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RHEBAAA/DEPT OF ENERGY WASHINGTON DC
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C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 001595

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E.O. 12958: DECL: 2019/12/23 
TAGS: ECON EFIN VE
SUBJECT: Venezuela: Banco Bicentenario Opens, But is the Banking 
Episode Over? 
 
REF: 09 CARACAS 1553; 09 CARACAS 1537; 09 CARACAS 1509 
09 CARACAS 1491 
 
CLASSIFIED BY: DUDDY, AMBASSADOR, DOS, AMB; REASON: 1.4(B), (D) 
 
¶1.  (C) Summary:  President Chavez officially inaugurated Banco 
Bicentenario on December 21, thus effectively re-opening three of 
the eight banks the Venezuelan government (GBRV) has taken over or 
shut down since November 20.  The National Assembly also passed 
changes to the banking law to triple the amount of deposit 
insurance, with the new limit applied retroactively to depositors 
in the two banks in the process of liquidation.  If the episode of 
interventions is indeed over, the GBRV will have increased its 
share in the banking sector, gained an important foothold in the 
insurance industry, and taken over a number of other companies, 
particularly in the food processing and distribution sector.  While 
the exact origin of the episode remains unclear, it appears to have 
resulted from a combination of a power struggle among GBRV 
officials and insiders and the precarious financial situation of 
the banks themselves.  A major question mark remains Banco Federal, 
a medium-sized bank owned by opposition businessman Nelson 
Mezerhane.  Chavez and Mezerhane recently traded barbs, with 
Mezerhane claiming forces associated with the GBRV were conspiring 
to bring down his bank and Chavez characterizing Federal as "having 
had grave problems."  End summary. 
 
 
 
New Steps in an Ongoing Saga 
 
 
 
¶2.  (U) President Chavez launched a new state-run bank, Banco 
Bicentenario, on December 21.  Bicentenario is essentially the 
union of Banfoandes, a pre-existing public bank, with Central, 
Bolivar, and Confederado, three of the eight banks the GBRV has 
taken over or shut down since November 20 (refs A-D).  Depositors 
in these four banks, who have not had access to their money since 
November 30 (for Bolivar and Confederado) or December 4 (for 
Central), can now transact business normally.  Taking figures 
provided by the Superintendency of Banks (Sudeban) for commercial 
and universal banks, the banks composing Bicentenario represented 
5.3 percent of the banking sector by assets and 9.5 percent by 
deposits as of November 30 (the latest statistics available).  The 
extent to which depositors have withdrawn or will withdraw their 
money remains to be seen, although there were no reports of long 
lines at Bicentenario branches on December 21. 
 
 
 
¶3.  (U) On December 15 the National Assembly approved modifications 
to the banking law that, among other things, will increase the 
deposit guarantee offered by the Fund for Guarantee of Deposits and 
Banking Protection (Fogade) from 10,000 bolivars (Bs; USD 4,650 at 
the official exchange rate) to Bs 30,000, an amount requested by 
President Chavez.  This increase will apply retroactively for a 
limited period of time to depositors in Canarias and and Banpro, 
the two banks in the process of liquidation.  Banks' contributions 
to Fogade will also be raised from 0.5 to 1.5 percent of deposits 
as maintained at the close of each semester.  (Note:  For these 
changes to become law, President Chavez must sign the modified law 
and it must be published in the Official Gazette.  To the best of 
our knowledge, it has not yet been published.  President Chavez 
recently said he might seek further changes to the law.  End note.) 
 
 
 
Is the Episode of Interventions Over? 
 
 
 
¶4.  (C) Whether this episode of interventions is over remains a 
question mark.  There are several other small banks and financial 
institutions which fit the pattern of the eight banks intervened in 
 
CARACAS 00001595  002 OF 003 
 
 
the sense of being weak financially and having been taken over 
recently by individuals allegedly close to the government.  Two 
pending purchases, that of Inverunion by Gonzalo Tiraldo and Banco 
Federal by Jose Zambrano, have reportedly been rejected by Sudeban. 
Most but not all financial sector analysts and participants Econoff 
has contacted continue to believe the episode poses no systemic 
risk to the sector given the small sizes and weak reputations of 
the banks involved, in comparison with the strong fundamentals of 
most of the larger banks.  One dissenting voice is that of xxxxxxxxxxxx 
reputation) and an outspoken critic of GBRV policies.  xxxxxxxxxxxx
called Econoff December 17 to report that, according to information 
he had received, several medium-sized or large banks (or their 
owners) were putting dollar-denominated assets into collateral 
accounts in Florida in return for emergency loans in bolivars. 
 
 
 
¶5.  (C) Banco Federal remains a major question mark.  As reported 
previously (ref A), Federal, a medium-sized bank accounting for 3 
percent of the sector by assets, is considered weak by several 
experts, has been subject to several runs, and reportedly even 
received an emergency loan from the GBRV.  Adding to the intrigue, 
Federal's owner, opposition businessman and minority owner of 
opposition TV station Globovision Nelson Mezerhane, recently traded 
barbs with President Chavez.  In an interview published in local 
daily El Mundo December 17, Mezerhane claimed "active laboratories" 
that included "people with ties" to the GBRV had disseminated 
rumors about Federal's health in an attempt to instigate runs. 
Chavez lashed back in a December 19 broadcast, characterizing 
Federal as a bank "that has had grave problems," ordering an 
investigation into what Mezerhane said, and cautioning that "the 
time in which public institutions help private banks like Federal 
is over."  In an interview published December 20 in local weekly La 
Razon, opposition economist Jose Guerra claimed former Vice 
President and GBRV insider Jose Vicente Rangel was seeking to bring 
down Federal, partly out of bitterness at the fall of his business 
associate Pedro Torres (who led the group that owned three of the 
intervened banks). 
 
 
 
What Initiated the Episode in the First Place? 
 
 
 
¶6.  (C) With over a month having passed since the initial 
interventions, a number of theories have sprung up to explain why 
the GBRV chose to act in the way it did and at the time it did. 
Many observers believe President Chavez ordered the initial 
interventions as the culmination of a power struggle taking place 
among GBRV officials and presumed insiders.  Theories on the 
protagonists in this presumed power struggle abound, however.  We 
have heard variations such as Diosdado Cabello vs. Ricardo 
Fernandez and Jesse Chacon; Ali Rodriguez and representatives of 
the traditional left vs. Ricardo Fernandez and members of the 
military clique; and President Chavez vs. selected inner circle 
members and insiders with their own political projects.  An 
intriguing tangent is that an alleged report by Cuba's intelligence 
service plays a role in several of these explanations.  Other 
observers believe the GBRV's hand was forced by the terrible 
financial situation at the intervened banks, with President Chavez 
preferring to take action before the problems worsened and well 
before parliamentary elections scheduled for September 2010. 
Whatever the origins of the episode, our contacts credit President 
Chavez with seeing the interventions as an opportunity to trumpet 
anti-corruption credentials by sending the message, as one of our 
contacts put it, of "I put bankers in jail." 
 
 
 
Changes in the Financial Sector and Business Landscape 
 
CARACAS 00001595  003 OF 003 
 
 
¶7.  (C) The intervention episode has to date led to several changes 
in the financial and business landscape that are worth noting. 
First, the GBRV has increased its share in the banking sector by at 
least five percentage points.  With the opening of Banco 
Bicentenario, public banks will comprise roughly 20 percent of the 
sector by assets and 25 percent by deposits.  Second, the GBRV has 
acquired an important foothold in the insurance sector with the 
associated takeover of Seguros La Previsora and intended formation 
of state-owned Bolivariana de Seguros (ref B).  (Note:  As of June 
2009, La Previsora was the fourth largest insurance company in 
Venezuela with market share of 8.3 percent.  End note.)  Many 
contacts, including xxxxxxxxxxxxxxxxxxxxxxxxbelieve the GBRV will 
consolidate the insurance accounts 

position to exert greater control over private medical services 
providers.  Finally, GBRV takeover of Ricardo Fernandez's companies 
in the food and food distribution sectors will further the shift 
toward GBRV control in those sectors.  (Note:  It is still unclear 
from GBRV statements if the takeover of Fernandez's companies will 
be temporary or permanent.  We would not be surprised if it were 
the latter.  End note.) 
 
 
 
Comment 
 
 
 
¶8.  (C) As we suspected when it began on November 20, much about 
this episode remains obscure.  We are not surprised that there are 
conflicting explanations for how the episode started, though it 
seems clear internal power struggles played a key role.  What is 
still a mystery to us is why the GBRV has not yet used this episode 
as an excuse to take over Banco Federal, thus taking an important 
asset from Nelson Mezerhane.  While we would have expected the GBRV 
to have taken it over several weeks ago if it indeed it was going 
to, the exchange of barbs between Mezerhane and Chavez certainly 
keeps the possibility alive.  Perhaps the GBRV has not moved to 
take Federal because it fears systemic implications:  in a clear 
reference to Federal, respected economic consultancy Sintesis 
Financiera wrote in a recent report that "concerns will rise and 
markets will destabilize if interventions reach larger banks owned 
by individuals perceived to be at odds with the government."  There 
could certainly be other explanations, however.  End comment. 
DUDDY