Notes on a financial panic that never was

By Sergio Guzman December 12, 2018

Last week there was quite a bit of noise regarding an ongoing campaign to boycott Grupo AVAL, the country’s largest financial conglomerate, over allegations of their involvement in corruption. Thousands of twitter users registered their anger on  #NoalgrupoAVAL, incentivizing other customers to switch banks and take out their savings from the bank. The Financial Superintendent accused some of instigating financial panic and started legal proceedings against particular users. Now that the dust has settled, El Mohán* examines what happened.  

The after-effects of the #DebatedelSiglo (“debate of the century”) have taken the form of a campaign against the personal finances of Colombia´s wealthiest man, Luis Carlos Sarmiento Angulo. There is currently an ongoing twitter campaign called #NoalgrupoAVAL that suggests clients of the Grupo Aval, which is owned by Sarmiento, to move their money out the group’s banks. This campaign is in response to the allegations that executives of Corficolombiana and Conalvias, also owned by Sarmiento, were aware of the bribes being paid to government officials who were part of the Odebrecht scandal.

The campaign, which is far from the Colombian version of Occupy Wall Street, is indeed an effort by citizens to legally express their outrage against corruption. Although there are well documented efforts of the links between AVAL and its executives to the alleged bribes that were paid in the course of Odebrecht’s involvement in the country, there is no smoking gun yet. However, this does not mean that citizens are organizing themselves to cause financial panic, as the Superintendent of Finance has suggested.   

The questionable deaths of Jorge Enrique Pizano and his son – who are still both under investigation – sparked a successful protest movement against AVAL, which will likely lead to a continued decline in the bank’s reputation.  This does not suggest a more general financial crisis or augur contagion effects for other companies in the financial sector.

Breathe in. There is no financial panic.

The campaign

As I mentioned in my column about the Odebrecht scandal, there is a sentiment among Colombians that justice will not be done in the case of the Pizanos and investigations into the alleged third-party financial beneficiaries of the bribes will lead nowhere.

The gruesome details of the case, as well as the frustration with Congressional inaction against corruption – exemplified by their inability for self-reform – has pushed people to take matters into their own hands and begin to vote with their feet. To this effect twitter influencers, in particular @MafeCarrascal began promoting the idea that to be coherent with anti-corruption sentiments, citizens should not engage in commercial relationships with those they deem are companies who do not reflect these values, namely AVAL.

What started as an outraged tweet soon caught on. Shortly after, other twitter users began posting online photos of themselves cutting their credit cards, checks, bank statements, and even their letters to the AVAL Group banks. A few days later, Jorge Castaño, the Superintendent of Banks was calling out twitter users for allegedly instigating financial panic – a crime under Colombian law. This was interpreted by some as a threat, by others as a defense of the financial sector by the superintendent.

The alleged crime, however, never took place. In order for the crime of financial panic to be committed, an individual must disclose false or inaccurate information to the public. In the case of Carrascal, she did not disclose false or inaccurate information – there are credible allegations that executives of Grupo AVAL knew of illegal payments being done to politicians and government officials. She was also not spreading false rumors that any financial institution was insolvent–which would really be financial panic.

The superintendent’s statement, along with an actual legal filing against Carrascal and other undisclosed twitter users, was enough to quell most of the online outrage. But Carrascal again pressed on with her campaign against the group and released a video suggesting bank clients to abandon their institution on ethical grounds.

Is AVAL stock tanking?

Many people watching the videos and following the twitter controversy have suggested that all this gobbledygook is surely responsible for the tanking of AVAL stock. Some have pointed out to a Bloomberg story on Luis Carlos Sarmiento alleging that he has lost close to USD 1bn in net value after the death of the Pizanos. The truth though is a little more complicated.

Aval stock has been falling in value since February of this year. Arguably, the decline in stock price occurring in the past few months corresponds to the likelihood of the bank facing greater regulatory scrutiny and its legal costs rising as a result of government investigations into its current concessions.

However, it is more likely that the group´s stock has declined due to the collapse of two bridges in 2018, both of them in the road that connects Bogotá to Villavicencio. The first one in January and the second one in November.

The tweets

A study done by COPRA, a data analysis firm, suggests that the majority of the twitter interactions about AVAL were sent on December 3, and thereafter have subsided. The firm did an analysis of the main tweets and topics and twitter handles responsible for them. 51,659 records of information were processed, of 22,730 Twitter accounts, prioritizing those data of greater relevance and referring to the Aval Group and economic panic.

COPRA’s report found that indeed all the coverage of Grupo Aval had been negative or adverse to the financial institution during the period of investigation and, among the most influential twitter handles spreading information on the topic, was one @MafeCarrascal. However, she was far from alone in discussing the topic.

Sure, the tweets have hurt the reputation of Grupo Aval. At the same time, they propelled the image of Mafe Carrascal as an advocate of citizen’s justice. But it’s a longshot argument that the tweets themselves have been responsible for financial panic or for the decline in AVAL’s market value. Arguably, their alleged involvement in the corruption and bribes to public officials side by side to Odebrecht and the deaths of many others have also been made a dent to the reputation of Grupo Aval and the investigations to come signal greater woes for the bank (and the stock price) than a few angry twitter users. Instead of accusing citizens of propagating financial panic, authorities should focus on the matter at hand.

This opinion column is intended as a space to discuss some of the most pressing issues faced by Colombia and the region in these uncertain times. All opinions and content are solely the opinion of the author and do not represent the viewpoints of The Bogotá Post.

Sergio Guzmán is the Director of Colombia Risk Analysis, a political risk consulting firm based in Bogotá. Follow him on twitter @serguzes and @ColombiaRisk

*El Mohán is a Colombian mythological figure. He is described as a hairy humanoid figure associated with natural forces such as great rivers and the mysteries lying within the forests. It is said, El Mohán was a shaman who had an anticipated vision of the arrival of the Spanish conquerors and the terrors they brought along.