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RESOLUTION No. JB-2008-1084

THE BANKING BOARD

WHEREAS:

IN Resolution No. JB-98-085 of December 2, 1998, the Banking Board approved the Restructuring Program for the strengthening of Filanbanco S.A., which was developed by the Superintendency of Banks;

THE first paragraph of item six in the Restructuring Program for the strengthening of Filanbanco S.A. orders that: The former shareholders of Filanbanco S.A., principally Intral Panamá S.A., must immediately establish a commercial trust to which real property will be transferred, other than that owned by Filanbanco S.A. or its subsidiaries or affiliates, the value of which shall not be less than 65 million United States dollars, to serve as the backing or source of payment to cover the value of any additional unrecoverable risk asset of Filanbanco S.A. that may be considered as such by the special auditors who were appointed in the course of the Stabilization Program for Filanbanco S.A. and which must be approved by the Superintendency of Banks, and the losses suffered up to December 2, 1998;

THE Fideicomiso Mercantil AGD was established by means of an agreement executed on December 29, 1998 before the Seventh Notary of the Canton of Guayaquil.

IN its communication of May 8, 2001, the auditing firm Deloitte & Touche, as the special auditor that was hired, presented an Agreed-Upon Procedures Report entitled: "Report on the Application of Agreed-upon Procedures for the Identification of Adjustments Required by the Assets, Contingencies, Provisions, Estimated Interest and Corporate Benefits, and the determination of losses at December 2, 1998;"

IN Notice No. AGD-UIO-GG-2008-0039 of January 9, 2008, the interim General Manager of the Agencia de Garantía de Depósitos noted that the Superintendency of Banks and Insurance had not announced the decision of the special auditors on the unrecoverable risk assets and losses of Filanbanco S.A. at December 2, 1998;

IN Memo No. DNESL-2008-087 of February 22, 2008, the National Office of Institutions in Stabilization and Liquidation filed a technical report on the condition of the Fideicomiso Mercantil AGD and the determination of the special auditors on the unrecoverable risk assets and the losses of Filanbanco S.A. at December 2, 1998;

IN Memo No. INJ-2008-0265 of February 22, 2008, the National Legal Office issued its report, accepting the conclusions and recommendations of the National Office of Institutions in Stabilization and Liquidation contained in Memo No. DNESL-2008-087 of February 22, 2008;

SUBPARAGRAPH (b) of Article 175 of the General Law of Financial System Institutions establishes that it is a duty of the Banking Board to rule on cases that are not considered in the Law, and therefore the latter deliberative body approved the Restructuring Program for the strengthening of Filanbanco S.A.; and

IN exercise of its legal powers

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RESOLVES TO:

ARTICLE 1. ACCEPT the conclusions and recommendations of the technical report of the National Office of Institutions in Stabilization and Liquidation, contained in Memo No. DNESL-2008-087 on February 22, 2008, and Memo No. INJ-2008-0265 on February 22, 2008; the National Legal Office has issued its report accepting the conclusions and recommendations of the National Office of Institutions in Stabilization and Liquidation.

ARTICLE 2. AUTHORIZE the Superintendent of Banks and Insurance to approve the report submitted by the auditing firm of Deloitte & Touche in its communication of May 8, 2001, in which it determines the amount of the losses of Filanbanco S.A. at December 2, 1998 to be ECS 4,313,516,000,000 (four trillion, three hundred thirteen billion, five hundred sixteen million sucres), which at the exchange rate in effect in December, 1998 of ECS 6,521.00, represents US $661.5 million; for this purpose, it will communicate that approval in writing to Filanbanco, currently in liquidation, to the Agencia de Garantía de Depósitos and to the trustee of the Fideicomiso Mercantil AGD, so that they may make the corresponding accounting entries in compliance with the terms of the Restructuring Program for the strengthening of Filanbanco S.A. and the charter of the Trust itself.

ARTICLE 3. ORDER that Filanbanco S.A., currently in liquidation, confirm to the Superintendency of Banks and Insurance within a period of three days starting from the receipt of the notification of this resolution, the reversal of the contribution of US $107.3 million made to the Fideicomiso Mercantil AGD pursuant to the instructions of Notices Nos. INBGF-904052 of November 25, 1999, INSEF-2000-3448 of August 28, 2000, and Memo No. INSEF-2000-0863 of June 15, 2000; otherwise, it must proceed to apply the provisions contained in the aforementioned notices and Memo, respectively, within five days following notification of this resolution.

The following is the literal text of the aforementioned notices and Memo, in their relevant sections:



Notice No. INBGF-904052 of November 25, 1999

1.Assets received in satisfaction by the former shareholders of Filanbanco and transferred to the Fideicomiso AGD.



Regarding the assets received as Assets in Satisfaction of Payment for USD 107,324,726.81 received from the former shareholders, which were transferred to the Fideicomiso AGD on December 31, 1998, together with the liabilities that the financial institution has to the AGD, I am pleased to state the following:

The Restructuring Program in question literally specifies in its paragraph 6 that “the former shareholders of Filanbanco S.A., and principally Intral Panamá S.A., must immediately establish a commercial trust to which they will transfer real property, other than that owned by Filanbanco S.A. or its subsidiaries and affiliates..." Because the assets that were provided in satisfaction are owned by Filanbanco S.A., and are recorded on the books of that financial institution, the transfer to the Fideicomiso AGD is invalid.

On the basis of the foregoing, the General Manager is asked to order the immediate reversal of this transaction, restoring the former amount with its respective financial and legal supporting entries to the Assets Received in Satisfaction account, and as

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the balancing entry must restore the liability of that same amount that the financial institution owes to the AGD.

The balancing entry will affect the following accounts:

17.XX.XX Assets Received in Satisfaction USD 107,324,726.81

27.XX Liability to AGD USD 107,324,726.81

This entry in Assets Received in Satisfaction must be submitted for valuation by independent experts in order to disclose the real value of the balance. Any additional provisions must be made against the results of prior years.

2. Transfer to the Fideicomiso AGD of the balance sheet loss with cut-off date at December 2, 1998.

The transfer to the Fideicomiso AGD of the losses suffered up to December 2, 1998, in compliance with that discussed in the Restructuring Program, must be made solely for the value of the balance sheet losses with the cut-off date indicated; however, on May 31, 1999, in accounting vouchers Nos. 31,050 and 31,051, provisions of USD 10,000 were created and transferred to the Fideicomiso AGD without the authorization of the Superintendency of Banks, for which reason it will be necessary to order their reversal.

In addition, a value must be entered in Contingencies that is similar to the value of the balance sheet losses at December 2, 1998 that were transferred to the Fideicomiso AGD, because any unfavorable difference resulting from the valuation of the assets contributed by the former shareholders of the bank to establish the aforementioned trust, and which are being used to respond to those losses, will be collected from Filanbanco through the AGD execution account."

Memo No. INSEF-2000-0863 of June 15, 2000

As stated in the reports from Quito and Guayaquil, Filanbanco Trust & Banking Corp. provided US $107.3 million to the AGD trust with the assets received in satisfaction on behalf of Fideicomiso Multinversiones (an event discussed above). This contribution should not have been made or accepted, because the assets do not constitute the unrecoverable risk assets identified by the special audit. In any event, if there had been compliance with the requirement to determine the value of the risk assets, the accounting transaction should have been performed by creating an asset and a liability for US $107.3 million at the trust, which in fact did not occur.



Because these assets had been improperly contributed to the AGD trust, fiduciary rights were created in favor of Filanbanco Trust & Banking Corp. that were transferred to Filanbanco S.A. in exchange for the portfolio, and which for its part, it used to pay the obligations that Filanbanco S.A. had to the AGD, a procedure that, in principle, is accepted by Notice INBGF-99-00395 of February 9, 1999 signed by Patricio Moreno Huras, National Office of Banks and Financial Groups, but was later contested in Notices INBGF-2000-0115 and INBGF-904052, signed by Pedro Delgado Campaña and Rosa María Herrera, respectively…”

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(...)


  1. Require the General Manager of the AGD to hire appraisal firms or specialists who can determine the ownership, ownership history, authenticity and value of the assets contributed to the AGD trust by the former shareholders.

  2. Filanbanco S.A. and the AGD are to be notified that, under the supervision of the Superintendency of Banks, they should proceed to reconcile the events relating to the establishment of the AGD trust with the contribution of US $107.3 million by the Filanbanco trust through the contribution of shares.

  3. In addition, the State Prosecutor is to be informed of the fact that the AGD trust has received properties belonging to Filanbanco trust as assets, bearing in mind that the restructuring program did not permit their inclusion, so that the responsibility for those acts may be determined."

Notice No. INSEF-2000-3448 of August 28, 2000

After these assets were improperly contributed to the AGD, fiduciary rights were created in favor of Filanbanco Trust that were transferred to Filanbanco S.A. in exchange for the portfolio, which in turn used them to pay the obligations that Filanbanco S.A. had to the AGD, as a result of which the provisions of the second paragraph of item six of the Restructuring Program were violated, because it states that "the risk assets and losses referred to herein, after they have been determined, must be also transferred to the same commercial trust, as part of the assets of the latter, and the aforementioned commercial trust will simultaneously assume the liability for the nominal value of the assets and losses that are transferred to it, a debt which will be one of those owed by Filanbanco S.A. to the AGD;" therefore, the accounting process through which Filanbanco S.A. managed to pay the obligations of US $107.3 million it had to the AGD would be invalid, based on the fact that the amount of the unrecoverable risk assets and losses at December 2, 1998 has not yet been determined; as a result, once the value of the unrecoverable risk assets identified by the special audit is determined, it will be possible to know the real amount of the losses recorded at December 2, 1999, and only then, if appropriate, may Filanbanco S.A. and its subsidiaries make additional contributions to the benefit of the trust assets of the Fideicomiso AGD.



Therefore, the General Manager is asked to order the reversal of this improper contribution in which the assets received in satisfaction on the part of the former shareholders of Filanbanco S.A. were transferred to the AGD trust, and send a copy of the accounting entries generated by this reversal. Similarly, it must submit the respective amending document that corrects the amount contributed to establish the aforementioned trust.”

ARTICLE 4. ORDER that a copy of this resolution be sent to the Agencia de Garantía de Depósitos so that the latter, in its capacity as the sole beneficiary of the Fideicomiso Mercantil AGD, may undertake the corresponding legal actions against the persons responsible for participating in and overseeing the establishment of the aforementioned trust, on the grounds of their failure to adhere to the terms of the Restructuring Program to which Filanbanco S.A. was subject.

ARTICLE 5. ORDER the Superintendency of Banks and Insurance to submit, within a period of no more than 90 days, the results of an audit of the administrative procedures to identify any possible administrative, civil or criminal liability that may have been incurred by the authorities and officials of the Superintendency of Banks

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and Insurance, the Central Bank of Ecuador, the Agencia de Garantía de Depósitos, Filanbanco S.A. currently in liquidation, and the former shareholders for their failure to comply with the instructions provided in Resolution No. JB-98-085 of December 2, 1998, particularly with regard to any liabilities that might have originated after May 8, 2001, the date on which the auditing firm Deloitte & Touche delivered the report titled: "Report on the Application of Agreed-upon Procedures for the Identification of Adjustments Required by the Assets, Contingencies, Provisions and Estimated Interest and Corporate Benefits, and the determination of losses at December 2, 1998.” Based upon the results of the audit, the Superintendent will file the appropriate administrative, civil or criminal actions, and will inform the State Prosecutor of the results of the investigation.



NOTIFY. Given at the Superintendency of Banks and Insurance, Quito, Metropolitan District, on February twenty-six, two thousand eight.

Gloria Sabando García

PRESIDENT OF THE BANKING BOARD
I SO CERTIFY. Quito, Metropolitan District, February twenty-six, two thousand eight.

Dr. Patricio Lovato Romero

SECRETARY OF THE BANKING BOARD


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