Ahead of possible new US sanctions against it as an institution

President Daniel Ortega with the head of his Army, Gen. Julio Cesar Aviles

Panamanian investor buys 25% interest from IPSM, the Army’s retirement fund. They detect “risk” that US sanctions to General Aviles might extend to the Army

By Confidencial

HAVANA TIMES – Sources linked to Nicaragua’s Mercantile Registry confirmed to Confidencial that on September 2 the ASSA Group purchased 25% of the shares of “Banco de Finanzas” (BDF) from the Military Social Welfare Institute (IPSM).

“The transaction is already recorded in the Registry,” assured the source. The confirmation came a few hours before President Ortega and General Julio Cesar Aviles, appeared at the official celebration of Army’s 41 anniversary in the “Plaza de la Revolucion.” There was no mention at the gathering about the Army’s business transaction.

The sale was quickly approved

Stanley Motta, president of the ASSA Group.

The sale was previously authorized by Nicaragua’s Superintendent of Banks. The ASSA Group, headed by Panamanian businessman Stanley Motta, consolidated its position as majority owner of the BDF, controlling 80% of the bank’s shares.

With the exit of the Army, the remaining 20% continues in the hands of various groups of individual shareholders. These include the directors of the bank, Juan Bautista Sacasa and Mario Cardenal.

Banco de Finanzas has an estimated equity of 75 million dollars. The purchase price of the Army’s shares (25% of the total), or approximately 19 million dollars. The funds will add to the coffers of the Army Business Group.

IPSM has investments on the New York Stock Exchange, and in real estate, tourism, commerce, construction, and other sectors. These are direct investments or in alliance with other national and regional investors.

However, since the political crisis which broke out in 2018, and after the alignment of the Nicaraguan Army with the dictatorial Ortega regime, and the allegations of complicity by its refusal to disarm the paramilitaries, the IPSM became a “troublesome partner” for some foreign investors, fearful of the effects of US international sanctions.

The risk factor for the Army fund’s holdings changed after the political crisis which broke out in April 2018. The Army aligned itself with the Ortega dictatorship and refused to disarm his paramilitary groups. Thus, the IPSM became a “troublesome partner” for some foreign investors.  Those fearful of US international sanctions.

The sanction on Army Chief General Aviles

On May 22, the US Treasury Department sanctioned Army Chief, General Julio Cesar Aviles. It reasoned that “Aviles is politically aligned with President Ortega, and refused to order the dismantling of the paramilitary forces during or after the political uprisings that began on April 18, 2018.”

“The military provided weapons to the paramilitary that carried out acts of violence against the Nicaraguan people. These resulted in more than 300 deaths. And significant acts of violence and abuse of human rights against people associated with the protests,” added the US government.

Subsequently, the Executive maneuvered to free the Army Chief from any legal responsibilities. This to protect the military’s investment arm from “financial spillover,” derived from the US sanction against its top officer. Aviles also held the position of president of the IPSM.

On June 2, legal changes were made in the IPSM to facilitate the replacement of any of the Institute’s military officers.

ASSA Group seeks protection

“Businessman Stanley Motta’s buying the IPSM’s shares in the BDF is a way to remove the Army from that business. Thus protecting the bank itself and ASSA’s investments in Nicaragua,” said a business analyst in Panama.

The source said the sanction by the US Treasury against Aviles caused a “high reputational cost” with Army investment partners. Such sanctions put up red flags in the financial business.

“ASSA detected the risk that individual sanctions might expand to include the institution.”  As a regional group with investments and interests in the US, “they decided to protect themselves,” said the Panamanian source.

An analyst who worked for BDF said that before 2018, Motta tried to sell his BDF shares to various financial groups. However, the political crisis caused by the government spoiled the operation.

“Probably ASSA Group investors will eventually want to sell it. But no one was going to buy that bank while it belonged to the Army, with the risk of sanctions. To facilitate sale in the future it was necessary to remove the Army,” commented the source.

The Bank’s figures

On December 31, 2018, BDF showed assets of US $681.9 million, which reduced to 582.7 million by March, 2020. The Fitch Report rated it stable last June. This basically due to its shareholding relationship with the ASSA Group.

ASSA Group’s investments in Nicaragua, also include the ASSA insurance company. Together these represented 27% of the group’s profits, only behind Panama, which generated 50%.

BDF is the fourth largest bank in the country, both due to its size and its reported profits. As of June 2019, it allocated 194.3 million dollars (42% of the total) of its loan portfolio, to finance mortgages, occupying first place in this field, within the national banking system.

Read more about the situation in Nicaragua here.

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