Absa has seemingly paid the interest the South African Reserve Bank (SARB) charged it and Bankorp for a loan to cover bad debt.
And the public protector, advocate Busisiwe Mkhwebane, may have got it all very wrong in her demand that Absa owes the state money.
The interest was paid on either a monthly, quarterly or annual basis from a standing account that all commercial banks hold at the SARB. These payments were accounted for in the SARB's financial statements and audited every year by external auditors, according to a source with direct knowledge of the mechanics of the agreement between SARB and Absa.
This has emerged after massive confusion over whether or not Absa honoured the terms of the various agreements between it and the SARB after it took control of Bankorp in 1992.
The investigation was begun by advocate Thuli Madonsela and completed by her successor, advocate Busisiwe Mkhwebane. HuffPost SA on Thursday reported the lead investigator on the case, advocate Tshiwalule Livhuwane, resigned from the protector's office.
According to a preliminary report by the public protector, Absa did not pay the interest it owed the SARB and the government should institute proceedings to recoup money owed to the fiscus.
It appears however that the public protector misunderstood the particulars of the agreement and has based her report on erroneous assumptions.
How much money was Bankorp, and later Absa, loaned?
Bankorp received assistance of R1 billion between 1985 and 1990. This assistance was extended to R1.5 billion in 1991.
The loan was for Bankorp, why is Absa being held liable?
Absa bought Bankorp in 1992, on condition that the SARB assistance continues until the bad debt is cleared.
What was the interest rate on the loan?
The SARB charged a variable interest rate of between 0% and 2% per annum.
What exactly is the lifeboat?
A chunk of the loan had to be invested in government bonds which yielded a return of 16% per annum. That yield was used to finance the lifeboat, which was used to clear the bad debt.
Was the full loan of R1.5 billion ever repaid?
Yes, it is common cause that Absa repaid the whole of the capital amount in October 1995.
But the loan amount was R1.5 billion, where is the interest?
The interest (nominally 1%) was subtracted from the 16% and paid in tranches.
So it wasn't repaid like the capital amount?
No. Absa had access to the 16% yield, but could only use 15% as 1% went back to the SARB as interest charged.
How can we be sure it was paid?
The payments were, at the time, reflected in the SARB's financials and signed off by both internal and external auditors.
What then does the public protector say?
The preliminary report states government should recoup interest of 16% per annum on the capital amount for five years, plus interest on that amount.
How much does that come to?
Approximately R2.250 billion.
How does she get to 16%? The Davis Panel was clear on the terms of the agreement?
The public protector all but ignored the Davis Panel's findings and relied on the Ciex Report.
But there's a massive discrepancy between the public protector, Davis and this explanation?
The Davis Panel was clear on the structure of the agreement, who found the intervention was justified but the particulars were irregular.
And the gist of the public protector's provisional remedial action?
A reliance on the Ciex Report stating that an amount equal to 16% interest on the capital amount of R1.5 billion is outstanding – plus interest.
Why then the confusion?
Because the capital amount was paid back in large deposits, showing up as unusually big payments in the financials. The interest was seemingly repaid, regularly and over time, as funds kept back in accounts held by commercial banks with the SARB. Also, nobody – not Absa or SARB – have explicitly come out saying: "It was repaid. Here is how it was done."
Finally: can this be proven?
The interest repayments should reflect on the audited statements of the SARB internal accounts and can be verified by the SARB. However, these were extremely complicated transactions and financial instruments.
A HuffPost SA source, who was an influential figure and intimately involved in the structuring of the agreement and the transaction, but who does not want to be named, explained the interest charged was at the discretion of the SARB and the yield on the bonds was standard yield at the time.
The bonds also weren't specially created for the intervention and investment in them helped finance government's budget deficit.
The structure of the agreement and the financing of the lifeboat, as well as the manner in which interest had to be repaid, is detailed in the report of the panel of experts led by Judge Dennis Davis.
"There is no doubt the interest was paid as per the agreement between the SARB and the banks," the source said.
Dr Chris Stals, who became governor of the SARB in 1989, told a commission of inquiry into the Tollgate collapse on 26 February 1996 the Absa lifeboat was above board. He said the details of the loans were "at all times recorded in the books of the SARB".
According to his written submission he said: "(The books) were regularly audited by the SARB's internal and external auditors, who also had to verify the existence of the collateral. It was included in the published financial statements of the SARB and in the financial statements that served before meetings of the board and Board of Governors."
He also said the SARB's directors and employees are bound by the provisions of section 33 of the SARB Act, which prohibits disclosure of the details of loan agreements to external parties.