17/01/2017 16:32 SAST | Updated 18/01/2017 14:59 SAST

The Davis Panel: The Reserve Bank Acted Illegally, But Absa Isn't Liable

Judge Dennis Davis headed an investigation between 2000 and 2002 with the explicit mandate to once and for all lay the Bankorp/Absa issue to rest.

Dennis Davis, a Cape Town High Court Judge.

The Davis panel: "Report of the governor's panel of experts to investigate the South African Reserve Bank's Role with regard to the financial assistance package to Bankorp Limited."

What is it?
In June 2000 Tito Mboweni, who was then governor of the South African Reserve Bank (SARB), appointed a panel of experts headed by Judge Dennis Davis of the Cape High Court to investigate the SARB's role in extending a lifeboat to Bankorp. The panel reported their findings in 2002 in a 154-page document with five annexures, including a legal opinion on restitution.

What was the panel's purpose?
The purpose was to assess whether or not the SARB's assistance to Bankorp — extended tot Absa — was in contravention of the SARB's statutes and whether it conformed with good practice. It also had to determine whether reparations are possible if the SARB's actions were found to be illegal and irregular.

What did the panel find?
It is a complex report about a complex deal. The panel found even though assistance to Bankorp was justified in order to protect the banking system, the manner in which it was done was flawed. The panel found the scope of the assistance was wrong and the "loan" was in actual fact a donation or grant and that the principal beneficiaries were not Absa's shareholders, but Sanlam policyholders, who had a stake in Bankorp. The SARB essentially exceeded its mandate and acted illegally.

If the SARB "lifeboat" was illegal, is restitution possible?
Yes, the Davis panel found. It would however have been difficult and extremely costly to achieve that through legal action because of the complexity of who the shareholders were in Bankorp, how the Sanlam policyholders' stake in the bank was affected and who exactly was enriched. The fact that the decision to extend a lifeboat to Bankorp/Absa was made by duly appointed officers of the SARB complicated matters legally.

What did the panel find about Absa?
Davis and his colleagues said that contrary to what was in the public domain, they found no evidence of any conspiracies. They added that Absa paid for the SARB's continued assistance to Bankorp once Absa bought the entity and could not be regarded as having benefited from the SARB "lifeboat".

Did Absa pay back what it owed the SARB?
Yes, the Davis panel found Absa paid back R1.5 billion in 1995. The total assistance of the SARB to Bankorp/Absa amounted to R1.295 billion. According to the report and its annexures, the loan agreement stated that the SARB would loan Bankorp/Absa up to R1 billion, of which R600 million had to be reinvested in government bonds at 16% per annum. The yield on these bonds would be used as the "lifeboat".

What happened?
The SARB used the report to tighten up its regulatory obligations to commercial banks.