JUST after the morning tea break on Monday July 2 six officials from the Reserve Bank of Zimbabwe (RBZ) arrived at Premier Finance Group (PFG)’s of
fices at Sam Levy office park.
They told management they were making a routine check on the financial sector following reports that some banks were experiencing liquidity problems.
PFG’s subsidiary, Premier Bank, was having problems covering its positions because of the money market deficit. The gap in the bank’s books was estimated to be around $70 billion.
The RBZ team was supposed to be at PFG’s offices for no more that a few hours for what might otherwise have been a routine check.
Yesterday afternoon the central bank team was still camped at the company. They say investigations are continuing and a report will be ready within the next three weeks.
What made Premier Bank’s problems worse was that apart from the normal market shortage the bank had other serious problems.
Unlike commercial banks which could borrow from the central bank when the market is short Premier had to go through a second party by virtue of being a merchant bank. Merchant banks cannot by banking law access funds from the central bank as the lender of last resort.
They have to go through a commercial bank. Because at that time the whole market was short even Premier’s commercial bankers were not in a position to help them cover their positions.
Premier’s problems were however bigger than a mere gap in its books. The probe team found that the major reason Premier could not cover its position was because of huge insider and inter-company loans which had not been repaid.
PFG, its parent company, had borrowed about $90 billion from it and had not yet repaid the bank. Some executives had also helped themselves to billions of dollars in loans. The probe team left the bank that afternoon but promised to come back later for further checks. They however did not come back until after the Heroes Holiday.
On August 15 about 25 officers from the central bank came back to PFG’s offices.
They were accompanied by officers from KPMG Financial Auditors. They met PFG and Premier Bank management in the board room. There they read the riot act.
They said they were not happy with the management’s cooperation during their initial fact finding visit in July.
They said they suspected that there were serious irregularities in the bank and that they wanted a full investigation.
That meeting took about 30 minutes and by mid-morning investigation teams had been deployed in the whole bank. There were RBZ officials in auditing, accounts, treasury, risk management and the IT department.
The next day, the team did not return but the bank’s legal advisor, Nick Nyamusa, got a call from the central bank at around 9:30am requesting all managers to report to the RBZ at 10:50am.
Twelve managers attended the meeting which however did not start until 12 pm. The chief executive, Exodus Makombe and chief operating officer Cassius Gambinga did not attend the meeting because they were on vacation.
The head of the RBZ team, Gift Chirozva, told the managers that there were looking at allegations that the bank had understated its statutory reserve requirement and engaged in inter-company borrowings.
The financial condition of the bank and allegations that some executives were involved in share-front running were also part of RBZ’s probe. There was also the issue of missing commission which the probe team believed had been siphoned from the bank by some senior executives.
After his offer for people to volunteer information found no takers, Chirozva handed each manager an envelope. They were told to put their mobile phones in the envelopes.
The central bank then started interviewing each person separately. It took nine hours for the interviews which finished at 9pm. On that day the RBZ was not so hospitable. The managers were not served lunch.
“People talked. They implicated each other during the interviews,” a member of the RBZ probe team said. “It was clear that there was more rot in the bank that we had initially anticipated. Some of the findings are so serious that when the investigations eventually conclude we are going to ask for assistance from the police,” he said.
On Friday August 17 Makumbe also went for the RBZ interviews together with a few other managers who were not at work the previous day.
The RBZ then scheduled a meeting with the bank’s non-executive directors. The meeting was supposed to be held on August 20 at 2pm. The directors decided that they would have a meeting with senior managers before going to the RBZ.
Gambinga and Makumbe did not turn up for that meeting despite having promised to do so. Only Raymond Chigogwana, who at that time was the managing director of Premier Bank, attended the meeting.
Chigogwana is now the acting chief executive of the group. Makumbe is understood to have told the board over the phone that he had left the country because he was afraid of being arrested. It is not clear which country he had gone to.
The RBZ must have told the directors something serious because immediately after the meeting the board sent Makumbe and Gambinga on forced leave. Makumbe who had founded the institution first as a Discount House in 2004 tendered his resignation on August 29.
Makumbe over the past two weeks refused to shed light on events leading to his unceremonious departure. He also refused to respond to some of the allegations that are being levelled against him. He has referred all questions to the PFG’s management who have also refused to comment on the issue.
The central bank is expected to conclude its investigation into the crisis at Premier within the next three weeks. Sources who have seen the preliminary report told businessdigest that it makes serious allegations against Makumbe and Gambinga.
The report details how the bank lost about $161 billion through fraudulent activities. Apart from
the issue of statutory reserve computation, the missing commission and the bank’s weak financial position the report also raised alarm over the events surrounding PFG’s acquisition of a 26% stake in CFX Holdings. PFG first acquired 12% CFX in 2006 when the commercial bank did its right issue. PFG
got the shares for just over $1 billion.
Sometime in February, the senior staff of PFG decided to increase their stake in CFX to about 26%. The plan was to eventually push through a hostile takeover and reverse listing. The RBZ preliminary report alleges that around the same time Makumbe, Gambinga and other senior executives had borrowed money from the bank to buy the CFX shares. These shares were later sold to PFG at huge profits.