Bankruptcy suit could affect TMB's search for partner

July 29, 1999 -- THE Thai Military Bank's bankruptcy lawsuit against the CEO of a Bangkok Bank subsidiary, Dr Chaiyut Pilun-Owad, has clouded the bank's prospects of seeking a foreign strategic partner to overcome its deep-seated problems. The highly-publicised case could also attract the unwanted attention of the authorities in the bank's true financial status.

A worrying scenario is that the clamour over the bank's obvious error in judgment could hurt the bank's position, with overall damage far exceeding the amount it is trying to extract from the well-known defendant. As a first step to contain the damage, the bank's legal department is expected to withdraw the lawsuit as soon as possible.

TMB president Dr Thanong Bidaya, in a damage-control attempt had a series of meetings with senior and mid-level executives on Monday to determine what was the real motive behind the bankruptcy suit to claim a mere Bt13 million from Dr Chaiyut, who heads Sinn Bualuang Plc. The first proceedings occurred in the Central Bankruptcy Court last Friday and it immediately sparked an uproar.

In the first half of the day, Thanong had a session with the bank's top management which comprises senior executive vice presidents and those immediately under them. The banker tried to extract from the executives discretion in pursuing the case.

Most of them were silent. The usually mild-mannered bank president almost lost his cool when he tried hard to get some plausible explanation. At one point, he was heard asking those present: ''I want to know who has resorted to this kind of stealthy and shady practices.''

The outburst was not unexpected because the banker felt betrayed by those working under him. They used one of the many blank power of attorney sheets to pursue the case against Chaiyut who has been his friend for more than 20 years. The friendship was groomed during their years as lecturers at the National Institute for Development Administration.

Whoever was behind the legal action, the person could have wanted to kill two birds with one stone. The first victim was Chaiyut who had been approached twice to succeed Thanong when he was finance minister and when he expressed his desire to return months from now.

The second was Thanong himself if he appeared discredited by the bank's mishandling of the case, and the negative consequences the bank has to bear. If he was weakened, his recommendation on a potential successor would carry much less effect on the bank's board.

That's why Thanong was well aware that he would have to take the blame for something he had nothing to do with. More than just an embarrassment, the lawsuit raised doubts about his grasp of the top management and decision-making process. Somebody wanted him to fall victim to the undercurrent of office politics.

When challenged, directly or otherwise, Thanong could be very outspoken using tough launguage. It was another rare day when he was in such a mood. Many questions were directed at those present at the top-management meeting. There was just some mumbling from a legal officer that notices had been duly served twice to Dr Chaiyut.

The explanation, however, failed to clear the murky air. It has been known that the bank has large exposures to many business groups and the loans have already become non-performing loans (NPLs). There has been no legal action against any of the big debtors so far.

The long meeting heard only Thanong's stern dressing down of the executives. But it was also the management culture of TMB executives to be tight-lipped when questioned at a meeting. Like all masters of survival they only side with the winner.

That's why none of them gave a satisfactory answer to Thanong. But after tracing the trail of legal documents and line of command, he found out that all the clues eventually led to the man who is his immediate deputy, the first senior executive vice president.

There was no admission of action, far less so if Thanong had expected someone to level with him.

Thanong called another meeting in the evening, this time with department heads and first vice presidents. He lectured them about the kind of repercussions which could be expected to eventually affect the bank's recapitalisation programme.

The bank intends to boost its capital, with 40 per cent of the new issue set aside for private placement. It has appointed CS First Boston as adviser for such arrangements and seeking a foreign strategic partner who can come in with fresh funding.

The bank has Bt10.15 billion in registered capital. It was able to raise Bt18 billion in Supercaps a hybrid instrument of preferred shares and debentures to support its weak position in addition to the Bt30 billion in NPLs for which it has set aside only Bt17 billion loan-loss reserves. That amounts to only 60 per cent of the total problem loans.

The bankruptcy case, the first against a well-known financial executive, has unsettled many foreign bankers. The bank's creditors and prospective partners, following the ensuing controversy, are likely to step backward and wait until the dust has settled. They have also cast doubts over the whole affair.

Their questions were: Why was the TMB going after just Bt13 million while it still has many large NPLs whose borrowers truly deserve bankruptcy suits? What was the real financial position of the bank and the extent of the NPLs? Was it so desperate when the bank vigourously went after that particular debt which was just only chicken feed?

These questions were relayed to those present at the meeting. Thanong told them that the bank's reputation is at stake, because the bankruptcy suit did not conform to what could be regarded as part of sound banking practices.

At one point, Thanong told them that the damage arising from the lawsuit was not confined to only the bank and Dr Chaiyut. It has raised many scenarios, including possible inspection of the bank's financial position by the Bank of Thailand. So far TMB has been able to keep central bank authorities away from its account books.

Above all, he told the meeting, it comes to a question of judgment by management. If office politics was inherent in the bank and indeed the motive behind the bankruptcy suit, the potential strategic partner might find the possibility of rough relations with TMB executives daunting.