Saturday, June 11, 2016 01.20PM / Proshare News Investigation
The case between Ecobank Plc and Honeywell Group had all the trappings of a ‘blockbuster’ – it was an otherwise story of how a bank stood up against an unwilling but able debtor (a plague of the Nigerian financial system on the back of risiecent rise of NPL’s in banks) which sadly has now turned out to be, from investigations, a story of how banks are badly managed, run and how debtors should be careful with debt negotiations.
In our May 31, 2015 story “Facts Behind the Ecobank vs. Otudeko Debt Debacle, Airtel/SEC Angle” we established the narratives about and around what transpired between Honeywell Group Plc and Ecobank Nigeria (ETI Plc).
It was soon apparent from feedbacks and sources that this was not a case of an “able but unwilling debtor” but one of an issue far beyond the facts of the case. We sought to know more.
Having purred over volumes of documents and correspondence on the matter, reviewed the report of the usually reliable industry conflict resolution vehicle(s) including the CIBN who issued an advisory and recommendation(s) on the matter; as well as the volume of court processes and documents; we are left numbed by the departure from process, practice and professionalism which ought to characterize decision making beyond personalities. It immediately dawned on us that this was going to prove much more than the case at hand but about how the banking sector can go rogue. And so it has turned out.
We serve you the outcomes of our findings. The investigations up to date established the following:
1. That Honeywell Group through three (3) entities – Anchorage Leisures, Honeywell Flour Mills Plc, and Siloam Global Limited; obtained facilities from Oceanic Bank for commercial purposes between 2006-2008; a debt that now became an issue with Ecobank Plc after it took over the bank;
2. That Mr. John Aboh, the CBN/AMCON designated CEO of Oceanic Bank who sold the bank to ETI Plc (October 2011) is now the Chairman of Ecobank Nigeria Limited (July 2015), a fully owned subsidiary of ETI accounting for approx. 40% of its assets.
3. That the originating transactions was an arms-length loan credit and not a related party transaction as at the time the loan was consummated as was touted by the bank.
4. That Honeywell Group initiated discussions with Ecobank in May 2012 with a view to agreeing a full and final settlement of the indebtedness of the three entities referenced above.
5. That the CBN in September 2013 in a circular entitled ”Reporting all credit facilities of N1 million and above to the Credit Risk Management System”; the Director of Banking Supervision, Mrs. Tokunbo Martins directed banks to report all credit facilities of N1 million and above in their CRMS and include those given to their board members and staff.
6. That the CRMS is established as a central database for credit information on borrowers; and as amended under the CBN Act No 24 of 1991 (Sections 28 and 52), it is mandatory for all banks to render returns to it.
7. That the circular stated that “The Central Bank of Nigeria has observed with dismay that banks do not report the credit facilities availed to their board members and staff in the Credit Risk Management System (CRMS). Please note that the provisions of Sections 3.4 and 3.5 of the Prudential Guideline for Deposit Money Banks in Nigeria, July 2010, does not preclude banks from reporting credit facilities availed to its board members and staff in the CRMS”.
8. That Ecobank (ETI Plc) under a new management after a long drawn out public expose on its banking malpractices, corporate governance issues and SEC investigations in ETI Plc had complied with this rule and included Honeywell Group (and entities/principals) in the CRMS despite the fact that (see point 3 above) there was no “related parties” involved…especially given that this was a facility the bank’s credit department was involved in negotiations with and one for which it had a right of set-off over.
9. That the CRMS issued thereof a letter on February 07, 2014 to the Nigerian Stock Exchange (NSE) to which the NSE issued the following statement on December 24, 2015: “Following protracted negotiations, an agreement was reached between Honeywell and Ecobank that the sum of N3.5 billion would be paid in full and final settlement of the total liability of all 3 companies. The portion of the total outstanding in question in the name of Honeywell Flour Mills Plc stood at N222, 991, 248. 33 as at May 2015 as the company maintained only a running overdraft account with the bank”. The full NSE release is as reproduced below:
Both parties agreed in July 2013 that Honeywell would pay the sum of N3.5 billion in full and final settlement of the indebtedness of the 3 companies stated above. This agreement was reached between representatives of both entities at the most senior Management level (including Ecobank’s Managing Director and Company Secretary), and was re-confirmed by the Bank in meetings and correspondence with Honeywell.
Honeywell completed the payment of the agreed sum in January 2014, and thereafter requested for a letter of discharge from the Bank and an update of the performance status of its accounts on the CBN CRMS Portal. In its letter dated 7th February, 2014, Ecobank confirmed receipt of the payment and indicated that the portal would be updated accordingly.
Surprisingly, Ecobank also stated in the same letter after receipt of agreed payments that Honeywell’s request for a waiver/concessionary payment was going through an internal approval process and as such the letter of discharge could not be issued. For the records, at no time during the negotiation/discussion process was the settlement conditional upon any other internal approval process.
Honeywell continued to engage the Bank with respect to the letter of discharge and the update of its accounts on the CBN CRMS Portal as we were certain that we had fulfilled our obligations as agreed
About eleven months after Honeywell completed the payment of the agreed settlement figure of N3.5 billion and despite the fact that several letters had been written which were never responded to, Ecobank reneged on the agreement and claimed that the N3.5 billion was only a partial payment.
Ecobank for its part claimed that the agreement reached by both parties was an “in–principle understanding” and that the N3.5 billion paid by Honeywell was only a partial payment. It also asserted that the Chairman of the Honeywell Group was a related party to the bank at the time the debt repayment was negotiated, and as such it would not grant a discharge letter to Honeywell.
All these claims were made about a year after Honeywell had completed the payment and to our mind, were afterthoughts.
CIBN Banker’s Committee Dispute Resolution Outcomes
As it had become obvious that a dispute had arisen, to resolve the issue of whether there was indeed a debt owed or not, Honeywell wrote a petition to the subcommittee on Ethics and Professionalism of the Bankers’ Committee which heard submissions from both parties. On the 26th of June 2015, the subcommittee issued a ruling in favour of Honeywell directing Ecobank to honour the agreement. The subcommittee’s findings are as follows:
“It was not in dispute that Management of Ecobank consummated an agreement with the Chairman of Honeywell Group on the 22nd of July 2013 to accept the sum of N3.5 billion in full and final settlement of the total outstanding sum of N5.5 billion being the Group’s indebtedness to the bank;
The sum of N500 million was paid on 23rd July 2013 and payment of the balance of N3 billion was completed on January 10th , 2014;
As at the time the transactions were consummated with Oceanic Bank (legacy bank), the Chairman of Honeywell Group, Dr. Oba Otudeko CFR was not a member of the Board of Directors of Oceanic Bank;
As at the time Ecobank acquired Oceanic Bank and by implication the Honeywell Group loan facility, and commencement of discussions with Ecobank, Oba Otudeko had left the Board of Ecobank Transnational Incorporated (ETI) as a Director;
Based on legal opinion and clarification sought from the Banking Supervision Department of the Central Bank of Nigeria, the Chairman of Honeywell Group was not a ‘related party’ to the transaction, as he was not a member of the Board of Directors of Oceanic Bank at the time the transactions were consummated.”
In conclusion, the subcommittee ruled that:
“The agreement between Honeywell and Ecobank to pay the sum of N3.5 billion as full and final payment of Honeywell’s indebtedness is valid and should be complied with….”
Following the CBN directive issued on the 22nd of April, 2015 that all Banks should publish lists of delinquent debtors with non-performing accounts in at least three national daily newspapers, Honeywell wrote several letters to Ecobank reminding the bank that as the matter was before the Bankers’ Committee, Ecobank had no right to include the names of the affected companies in its list of delinquent debtors.
Ecobank however indicated that it would publish the names of the Honeywell companies, and remained obstinate in its stance on the grounds that it had to comply with the CBN directive. Honeywell thereafter, through its Counsel, Messrs. Wole Olanipekun & Co, wrote to Ecobank on the 28th of July 2015 and advised the bank to desist from making any libelous communication or describing the affected companies as debtors in any newspaper advert 3 or any other means. Ecobank failed to respond to this letter.
In view of the impending deadline for publication of names of delinquent debtors, Honeywell’s lawyers again wrote to Ecobank on the 3rd of August 2015 demanding within 24 hours, a confirmation that the bank would not publish the names of the affected companies. Ecobank again failed to respond to this letter.
In order to prevent further reputational damage and financial losses to the Group, it became imperative for Honeywell to protect its interest by ensuring that the status quo was preserved until a resolution of the matter was reached. Honeywell therefore filed a suit before the Federal High Court in August 2015, and the Court directed parties to maintain the status quo pending further orders.
In flagrant breach of this directive, Ecobank filed multiple suits before several judges of the Federal High Court, essentially ‘shopping’ for an ex parte order restraining the Honeywell companies and their Chairman from:
• operating their accounts in all banks and financial institutions;
• directing and compelling all banks and financial institutions in which the companies have accounts to furnish details of the said accounts to Ecobank within 7 days;
• and granting leave to Ecobank to publish the order in the official gazette and in the Guardian and Thisday newspapers.
Several judges declined to grant the order, instead directing that the companies should be put on notice. Unfortunately the ex parte order was finally granted by one of the judges of the Federal High Court.
Honeywell thereafter filed an application successfully challenging the grant of the ex parte order, and an order varying the terms of this ex parte order was granted on the 4th of December 2015. Honeywell has filed a Notice of Appeal at the Court of Appeal, Lagos to set aside the ex parte order in its entirety.
Contempt proceedings have also been initiated against the bank for violating the order of the Court that parties should maintain the status quo.
10. That subsequent to this NSE publication, the Court of Appeal on March 30, 2016 threw out the order granted by one of the judges of the Federal High Court (see related news below) in a decision where the court said:
“To my mind, the grant of the interim orders of injunction by the lower court, particularly Orders no. (1) and No. (3) (whether varied or not) without any notice to the Appellant thereby affording it the opportunity to be heard on a matter that seeks to paralyse and immobilize a functional and ongoing corporate organization is an exercise of discretion too extreme and injudicious to be allowed to subsist given the negative socioeconomic impact it will have not only on the Appellant but also on its employees and society at large. “
11. That key stakeholders have since engaged parties on the issues including the CBN who, from investigations, appear not to have done much to clarify the state of practice or emphasized the ruling of the professional practice committee (CIBN / Bankers Committee) which, after reviewing the case felt that and affirmed that Ecobank Plc broke the principle of “INTEGRITY OF AGREEMENTS” and “Banker-Customer trust established as an age-old credit resolution mechanism that is accepted by all”
Evidence suggests that after intercessions by individuals and entities who have interceded in the matter now before the courts, with multiple cases/actions and reliefs sought by parties; the question must be asked – what does Ecobank really want? Where is Ecobank headed? Why has this gone on for far too long with consequences for the company under a CRMS tag?
To help explain the question, the investigative team found it necessary to throw up a few posers.
From the evidence available to the investigation team, this would appear not to be simply about an unfulfilled debt obligation. If it were, the Chartered Institute of Bankers of Nigeria’s (CIBN) advisory through its “sub-committee on ethics and professionalism” would have sufficed; especially when we are talking about practice, process and professionalism. It appears a slight with far reaching consequences beyond the case.
We were immediately placed on alert and now needed to dig into quantitative and qualitative issues related thereto or arising therefrom.
From the evidence established to date, it would appear that it did not suffice nor did the CBN Governor (and relevant functions in the esteemed institution) feel or recognize the need to use this case to affirm/validate the sanctity of agreements either because of a failure in institutional governance and other motives left for possible imagination or motives (as has been seen in the rich history of high finance in Nigeria – a huge setback for investment/engagements).
Evidence indicates that some issues became germane to the issue at hand which serves as both a learning opportunity or/and an indication of the false premise upon which the issues have been predicated. In either case, this is not a good example of how the banking process works or should work. It is something else, something we are yet to discover or phantom.
The following therefore forms the basis of concern(s) the investigations and interrogation of issues conducted threw up:
HISTORY AND PERSONS OF INTEREST
The principal of Honeywell Group is / has been a founder/ shareholder of Ecobank with a running history over a number of issues, none the least the issues of AIRTEL shares which remains a contentious issue.
The December 12, 2013 meeting attended by the two (s) MD/CEO’s of Ecobank and Honeywell, amongst other officials which re-affirmed the agreement of July 22, 2013 would appear to have been an illusory act or a breakdown of management practices that speaks more to the internal disharmony at Ecobank than it did about the debt resolution process and resolution mechanism(s). Yet, its place in how debt resolutions are conducted must become a source of concern for bank debtors, if not the least Ecobank debtors who must now treat such meetings with a pinch of salt, and rightly so – as represented by the post-meeting actions.
The decision of Ecobank to later assume/impugn the position that the transaction was a related party one; long after the agreements was arrived at suggest(s) an after-thought that could only have materialized from the continuing “cycle of disharmony in management” that characterized the banks operations - management and board and which was played out in the open media during this stretch/period. This is quite instructive and is one that is immediately put to rest and accepted as “more likely” after a transaction history analysis. That it ever came up suggested ‘bad faith’ and an evidence of a ‘pre-conceived agenda’ which does not reflect the facts of the case from publicly available presentations and submissions to the NSE, CIBN and the courts.
The significance of independence of thought and action and the possibility of inference is plausible if looked at the other way. In this regard, the role of Mr. John Aboh who sold the originating (loans) bank to Ecobank would now appear more than a coincidence but a long drawn out plan to eviscerate the role, influence and standing of their founding member to whom they appear to have an issue with. This is not inferred but evident in the aggressive role, action and play by the bank and the actions of its lawyers (pursuant to the brief/slant provided) over an otherwise commercial transaction in which the bank’s credit function (ALCO) had agreed upon a resolution.
The afterthought which took nine (9) months to formally respond to does not either approximate nor does it suggest a financial institution that was interested in the resolution of the issue(s) at hand….one to which it had negotiated with and entered into an agreement on. It remains unhelpful to a discerning mind to come to any other conclusion, if it took it till November 2014 to respond to a formal letter written in January 2014 to which it had responded via a February 07, 2014 letter that confirmed/acknowledged the next/expected action(s). The Banker’s Committee report on page 3 was all too clear on where and why this action does not meet the eye test.
That the sample size of bank’s records reviewed as at the time of publication and enquiries from sources who have access to records or/and loan portfolio arising from the acquired/originating Oceanic Bank Plc - has not recorded a schism such as this nor has any success such as this met with similar type issues as undergone by Honeywell Group (and indeed Honeywell Plc) who remains listed in the CRMS.
That the recent history of the bank in terms of integrity, corporate governance and commitment to agreements is anything stellar to enable the investigative team or anyone to build a reasonable expectation that its current position is altruistic and sufficient to sustain a belief upon. The investigations conducted by Ernst & Young, KPMG (both available for review) and the celebrated unreleased report from the SEC does not indicate an organization that subscribes to practice, process and professionalism with best practice. (NB: see in parts 3 and 4 of the investigative report).
That the claim built by and relied on by Ecobank that it required Honeywell Group Plc to make payments “while the CBN audit/supervision” process was going on was rather open ended, non-descriptive and merely suggests an ideal but not a binding condition. Our knowledge of the practice would support this as most debt collections efforts use this to serve a twin goal – put pressure on debtors (with or without pre-agreements) and help the bank reduce the provisioning on non-performing loans on account of the letters agreed which are therefore presented to CBN examiners.
That this claim is rather loose as to the interpretation of audit completion which in average cases goes beyond the period between the agreement and eventual payment observed in this case.
That the audit completion period was never presented by the bank as a valid basis to indicate that the Honeywell Group did not meet the period (something which a copy of the report from CBN would aid the courts on/with).
That the responses received in the course of the investigation suggests that the bank is caught in a “mid-life crisis” – one that accepts the rot that permeates the culture and motives but such that it seeks to shed itself of burdens the “new owners” seek.
At this juncture, it is clear that the actions of Ecobank Plc in deliberately and maliciously seeking to stuff life out of Honeywell Group has nothing to do with the debt resolution but something much more unknown to corporate banking practices, perhaps something more sinister.
It will thus serve the market a better understanding if the issues around the Ecobank entity is properly dimensioned and reviewed, including independent 3rd party reports and opinions for a proper appreciation of what and why Nigerian banks lose premium and goodwill.
This is not a case against Honeywell Group or its listed entity, for which shareholders are naturally agitated; but one that reveals much more about issues in and around Ecobank the market needs to be much more aware of.
For willing and able debtors out there, this position is a principled one. We are worried and believe the continuing coverage of the issues should help cast a lot more light on the role of CBN/SEC on matters of regulatory supervision, oversight and enforcement.
Parts 3 and 4 of the investigative reports to date continues….
1. Facts Behind the Ecobank vs. Otudeko Debt Debacle, Airtel/SEC Angle - May 31, 2016
6. HONYFLOUR Notifies of its Legal Dispute with Ecobank Nigeria Ltd – Dec 24, 2015
7. Ecobank initiates bankruptcy proceedings against Otudeko - The Nation – Dec 16, 2015