Vincent Kahiya/Conrad Dube
TROUBLED CFX Financial Services, the holding company for collapsed CFX Bank, is mulling a rescue package that could see major shareholders and depositors being invited to take u
p shareholdings in the closed merchant and commercial units while the rest of the shareholders and depositors are paid off.
The plan, authored by CFX group CEO Wilson Gwatiringa and distributed to major shareholders this week, proposes to seek liquidity support from the Reserve Bank to pay off the minor shareholders and small depositors.
The group’s subsidiaries, CFX Bank, CFX Merchant Bank and CFX Asset Management were put under curatorship on December 17 after it was discovered that there was a $115 billion hole in the company’s accounts. Frank Kuipa was appointed curator.
CFX Financial Services was created out of a merger between CFX and Century Bank in September.
The Zimbabwe Independent understands that if the Reserve Bank agrees to bail out the bank, the rescue plan could be set in motion immediately with the commercial bank re-opening its doors on April 1.
There are also plans to save CFX Merchant Bank by turning large depositors into shareholders. But the merchant bank is owed $67 billion by the commercial bank. Gwatiringa however believes that the merchant bank can weather the storm if it receives liquidity support.
On CFX Asset Management Company, Gwatiringa has proposed that it holds preference shares in exchange for its $7 billion exposure to the commercial bank.
An alternative plan would save the merchant bank and the asset management company by rescinding the merger with the former Century Bank. This would inevitably result in the liquidation of CFX Bank.
The Gwatiringa plan depends largely on the willingness of large depositors to stay in the group as shareholders and the willingness of the RBZ to offer support. For the large shareholders this could be the route to take.
“Preliminary computations as per the attached paper show that depositors and creditors will salvage approximately 36% of what they are owed by the commercial bank,” the plan says.
Gwatiringa raised the possibility of CFX going into Zimbabwe Allied Banking Group if his proposals are not accepted.
The Independent this week got access to a confidential RBZ report on CFX which revealed that a management cartel at the closed bank created fictitious client accounts for temporary adjustment to mislead auditors.
The cartel, according to the report from the RBZ probe, was crafted in such a way that various due diligence exercises conducted by Imara Corporate Finance, KPMG Accountants and Corporate Excellence (Pvt) Ltd failed to unearth these fraudulent business practices.
The purpose of the RBZ investigation was to determine the true condition of the bank in light of concealment of operating losses by management.
CFX management misrepresented the true condition of the bank which was achieved through the manipulation of the system-generated income which was showing accumulated losses of $115 billion.
The manipulated management accounts reflected an accumulated profit of $9 billion instead of the accumulated loss of $115 billion.
The bank had also created a fictitious asset base of $49 billion, which arose from the fact that a foreign currency position of $72,7 billion was not backed by a corresponding Zimbabwe dollar equivalent, the report says.
“Total deposits exceeded interest-earning assets by $124 billion as at 31 October 2004 without a corresponding increase in non-interest bearing assets. Given that the losses of $115 billion were unreported for ten months, there is a high possibility of attempts to conceal fraud,” the RBZ report said.
The report says the accounts were temporarily adjusted to mislead internal and external auditors. In his internal report, CFX IT manager Henry Mazimbe, who has been arrested in connection with the saga, indicated that he was under pressure from the financial accountant, Calvin Mutombeni, to manipulate interest computations in the live system.
The RBZ report says: “The financial accountant acknowledges creating a list of client accounts that he gave to the IT manager for adjustment in equation and claims that this was as per the finance director’s instructions, and that these adjustments had been done.
“This was achieved by value- backdating some transactions in selected client accounts using an internally developed appendage to the equation software package.”
The executives involved were the former managing director Garainesu Shoko, finance director Onias Ndlovu, Mtombeni, assistant accountant Joseph Kwidini and Mazimbe.