So Mr Jacob Zuma – the President of the Republic – has finally paid back the money in compliance with the Constitutional Court’s demand, but because the President has this wonderful gift of eliciting new dramas in whatever he does, this was never going to be the end of the saga.

a contribution by Khaya Sithole (Wits Lecturer)

In recently settling his R7,8 million bill, the President (presumably) approached the relatively obscure VBS Mutual Bank. I first encountered VBS in 2011 when I realised that one of my acquaintances was an executive at the institution. I was naturally intrigued by the bank and its history – and that’s where it ended. Until the President discovered the bank.

Central to the hysteria around the bank is the question of how a bank with a net profit of R4,9 million can advance a loan of R7,8 million (before initiation fees) to an individual post retirement age whose current employment contract is due to end in April 2019 – precisely 20 months into a 20-year bond. Then there’s the question of affordability.

It’s a universally acknowledged truth that the President’s salary is around R240 000 per month and the National Credit Act – which Thabo Mbeki signed into law exactly 9 months after he fired Jacob Zuma – requires that the bank must conduct an affordability assessment before advancing any loan. As a benchmark, the monthly repayments on the loan should not exceed 30% of the loan applicant’s income. The fact that such an individual will be possibly unemployed soon is an additional condition to factor in. Because I’m a nice guy I am willing to concede that VBS Bank and its risk department did this analysis and concluded that the applicant will be able to service the loan. So the loan was approved – and the conditions are a matter between the President and the bank only so I don’t think we should bother asking.

Curiously the social network brigade is trying to figure out why the president bypassed all of the ‘acceptable’ banks and went for an unknown Venda bank whose greatest achievement so far appears to be the very brave colour scheme of its website (which has now become very famous obviously). The uncomfortable fact is that the PIC (an extension of the government) is a massive investor in VBS and advanced R300 million to the bank during the past year. In an ecosystem where the trust deficit between society and politicians is at its peak it is inevitable that there would be suspicions regarding this investment by the PIC. In addition to that, Bantu Holomisa has suggested that the rest of the undisclosed shareholding involves the chairperson of the ANC whose understanding of laws governing the country is the type of thing no one would invest in. The thing about discredited politicians however, is that they are famously incapable of prioritising research before firing allegations. And if you are the type of person that gets fired from the ANC by Nelson Mandela – your views Mr Holomisa are not exactly biblical in nature – so we shall discard them. For now…

The verdict that has therefore been delivered is that VBS is a random entity that knows nothing about banking and has been given taxpayers cash by a corrupt regime so they can help the President. In an age where the students are crying out for fees to fall, all such transactions are fuelling an already toxic mood around the country. And as expected, those great guardians of society – 702 and the financial press – have been in overdrive helping us all realise that this is yet another Zuma scandal that will consume our attention for months to come. I personally admire the ability of such guardians to ‘look out for us’ and save us from our own ignorance – long may they prosper. But I am troubled by the double standards at play here.

VBS Bank was founded in 1982 in an age when getting a licence for a black-owned bank in South Africa was a mission – it still is. They then focused their attention on providing financing for rural Limpopo communities; and this business model has been maintained ever since. The banking system in South Africa is currently dominated by 4 banks – Standard Bank; FirstRand; Nedbank and ABSA. These banks all have strange and confusing histories – none more bizarre than ABSA. Now for a start – let us pull a 702 face and assume that VBS has been bailed out by the PIC in yet another corruption scandal of the Zuma years, ok? Then let us assume that this is completely wrong and the PIC has been captured by the evil regime – ok? Then let us assume that the PIC has stolen taxpayer funds in order to facilitate this, ok so far? And then let us all agree that this scandal requires the intervention of John Robbie and the courts of public opinion – ok? So yeah, this is a shocking scandal and heads must roll. That’s point number one.

Now let us look at the alternatives. The president could have gone to ABSA and I am certain the loan application would have been declined. So he didn’t. ABSA would be justified in declining the application because ABSA and all the banks have to follow strict rules and regulations and everything that the Reserve Bank says. Good for ABSA. Now let us remember who ABSA is.

Back in 1918, the apartheid ancestors created a club called the Broederbond. Part of the Broederbond’s mandate was to cultivate an economic and social climate for apartheid to thrive, and this included building banks and insurance companies that would understand the Afrikaner mandate. Remember the National Party had 2 factions – the north made up of the Vaalies (Transvaal) and the southerners made up of the Cape faction. Such factions created cartels across the country that prohibited direct competition across themselves. In its glory days – the Broederbond economic structure created Sanlam in the Cape to focus on insurance – and Volkskas Bank located in the Vaal with the understanding that Sanlam would not go into banking and Volkskas would not go into insurance. Sanlam then funded Nasionale Pers (Naspers) to focus on the media capture in the Cape and the Transvaal faction had its own papers. Then it started going wrong.

Another prominent member of the Broederbond – Jan Marais – was tasked with opening up a new bank in the Cape that would focus on soliciting business outside of the Afrikaner network. The bank was named TrustBank and made the silly mistake of allowing a certain Bill Mitchell to run the bank – and he messed it up. When TrustBank went bankrupt the party decided that since Sanlam was not allowed to go into banking then Volkskas must bail out TrustBank – and Volkskas refused and said the bank was a Cape problem and Sanlam should fix it. Sanlam then bought out TrustBank, rebranded it as Bankorp and became a player in the banking market. In response – Volkskas then decided to go into insurance with the help of Anton Rupert – forming part of what we now call Momentum. In an attempt to punish Volkskas for the great betrayal, Sanlam decided that they wanted to move inland and destroy Volkskas and naturally instructed Naspers to lead the charge. Naspers moved into the Johannesburg territory and started the Beeld and Rapport newspapers which destroyed the Volkskas-backed newspapers until they were shut down. As part of the strategy, Sanlam engaged in some risky lending and stole market share from Volkskas. Eventually, Volkskas gave up the fight and abandoned its ambitions to be a big bank.

Through these years, Bankorp was struggling as a bank. Back in 1985, the Reserve Bank provided a ‘lifeboat’ (Dudu Myeni type of guarantee) of R300 million to Bankorp. 5 years later, the bank was in trouble again. But luckily for Bankorp, a guy named Chris Stals had been appointed as the governor of the Reserve Bank in 1989. Stals’ father had been a leader of the Broederbond and Chris was also a member. Chris invited Anton Rupert (Volkskas benefactor) to join the board of the Reserve Bank. Now the Reserve Bank is responsible for setting the rules for all the banks and treating them all equally. But because this is South Africa, Bankorp was ‘advised’ by Sanlam to request ‘assistance’ from the Reserve Bank. This was illegal. So in a carefully-structured transaction, Chris Stals used his discretion as the governor to advance R1.5 billion to Bankorp at an interest rate of 1% per annum. The only positive note from this is that the Reserve Bank actually consulted the Finance Minister in 1990 before transferring the R1.5 billion. Unfortunately, the Finance Minister at that time was Barend Jacobus du Plessis – whose brother (AS du Plessis) was a director of Sanlam (owners of Bankorp). Naturally the Finance Minister approved the transaction that bailed out his brother’s company. And just when it couldn’t get worse – the chairperson of Bankorp in 1990 was Derek Keys – who then became the Finance Minister in 1992.

Bankorp took the R1,5 billion and split it into two. R1,1 billion was invested in government bonds that generated returns much higher than the 1% fee. And the R400 million? It was deposited with the same Reserve Bank that had provided the facility and the interest rate to be earned on the R400 million was a remarkable 16% per annum. Yes, the Reserve Bank borrowed Bankorp cash at 1% and then paid Bankorp 16% on the same funding that actually belonged to the Reserve Bank. Think about that for a moment.

The landscape shifted somewhat as soon as this deal was implemented in the winter of 1990. Volkskas and United Bank were merged and formed a new entity called ABSA. ABSA then bought Bankorp in 1992 and inherited the Reserve Bank deal and benefited from it until October 1995. Chris Stals had been retained by the ANC as the governor of the Reserve Bank in 1994 and was confronted about why this deal was done. In his response – Stals stated that he had done the deal in order to save the banking system and to protect the rest of us. The net loss to the state from this transaction was over R15 billion which was made up of the benefit made by Bankorp and ABSA plus the fact that they actually forgot to pay tax on the transaction. And Sanlam had an even greater benefit as they sold Bankorp to ABSA with the billions of the stolen money reflected as an asset – and the Finance Minister called Derek Keys approved the deal.

Now imagine if VBS had been given the same lifeboat by the Reserve Bank in 1990. Would they be obscure today? VBS has committed to paying the PIC the R300 million it has used. ABSA still has not paid the R300 million from 1985. And it still hasn’t repaid the R1,5 billion from 1990. Imagine if VBS had stolen just 10% of the funds looted by the Reserve Bank for the benefit of ABSA. Where would we be today?

Then there were the various role players in the saga. Danie Cronje was the CEO of Volkskas until it disappeared and then he took over as CEO of ABSA in 1993. When he quit as CEO in 1997, he became the chairperson of ABSA. Meanwhile, a certain Gilll Marcus had been appointed as Trevor Manuel’s deputy in the finance ministry. In 1999, she left to join the Reserve Bank as Tito Mboweni’s Deputy when Chris Stals finally retired. Marcus and Tito did not get along and she left in 2004 to work at Gibs and Western Areas (the Brett Kebble mining company). When Tito arrived at the Reserve Bank, he commissioned an inquiry into the Bankorp saga and was advised to take action against ABSA and Sanlam to recover the recover the billions stolen through this saga. Thabo Mbeki and Tito Mboweni forgot to adopt the commission’s recommendations. And no payment has been made. In 2007, Cronje retired as chairperson of ABSA and handed over to Gill Marcus with the approval of the finance Minister Trevor Manuel. In 2009, Gill Marcus appointed Trevor Manuel’s wife – Maria Ramos – as the CEO of ABSA. 6 months later, Gill Marcus left ABSA and took over as the governor of the Reserve Bank.

So why does all of this matter? Well we need to have a frank conversation about these things. The greatest fear we have as a country these days is the ‘downgrade’ from which apparently only Pravin can save us. The ability of a country and a bank to borrow money is linked to its credit rating. A downgrade is a disaster that increases the cost of borrowing money so no one wants such a thing. ABSA is rated as investment grade by all ratings agencies which allows them to borrow at low rates. VBS is not even rated by the 3 main ratings agencies and hence their cost of borrowing is much higher. SA banks can borrow money from the Reserve Bank. The Reserve Bank classifies banks into 3 categories – A1, A2 and A3. A1 banks get the best rates and A3 banks get the worst interest rates. ABSA is classified as A1. VBS is A3. Pension funds are only allowed to invest funds in entities that have been rated by the main ratings agencies. ABSA is rated investment-grade and all pension funds are allowed to invest in ABSA – and they do. No pension fund invests in VBS. Back when I was in banking, VISA had the world’s biggest IPO where all the banks that were part of the VISA payment system were rewarded with a financial windfall in 2007. ABSA benefitted; VBS did not. ABSA has 16% black ownership; VBS has 99% black ownership – the government banks with ABSA. ABSA has an 80% black client base – and only 16% black ownership. VBS has 99% black ownership – black people call it the president’s corrupt piggy bank. Halala Gumede recently asked me why black people haven’t started their own bank yet – and I figured out that the Reserve Bank would never grant anyone a licence to open a bank. And you all claim to be the ‘woke’ generation. And yet the ability to believe in your own people doesn’t exist. So just before you call in to John Robbie’s show tomorrow to trash VBS Mutual Bank – please ask yourself where VBS would be if they had been allowed to steal billions from the Reserve Bank – just like ABSA. Then you can call in to 702.

I recently visited the offices of the Black Business Council in Rosebank where someone asked me what my views are regarding #FeesMustFall. So I stated that the government doesn’t need to struggle with raising the money to fund university education. The combined market capitalisation of ABSA and Sanlam at 6 pm today was R251 billion. All the government needs to do is get Sanlam and ABSA to pay back the money stolen from the Reserve Bank. I can even volunteer to calculate the amount due using the interest rate of 15% (the difference between the 16% return to ABSA/Sanlam and the 1% charged by the Reserve Bank).

1985 loan – R300 million at 15% using simple interest for 31 years is R1,395 billion – and that is just the interest only.

1990 loan – R1.5 billion at 15% for 26 years is yet another R5,85 billion – and that’s just the interest. The sum of the 2 interest payments is R7,245 BILLION. Then we can ask for the capital of R1.8 billion to be returned. And did I mention all the taxes and penalties SARS needs to charge on this transaction – backdated to 31 years ago?

And you thought VBS and its R7,8 million loan was a problem? On what planet?