Skye Bank Plc: Has CBN Finally Completed The Undertaker’s Role?

Proshare

Friday, September 21, 2018 16:50 PM / Proshare Research

 

The current situation of Skye Bank Plc remained one that is not new to us and has been foretold before now. 

When the news of Skye Bank Plc emerged as the preferred bidder for Mainstreet Bank hits the market and other stakeholders, our commentary titled ‘The Surprising New Math of Acquisition of Banks in Nigeria – The Skye Bank Case’ published on Thursday October 24, 2014 did justice to this by pointing out how Skye Bank capital position does not supports its bid.

 

Even Fidelity Bank Plc as the second preferred bidder was considered to be well positioned to finance its bid considering its Tier 1 and Tier 2 capital position as at that period.

 

That said, Skye Bank paid the mandatory 20% of its bid price following its announcement as the preferred bidder and eventually paid successfully the due balance of 80% before the November 3rd, 2014 deadline set by AMCON. More updates on the funding sources of Skye Bank Plc acquisition of Mainstreet Bank can be found here ‘Skye Bank - The Math Adds Up says CBN, Acquisition Payment of Mainstreet Bank Done’

 

On May 10, 2015 our published follow-up article titled How to Buy a Nigerian Bank With No Money’, to the earlier commentaries stated thus:

 

When the amount bided by Skye Bank for Mainstreet Bank was announced, the market took a pause. The math appeared unclear based on publicly available records and the most recent returns rendered. Skye Bank Plc with a market capitalization of less than N40 billion was announced to have agreed to pay N126 billion for Mainstreet Bank. With that amount, Skye Bank could have bought FCMB and Wema Bank or Sterling Bank and Wema Bank, while offering good premiums to each bank’s shareholders. So why pay so much for Mainstreet Bank? Is there something about the bank that the market missed, players wondered.

 

Despite talks about a possible sweetheart deal, the professional advisers engaged by AMCON represented that the bid met their mandate and true enough; it was the job of the Central Bank of Nigeria (CBN) to state otherwise.

 

To fund the transaction, Skye Bank Plc first instituted a N30 billion Commercial Paper program to pay the deposit for the transaction. It then obtained a bridge financing of N100 billion from four banks. The bridge financing was backed using Mainstreet Bank’s AMCON Bonds that were due for redemption shortly after the closing of the transaction.

 

Most will consider this an act of financial ingenuity, yet it remains a classic case of in-and-out i.e. Skye Bank Plc borrows money from banks, pays AMCON, AMCON redeems Mainstreet Bank’s AMCON Bonds and Skye Bank (who now owns Mainstreet Bank) takes the cash to pay the four banks back.”  

 

This and earlier articles published pointed to the fact that there was an imminent danger/crisis if the Skye Bank acquisition of Mainstreet Bank was allowed to go through. It was a disaster waiting to unfold.

 

Thus when the CBN action of July 04, 2016 announcing the sack of top executives of the bank over capital adequacy issue occurred less than two years after granting the approval for the bank to acquire Mainstreet Bank; it justified the foretold commentaries.

 

With the CBN revoking Skye Bank’s operating licence and asking AMCON to capitalise the established Bridge Bank, CBN is eventually taking a decision that was long overdue and even at this, it should not be credited for the action but take responsibility for other actions needed in the market.

 

By nationalising Skye Bank Plc, it can be said that the regulator has performed and completed an undertakers’ role in Skye Bank considering the fact that the bank has been under its management since it took it over in July 2016.

 

 

Proshare Nigeria Pvt. Ltd.

 

 

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