Monday, February 17, 2014 13:49 PM / DaMina Advisors
A palace coup by senior ECOBANK executive directors against embattled CEO Tanoh will see him stepping down before the 3 March extraordinary general meeting. Boasting the largest banking geographic footprint across Africa, but hamstrung by a depressed capital markets valuation and recent governance issues, the pan African bank may see activist funds and large PE firms swoop in for equity stakes after Tanoh’s exit…
NB: Further to this letter, it should be noted that the four Executive Directors are not up for re-election at the March 03, 2014 SEC ordered EGM
FEBRUARY 7, 2014 : An extraordinary letter signed by four key senior executive directors, including Deputy CEO Albert Essien, to ECOBANK’S board demanding that embattled CEO Thierry Tanoh step down to enable the bank break out of its recent governance crisis, has effectively made Mr Tanoh’s position at the helm of the major pan African bank no longer tenable. Mr Tanoh will likely step aside before the 3 March extraordinary general meeting in Lome, Togo. This will enable him to also avoid the embarrassment of being defeated by a shareholder revolt against his election as a director of the newly reconstituted bank board. Mr Tanoh became CEO in late 2012 and has barely chalked two years at the bank, yet his tenure has been tumultuous and crisis prone. His fall will sadden many Africa watchers.
With total assets of about $22billion, $2billion in annual revenues, $300million in annual profits, a physical presence in 35 African countries, and 19,00 employees, ECOBANK is Africa’s best geographically positioned bank to take advantage of the continent’s economic growth spurt. However in recent months since the appointment of Tanoh as CEO and the retirement of longtime maestro CEO Arnold Ekpe, the bank has stumbled from one governance crisis to another. Last year the company’s financial comptroller, who had been summarily fired by Tanoh, wrote an eye-popping letter to Nigerian regulators accusing the bank’s former Nigerian chairman and current CEO of financial impropriety and manipulating earnings.
Nigerian regulators demanded the resignation of the bank’s Nigerian Chairman Kolapo Lawson, accusing him of racking up millions of bad loans in Nigeria. Lawson’s resignation and a financially buoyant 2013 brought temporary relief to the bank’s shareholders. However tensions between Tanoh and his management team still simmered. The recent confirmation by Reuters that the senior management directors have pointedly asked Tanoh to resign will likely re-ignite another round of bloodletting at the helm of the firm.
An attempt by Tanoh to fire the disgruntled executive directors will result in protracted litigation. To hold the extraordinary general meeting with Tanoh still at the helm will result in a vote against Tanoh as a director having already lost the support of his entire senior management team. Tanoh has no sensible option but to quickly resign.
Beyond the recent governance issues at ECOBANK, the company is yet to fully come to terms with the accelerated geographic growth and expansion that occurred under the former longtime CEO Ekpe. Under his stewardship the bank expanded from five countries to a whopping 35 – despite the fact that nearly 50% of the banks assets and revenues came from only one country – Nigeria. Today Nigeria contributes about 40% of profits, 45% of assets and a similar percentage in revenues. Disagreements over the expansion strategy and the Nigeria business unit remain contentious among senior executives. In Nigeria, Africa’s potentially largest financial market, Ecobank is a second tier or third tier bank. Ekpe favored geographic Africa breath over Nigeria depth, while Deputy CEO Albert Essien and others favor stalling any further costly expansions and rather deepening the presence of the bank in key lucrative markets such as Nigeria and Ghana. No matter who takes over from Tanoh, these arguments will remain and until ECOBANK settles on a unified strategy it will continue to experience strategic drift and lose market share to its more aggressive and strategically focused rivals, Zenith, First Bank, UBA Bank and several others.
Tanoh’s fall, while in many ways inevitable, given the divergence between his stoic IFC professional background and the dominant clubby culture within many large African banks, his fall came too quickly for most Africa watchers. At just 52 years, Tanoh, a former senior director at the International Finance Corporation and a Harvard Business School alumnus represented for many the future urbane multi-lingual face of African corporate business. However his vaunted appointment and dramatic fall in less than two years serves as a cautionary tale to well coiffured Ivy League trained African professionals of the cultural perils that await them in Africa.
With a depressed capital markets valuation and a price-earnings multiple of just over 4X, ECOBANK may yet prove an attractive investment for activist emerging and frontier markets funds who have the experience to turn around stagnating franchises. Large private equity firms who are looking to capitalize on the dramatic multi-decade economic growth underway in Africa may also buy into ECOBANK. With a total market capitalization of less than $2billion, a takeover or a hostile M&A action cannot be completely ruled out. A new CEO may also choose to shed the unprofitable assets in Eastern and Southern Africa and concentrate on becoming a top player in Nigeria, prospectively Africa’s largest financial market. ECOBANK is bound for a bumpy ride in search of a cohesive strategy.