IN a curious turn of events at the troubled CFX Financial Services (CFX), its merchant bank and private banking departments have been caught serving cherry-picked customers in transactions dee
med illegal by the Reserve Bank of Zimbabwe, the Zimbabwe Independent can reveal.
Ironically, the bank, by its own admission, has been participating on the foreign currency auction system run the by the Reserve Bank.
CFX Bank, CFX Merchant Bank and CFX Asset Management were put under curatorship in December after a huge hole was discovered on the group’s books. The financial group was then shut down but behind closed doors, the bank has been trading normally, albeit illegally. The effect of a curatorship is that all deposits made with CFX and all assets invested with the bank and asset management company are frozen.
The RBZ yesterday moved in quickly to stop the illegal operations by the bank after the Independent made enquiries on correspondence sent to clients by CFX.
“It is an illegal operation which must be stopped forthwith,” said RBZ governor, Gideon Gono. “I have deployed my team from the inspectorate there to bring them to book.”
Bank staff have been sending out email messages to selected clients asking them to come and do business.
“Our International Banking Department is fully operational and has had some success on auction bids. Clients wishing to progress international transactions should contact…” one such email dated March 9 reads.
An officer at CFX yesterday confirmed that the bank was operating. “You can come in through the back and we can talk,” he said.
It is however surprising that the illegal transactions have been taking place under the nose of the curator, Fungai Kuipa, who is supposed to be the central bank’s representative at the closed institution. Insider sources said the bank’s staff were “getting instructions from too many people” on what to do. “Sometimes we wonder who is really in charge here,” said a middle man-ager at CFX Bank. All transactions have to be authorised by the curator.
CFX came about as a result of a merger between the old CFX group and Century Holdings Ltd (CHL) in June last year in a short-lived sweet-sour deal.
The two parties are now bracing themselves for a major legal battle over what to do next after the closure of the bank.
Sources close to the proceedings this week said the RBZ was willing to offer liquidity support to the troubled institution so that it reopens for business. But former CFX directors were not willing to take up the offer, as they want to break up the merger. They claim that they were victims of a disingenuous partner who failed to reveal material information during negotiations.
Documents obtained this week indicate that the directors want at least $270 billion from CHL as compensation for damages suffered as a result of the alleged impropriety by the latter.
The directors, in a letter dated January 31, state that CHL directors had concealed a deficit of $115 billion on their books prior to the merger and went on to declare a profit of $9 billion, thus pushing the deficit to $124 billion.
“This was done deliberately and fraudulently,” the directors contend.
The company said in the letter that it was entitled to sue for damages as CHL was in breach of warranties agreed at the conclusion of the merger last year.
“In the event that there is dispute which goes to arbitration, our client reserves its right to cancel the agreement and claim damages,” they said.
“Our client’s damages will include the $124 billion of missing assets and in addition the losses which have been suffered since June 2004 which would not have been incurred but for the fraudulent concealment.”
The old CFX would also seek compensation for loss of business to its CFX Merchant Bank as a result of problems at CFX.
“…CFX was at the time of the agreement a profitable bank with a good reputation. Our clients estimate that it will take at least two years to re-establish that image and this probably means a loss of at least two years’ earnings amounting to $150 billion,” the directors said.