Monday, August 07, 2017 6:25PM / Proshare Research
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“…People think when you have a 'bank failure,' that that is the end of the bank. And it isn't necessarily.” - Michele Bachmann
Handling a perennial problem usually takes the shine off repetitions. After the intervention of August 14, 2009 in the banking sector by the Central Bank of Nigeria (CBN); it would seem that lessons were not learnt or/and the evaluations were not thorough enough; for soon enough we had to move against another set of banks, for the same set of reasons - liquidity, capital adequacy and corporate governance.
On August 06, 2011, the Nigeria Deposit Insurance Corporation (“NDIC”) and the Asset Management Corporation of Nigeria ("AMCON") after intensive negotiations through the night, announced that they have signed an agreement for AMCON to acquire Mainstreet Bank Limited, Keystone Bank Limited and Enterprise Bank Limited; being bridge banks created to acquire Afribank Plc, Bank PHB Plc and Spring Bank Plc respectively.
These moves fit into a pattern on bank failures in the country; one that raises the question of an ‘institutional deficit in supervision and regulatory oversight’.
More recently and precisely on July 04, 2016, the Central Bank of Nigeria (CBN) took over Skye Bank Plc; sacking the board of directors and executive management over what it called “Capital Issues” or better still, more of the same; and we must add “a complete breakdown of corporate governance in the bank”.
This was however different from others in that it was almost a year ago that the CBN had sanctioned the acquisition of MainStreet Bank by Skye Bank Plc, the eventual merger of which took place on June 30, 2015.
That the CBN will assume operational management of a bank it gave a “No Objection” approval to, despite the forewarnings provided by experts including the Proshare Research Team who first raised the alarm vide: https://www.proshareng.com/news/24775; is such a big deal and thus makes the study of what, why and how the developments played out for Skye Bank Plc – a compelling interest for the market.
Unlike other entities we had shown interest in before now, there are volumes of publicly available information that we processed for this report to enable discerning stakeholders understand key issues in and around the bank. The report principally sought to provide comments on the following questions :–
1. What was known before?
2. What did the management meet?
3. What have they done since? and
4. What do we see going forward?
When the CBN move came for Skye Bank Plc, not a few were surprised despite the claims by the board that a capital raising/funding exercise was at a final stage (a claim we investigated and found to be without basis beyond posturing/grandstanding); nor was the market caught unawares because its challenges like a few others in the banking system were well known to operators.
If anything, the question that agitated the market and was answered by the CBN action was – what has to be done to avoid a run, not just on the bank, but on the entire system if action was not taken, and taken in a timely/structured manner?
The resolution by the CBN to move beyond the self-denial state that could create an impression of ‘regulatory inertia’ or /and active collusion was aided by the change in the factors that allowed the approval to be given in the first place – a development that encouraged a review of the limitations of the CBN’s independence in fact and deed.
That said, the question remains, at least from an experiential perspective – “Was this move a restoration of norms and values that define the practice of financial intermediation or was it a reaction?”
While an answer to the question remains in the realm of outcomes from the intervention, the one year period of a two-year term for the new board offers us the most basic opportunity to attempt a glimpse at a potential outcome.
Thus, the report, which could have benefited from both an access to the actual financial state as well as input from the bank; retains credibility and rises to the level of the nearest factual narrative of the Skye Bank Plc journey.
In Section I of the report, we sought to assemble open source intelligence and facts to establish the state of affairs and context prior to the takeover while Section II interrogated the action(s) by the CBN, the process, perspective and positioning it established.
In Section III of the report, we offer an opinion on what we expect to happen to/in the bank, with all limitations and caveats duly acknowledged. More interesting must be the challenge with recalcitrant debtors, four of whom represent a significant chunk of total exposure (including directors).
There is a growing concern amongst market analysts that in the interest of full disclosure, transparency, equity and accountability (the underlying value base for the CBN and other regulators) the handling of the insider related facilities that affected the bank will be crucial. We took time to share factual details from the bank as sourced.
We offered in the report a few background indicators of the quality of management and governance that was available to the bank with clear examples, including such provided by the bank which “shows that the purchase consideration paid by Skye Bank Plc in the sum of N126 billion was well above the net asset of the erstwhile MBL by approximately N59 billion”. The report sought to explain how this happened as well as issues around such issues like the property housing the Head Office of the legacy MBL, i.e. No 51/55 Broad Street which was represented as a freehold property (and valued at N5.5 billion in arriving at the purchase consideration) but has since been discovered to be a leasehold thus impacting the consideration; but raising questions about the due diligence process adopted by professionals concerned including the auditors of the legacy MBL.
The take-over as research showed was inevitable; it would have occurred either via the regulatory route or through another bank but it might be right to review the opportunity cost of saving the bank. A clear issue we had to grapple with was the relatively high cost of saving the bank. What was the cost of saving the bank and for what quantifiable reason(s) given the level of regulatory ratio compliance shortfalls, corporate governance failures and breaches; as well as strained profitability?
Even the critics putting a searchlight on the bank readily acknowledge that to do nothing would not be beneficial for market integrity; and indeed deny the market of a learning opportunity. We are, however, unsure of at what level, if any, the market can absorb and make required changes therefrom.
That said, a critical insight into what the market should look towards remains unanswered or is unavailable due to the dearth of information and non-release of the financials of this banking institution quoted on the Nigerian bourse.
We are of the belief that the effort made here offers to investors, depositors, regulators, analysts and staff of the bank a fair assessment of what happened, what has been done since and where the institution is likely headed.
It is appropriate to acknowledge the efforts of the new management to improve the institution’s collateral position, recover and/or restructure outstanding debts, control costs and stem the tide of deposit attrition but issues around capitalization remain outstanding.
This report must therefore be seen as a reportorial representation that aggregates the concerns and hopes of the market; and contextualizes the development for necessary guidance.
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1. How to Buy a Nigerian bank with no money
2. The Surprising New Math of Acquisition of Banks in Nigeria – The Skye Bank Case
3. Reworking the Acquisition Maths of Mainstreet Bank by Skye Bank Plc
4. Why investors should expect a contained earning from Skye Bank
5. Skye Bank - The Math Adds Up says CBN, Acquisition Payment of Mainstreet Bank Done – Nov 01, 2014
6. Tracking Skye bank's Share Price: 25days After
7. Skye Bank Plc Seeks Extension to file its Interim Financial Statements for Q1 and Q2 2016
8. All Round Pressure Sinks Skye Bank FY’15 Earnings
9. Skye Bank Plc Reports Q4 2015 Results; Further Deterioration Expected in Q1 and Q2
10. SKYEBANK Declares N40.73bn Loss in 2015 Audited Results SP N0.70k
11. Tracking Skye bank’s Share Price: 15days After
12. Tracking Skye bank’s Share Price: 10days After
13. CBN Affirms Confidence in Skye Bank, Institutes Guarantee Line
14. Tracking Skye bank's Share Price: 5days After
15. Nigeria's Skye Bank Downgraded To 'CCC-' On Heightened Default Risk
16. Nigeria’s Central Bank Takes Over Skye Bank - Sacks Board Over Capital Issues
17. Expectedly, S&P rates Skyebank a CCC+ on back of Economic & Liquidity Concerns
18. Skyebank and The Prolonged Delay on Earnings Announcement
19. CBN Reduces maximum limit of FX borrowing to 75% of Capital
20. Skye Bank Plc and AMCON Sign Agreement on Acquisition .- Proshare
21. SKYEBANK Seeks Four-Week Extension to File its 2015 Audited Financial Statement
22. SKYEBANK Issues Earnings Guidance for Financial Year Ended 31st December 2015
23. All eyes still on Skye Bank s capital raise
24. Years After -Scorecard: One Year after Change of CEO at Zenith, UBA & Skye
25. Years After - CBN’s Intervention in Banks: One Year After
26. Years After -Emefiele's CBN: one year after
27. Skye Bank Plc Notifies on the Late Release of 2016 Audited Financial Statements
28. Skye Bank Plc to file 2016 Audited Financial Statements on or before 12th May, 2017
29. Skye Bank Plc Announces the Resignation of some Executive Directors
30. Skye Bank Ratings Suspended Due To Lack of Sufficient Information
31. Skye Bank Plc Receives Regulatory Approval to Postpone AGM
32. Skye Bank is Neither Distressed Nor Liquidated - CBN