VBS Mutual bank customers at long queues outside the bank, demanding their money in Thohoyandou, Limpopo. Picture: ANTONIO MUCHAVE/SOWETAN
VBS Mutual bank customers at long queues outside the bank, demanding their money in Thohoyandou, Limpopo. Picture: ANTONIO MUCHAVE/SOWETAN

While the 22,700 retail depositors of the stricken VBS Mutual Bank are no doubt relieved to hear they will recover almost all of their deposits, it is taxpayers who may eventually foot the bill for the fraud that sank the bank.

This week, the National Treasury said it would repay those depositors up to R100,000 — which amounts to R336m. But indirectly, the Treasury would also foot the bill to rescue the municipalities who illegally deposited more than R1.5bn of funds into VBS. So again, this means the taxpayer is on the line.

And there’s more. The Public Investment Corp, the state-run asset manager which invests civil servants’ pensions, is one of the biggest losers from this debacle. Not only does it own 25.26% of VBS, it also has an outstanding loan of R350m which it lent to the mutual bank in 2016. As those government pensions exist in a defined benefit fund, this means the taxpayer stands behind every rand that may fall short.

These are just the most obvious costs of the biggest bank heist SA has yet seen. This week, curator Anoosh Rooplal confirmed that he’d be looking to recover R1.5bn, nearly three-quarters of its assets, from shareholders, directors and various other people who’d treated VBS as their personal piggy bank.

The matter burst into the open in March, when the SA Reserve Bank placed it under curatorship after it ran out of cash. Rooplal’s initial findings were damning: he flagged possible "fraudulent transactions" and the fact that R1.8bn held in VBS’s suspense accounts "may be a fictitious creation of deposits".

Last week, Rooplal approached the high court with a bid to sequestrate major shareholder Vele Investments, and the directors and managers, to recover R1.5bn he says was fraudulently siphoned off.

It was, said Rooplal, "a fraudulent scheme of epic proportions" — cynically devised to loot the small bank, at the expense of its customers, which included stokvels, the local Venda community, and 15 municipalities.

The bad news is that should Rooplal not be able to retrieve this cash from Vele, the Treasury would have to pay the bill.

The collateral is a little bit uncertain. We don’t know if there are any assets against which to collect the R336m
Roy Havemann

In the case of the retail depositors, the finance minister would have to table a bill in parliament to pay out the money, says Roy Havemann, who is the Treasury’s chief director for financial stability.

The first time the Treasury made such a guarantee was in 2002, when it said it would pay R50,000 to each depositor of the collapsed Saambou Bank. Then, in 2014, the Treasury said it would pay a guarantee of 90c for every rand of wholesale depositors’ money in the African Bank collapse. This was in addition to the R50,000 per depositor guarantee.

"In the end, we did not have to pay the guarantee as the new African Bank is doing so well after the restructuring. There was no need to pay any money," says Havemann.

The VBS case pushes that retail guarantee to R100,000. Havemann says this is a reasonable amount, especially since there aren’t too many people who have deposited more than R50,000 in the bank.

It’s a tough call as banks should be allowed to fail, but the regulators must also try to prevent a run on the bank, in which depositors scramble to beat the queues and get their cash out.

Asked why it must be the taxpayers’ burden to guarantee deposits, Havemann says by law the SA Reserve Bank cannot put any money into a bank without being sure there’s collateral to cover the loan.

"In the case of VBS, the collateral is a little bit uncertain. We don’t know if there are any assets against which to collect the R336m," says Havemann.

Of course, there are some good assets against which VBS’s curators can collect, other than the stolen R1.5bn.

For a start, the bank has a property mortgage book of about R400m, says Rooplal. This is performing satisfactorily. After a short dip in loan repayments, this has picked up since June, when more than 85% of the loan book was being serviced, says Rooplal.

"Immediately the bank went into curatorship, many people stopped paying," says Rooplal. But he says the bank has contacted bondholders to explain why they must continue repaying their debt.

VBS also has a vehicle finance loan book, which exceeds R200m. By its nature, recovering a moveable asset will always result in a shortfall as vehicles are depreciating assets — but some value can still be salvaged where the assets can be located.

Due to the nature of the fraud, where fictitious entries into the bank’s operating system created nonexistent deposits, there can be no certainty about the validity of any of the loans.

In his sequestration affidavit, Rooplal says the directors of VBS, including chair Tshifhiwa Matodzi, former COO Robert Madzonga, treasury head Londolani Mukhodobwane, CFO Philippus Truter and CEO Andile Ramavhunga, stole R1.5bn by crediting fictitious deposits into a suspense account before transferring real cash out of the bank.

What it means

The state-run asset manager, which invests civil servants’ pensions, is one of the biggest losers

The machinations behind the robbery, now laid out in court papers, are astounding.

For example, Matodzi’s Vele Investments emerged as a 53% shareholder in VBS without having actually paid a cent for its shares, instead relying on fake deposits created by Truter. After creating one such fake deposit of R350m on October 5 2017, the alleged perpetrators evidently felt such a sense of achievement that they paid themselves R48m in real bonuses, says Rooplal.

It worked like this: once a fictitious payment was credited into VBS’s suspense account, real money would be transferred to accounts belonging to the perpetrators, in other banks. While the deposit entries on VBS’s electronic banking EMID System were fake, the bank did also receive (illegally) real deposits amounting to R1.5bn from municipalities.

Notably, that EMID management technology was supplied by the JSE-listed technology company EOH, which has come under the investor spotlight in recent months for less than flattering reasons.

Rooplal says the cash transferred to the perpetrators’ accounts "was used to fund their lavish lifestyles, purchase immovable property, buy high-end motor vehicles and take up shares and interests in other entities".

On the face of it, Vele Investments, where Matodzi was CEO, splashed out R340m in buying other assets — including R90m to bump up its stake in VBS to 53% in March last year, and another R250m to buy shares in Insure Group Managers. Except, Vele never actually paid the money: these were fake deposits, designed to make it look like money had changed hands.

Damningly, those fake deposits were in addition to another R929m in fake deposits, made over two years.

Some of this cash was used to help Vele Investments amass assets of more than R5bn. This includes buying Mvunonala Holdings — whose asset-management subsidiary has itself been linked to the disappearance of hundreds of millions in pension fund money belonging to the widows of mineworkers.

Rooplal says R262m also went to paying off the overdrafts of the alleged perpetrators, while some went on vanity assets — such as a R6.5m Ferrari for Matodzi and a R12m Bell 222 helicopter.

"In this manner, through fraud, theft and pilfering, VBS haemorrhaged funds," he says in the affidavit. Ultimately, the fact that they were stealing money faster than the municipalities could deposit cash into VBS led to the liquidity crisis, and the bank’s collapse.

Tracking down these assets might not be difficult, given that there aren’t too many places to hide a helicopter. And Mvunonala, for which VBS paid R300m, occupies a prime office space on Graystone Drive in Sandton.

Rooplal has now asked the high court in Johannesburg to enrol the matter for an urgent hearing on July 24. There is a real risk, he says, that the people who stitched together the fraud will try to hide those assets.

While that process is a civil case, criminal action should also follow.

Separately, advocate Terry Motau has, for some weeks, been conducting a forensic investigation into what went wrong. He is due to hand his preliminary report to the Reserve Bank by the end of August. From there Bank governor Lesetja Kganyago will take the matter to a criminal process.

While all this is happening, it seems there has been a falling out at Vele Investments. Rooplal says this infighting makes it imperative he begins winding up Vele as soon as possible.

According to Rooplal, Vele’s Madzonga is involved in a bitter power struggle with Maanda Manyatshe, with both claiming to be chair.

While this might just be a case of there being no honour among thieves, the tax-paying public will be hoping there is sufficient value in Vele to cover the Treasury’s guarantee — even if it doesn’t cover everything that has been stolen.