A Moment in Bank History
Founding an Investment House in the Philippines
By Tony Lord
In mid-1971, I was sitting in the recently established South East Asia Regional office in Hong Kong, taking care of credit, marketing, and expansion for that segment of the world. The phone rang and it was Leo Martinuzzi, calling me from his office at One CMP.
Leo advised that David Rockefeller and Maurice (Hank) Greenberg, chairman of American International Group (AIG), had reached an agreement under which the two organizations would expand worldwide together in non-commercial banking and non-insurance businesses. AIG’s most important country outside the United States was the Philippines, where AIG was the largest insurance company. Chase Manhattan Bank (CMB), on the other hand, had a small investment in a finance company, the extent of its exposure to the Philippines.
Leo said it had been decided that the initial joint venture would be an “investment house” located in Manila. The joint venture partners were to be CMB and AIG, with 20% each, and the Madrigal and Puyat families, who were to split the remaining 60% of the equity. CMB was to manage the newly established entity under a management contract, and yours truly was to move to Manila to establish and manage this new operation, to be known as the Philippine American Investments Corporation (PAIC). Its mandate was to compete with the leading players in the very active investment house business segment, involving approximately 14 established organizations and led by Bancom (a joint venture involving Bankers Trust).
In November 1971, President Ferdinand Marcos declared martial law and, the following week, my family and I arrived in Manila to begin the process of establishing this new entity. The AIG group made available the top floor of the AIG Building in Makati, formerly occupied by one of the two Yujuico families; they had not been strong supporters of the Marcos Administration, and the “Don” of that family was under arrest!
The Board of PAIC comprised David Rockefeller, Jim Bish and yours truly, from Chase, Hank Greenberg and Cesar Zalamea (head of the AIG Philippine operation) representing AIG, and Senator Gil Puyat and Ambassador Belek Madrigal, the heads of the two Philippine shareholder families. Hank was to be Chairman, and my instructions were to report directly to him. As an aside, while it was never formally confirmed, my understanding was that President Marcos and the First Lady owned shares in PAIC through the two Philippine families, both of which were known to be close to the Marcos family.
One of the many things that came as a surprise was how sophisticated the money markets in the Philippines were. Because of this, and how important money market transactions were to be at PAIC, we requested assistance from CMB New York in establishing a system to control that aspect of the business. Norman Buchan was given the responsibility of working with the team in Manila to ensure that this area of operations were effectively controlled.
Once the offices had been constructed, and the initial staff hired, Messrs. Rockefeller and Greenberg arrived to host the opening celebrations. I clearly recall DR’s first visit to the PAIC offices. He stood in the doorway to my office (formerly the office of the head of the Yujuico family) and said, “Young man, the only way for you is down. Your office is bigger and fancier than mine!” I hasten to say that he had a smile on his face. And, thank goodness, he didn’t see the full bathroom attached to what was then my office!
We had a great team at PAIC and very quickly were able to make our presence felt in the investment house market. We discovered that there was no FDIC type of government support for Peso funds deposited through the local money markets, and, as a result, Philippine families tended to spread their funds around to limit their exposure to any one institution. We also discovered that the day-to-day management of money was often vested in the women in any particular family. Soooo, we arranged to have a single red rose housed in a presentation box delivered by messenger to the home of each female depositor the morning after the initial deposit (minimum P50,000) had been made. There was a handwritten card in the box that read, “In grateful appreciation of your patronage. I invite you to visit our offices, and your Dealer (read Money Trader) and I look forward very much to meeting with you. Sincerely, signed by yours truly.”
In 1972, it was almost impossible to raise a term loan in Pesos, and at PAIC we established a PAIC Prime Rate that became the Peso LIBOR equivalent, enabling the early beginnings of a term Peso loan market. The PAIC Prime Rate caused a great deal of interest in the Manila market and was quoted daily in the appropriate publications.
We were able to put together a terrific team of extremely capable officers, traders and staff, and, thanks to their efforts, ended the first year with a return on investment of 19.3% after writing off all pre-operating expenses. The team was also able to develop the business to the point where PAIC became the major competitor to Bancom.
We got great support from everyone at PhilAmLife (as the AIG local companies were called), and, it goes without saying, from everyone at CMB. Working with AIG itself was an adventure, and working with Hank Greenberg was an experience; he was very involved and might be described as a micromanager. Unfortunately, a young Filipino–the son of a Philippine Senator–was assigned to PAIC, and his ideas and mine were often at odds. This clash of personalities was not in the best interests of the joint venture operation.
In 1975, I was approached by Baring Brothers and resigned from CMB to join Baring Sanwa Multinational, which had just opened its doors in Hong Kong. Randy Earman was sent to take over PAIC. During the transition, the person assigned to PAIC from PhilAmLife made a couple of lending decisions without referring to Randy or myself, decisions that unfortunately negatively impacted the future viability of PAIC and the plans of both AIG and CMB to expand together worldwide.
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