Dan Mariano
Manila Times

Winston Garcia, president and general manager of the Government Service Insurance System (GSIS), seems to have finally bowed to public pressure for him to disclose details of the state pension fund’s $1-billion Global Investment Program (GIP). The operative word here is “seems.”

Garcia did so by placing expensive, double-spread newspaper ads—paid for with money from the contributions of the 1.4 million or so GSIS members. It was a huge expense that could have been avoided had, in the first place, top officials of the state pension fund only exercised candor from the very start.

But how candid was GSIS when it revealed where $600 million from its $1 billion GIP went?

Then, there is the matter of the remaining $400 million.

Garcia said the GSIS has yet to entrust the balance of its GIP to a fund manager. In that case, where was the $400 million kept?

If the $400-million balance of the GIP was parked in the Philippine Stock Exchange (PSE), then it has surely lost at least $118 million of its value, market analysts say. The local stock market retreated by almost 30 percent from January to September.

Like other markets, the Manila stock market has been badly shaken—and continues to be badly shaken—by the Wall Street meltdown. But even before the implosion of US banks and investment houses, the value of GSIS placements in the local bourse had already begun to decline—thanks to Garcia’s ill-advised bid to grab total control of Manila Electric Company (Meralco).

As for the $600 million, people still recall that shortly after the collapse of Lehman Brothers and American Insurance Group, Garcia repeatedly said that the state pension fund’s foreign fund managers, Credit Agricole Asset Management Ltd. and ING Investment Management, did not invest GIP funds in the United States.

Last week, however, the GSIS boss acknowledged that the state pension fund owned common stocks in at least four American banks: Bank of America based in Charlotte, North Carolina; Citi-group in New York City; Fifth Third Bancorp in Cincinnati, Ohio; and US Bancorp in Min-neapolis, Minnesota.

The GSIS likewise reported fixed-income investments in notes, or corporate IOUs, issued by three other US financial institutions: Goldman Sachs, JP Morgan Chase and Merrill Lynch.

The GSIS reported a total of P4.13-billion worth of investments in common stock of 123 publicly traded foreign corporations, including 22 banks and other financial institutions.

The state pension fund also reported holding common stock in four banks in the United Kingdom: Barclays, Lloyds TSB, Royal Bank of Scotland and HSBC.

Just weeks ago, Garcia repeatedly said that the GSIS was not affected by the collapse of Lehman Brothers and AIG, “because the funds have been oriented more toward Europe than the US.” It was probably his way of assuring pension fund members that the GIP—their GIP—was safe from the US financial turmoil.

That “assurance” now sounds more like a subterfuge that, in turn, should make GSIS members seriously doubt the trustworthiness of Garcia’s “disclosure” last week.

Crumbs for GSIS

Meanwhile, the Trade Union Congress of the Philippines has pointed out that the plan of the US and UK governments to acquire large equity stakes in American and British banks does not bode well for the investments of the GSIS in the common stocks of foreign lenders.

“This will definitely dilute the foreign bank stocks held by the GSIS,” said TUCP Secretary General and former senator Ernesto Herrera in a press statement issued Saturday. “The banks will have to issue new shares to the US and UK governments in exchange for large amounts of fresh capital.”

Herrera warned, “As a result, there will be far greater supply of bank shares. And the more the supply, the greater the downward pressure on bank stock prices for an extended period.”

Last Friday, US Treasury Secretary Henry Paulson said the US federal government intends to buy ownership stakes in a broad array of American banks for the first time since the Great Depression. This followed the British government’s announcement that it would pour cash into its troubled banks in exchange for shares—in effect, partial nationalization.

“While this initiative will save US and UK banks from outright collapse, it will be achieved at the expense of common shareholders such as the GSIS,” Herrera said.

Using pizza as an analogy—with the GSIS holding a bite size—for the banks’ capital structure, Herrera explained: “Once the US and UK governments come in, they will surely grab most of the slices in exchange for massive capital injections of taxpayer money.”

Concluded Herrera, “Thus, the GSIS and other common shareholders will be left with crumbs.”

dansoy26@yahoo.com