Consolidation: 8 Banks Sue CBN, Soludo


April 26, 2006/ thisday




Eight of the 14 banks whose operational licen-ces were withdrawn by the Central Bank of Nigeria (CBN) have dragged the apex bank before a Federal High Court sitting in Lagos, seeking its order to set aside the CBN directive that declared them insolvent and sacked their Board of Directors.

Joined in the suit are the CBN Governor, Prof. Charles Soludo, and the Nigerian Deposit Insurance Corporation (NDIC).

The banks, Liberty Bank Plc, Fortune International Bank Nigeria Plc, Gulf Bank Nigeria Plc, City Express Bank Ltd, Metropolitan Bank Ltd, Triumph Bank Plc, Eagle Bank Nigeria Ltd and African Express Bank PC (Alliance Bank), in the suit filed through Chief Wole Olanipekun (SAN), are also seeking an order commanding the CBN and its governor to allow the completion of their merger into \"Alliance Bank Plc\".

The suit came on the heels of yesterday’s declaration by the apex bank that the liberalisation of the banking sector in the 80s was responsible for the corruption and mismanagement in the banking industry.

The litigating banks are also asking for the return to them forthwith the sum of N4.8 billion being part of the required N10.5 billion insider credit escrowed into the account of the CBN (1st defendant).

In their 64 - point statement of claim dated April 12, 2006, the plaintiffs accused the CBN, of not adhering to its undertakings as contained in its August 5, 2004, guidelines and incentives on consolidation in the Nigerian banking industry.

According to the banks, the 1st and 2nd defendants (CBN and Soludo) mandated each of the plaintiffs and each bank in Nigeria to raise its capital base to N25 billion latest by the end of December, 2005, failing which any bank which was unable to meet the new requirement should merge with others.

The plaintiffs averred that at their meeting of October, 19, 2005, with three other banks and CBN, presided over by Prof. Soludo, they informed the CBN of their joint intention to form a bank to be known as Alliance Bank Plc.
They claimed that by a letter dated October 24, 2005, they forwarded to the CBN the Memorandum of Understanding (MOU), duly signed by each member of the consortium and that the said MOU met all the requirements of the CBN.

They averred that by another letter dated October 26, written under the name of Alliance Bank Plc, they sought the approval of the CBN governor for a pre- merger consent and that the approval was given vide a letter dated November 15, 2005 while the CBN On December 21, 2005, granted them its approval in principle.

The plaintiff also claimed that they could not meet up with the CBN\'s directive that N10.5 billion insider credit should be escrowed with it on or before December 30, 2005 as efforts were still being made to finalize with some core investors for fresh equity within the integration period. They said as at January 4, 2006 they were able to escrow N4.8 billion part of the N10.5 billion insider credit into CBN \'s account.

The banks averred that they equally sought the approval in principle of the Security and Exchange Commission (SEC) for their proposed merger and were given three months within which to file their scheme of arrangement in respect of the merger.

According to them, before the expiration of the three months notice given them by SEC, the CBN and its governor illegally declared them insolvent, withdrew their licences and halted the merger exercise.

While noting that SEC has major/key statutory roles to play on matters relating to mergers and acquisition of companies and/or banks, the plaintiff banks stated that the contention of the apex bank that they (plaintiffs) failed to meet the conditions for the merger scheme was not true as all the licences of the plaintiff banks, their organogram, management structure and curriculum vitae of the members of the Alliance Bank Plc were submitted to the CBN as requested, while part of the N10.5 billion insider credit had been paid to the apex bank as at January 12, 2006.

The banks also claimed that the total sum of N4.8 billion escowed to the CBN\'s account by them (plaintiff) in part settlement of the said N10.5 billion is still with the CBN.

The CBN, according to the banks, on January 16, 2006 in a notice signed by its governor stated that the plaintiffs had failed to comply with the provisions of the Banks and Other Financial Institutions Act (BOFIA), 1991 (as amended) and the Central Bank Act and that pursuant to Section 33 of the BOFIA, that it (CBN) was sacking all the boards of the plaintiffs.

According to the plaintiffs, sequel to CBN\'s instruction that they (plaintiffs) would be turned over to the NDIC for management, the corporation forcefully took over each of the banks, and appointed an Interim Management Committee made up of its (NDIC) staff to run each of the banks.

The CBN and its governor, they further claimed, on the same January 16, swooped on the premises of City Express Bank even as it did not receive any notice and sacked all its management, other staff and forcefully took over its affairs through an interim management committee.

The banks which accused the interim committee of looting their treasury, declared that none of it is a failing bank and that none of it has informed the CBN that it was likely to become unable to meet its obligations under any law in force in Nigeria, or that it was about to suspend payment to any extent or that it is insolvent.

While noting that the CBN governor did not conduct a special examination on them before issuing the notice, the banks declared that the merger which was forced on them is not backed up by any law passed by the National Assembly or any law at all.

They noted that the said CBN guidelines on consolidation cannot vary or change the positions under which they were registered and licensed to carry on banking business in Nigeria, adding that failure to meet the guidelines arbitrarily imposed on them cannot justify the revocation of their banking licences.

The banks which claimed that the CBN had since failed to respond to their request for extension of time to raise the N5.7 being the balance of the N10.5 insider credit, alleged that the defendants were biased against them and imposed on them conditions and conditionalities which were not imposed on other banks, pointing out that the CBN, while still collecting money from them in the region of billions of naira after December 31, 2005, without allowing them to complete their merger exercise, allowed many other banks, including but not limited to the ones in consortium of Unity Bank Plc to hold their court-ordered meeting on January 27, 2006.

They, therefore, prayed the court to declare among others, that the guidelines on consolidation as well as the actions taken by the CBN and its governor declaring them as insolvent with negative shareholders fund is illegal, unconstitutional, arbitrary null and void.

They also want the court to declare that under the Companies and Allied Matters Act (CAMA), the BOFIA, CBN Act, the Investment and Securities Act, and all other laws relating to or governing mergers and acquisitions, the CBN and its governor have no right, power, duty or jurisdiction to coerce the plaintiffs into merger as one bank and that all the directives or instructions given to the plaintiffs to compulsorily merge are illegal, unconstitutional, null and void and of no effect whatsoever.

They are also seeking a declaration that the failure on the part of each and all of the plaintiffs to meet the said guidelines relating to banks consolidation cannot justify the withdrawal of their banking licences.

The banks want the court to declare that the additional condition imposed on the plaintiffs alone to escrow N10.5 billion to the CBN account is discriminatory, arbitrary, unjust, unfair, unconstitutional, null and void.

They are also seeking a declaration that the appointment of interim management to run the affairs of the plaintiffs is illegal, unconstitutional, null and void.

The banks also want a declaration that the decision of the CBN to declare them as insolvent and taking over their business through the NDIC, was with malice, bias, illegal, null and void.

They are therefore praying the court to set aside the declaration that they are insolvent and compel the apex bank and its governor to allow the completion of their merger into Alliance Bank Plc.

In a related development, the CBN yesterday blamed the liberalization of the financial sector in the late 80s for the corruption, mismanagement and unhealthy competition in the industry.

CBN’s Deputy Governor, Financial Sector Surveillance, Mr. Tunde Lemo, who stated this at the on-going  Second West Africa Financial Crime Prevention Conference organized by IFEX Training, London in collaboration with Financial Institution Training Centre (FITC) and West African Banking Association (WABA), however, said the consolidation of the banking sector which kicked off on July 6,  2004 had positively impacted on the fight against  financial crime  and corruption.

According to him, “it was the liberalization of the financial sector in the late 80s that resulted in phenomenal increase in the number and complexity of banks and non-bank financial institutions in Nigeria.

“This engendered unhealthy competition, ineffective internal control systems, weak corporate governance and other sundry malpractices. There was also unnecessary poaching of the few qualified personnel in the industry.
“Consequently, we had many fragile, small an uncompetitive banks haunted by corruption and mismanagement. The system was characterized by low depositor confidence in many of the banks which could not support the economy.”

He added: “Some of the banks, to an extent, aided the perpetration of financial crime through some undercover banking where identities of the customers were concealed in cut throat attempts to lure and retain depositors and investors.

“On July 6, 2004, the CBN announced a new regime of reform policy hinged on banking sector consolidation and aimed at ensuring the safety and soundness of the banking system as well as improving its transparency and accountability. This policy, therefore, was the concrete needed to re-enforce the fight against all forms of financial crimes.”

He defined “Financial Crime” as “any non-violent offence that is committed by or against an individual or corporation that can result in a financial loss, has a high potency to corrupt and sabotage the economic policy of the government.”

Financial crime, he warned, could “threaten the security of any nation and  lead  to unpleasant consequences by undermining initiatives  and efforts to establish and strengthen market-based economies; discourage direct foreign investments; facilitate tax evasion and deny the  government  of substantial revenues; expose government financial institutions to reputational security and free movement of persons.”

Lemo noted that the CBN, having realized the vulnerability of the financial system to the adverse effect of financial crime, had “taken the stance that with good corporate governance in the emerging banks, the possibility of shielding the activities of money launderers would be minimized but not completely eliminated.

”With mega banks on our hands, it would be dangerous for any of them to endanger its existence by indulging or tolerating the predicate offences of ill-gotten money through its services,” he said.

Related News