Mustafa Chike-Obi

Former staff of the three bridged banks threatening fire and brimstone over the severance packages offered by the management of the banks may have to toe the path of dialogue afterall. The Managing Director Asset Management Corporation of Nigeria (AMCON), Mr. Mustafa Chike-Obi, in this interview with Festus Akanbi insists that under the law, the new banks have no legacy obligation


How will you describe the operation of the three bridged banks in the last one year?

We are very pleased with AMCON today. We have got support from many sources. The Central Bank of Nigeria (CBN) has been very supportive; the banking industry has been very supportive, even the courts have been very supportive of AMCON. So, I think we have achieved the first set of those things we set out to achieve which is to stabilise the banking system and give the banks the chance to play their crucial role in a capitalist society. It is not possible for a society that is run like ours without a healthy banking system to do well in the economy. So we feel the ground is set but right now, we can say the Nigerian banking system has been completely rescued and it’s on a very strong and firm footing.

After the choice of the two advisers for the bridged banks namely Citibank Group and Renaissance Capital, what is the next step for AMCON?

We expect the advisers within six months to give us advice on what the banks are worth and what is the next best way forward for the banks. What the AMCON wants is to exit the ownership of these banks bearing in mind two things-One that AMCON makes a maximum returns on its investment and two, that the financial system remains strong and stable, so those are the two considerations that are going to be foremost in our decision on what to do next.

How will you respond to calls for AMCON  to sell at least 60 percent of the shares of bridged banks to foreign investors while the remaining 40 should go to local shareholders?

I think it is not an unreasonable suggestion, but we need to make sure that all options are on the table. There is no reason, if it makes sense per cent why we should not sell to the Nigerian public one or more of those banks. There is no reason why they can’t stand alone and so what we are really trying to do is not to prejudge the options but to say that that option is not unreasonable. We are waiting to know what our advisers will tell us as the best way to go.

For how long with the banking public wait for the financials of these three bridged banks?

Let me say that the process banks go through in releasing their results is complex. The account has to be approved by the CBN. I believe all those banks have their final audited accounts with the CBN and so they are in the process of being approved and reviewed. I’m sure you will get the accounts of these banks very soon.

Some members of staff inherited from the legacy banks by the bridged banks, especially those of the Mainstreet Banks are protesting the exit package put in place by their employers which they complained did not recognise their years of service in the defunct Afribank. What is your take on this development?

It is a difficult issue because it has the legal side and the human side. The legal side is that the old bank, talking about the legacy bank of Mainstreet Bank (Afribank), is an institution that has been wound down. If this bridging and subsequent recapitalisation had not happened, Afribank would have been liquidated and legally, those employees including all other ones that have new terms of employment would have lost everything.

So it is in consideration of that that the Nigeria Deposit Insurance Corporation (NDIC) and the CBN went through the bridging process. This is what people should understand. If banks had been liquidated, all employee benefits, all these things people are now claiming would have been secondary to the depositors and it is only when depositors get whatever they can get that anything left over will go to these people. This is because all these stocks were lost. So the legal position is that Afribank employees who are not the same as Mainstreet Bank employees (because they had no employment contracts) were victims of a liquidated bank as it were. That’s the legal side. But the human side is that people have worked, people have earned whatever it is they are entitled to, and so I think from the human side, it will be good if there is a way to come up with a reasonable middle of the ground answer. It does not help if the either side takes an extremist view of the matter. At this point, I will say these banks are new entities, they do not have the legacy obligation as a matter of law but I think that both sides should talk and come up with a middle approach looking at the human side.

How will you react to the damning report of the House of Representatives on the collapse of capital market which indicted AMCON and other government agencies in the financial sector?

I was initially angry when I read the House of Representatives capital market committee report. I love the House of Reps as an institution but the work that the committee did saddened me. The issue of valuation for example, they put it in the report that they gave to the House of Reps to adopt. The AMCON Act, the act that they wrote specifies that AMCON valuation should be made public. In November 2010, when AMCON started operations, the valuation model for valuing the loans was published in all the newspapers. It’s in fact, part of the CBN guidelines for how AMCON should operate and it was gazetted. There were three types of loans that AMCON was empowered to purchase. The first were loans backed by tradable securities. There was a valuation method. The valuation method was a 60-day moving average of the shares plus a 60 percent premium. The rationale for that was that when you buy a bulk of shares in a depressed market, you always have to pay a premium. Our analysis was that the appropriate premium was 60 percent. That was published. The second type of loan was those backed by tangible collaterals like real estate, equipment, and aircrafts. These are tangible assets. The pricing module was the average of open market valuation and the first sale valuation of those assets. So if a loan was backed by a house, you take the value of the house in the open market and take the first sale valuation, the average of the two pricing is the pricing of the loan. The third are loans that have no securities or whose securities are not presentable. For that AMCON decided to pay the flat five percent that was the formula. It was published and it was gazetted. They may disagree with valuation models but when they say there is no valuation model, it is saddening because it is a publicly available document and we published it in the papers and even the international community commented on the valuation models of AMCON. So, that is baffling to us.

What about the question the committee raised on a particular loan to the Plateau State government, what went wrong?
They cite a loan from Plateau State government, which they acquired from Unity Bank and they said we paid more than the value of the loan but if they had made one minute of effort, they would have seen that the Plateau State government loan was three loans totaling N1.2 billion to which we paid about N800 million, our valuation was N800 million. They took the top loan which was about N560 million and attached the total pricing to it and said we paid more but there are three loans and we can show it. The three loans totaled N1.2 billion. I can go on and on.

I want to say this, that nothing in that report about AMCON was accurate. They scored a perfect zero. For example, they asked me whether I had met the MD of Seawolf before I bought the loans and I said no and that was a problem for them and they said it was irresponsible. They used all manners of abusive words against me.

AMCON acquired 13,000 loans. The contract to acquire loans is between the banks and AMCON. If we start asking the debtors whether they want to pay back or not, then there would be no AMCON, so we don’t talk to the debtors until we acquire the loans because we have no relationship with the debtors until we acquire the loan. So on what basis I would have approached the MD of Seawolf before I bought his loans. If I had gone to him before I bought the loans then, I didn’t have any relationship with him, why would he talk to me? And even if we could talk to 13,000 debtors, do they know what it means to talk to 13000 debtors? That will take years, so my concern is if I said yes I knew him, then they would have said it was an arrangement. We were supposed to work together and it appeared as if they were looking for something wrong. I have since met the MD of Seawolf, and we are involved in negotiating how he will repay his loans and he is being very responsible and we were being very tough on him and that is the way it should work. I can go on and on.

How will you react to the query they raised on the presence of the director-general of the Securities and Exchange Commission, (SEC) Arumah Oteh on the board of AMCON?
They say Arumah Oteh is our regulator. According to AMCON Act, Section 58, we have only one regulator, which is CBN. SEC does not regulate AMCON at all. On the basis of that, they then jumped into conclusion that Section 10 of the AMCON Act forbids Arumah Oteh as our regulator to be on the board of directors. Section 10 of the AMCON Act does not say any of such things. So they are wrong about having regulators and they are wrong about Section 10 of the AMCON Act.

They also complained that AMCON capital is N10 billion, which they described as insufficient. First of all, AMCON is a statutory corporation so the notion of capital is not really relevant, but be that as it may, that N10 billion is mandated by the AMCON Act which they passed. It specifies in the AMCON Act, on the first page, part one Section two that the authorised share capital of AMCON shall be N10 billion. It is the law, why would there be an issue? I can go on and on on what they said. Nothing is correct but let me go to one that is more of concern to me. They made an announcement that AMCON is a time-bomb waiting to explode and they based this on a whole bunch of nonsense. The first nonsense they based it on is that the bonds are not guaranteed.  Section 27 of the AMCON Act, which they passed, if they read it, states specifically that all bonds issued by AMCON pursuant to sections  6 and 26, shall be guaranteed by the federal government. No option, it is the law that directs us to issue the bonds and that they are guaranteed. The reason why we engaged Debt Management Office is because we want DMO to know what we are doing and in the interest of good governance so that we can synchronise and work together but once we issue it pursuant to sections 6 and 66, it is guaranteed, so all AMCON bonds for the sake of international investors and other investors are guaranteed by the federal government.

Then they say AMCON is not supervised by anybody. Section 58 says AMCON shall be supervised and regulated by the CBN but that is not all, we must report to the Federal Ministry of Finance and the CBN Governor in any form they require at any time. We have a board of directors drawn from CBN, ministry of finance, Nigeria Deposit Insurance Corporation, SEC DG, and we are mandated to meet not less than nine times a year. Very few organisations’ boards meet nine times in a year and we must report every quarter to the standing committee of the house and the senate. We are one of the most regulated entities in the country but yet they say we are not regulated. Are they saying that if somebody is regulating you he cannot be on the board? Or a body cannot regulate itself?  Who regulates the behaviour of the members of the House of Representatives? They have something called committee on ethics and privileges that is part of the national assembly so part of the argument is that CBN cannot regulate AMCON because they part owned AMCON. How can the committee of privileges that is part of the national assembly regulate their members? Let outside bodies regulate the behaviour of their members. We trust them to regulate themselves, why don’t they trust us? Are they better than us?

There is nothing that makes sense in the report and you continue to ask yourself, why write a report like that and embarrass the House of Representatives and embarrass the nation. You tell foreign investors that AMCON is a time bomb, what do you expect when there are 80 percent of them in our capital market?

You are supposed to fix the capital market, you then make a wild statement like that and what do you think the foreign investors are going to think? I’m sad that all of this is based on talking to me for one hour in a public hearing, if they had any follow up questions, I would have gladly explained.

They also made a wild accusation that they asked for me for certain information and I didn’t give them the information. They were asking me for information I didn’t have. For example, they asked me for post-consolidation information of banks. AMCON is not a regulator; AMCON does not have such information on banks except the banks that were fully capitalised. We cannot go to First Bank and ask them for any slide, we have no basis. So CBN is the one which is likely to have the information and their disclosure is governed by rules. For example, CBN examines everybody including AMCON and when they examine us, we explained everything, so there is a relationship of trust between the CBN and those being examined. Maybe they think the result of the examination will be handed over to national assembly as a public document. If this is done, everything will be so open and they will frustrate regulation. But these things have to be explained as partners. We will like the national assembly as a body to partner with AMCON. We are a creation of the national assembly. We respect them, without them, AMCON does not exist but even if you have your child, you don’t brutalise him to make a point, that is what they have done here.

They have found nothing good in what we have done. For example, our banking system is one of the best in the world now. We have in Union Bank, close to $600 million investment at a time when investors worldwide are running away from banks, we are getting investors in our banks. AMCON was brought in to intervene in the three airlines flying in Nigeria today. Others have gone under. I dare say without AMCON; maybe none of them would fly today.

So there are industries and jobs that have been saved because of AMCON intervention. At least, when your child is doing well, you should commend your child, National assembly should be saying to the world, one of the things we have done is AMCON, same goes for the CBN and the presidency. It is unfortunate when you brutalise your child because that is what the committee did but hopefully it will be contained when it is presented to the entire house.