Revoked Banking Licences: Counting The Gains, The Losses

The recent revocation of the operating licences of three rescued banks, namely; Afribank Nigeria Plc, Spring Bank Plc and BankPHB by the Central Bank of Nigeria(CBN) generated a lot of controversy within the nation’s financial system.

The action which provided safe landing for both workers and depositors of the banks had however put their shareholders in a state of confusion.
?The apex bank revoked the licences of the three banks through the ‘bridge bank mechanism’ and handed it over to the Nigeria Deposit Insurance Corporation (NDIC) to manage.

The NDIC, on the other hand, sold them to the Assets management Corporation of Nigeria (AMCON) through a subscription agreement with the three new banks.
?While he addressed the financial press on the issue, the managing director of the Nigerian Deposit Insurance Corporation (NDIC), Alhaji Umaru Ibrahim, said that the revocation of the licenses of the three bailed out banks was because of their inability to show the necessary capacity and ability to recapitalise before the September 30 deadline.

He said that in the interest of depositors and to prevent liquidation which will have dire consequences for depositors and undermine public confidence in the banking system, the NDIC, with the support of the CBN, the ministry of finance and the federal government had decided to resolve the problem of the three banks through the ‘bridge bank mechanism’.

He further pointed out that Mainstreet Bank Limited had been licensed to take over Afribank Nigeria Plc; Keystone Bank Limited assumed the assets and liabilities of Bank PHB; and Enterprise Bank Limited, took over Spring Bank Plc. The three bridge banks acquired the assets and liabilities through the purchase and assumption model earlier used by the apex bank under Chukwuma Soludo as CBN governor.

“With this development”, he said, “the crisis in the Nigerian banking system will be addressed, as it brings certainty and stability to the banking system.”
Ibrahim noted that unlike other parts of the world where depositors lose funds in the resolution of banking crisis, no depositor would lose funds to the reform process in Nigeria.

He also pointed out that Wema and Unity Banks have concluded their recapitalisation process while other rescued banks have entered into some partnership with core investors, and noted that Access Bank had merged for Intercontinental; Finbank, First City Monument Bank; Ecobank Nigeria for Oceanic Bank International; Union Bank had merged with African Capital Alliance while Equitorial Trust Bank, had reached advanced stage in its recapitalisation process.
While transferring the management of the bridge bank to AMCON, Ibrahim however pointed out that by the subscription agreement, AMCON had become the owner?of the three banks and will provide sufficient capital to restore the banks to the level of capital adequacy stipulated in their operations.

“With the successful sale of the bridge banks, the NDIC has fulfilled its primary objective of ensuring that the depositors in the banks do not lose their funds. The capital provided by AMCON through shares subscriptions will strengthen the banks’ liquidity to enable them carry on business and meet all their obligations. The liquidity position of the banks will further be enhanced by the willingness of the CBN to extend the guarantee of their interbank obligations until December 31.

“AMCON has identified independent and credible persons with significant and required experience to fill the board and senior management positions for the bank and will be seeking the approval of the CBN for their appointments. AMCON is confident that the new teams will manage the banks to establish strong market positions and effectively compete in the Nigerian banking sector,” Ibrahim explained

Managing director and chief executive officer, AMCON, Mr. Mustapha Chike-Obi, also said that the total sum of N679. 95 bn will be injected into the three banks to raise their capital adequacy ratio to 15 per cent, respectively and also put them in a position to be able to pay back the sum that was injected into the erstwhile rescued banks by the Central Bank of Nigeria (CBN) in 2009.

“AMCON will inject N285.4bn into Mainstreet Bank (formerly Afribank), N283.08 bn into Keystone Bank (formerly Bank PHB) and 111.47 bn into Enterprise Bank (formerly Spring Bank).”
The AMCON had appointed new board members to manage the bridge banks, Keystone Bank Limited, Mainstreet Bank Limited and Enterprise Bank Limited handed over to it by the NDIC.

But despite the provisions made by the CBN, ministry of finance, the NDIC and AMCON to safeguard the depositors funds and workers of the affected banks, shareholders were left behind as they lost all their investment in the banks.
However, with the help of the AMCON, two bridge banks (Keystone bank Limited and Mainstreet Bank Limited) on Tuesday said they had fully repaid N70bn and N50bn intervention funds injected by the CBN into the BankPHB and Afribank in 2009.
Meanwhile, while some stakeholders in the nation’s banking system described the CBN’s action as “illegal”, others considered it the last resort to prevent liquidation which would have had more negative impact on depositors.

Criticising the CBN’s action, the president, progressive Shareholders Association, Mr. Boniface Okezie, said that the CBN’s action was a crime against the entire economy.
“If the CBN governor recently told the entire world that the apex bank injected N620 bn into the troubled banks and is now turning around to liquidate them, he should be held accountable, because it goes to show that money was injected into these banks it just liquidated.

“The CBN brought the managers to manage these banks and they used the opportunity to loot the bank to the pitiable state we now see. Honestly, there is a hidden agenda. When did they conduct another risk test that led to the liquidation? It is the sign of more danger for the economy.
“If the government is serious now, I think this is the time to sack Sanusi and all his co-travelers. They said they (the banks) should recapitalise before September; why are they liquidating when we are still in August?”

A group of shareholders said they were still strategising on how to confront the CBN on the withdrawal of the banks’ licences. Earlier in the week it was not clear if a court action would be instituted against the CBN for nationalising the banks.
A source at the independent Shareholders Association of Nigeria (ISAN) said they would keep their strategy “close to their chest for now”.
The ISAN had, in a statement over the weekend, rejected the CBN’s action. It said that the revocation of the operating licenses of the banks will further deepen the crisis of confidence in the domestic financial sector, particularly the banking and the capital market.
It stated that the revocation of the operating licenses of the three commercial banks, was an illegal policy that clearly exposed Nigeria as “an unfriendly polity for sustainable business”.
“that CBN’s revocation approach to the nation’s self-induced banking distress would further impoverish the citizens and undermine Nigeria’s ability to create wealth through long- term savings window of the capital market.

The ISAN however said that the withdrawal of their operating licenses without any breach of known law(s) in the banking and other financial institutions act remained “a class war championed by few individuals in the corridors of power at the CBN”.
Managing director, Jemico Leather Limited, Mr. James Osoka, who described the CBN’s action as “unfriendly policy”, said that he lost all his investment in BankPHB within the twinkle of an eye.

He said that the failure of the CBN to carry shareholders along in decision-making as regards recapitalisation of the rescued banks was not proper.
Osoka said that with the current situation in the financial system it would be very difficult for one to encourage him to invest in any stock in the nation’s capital market.
Osoka, who purchased 3000 unit of shares of BankPHB worth about N53,000 said that the delay tactics adopted by the registrar during verification of certificates made it difficult for him not to dispose those shares before the crisis rocked the market.
Another investor who pleaded anonymity said that he lost about N3.3m as a result of the financial meltdown in the capital market.

He said with the revocation of the licence of BankPHB he lost all the 10,000 units of the bank’s stocks.
“the most painful thing was that I wanted to verify my certificate some years ago to enable me sell the shares, but the registrar told me that my signaturre was not captured and the only option was for me to get the confirmation of my signature from my bank. I had to spend another N3, 000 to enable me get my signature from my bank, hoping that one day I will sell the shares and recover my money. But today I have lost every thing; I did not make even a kobo out of it.”
The shareholder vowed that for the rest of his life, none of his children would invest their hard earned money in the capital market, no matter how juicy it turned out to be in the future.

In his own view, the managing director of APT securities and Funds Limited, Malam Garba Kurfi, said that the CBN’s action would affect the capital market, and added that the shareholders of the banks had completely lost all their investments.
He said that although the step taken by the CBN might not be the best option, since the time frame given to them to recapitalise had not expired “but there may be something not yet known to all of us.

“It is now clear that the shareholders are the losers in an arrangement that has no bargaining power for the acquisition of the other four banks.”
Also, one of the customers of the affected banks who spoke on conditions of anonymity called for the removal of Sanusi Lamido Sanusi as the CBN governor.
He said that Sanusi should either be cautioned or removed as the CBN governor if Nigeria as a country “wished to witness stability and security in the country in terms of her economy”.

He said that in his unwarranted banking policies, intemperate language and manner, Sanusi had singlehandedly betrayed confidence in the nation’s banking industry, driven away all investors and potential investors in the economy.
On the other hand, the four banks that were able to sign a binding transaction implementation agreement with their new partners sounded optimistic that they would meet the CBN’s deadline.

The CBN had, as a result, extended their interbank guarantee to December 31, 2011 for four banks: Intercontinental Bank, Finbank, Union Bank and Oceanic bank, that had executed transaction implementation agreements (TIAs) with core investors.
Intercontinental Bank signed a TIA with Access Bank, Union bank entered a similar agreement with Africa Capital Alliance (ACA), Finbank is with the First City Monument Bank while Oceanic Bank merged with Eco Bank.

Speaking on the future of the Union bank, the bank’s managing director, Mrs. Funke Osibodu said, “with the development its recapitalisation process is progressing. This would translate to the ACA Consortium investing $750m in the bank consisting of $500 m equity and $250 m Tier II capital”.
She said that the full capitalisation of the bank will be achieved through the Asset Management Corporation of Nigeria’s (AMCON) investment to bring net asset value to zero, Union Global Partners Limited’s investment and a rights issue, to be made to the bank’s existing shareholders.
“This proposed investment by the ACAC, AMCON and existing shareholders will restore the Union Bank to capital adequacy and position it to regain its pride of place in the Nigerian banking sector. The bank will be able to rebuild its customer service franchise and restore its infrastructure to compete again across diversified financial services. The bank will also significantly focus on human capital development through staff training and development,” she added

For both Access and Intercontinental banks, this milestone calls for celebration, not only for the stakeholders of both banks but for the wider Nigerian banking circle. It is the first of the recapitalisation deals to reach such an advanced stage among the so called ‘intervened banks’. It is leading the way to the new world of a consolidated and reformed Nigerian banking sector housed in a new landscape of increased regulation under the CBN’s watchful eye.
A joint statement from the Intercontinental and Access banks stated that the parties would commence the process of a scheme of arrangement which will be subject to approval of the shareholder, regulatory and judicial arms.

On the extension of the interbank guarantee, the group managing director/ chief executive of the Intercontinental Bank, Mahmoud Lai Alabi, said, “ This is great news to our customers, shareholders and other stakeholders. We believe that our customers are rest assured and guaranteed of the safety and security of their deposits with the bank. For our shareholders, they have hope, because there is still value for them in the unfolding business combination.”
Alabi noted that the bank was the first bank to enter into a Transaction Implementation Agreement (TIA) for business combinations with the Access Bank recently and revealed that all the regulatory bodies (including the Securities and Exchange Commission and the Nigerian Stock Exchange) had been notified of the execution of the TIA.

Speaking on the Oceanic – Ecobank merger, the group managing director/chief executive officer of the Oceanic Bank, John Aboh, said that the bank was on track in meeting the Central Bank of Nigeria (CBN)’s September 31, recapitalisation deadline.
He said that the execution of the TIA represented an important milestone in the process of recapitalising the bank, and added that the apex regulator, the CBN has conveyed its “no objection” stand for the bank to enter into the TIA with the ETI.

He further pointed out that with the signing of the agreement, the bank and ETI would now begin the process of seeking shareholders and regulatory approvals in accordance with the relevant laws of the Federal Republic of Nigeria, including the provision of the transaction details to shareholders at the appropriate time.
He said that the board of directors of Oceanic Bank remained confident that the transaction would be completed within the required time line to comply with the CBN’s deadline of September 30, 2011.
He urged shareholders of the bank to exercise caution when dealing in the bank’s shares until full transaction details are disclosed.
Speaking further on the transaction, he said that entering into the TIA with the ETI was a great day for the shareholders of both banks, and noted that the deal was based on share exchange as no cash was involved.
He said that with Oceanic Bank and ETI branch network of 367 and 240, respectively, the total branches of the bank in future would increase to 620, thereby positioning it to be one of the largest in the country.

He said that the board’s decision to go into share exchange was because it believed it to be better than cash.
Commenting on the deal, the management of the ETI said that the transaction was based on a compelling strategic rationale, and added that it created scale, brought enormous efficiency and provided a more robust platform to better serve the Nigerian market.

The management said that the transaction which is subject to requisite regulation, shareholders and other approvals is fully in line with Ecobank’s strategy to be a major player in all markets in which its operated, including Nigeria which represented the largest in its regional footprint.
The development represents a significant milestone in the recapitalisation process aimed at restoring confidence to the banking sector.

A joint statement issued by the two banks explained that the business combination will involve a scheme of arrangement, followed by a scheme of merger to be executed in accordance with the laws of the Federal Republic of Nigeria.
According to the statement, “The combined bank will be a unique financial institution with proven corporate banking capabilities, strengthened commercial banking business and a robust platform for retail growth.”

The statement also added that, “the merged entity will also benefit from unique complementary transactional banking platforms and offerings, as well as leverage capital, optimise synergies and drive shareholder value”.

The group managing director, FCMB, Mr. Ladi Balogun welcomed the signing, and added that the combination would “accelerate the attainment of the bank’s strategic and financial goals, whilst creating a more robust retail platform”.
Meanwhile, the deputy governor, Financial System Stability, Kingsley Moghalu had earlier said that the TIAs entered by the bailed out banks represented the core legally binding agreement governing the terms of the proposed transactions to recapitalise the banks.
He stated that the signing of the three legally binding TIA’s represents a significant step towards resolving close to 50 per cent of the capital deficiency across the universe of the affected banks, adding that Wema Bank and Unity Bank had completed their recapitalisation plans.
He said that the specific time given for recapitalisation was necessary, because without a deadline the apex bank would not achieve anything, as the rescued banks would continue to renegotiate with different investors.
He stated that there was need to resolve the crisis in the banking system, so that the eight banks would join the other 16 and continue with their banking business.
“It is critical that the recapitalisation of the banks is completed in as timely a manner as possible, as the rescued banks remain in fragile condition,” he added.

Overall, the CBN’s decision to revoke the operating licences of the three banks and transfer their assets and liabilities to the bridge banks is evidence that the apex bank has depositors in mind. The bold step taken by the CBN, to some extent, would ensure stability and raise public confidence in the financial system. However, what a lot of people find curious is the sudden revocation of the licences of the three banks ahead of the September 30 deadline. The move has raised lots of questions in the mind of those who feel that there might be other hidden agenda. The argument is that the apex bank should have allowed the deadline to expire or wait till September before taking the final decision. Though depositors’ funds are safe, some investors and their families are now in a financial quagmire. As things stand today, it would be difficult for people who lost their investment in those banks to think of investing in any stocks in capital market, action that would have a negative impact on the troubled capital market.
?