August 16, 2011 / Obinna Chima
More rescued banks risk nationalisation if their shareholders refuse to approve their Transaction Implementation Agreements (TIAs) with prospective investors at extraordinary general meetings, the Asset Management Corporation of Nigeria (AMCON) has warned. The corporation said it is determined to protect depositors by all means.
Afribank Plc, Bank PHB Plc and Spring Bank Plc have already suffered a similar fate as their licences were withdrawn by the Central Bank of Nigeria (CBN) after they could not reach recapitalisation agreements with investors. The Nigerian Deposit Insurance Corporation (NDIC) subsequently took over the defunct banks and created three bridge banks which were immediately acquired by AMCON.
Explaining this on Monday in an interview with THISDAY, the Managing Director/Chief Executive Officer(CEO) of AMCON, Mr. Mustafa Chike-Obi, said he hoped that the few shareholders still resisting the recapitalisation of their banks by new investors would be sensible enough to approve their acquisitions.
Failure to do so, he explained, would mean that the five affected banks would have their licences revoked by the CBN and handed over to NDIC, after which the bridge banks created from the exercise would be acquired by AMCON.
Following a joint stress test undertaken by the CBN and NDIC in 2009, the apex bank had intervened in 10 banks, whose capital bases were discovered to have been eroded through the mismanagement of the institutions by their former executive management teams.
The banks were Union Bank of Nigeria Plc, Oceanic Bank International Plc, Intercontinental Bank Plc, Unity Bank Plc, Equatorial Trust Bank (ETB) Limited, Bank PHB, Afribank, Finbank Plc, Spring Bank and Wema Bank Plc. The new interim management teams brought in to run eight of the banks and their shareholders were given specific timelines by CBN within which they were expected to recapitalise the banks. The first deadline was June 30, this year, but was pushed forward to September 30 by the CBN.
By the end of July, four banks – Intercontinental, Oceanic, Finbank and Union Bank - had executed TIAs with potential investors interested in acquiring their banks, while ETB signed a TIA with Sterling Bank last week.
The five banks are currently working towards getting a court-sanctioned order for their acquisition and approvals from both the shareholders of the institutions and the Securities and Exchange Commission (SEC).
However, Afribank, Bank PHB and Spring Bank could not reach agreements with potential investors, compelling the CBN to revoke their licences two weeks ago and hand them over to NDIC, which immediately created bridge banks that were bought over by AMCON.
Commenting on the five banks that have TIAs in place, Chike-Obi clearly stated: “If the shareholders don’t approve it (the TIAs), CBN will have to revoke the banks’ licences and the NDIC will bridge the banks.
“If the NDIC bridges those banks and if NDIC approaches AMCON to recapitalise those banks in the interest of depositors and employees, AMCON will do it again. So it is up to the shareholders to approve it. They can get something or they (the banks) go through the bridging process.”
He said that he was aware of several of the comments being made by shareholders and that AMCON was being made to appear unsympathetic to their plight.
He, however, added that without being sentimental “those banks would have been liquidated two years ago. NDIC has liquidated many banks in Nigeria in the past and shareholders had lost all their investments in the liquidated banks”.
“But in this instance, the CBN and NDIC thought they could keep the banks alive, so that the shareholders could recoup all their money back in the future. That went on for two years and they were given two years to recapitalise.
“But they failed to do so. In fact, the initial deadline for them, when I came was June 30. The CBN extended the deadline to September 30 and still, investigation was made by appropriate authorities that those three banks could not make it,” he said.
Chike-Obi said by procrastinating over the recapitalisation of the banks, the shareholders had lost their investment because the regulators had a fiduciary responsibility to protect depositors of the banks and employees.
“If we had waited till September 30 and they failed to recapitalise, what do you think would have happened. There would have been a run on the banks by September 15, and the banks would certainly have been liquidated, which is worse for depositors and employees of the institutions who we have to protect,” he explained.
The “bad bank” boss argued that AMCON also suffered losses in the defunct banks from their nationalisation, saying that AMCON was the largest shareholder in Afribank, Spring Bank and Bank PHB.
He said AMCON had over 80 per cent stake in the defunct Spring Bank Plc, over 45 per cent in Afribank Plc and also had about 14 per cent stake in Bank PHB Plc, which according to him, was the largest single shareholder.
“So we have all lost our investments. But we are happy to say that depositors didn’t lose their deposits and the employees didn’t lose their jobs. When companies fail, shareholders generally lose their investments. It has happened before, it has happened again.
“When Bears Stearns failed in the United States of America, shareholders lost their money. So in this instance, once the banks were bridged, the shareholder lost all their investments.
“I challenge any shareholder group, to bring the money AMCON put into those banks. And if they do and they are cleared by CBN, they can have the banks back.
“I am more than happy to sell it back to them at any point in time, if they meet CBN requirements. But they had two years to recapitalise those banks, but they made no progress and everybody is complaining that we didn’t give them six more weeks,” Chike-Obi stated.
He also revealed that the corporation would from next week, start interviewing financial advisors for the three recently nationalised banks, so as to facilitate their sale to new investors.
He stressed that the corporation took thorough legal advice before taking the decision on the banks, adding that the Attorney General of the Federation (AGF), was fully involved in the process.