Press Release
September 16, 2008

Loren urges regulators to check local exposure to Lehman, AIG
After RP bank reports P3.8 billion hit

Sen. Loren Legarda has urged the Bangko Sentral ng Pilipinas, Insurance Commission and the Securities and Exchange Commission to promptly ascertain and address any aftereffect that the collapse of US investment bank Lehman Brothers Holdings Inc. might have on local financial institutions, including insurers and pre-need providers.

Legarda, chairperson of the Senate Economic Affairs Committee, made the statement immediately after the country's second-largest bank by market capitalization, Banco de Oro Unibank Inc. (BDO), reported that it has allotted P3.8 billion to cover its exposure to Lehman.

In a disclosure statement to the Philippine Stock Exchange (PSE) Tuesday, BDO said: "Due to uncertainty relating to the financial condition of Lehman Brothers, (the bank) is setting aside provisions totaling P3.8 billion to cover its exposure to said entity. The provisions will come from reallocation of excess reserves and from additional provisions in the current period."

"With these adjustments, BDO's balance sheet should be adequately covered from potential losses arising from its Lehman exposure. Despite these provisions, BDO still expects to post a reasonable net income for the year," BDO added, without specifying the nature of its exposure to Lehman.

Meanwhile, in a similar disclosure to the PSE Tuesday, Toronto, Canada-based Sun Life Financial Inc., which has extensive activities in the Philippines, said it holds $334 million in Lehman bond securities and $15 million in Lehman derivative instruments. In this regard, the insurer said it expects to incur charges against third quarter earnings.

"We are not that concerned about entities listed in the PSE, since they are compelled to quickly report any material events affecting them, as what BDO and Sun Life just did. Our concern is more with respect to entities that are covered by less rigorous disclosure rules," Legarda said.

"If any banks, insurers, pre-need providers or other institutions take a direct or indirect hit from Lehman's failure, then they should be required to address those losses right away, such as by raising additional capital, or putting more cash in their trust funds, if necessary, to safeguard depositors and investors," Legarda said.

Legarda said the Government Service Insurance System and the Social Security System should also instantly disclose and resolve any direct or indirect exposure they might have in Lehman, or in American International Group Inc. (AIG), which is also in financial distress for the same reasons as Lehman.

In September last year, GSIS said it would stash up to $1 billion overseas under its global investment program.

Founded in 1850, Lehman filed for bankruptcy Monday due to huge losses brought about by massive investments tied to housing mortgages. The investments have turned sour due to rising foreclosures and plunging property prices in the US.

AIG, a provider of financial services in 130 countries, is also undergoing financial restructuring.

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