The recapitalisation exercise of the rescued banks initiated by the Central Bank of Nigeria (CBN) might have raised a lot of concerns among stakeholders and shareholders but the whole process is expected to be brought to its logical conclusion come September 30, 2011.
This stems from the recent heightened activities surrounding the five banks that recently signed Transaction Implementation Agreements (TIAs) with new core investors and the resolve of the respective shareholders to support the merger process.
The CBN gave the eight rescued banks namely: Intercontinental Bank, Equatorial Trust Bank Limited, Spring Bank, Union Bank, Bank PHB Plc, Afribank Nigeria, Finbank Plc and Oceanic Bank until September 30 to recapitalise or face liquidation as it could not afford to keep the inter-bank guarantee in place indefinitely.
Financial analysts are already beginning to conclude that the two years reform in the banking industry is not in any way a waste of time. Comparing the nation’s banking crisis with similar situations in other jurisdictions, especially with the US, United Kingdom, Spain and Europe where hundreds of banks were liquidated, Nigeria has not done badly. In the United States alone for instance over 1000 banks have failed since the outset of the financial crisis.
The banking crisis which had seen no single bank failing in Nigeria has hit the financial landscape of some other countries below the belt. One cannot easily forget the crashing of financial empires in the US which were initially tagged ‘too big to fail’. Lehman Brothers remains the largest bankruptcy filing in US history with over $600 billion in assets.
However, the various approvals given by Securities and Exchange Commission (SEC) and courts to four out of the five rescued banks have set a new stage for the final resolution of the banking industry crisis in the country.
The signing of these legally binding TIAs for the five (5) banks and full capitalization of the 3 new banks by AMCON has resolved the issue of the combined negative asset value of the eight banks intervened by CBN.
Meanwhile, five of the rescued banks had earlier commenced their recapitalisation process in order to remain afloat and come out stronger to face the challenges of the post-recapitalisation era.
For instance, Finbank Plc, Union Bank of Nigeria Plc, Intercontinental Bank Plc, Oceanic International Bank Plc and Equatorial Trust Bank Limited recently moved a step further in their planned business combinations with the signing of Transaction Implementation Agreements ( TIAs) that would lead to an eventual merger of the financial institutions with their partners, First City Monument Bank (FCMB) Plc, African Alliance Capital (ACA), Access Bank Plc, Eco Transnational Incorporated Plc and Sterling Bank Plc respectively.
The TIAs by the banks followed earlier Memorandum of Understanding (MoUs) signed by both parties and the business combination would 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.
However, following the signing of TIAs with core investors, the CBN had extended the inter-bank guarantee for these five banks until December 31, 2011.
But with the various approvals given by Securities and Exchange Commission (SEC) and courts to five rescued banks appears that the final resolution of the banking industry crisis, which started about two years ago will soon be over.
The Federal High Court sitting in Lagos has granted orders to Intercontinental Bank Plc, Oceanic Bank International Plc, Finbank Plc and Union Bank of Nigeria Plc to convene their
court-ordered meetings in respect of their proposed recapitalisation transactions respectively from September 26 to September 29, 2011 and September 30, 2011.
Oceanic Bank had entered into a Transaction Implementation Agreement (TIA) with Ecobank Transnational Incorporated (ETI), which will lead to bank’s capitalisation by ETI and a subsequent merger of Oceanic with ETI’s Nigerian subsidiary, Eco Bank Nigeria, which will create one of the largest five banks in the Nigeria.
Union Bank of Nigeria also entered into a TIA with the African Capital Alliance Consortium (ACA). But a cursory look at the UBN and its potential core-investor ACA, indicated that the company; a private equity investor, would invest the sum of $750 million in the embattled bank, consisting of $500million equity and $250 million Tier 11 capital with the full capitalisation of the bank to be achieved through the Asset Management Corporation of Nigeria’s investment to bring net asset value to zero, Union Global Partners Limited investment and a rights issue to be made to the bank’s existing shareholders.
ACA Consortium, which will invest as Union Capital Partners, was founded in 1997 with a mission to build Africa’s premier private equity and private investment firm by moboilising capital, technology and management resources from local and international sources to unlock Africa’s private sector potential.
The Global Partners Limited consists of ACA B-Holding Limited, comprising ACA managed funds, FMO Netherlands and other co-investors, the Keffi Group V111 LLC based in New
York, ABC Holdings Limited and Discovery Group.
Shareholders of Union Bank would also have an opportunity to increase their stakes in the bank through a Rights Issue due to be announced at the Annual General Meeting (AGM) in Abuja.
Finbank has also entered into a TIA with First City Monument Bank, which will lead to the recapitalisation of Finbank and a subsequent merger with FCMB.
Although the emergence of FCMB as the preferred bidder for Finbank was still a surprise to many especially the shareholders, some analysts have argued that the combined bank would be a unique financial institution with proven corporate banking capabilities, strengthened commercial banking business and a robust platform for retail growth.
The merged entity, according to them, would benefit from unique transactional banking platforms and drive shareholder value with the expectation of a name change to FCMB in future.
Intercontinental Bank’s transaction with Access Bank as outlined in the TIA will be effected through a scheme of arrangement and a subsequent private placement, which will create one of Nigeria’s top four banking brands with over five million customers.
However, the business combination of Access Bank and Intercontinental Bank seems to be of interest to many financial watchers considering the branch network of the troubled bank and the management team of the buyer.
Analysts had predicted that with the proposed N600 billion to be injected in the bank by AMCON and Access Bank, the enlarged entity would emerge as a strong force to contend with at the post-recapitalisation era with Intercontinental Bank losing its identity at the end of the entire exercise.
The Group Managing Director of Intercontinental Bank, Mr. Mahmoud Alabi recently explained that the fresh funds became imperative because the huge loss of N677 billion recorded by the bank in the peak of the banking sector crisis of 2009 had made it to have a negative net asset in its balance sheet.
Meanwhile, The chief executive officer of Access Bank Plc, Aigboje Aig Imokhuede recently said that investors in Intercontinental Bank will own 10 percent of the merged entity after the merger of the two banks while Assets Management Corporation of Nigeria (AMCON), created by the federal government to recapitalise nine rescued banks in 2009, would get 15 percent of the bank’s share.
He further said that shareholders would face a dilution of their shareholdings after an upcoming merger with Intercontinental Bank of between 4 and 6 percent.
The bank had earlier said that it planned to inject N50 billion ($323 million) to recapitalise the rescued banks and acquire a 75 percent stake in it, taking it over the regulatory 10 percent minimum capital adequacy levels.
It also planned to combine both businesses within 12 months of the merger and it would remain listed on the Nigeria stock exchange.
Equitorial Trust Bank on the other hand had earlier signed a TIA with Sterling Bank Plc to work together as one entity.
The board and Shareholders of the ETB in a bid to meet September deadline stipulated by CBN had on Monday ratified the Transaction Implementation Agreement (TIA) entered in August with Sterling Bank Plc.
The bank said at the Extraordinary General Meeting (EGM) that the move demonstrated its commitment to meet its recapitalization plan before the September 30, 2011 deadline and ensure a hitch free merger process between it and Sterling Bank.
the CBN had on August 5. revoked the licences of the remaining three commercial banks namely, Afribank, Bank PHB and Spring Bank for their failure to recapitalise and handed them over to the Nigeria Deposit Insurance Corporation (NDIC) which created them to bridge banks with new names: Mainstreet Bank, Keystone Bank and Enterprise Bank, respectively to take over their assets and liabilities.
Accordingly, AMCON had appointed new managements and boards for their turnaround purpose and subsequent sale to prospective investors’.
Afribank was affected because the CBN had cancelled the MoU it signed initially with Vine Capital Partners Limited after scrutinising the bidder and cited questionable profile of the acquiring firm.
It could be recalled that the CBN and Nigeria Deposit Insurance Corporation (NDIC) had, in July 2009, carried out a special examination of all the 24 banks with aim the of assessing their health, with particular focus on liquidity, capital adequacy, risk management and corporate governance practices.
Ten banks - Oceanic, Afribank, Intercontinetal, Finbank, Spring Bank, BankPHB, Equitorial Trust Bank, Unity Bank, Wema Bank, Union Bank - were adjudged to be in grave states with deficiencies in capital adequacy.
Of these, eight that had significant deficiencies in liquidity, risk management practices and corporate governance policies, two - Wema and Unity Banks - had capital adequacy issues. The nine banks got a lifeline of N620 billion in the form of Tier 2 Capital.
The analysis of their recapitaliastion of the rescued banks showed that three banks that would have capitalised on stand-alone basis are Wema Bank, Unity Bank and Union Bank;
Four banks that are being acquired by other banks but expected to either use the brand name of their core investors or look for another name entirely are Intercontinental Bank, Oceanic Bank, Finbank and Equitorial Bank.
Other three banks (AfriBank, Bank PHB, Spring Bank), their licences were revoked by the CBN and their the assets transferred to bridge banks – Mainstreet Bank, Keystone Bank Limited and Enterprise Bank Limited.
Commenting on the issue, the Managing Director, APT Securities and Funds Limited, Mallam Garba Kurfi noted that the position of the existing shareholders would depend on what was agreed on with the new investor in terms of exchange ratio.
Kurfi pointed out that, “where the bank stands alone as in the case of UBN, the existing shareholders might be better off as their holdings would not be watered down but the bank will find it difficult to regain its lost glory.”
He however stressed that the performance of the stocks at the end of the exercise would depend solely on the banks performance.
In his own views, President, Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie said that the shareholders were not against the recapitalisation of the rescued banks but noted that investors would not be happy if they short changed in any way.
According to him, there was nothing they could do as failing to endorse the merger process would mean a vote for nationalization of the affected banks.
The shareholder activist who expressed optimism that the local banks have the capacity to turnaround the acquired rescued banks observed that the enlarged entities would ensure better returns on investment.
He stressed that it would take them a while to stabilise adding that shareholders value would be reduced at the end of the whole process.
Overall, the court order scheduled by rescued banks this month is seen as a step that would bring to an end crisis in the financial system.
The meeting would offer shareholders opportunity to endorse the scheme of arrangement between the affected banks and its potential core investors.
The only option that is left for shareholders is to approve the arrangement to ensure continuity to avoid the nationalisation of the remaining five banks by the apex bank.