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Marriage of Strange Bedfellows

By newswatchngr.com 14/10/2011 05:19:00

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Five of Nigeria’s troubled banks meet recapitalisation requirements through their acquisition but there are fears that the new arrangement is only but a marriage of strange bedfellows

The resolution of the capital inadequacy and liquidity crisis that led to the intervention of the Central Bank of Nigeria, CBN, in eight rescued banks in 2009, seems to be in sight. Last month, five of the rescued banks, namely Fin Bank PLC, Union Bank of Nigeria PLC, UBN, Oceanic Bank International Plc, Intercontinental Bank PLC and Equatorial Trust Bank Limited, ETB, hurriedly held separate extraordinary general meetings, EGMs, to approve the recapitalisation plans presented by their respective boards to beat the September 30, deadline set by the CBN. The banks individually agreed to be acquired by some healthy Nigerian banks.

Under this arrangement, Oceanic Bank, Intercontinental Bank and Fin Bank would be acquired by Eco Bank PLC, Access Bank PLC and First City Monument Bank PLC, respectively. Likewise, ETB and UBN would be acquired by Sterling Bank PLC and Alliance Capital, respectively. Currently, the banks are working on the process that could take months to complete before the acquisitions would be consummated.

Abdulahi Mohammed, head, corporate affairs department of the CBN, told Newswatch that the apex bank was satisfied with the progress so far made in the recapitalisation of the rescued banks, particularly with the approval of merger and acquisition given by the majority of the shareholders. “What remains now is the court endorsement of the shareholders decision and (CBN’s) regulatory approvals. By this, all the rescued banks have met the September 30 deadline and the banking crisis is set to be behind us,” Mohammed said.

CBN’s optimism is anchored on the favourable resolutions at the several EGMs held in September, which it believed were enough to convince the apex bank that the coast was clear for a successful recapitalisation of the affected banks. The resolutions were also a complete change of attitude by some of the shareholders of these banks who, previously, had used court injunctions to frustrate the CBN appointed boards from recapitalising the banks.

That change of attitude has now prevented Sanusi Lamido Sanusi, governor of the CBN, from carrying out his threat to withdraw the banking licence of any of the rescued bank that failed to recapitalise its operations. It was a similar threat he earlier carried out on August 5, when the CBN withdrew the licences of Bank PHB, Spring Bank and Afribank. These banks eventually metamorphosed into Keystone Bank, Enterprise Bank and Mainstreet Bank after they were taken over and nationalised by Asset Management Company of Nigeria, AMCON. The CBN’s hammer fell on BankPHB, Spring Bank and Afribank because their former owners frustrated legitimate suitors from recapitalising them and at the same time used some people who were fronting for them to re-acquire the banks.

The recapitalisation of the remaining five rescued banks would be facilitated by AMCON, which said that it would inject as much as N800 billion into the five banks to write off their negative capital by absorbing the institutions bad debt. The negative assets of these banks as at December 31, 2010, were valued at N922.57 billion. A breakdown of these non-performing assets shows that Intercontinental Bank and UBN have N330,709 billion and N135,894 billion respectively. Fin Bank’s share of the negative assets is N104,751 billion while Oceanic Bank and ETB negative capital were put at N94.261 billion and N27.253 billion, respectively.

Mustapha Achike-Obi, managing director of AMCON, said: “If the EGMs are successful, we will inject an estimate of N800 billion into the five banks to recapitalise them to level zero before the core investors put in their cash that is expected to take them to adequacy level. Our total estimate is N1.5 trillion if the EGMs are successful, while we plan two trillion Naira if the EGMs are not successful.”

Nevertheless, there is the likelihood that the EGMs would proffer solutions to the recapitalisation of the banks. The recapitalisation has also been following due process in all the affected banks. For instance, the FCMB entered into a memorandum of understanding with Finbank on May 2. The MoU sets out the basic principles and guidelines under which both parties agreed to work together to accomplish the recapitalisation of Finbank. This was followed by the execution of Transaction Implementation Agreement, TIA, on July 14, that detailed the specific terms for Finbank’s recapitalisation and its subsequent acquisition by FCMB. Also, the scheme of arrangement for the reorganisation of share capital and recapitalisation of Finbank has also been approved by the boards of the two banks. Newswatch gathered that the share ratio would be one FCMB’s share for 48 Finbank’s share.

The scheme of arrangement and acquisition would be followed by a scheme of merger within the 12 months that would result in the combination of Finbank and FCMB into a single legal entity. A joint letter signed by Jonathan Long and Theo Chike Osanakpo, board chairmen of FCMB and Finbank, respectively, outlined the benefits of the acquisition to include strengthening commercial banking business through combining the commercial customers of both banks, enhanced market reach through expanded branch network of more than 300 branches and deepened banking capabilities.

Aigboje Aig-Imoukhuede, managing director of Access Bank, has also described the acquisition of Intercontinental Bank as a development that would improve the potentials of the bank. “The synergy would bring a lot of accretion in value. Simply put, we would become one of the most formidable banks in sub-Saharan Africa. It means that in about 18 months time, our performance may not be absolutely different from that of the Zenith Bank or First Bank,” Aig-Imoukhuede said.

Similarly, John Aboh, managing director of Oceanic Bank, said he had secured the best deal for Oceanic Bank shareholders. “I am not boasting. But I must say that this is one of the best transaction deals we have in the market. This is the only transaction where existing shareholders are having up to 44 percent,” Aboh said.

A source in the banking industry told Newswatch that the positive outcome from the recent EGMs is good news to the banking industry. It would lead to the resolution of the crisis plaguing the Nigeria banking industry. It will also save the system from a systemic failure that would have resulted from the collapse of Intercontinental and Oceanic banks.

Nevertheless, some shareholders are still aggrieved and on the warpath. Boniface Okezie, chairman, Progressive Shareholders Association, PSA, told Newswatch that the touted recapitalisation of the rescued banks is fraudulent. According to him, the so called shareholders who attended the EGMs were not true representatives of the shareholders associations. Rather, they were procured by CBN through the application of divide and rule system. “The CBN has just broken the solidarity of the shareholders by using rented crowds to hold the EGMs. But one thing you should know is that the court cases are still on and we will get justice at the end to enable us recapitalise our banks properly,” Okezie said.

There is also the likelihood that the determination of cases filed by Erastus Akingbola, deposed managing director of Intercontinental Bank, and shareholders of the bank, could affect the current process of recapitalising the bank. Akingbola had earlier obtained a court injunction against the proposed recapitalisation of Intercontinental, which was later vacated when the case was dismissed. His case will come up at the Court of Appeal, Lagos, on October 11, seeking the appeal court order to hear his case. Shareholders case against the recapitalisation of Intercontinental Bank, which was scheduled for hearing at the Federal High Court, Lagos, on October 3, could not be heard because of the public holiday to mark the country’s 51st Independence anniversary.

Moreover, Okey Nwosu, former managing director of Finbank, has also filed a case against the sale of Finbank at the Court of Appeal, Lagos. The case will come up on October 13. In addition, the UBN’s shareholders case against the acquisition of the bank will come up before the same court on October 12. Some lawyers who are conversant with the matters in the court, told Newswatch that the cases have the potential of reversing the recapitalisation of these banks.

As at now, the recapitalisation process is solely propelled by the huge sum of money AMCON is doling for the purchase of the non-performing loans in the banking system. It has invested N700 billion in the nationalised banks. “We have spent about N1.7 trillion. These include all non-performing loans bought in all the banks and the investment in the three nationalised banks. Our function as an institution is to stabilise the financial system. Although AMCOM has stepped in, we expect to get our money back through the sale of these shares and hand them over to investors,” Chike-Obi said.

But the recovery of the investments may not be as easy as the AMCON managing director has said. Denis Odife, chairman, International Centre for Economic, Social and Public Policy Analysis and Research, had warned in a lecture he delivered in May 2010, that the AMCON intervention would be another name for bail out of banks toxic assts, which would “presumably be hidden away henceforth and until sold, in the bottomless coffers of the government in the books of AMCON. I am concerned and more Nigerians ought to be concerned at this development,” Odife said.

There is also concern that the issue of non-observance of corporate governance, which was a major yard stick the apex bank used in axing some bank chieftains in 2009 is being overlooked by the CBN in judging the activities of managing directors it appointed to oversee the rescued banks. The impression is that the rescue teams were sent to the troubled banks to enrich themselves. A case in point is the hefty increase on the salary of Funke Osibodu, managing director of UBN, and her executive directors. Osibodu allegedly increased her annual earning from N33 million to N69.99 million, while the executive directors pay package was raised from N26 million to N53.8 million. In the same manner, N159 million was also lavished on two years accommodation for the managing director and four others executive directors, while N39.74 million was used to acquire SUVs for the managing directors’ official use.

Osibodu claimed that the alleged expenditures were based on Sanusi’s statement that the boards of the rescued banks should fix the salaries of their executive management. Though the apex bank has investigated and confirmed these allegations, it is most likely that it would do nothing to sanction its appointees at the board of UBN. The same way it maintained deaf ears to the allegations of financial impropriety against its appointees at the defunct BankPHB, Afribank and Spring Bank.

A Good Year But…

Pita Ochai

Academy Press, PLC, a renowned printing industry, made a success of its financial year which ended on March 31, 2011. The company recorded a growth in turnover of 15 percent in the previous year to N2.32 billion this year.

It recorded a decrease of 10 percent in the profit before tax from N183 million of last year to N165 million this year. Its profit after tax in the 2011 financial year is N88.454 million against N135.030 million of 2010.

According to Idris Animashaun, chairman, Academy Press PLC, government policies adversely affected the operation of the company in the past one year. To him, the federal government tariff policy on product importations was a major hindrance to the operations of the industry. This, he said, favoured its foreign competitors to the detriment of Nigerians in the same business. Changes in technology have also been a hindrance to the business operation of the company. Animashuan said that technological changes such as the increase in the use of electronic documents are reflecting adversely on the operation of printing all over the world. According to the annual report, high inflation rate, inadequate supply of energy, insecurity also had a negative effect on the operations of the company in the past one year.

Government policies were not totally bad for the operation of the company. According to Animashaun, the company benefited tremendously from the N500 billion intervention funds for manufacturing, power and aviation industries, and the setting up of the Assets Management Corporation of Nigeria, AMCON. With the federal government intervention funds, the company was able to refinance its debt favourably and access new facilities for capacity investment.

Academy Press, PLC, also made its shareholders happy after the end of its 47th Annual General Meeting, held on Thursday, September 29. Seven and half kobo per unit of fifty kobo share was approved by the board of the company. This translated into a total of N30.24 million which is an increase of 43 percent (N9 million) over the N21.168 million of last year.

In its future plans, Academy Press, said within the next financial year, it will install two new equipment plans worth N500 million to enable it continue to deliver quality products to its customers.