioned seem to have happened just recently.

It's kinda funny that so-called experts have a knack of saying that a correction will happen, but fall short of saying exactly when it will happen and by how much prices will go down.

Anyway, with regard to investing in the long term, short term fluctuations--"corrections" included--does not really matter. And if you can't afford a long-term horizon, I suggest investing in something safer like bond or money market funds.

***

Dear Investor Juan,

I have bdo and metro uitf and would like to know if it is a good time to invest with pnb-allied uitf. Pnb-allied uitf performed well for 2012 and I was thinking of bdo-equitable/pci merger,  now the bdo equity fund which I believe was originally equitable-pci product is performing way ahead of bpi or metro equity fund. So my question is in such mergers, does the uitf become better, what do you think of pnb-allied merger in particular will it be good time to invest in its uitf? Though I have exsisting accounts with both banks, the bank personnels/manager is not much help when I inquire saying the merger has just taken effect (feb 9) so no info is given to them.

Thanks,

Maxine

February 19, 2013

Dear Maxine,

I don't have data to support this claim, but I strongly believe that events such as bank mergers have nothing to do with the performance of UITFs. 

The performance of a fund depends on the performance of its constituent assets, and the composition of the fund (of a particular type) is determined by the fund manager. However, US data shows that skill may not be enough to consistently beat the market index. Finally, high fees make it even more difficult for investors to earn market-beating returns. IMO, neither of these factors--the skill of the fund manager and the level of fees--has anything to do with bank mergers.

Short Answers to Unanswered Questions: PDIC Coverage and Non-stock Investments

DEAR INVESTOR JUAN

Dear Investor Juan,

I read your October 2012 article (http://www.investorjuan.com/2012/10/armed-forces-and-police-savings-and.html) stating that AFPSLAI deposits are covered by PDIC (up to 500,000 pesos).
I don't see this information from AFPSLAI's website. Where do I get an official statement?

Is PNSLAI also covered by PDIC? How about AMWSLAI?

Thanks!

Rose


Dear Rose,

Since both PNSLAI and AMWSLAI are both savings and loans associations, they are covered by PDIC. For these and other entities that are "authorized to perform banking functions in the Philippines," membership is mandatory.

***


Dear Investor Juan, 

First I would like to thank you for your creating your blog and sharing informative posts. 

I have been reading most of your posts which spark my interest. With your expertise in the field of investment, I am wondering if you can help me out. 

Just to give you a glimpse. I have started investing in mutual funds and stocks. Also, I have small amount of investment in SSS flexifund and in PAG-IBIG II. It is not really big investments but I am planning to be more aggressive this year. As you know, time is the essence for this kind of investments. 

I am still working on my emergency fund. I still have not reached my desired amount. Also, we already have insurance. 

Anyway, I am looking to have a diversified portfolio. So far, my major investment is in stocks. I read your articles about UITFs too but it seems this investment is also linked in stocks. 

Can you recommend some other investment vehicles which do not relate to stocks and MF? My concern is if the stock market is in turmoil then all of my investments will be in trouble too. 

Also, I am planning to have investments with different lock-in periods. Perhaps for 3 years, another is 5 years and the rest will be for more than 10 years.

Lastly, I have always this nagging thought that what happen to our investment if we die. I started my investment when I was still single and last year I got married. Insurance is fine because it has beneficiaries. How can we secure our investment in case we die? I actually ask my mutual fund and stock broker about changing my account to joint account but it is not possible. Unless you will open a really new account. 

Anyway, sorry for the long email. If you have already featured some of the answers, please be kind enough to send the link. I hope I am making sense with my questions.

To our financial freedom,

Miles


Dear Miles,

You're off to a great start, congratulations!

If you're looking for non-stock or non-equity investments, you might want to consider the following:

• Bond funds
• Money market funds
• T-bills and Treasury bonds
• Corporate bonds
• Time deposits
• Real estate

I've talked about these topics and actual products that fall under these categories in past posts. Try using the search function of the blog or clicking related tags; both of these features are found on the right side of the web page.

Wealth Management for Filipinos Abroad

Wealth management through a Philippine bank offers a good way for Filipinos based abroad to have access to and manage investments in the Philippines. Wealth management services allow investors to:

1) Open investment accounts remotely;
2) Move funds to and from investment vehicles; and
3) Receive information about upcoming financial products

The service was introduced to me by a former student who works at RCBC. Through the service, I was able to invest in RCBC's peso equity and bond funds without having to go to a local RCBC branch. While the steps that I describe in this post pertain to RCBC's wealth management service, I'm pretty sure that other banks would be able and willing to accommodate a similar procedure.

Opening an account

Our conservative banking laws require signatures on numerous forms for opening a deposit or investment account and make it difficult for overseas Filipinos to avail of local bank services remotely. The most straightforward workaround for this requirement is to have the documents sent by mail to your overseas address, and for you to send the documents back to the bank once they are filled up and signed. In my case, the documents were sent to the bank's branch in Hong Kong so that I did not have to pay for postage in sending them back. Once the documents were received by the Philippine office, a savings account to which I could to remit my funds was opened on my behalf.

Remitting and allocating funds

You can send funds to the savings account that is associated with your wealth management account by any means. I used RCBC Hong Kong's remittance service to transfer my funds to the Philippines.

Investors may choose from available Philippine UITFs and mutual funds, time deposits, and upcoming and outstanding bonds to invest in. Once you have figured out how you want to allocate your funds to different investments, you can simply email your instructions (i.e., which investments and how much per investment) to the bank's account officer or representative.

Monitoring and managing investments

You can also email subsequent buying and selling instructions to your bank contact. My account officer frequently furnishes me with reports regarding upcoming investment products and even regulatory information that may affect my current and future investments (he was the one who informed me of the BIR's clarifications for five-year investment tax exemptions).

You can monitor the performance of your investments through the usual channels (e.g., Bloomberg, the bank's website/e-banking platform).

The costs of availing wealth management services

There is no separate, explicit fee for the service, which means that you just pay fees for that your chosen investments charge; the bank will not charge you for investing on your behalf. You'll have to maintain a certain cash balance in your savings account (10,000 pesos in my case), however, so that involves some opportunity cost.

You also incur some costs whenever you send money to your Philippine account (e.g., remittance fee, exchange rate spread), but these aren't really a direct result of availing the service.

It's not a cost, per se, but wealth management services usually require an initial investment of 1 million pesos, which some of us may find prohibitive. If you're really interested in the service but don't have that much capital available for investment, try requesting for a lower initial investment amount.

To end, if you're a Filipino who's based abroad and you're looking for a way to invest in the Philippines, as far as I know opening a wealth management account is the only way to do it remotely--and efficiently and cost effectively, at the same time. I've done it, hassle is minimal, and it works.

If you have questions that were not covered in this post, please feel free to ask in the comments section below.

"Behest"

IN THE NEWS from Interaksyon

I remember first encountering the word in college when I was doing research for my paper about the Marcos dictatorship, and even then it was used in the same phrase/context: "behest loans." Around three decades after the word was first used in that sense (presumably), a return to democracy, two (three?) "revolutions," and five presidents later, we hear it again.

What is a behest loan anyway?

Do a Google (web, not news) search, and you'll see that all the relevant results come from the Philippines (I stopped clicking next at Page 5). To me, this is evidence enough that the term, if not the concept, is genuinely and exclusively Filipino.

I'm not familiar with the history and official etymology of the phrase, so all I can offer is a layman's understanding based purely on context:

A loan granted to an undeserving borrower, upon the endorsement (i.e., behest = order or command) of a person (or persons) in power and/or of high authority.

Technically, a loan is considered a behest loan if it satisfies any two of the following criteria:

• loan is undercollateralized
• borrower is undercapitalized
• direct/indirect endorsement by high government officials
• cronies own or control the borrowers
• loan was used to other purposes
• use of corporate layering
• funded project is not feasible
• extraordinary speed in loan release

According to Ombudsman Conchita Carpio Morales, the 660 million peso loan that the Development Bank of the Philippines (DBP) has extended to former Marcos Trade Minister Roberto Ongpin in 2009 has met "some" of these criteria, and is thus behest. As a consequence, the Ombudsman imposed harsh civil-administrative penalties on several high ranking executives of the bank. Good job, Ms. Ombudsman, keep it up.

The next step, of course, should be to pursue criminal cases against those who have broken the law.

And behest loan? The more important question is: at the behest of whom?

PDIC Takes Over Pasig-based Rural Bank

IN THE NEWS from Inquirer.net

Image from Philstar Online. Happier days for FCB

Finally, here's the official public confirmation--five days after the fact.

"First Country Bank, a microfinance bank founded by a former education official, was padlocked by banking regulators due to insolvency (when firms owe more than they own) and recently taken over by the state-owned Philippine Deposit Insurance Corp. (Friday, December 10, to be exact)" Comments in parentheses are mine.

The article further makes the following observation:

"Other banking sources said that prior to the bank’s collapse, it was aggressively trying to boost liquidity by offering hefty interest rates.

Based on the bank’s website, for instance, First Country was offering a 10-percent annual interest rate for time deposits held for at least a year. This was despite the fact that benchmark 25-year bond yields have fallen below 10 percent a year. The website was also emphatic in pointing out that it was operating under the authority of the Bangko Sentral ng Pilipinas and had even placed the BSP logo right beside the contact person for those wishing to place money in its savings, time deposits and investment products."

Now that sounds like a very insightful comment; unfortunately it's one based on perfect hindsight and is thus utterly useless to investors who had already been duped by the bank. This insight would have been more helpful had it been published before the collapse, and not after.

Let's hope mainstream media follows up the story and and bears more of the burden of protecting innocent and misinformed investors. Yeah, right now that's pretty much all we can do: hope.

Breaking Bad News: First Country Bank Now Under PDIC Control

I just received this heads up from our good friend who, himself, is a depositor of First Country Bank.

I am a regular poster here. the FCB has been taken over by PDIC just this morning, so i am ready to wait for my claims

This is terrible, terrible news, mostly for investors whose trust in Philippine institutions is shaky enough as it is, and innocent Filipinos who would have to ultimately shoulder the costs of this "perfect crime". Depositors actually do not really bear full risk since deposits are insured by the PDIC; they'll lose sleep some nights, for sure, and most probably be hassled by delayed claims, but in the end they'll get back their deposit, with interest, and be okay.

If you or someone you know is a depositor of the bank, be sure to file your claims as soon as you can. I'll make updates as soon as I get them. Also, please do post comments whenever you hear something new.

I hope the higher ups, people we recently voted for, do something about this madness soon. And may the owners and managers of First Country Bank and everyone else who is involved in this bullshit (I'm thinking this would not have gone on this long without the participation of crooks from the BSP and the PDIC and some other government units) rot in hell.

"First Country Bank" Part 2: A Deeper Look

DEAR INVESTOR JUAN

If you take another look at website and the offers, the banks tries to reassure its potential customers and build its reputation with two things: that First Country is authorized by the Bangko Sentral ng Pilipinas or BSP and that the 10% annual after-tax yield offer is covered by the Philippine Deposit Insurance Corporation or PDIC. So if you're thinking of investing in the bank's instruments, the next logical thing to do would be to check the veracity of these claims.

A Deeper Look

First, let's try to check if the bank, indeed, is an authorized and registered bank of the BSP. On the BSP's website, you'll find this section where you can look the details of a particular bank. Entering "First Country Bank" on the search field yields this result:

Hmm... interesting. So there's no such thing as "First Country Bank" in the BSP's directory. Let's try another search string, this time just "First Country":

So this time we get a result, but not for "First Country Bank" but for "First Country Rural Bank, Inc." Well, the name difference should not really be an issue, if we assume these two banks are one and the same. After all, it's common practice for small and medium businesses to use a brand name that's slightly different from the name of the entity registered with government agencies. But it is also highly understandable if some people view this inconsistency as some sort of red flag.

But are "First Country Bank" and "First Country Rural Bank, Inc." really one and the same bank? If we compare the details of the "Contact Us" page on First Country's website to the bank details in the BSP search results:

We see that both are in Pasig City and have (more or less) the same address. Some of the telephone numbers are the same, although the email addresses are different. Given all that we've seen so far, I'm betting that "First Country Bank" is indeed the same as "First Country Rural Bank, Inc.", but again with the inconsistencies!

Also, we see another name linked to the bank from the BSP directory, this time the bank's president. A quick search shows us that this president is also the president of a pre-need plan company named First Country Plans, Inc., which coincidentally has the same address as First Country Bank. So are the bank and the pre-need firm related? They share the same president, share the same name... What do you think? And rural banks and pre-need firms? Haven't we all heard this before?

Let's now take a look at the PDIC coverage of First Country's 10% per year deposit. If you check out PDIC's website, the first thing you'll see is this statement:

MAXIMUM DEPOSIT INSURANCE FOR EACH DEPOSITOR: P500,000

Which means if your balance is 1 million pesos and the bank goes under, you'll only get half of your money back. And it does not matter how many accounts you have with a bank, you still only get a maximum of 500,000 per bank. 

Fortunately, as per that ad on First Country's website, the offer is open to deposits worth at least 100,000 pesos. So if you just deposit any amount up to P500,000, you'll be entitled to both the 10% yield and be PDIC coverage at the same time. 

But we have to remember that PDIC coverage does not guarantee that the bank will not run away with your money. If the bank does do something a-la-Legacy, best case is you will be inconvenienced with having to wait to get your money back; worst case is you'll lose your deposit and subsequently suffer a heart attack.

The Verdict

Perhaps the most important thing we can get from the PDIC that can help us decide whether to invest in First Country or not would be this "Bank Deposits Advisory" document on the website, which includes the following reminders:

• The rate of interest paid by banks to deposits and other terms and conditions vary among banks.
• It is best to deposit in a bank offering rates generally comparable with those of other banks.
• The higher the rates, the higher the risk.
• Offers that sound too good to be true may not be true at all.

For debt investments like bank deposits, bonds, and notes, the foremost determinant of investment risk would be the trustworthiness of the borrower. Ask yourself: is the bank capable of paying its financial obligations to you? And even if it is, what's the chance that the bank will fuck you over and run with your money instead, as some of these greedy motherfuckers are wont to do?

So, will I deposit 100,000 pesos in First Country Bank to earn 10% per year tax free for five years? Hell no. I'd rather buy a bond paying 7.5% per year after taxes, at least I'll sleep more soundly. And I don't really care much for the PDIC coverage, not when it takes them up to a year to give the depositors' money back, as Henry pointed out earlier.

I'm not saying First Country is a fraud: it may very well be that the bank's legit and all that. But all the inconsistencies and the red flags, coupled with the nightmarish experience of thousands of depositors with rural banks and pre-need plans these past few years, have made me skeptical and cynical of these kinds of offers and furious at the all the people who permit and support this irresponsible and malicious economic practice.

So, no Henry. I don't think investing in First Country Bank's offer is such a good idea. Personally, I think it's simply too good to be true.

Click here for Part 1: A Closer Look.

"First Country Bank" Part 1: A Closer Look

DEAR INVESTOR JUAN

Dear Investor Juan,

What do you think of the 5 years time deposit, 10% interest tax-free offer of First Country Bank. You can check out their website at www.firstcountryfinancial.com.

Thanks.


Henry

Hi Henry!

Wow, that's a very good offer. It beats all available time deposit rates of all commercial banks, and even yields on similarly-tenored bonds, hands down. At first glance, the offer looks too good to be true; so good, in fact, that it deserves a second, closer look.

A Closer Look

This is the first time I've heard of "First Country Bank," so before we discuss "what I think" of the offer, I have to check out the website first:

Wow. It looks nice, doesn't it? It has a familiar and homey feel to it... something one feels when one looks at a blog site... Maybe, just maybe, that's just exactly what it is!

If you take a look at the upper-right hand corner of the image, you'll see a WordPress search bar, which should be enough evidence that it is a blog. If you want further evidence, take a look at the bottom of the page and you'll see another reference to WordPress (that Ocean Mist theme looks mighty crisp, though ;)).

But if you want unassailable evidence that what we have here is a blog masquerading as a commercial site, try googling "First Country Bank" and the top result you'll see is http://firstcountrybank.wordpress.com/.

Okay, now that we have already established that, so what? It does not necessarily mean that the bank is a fraud, does it? Well, no, of course not. It can mean any one of several things, like maybe the bank's just trying to control its marketing and advertising spending. But whatever the reason, First Country would do well to come up with a more professional-looking website, especially if that website is the bank's primary means of introduction to its potential customers.

On the "About Us" page of the website, we see that the bank's primary thrust is to be "a catalyst in uplifting the lives of the unsung heroes of our country" by providing "relevant and innovative financial services to underserved niche markets at a fair return to [the bank's] shareholders and depositors." Well, that sounds noble, and doable enough. We also see that the bank plans to provide these "fair" returns through microfinancing, or as I understand it, by lending money to individuals or small businesses without collateral.

We also see the bank's board of directors, accomplished individuals, all, with very respectable resumes. Unfortunately, I'm not really familiar with any of them. I tried googling the names, but apart from finding out that some of them have active Facebook accounts, not much else came out of doing that.

So moving on, let's now take a closer look at the offer:

 

So this is what Henry was talking about: 10% per year, 100,000 pesos minimum deposit required, tax-exempt for 5 years, and even covered by PDIC! Which basically means if you deposit 100,000 now, you'll get around 160,000 after only five years! Now that's un-fucking-believable!

And even if you can't afford a five-year investment horizon, the bank has several other alternatives that are almost as attractive:

Again, these rates and terms are.. just... AWESOME.

Unfortunately, there remains this persistent, nagging feeling that things can't be as easy and simple as this; I still believe there's no such thing as a free lunch, which is precisely what this offer is being advertised as. So before you whip out your wallets and start running to Ortigas to open an account (I'm looking at you, Sam), let's delve deeper and try to find out as much as we can about "First Country Bank."

Click here for Part 2: A Deeper Look