FCMB-FinBank’s Delayed Journey to Business Combination

11 Nov 2012

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Ladi Balogun                

Festus Akanbi and Obinna Chima write on the recently concluded business integration between First City Monument Bank Plc and FinBank, a former rescued bank, which it acquired September 2012

Globally, mergers and acquisitions (business combinations) always have fundamental impact on the acquirer’s operations, resources and strategies.

Business combination also provides an opportunity for the acquiring firm to increase revenue, reduce cost and leads to cost efficiency through economies of scale. The principal benefits from mergers and acquisitions also include value generation, increase in cost efficiency and increase in market share.

As such, any form of delay in the process usually raises concern among stakeholders. That was what customers and stakeholders of First City Monument Bank (FCMB) Plc and FinBank experienced with the deal, which was finalised about a fortnight ago.
In fact, FCMB’s Group Managing Director/Chief Executive Officer Ladi Balogun had lamented the setback, saying the process was costing the commercial bank about N1.5 billion quarterly in terms of synergy benefits.

But he had explained that the deal was affected by the disagreement between the National Assembly and Securities and Exchange Commission (SEC) early in the year.

However, the recent announcement of the completion of the business integration process brought excitement to customers and industry watchers.

One Brand
According to the bank, the two banks have now commenced operations under one brand. Balogun, who disclosed that the merger had been completed from both legal and regulatory perspective, stated that the merger had added 30 per cent to the balance sheet and transformed the bank’s liquidity profile.

“With the culmination of the legal and regulatory processes, we are now able to integrate our operations fully and deliver the expected benefits to shareholders and customers. The enlarged single entity is well-positioned to compete in the consolidating banking landscape.

Our customers will experience continued improvements in the customer experience, improved convenience as well as greater and quicker access to financial support, with simple processes, products and communication. This is, indeed, a pivotal transaction for the bank and one that will lead to significant and sustained increase in shareholder value,” he said.

The New Entity
According to FCMB, the new entity has a combined customer base of about two million and a wider branch network of over 270 branches and 310 Automated Teller Machines (ATMs).

Balogun explained: “All FinBank account holders have become FCMB account holders, all FinBank branches are now FCMB branches, and our two million customers can transact across any one of our 275 combined branches and other channels, effortlessly and in real time.

“The successful integration of FinBank marks a pivotal moment in the life of FCMB.  It creates a robust and durable platform for the larger bank to attain its immediate and future goals and pursue strategy that will enable the bank to provide a more convenient customer experience through a wider branch network and access to convenient services through alternate banking channels.

“FCMB as it is today will deliver significant benefits to all stakeholders. Customers, particularly in the retail segment will have improved access to credit facilities, whilst staff will have broader opportunities through a wider range of career options. This merger has allowed the platform to create a more profitable balance sheet and improved return on equity for shareholders.

On his part, the bank’s Integration Director Patrick Iyamabo said, “Our vision is to be the premier financial services group of African origin. This, we will achieve through a combination of unquestionable ethics, exceptional service, accessible and affordable products.
“Delivery to the bank’s long term strategy will be the focus of the management team. Now that we have gone through the process of integration, our key stakeholders will benefit from the value that is created. Our customers will have improved access to transactional banking through more focussed products across the banking divisions.

“Employees of FCMB will be part of a great company that provides solid career aspirations and shareholders will see an improvement in their returns- this merger will deliver a return on capital in excess of 20 per cent in the medium term.”

Iyamabo further declared that the merger is a representation of FCMB’s ambition to play an inclusive role in transforming the landscape of the Nigerian banking sector.

“While it will be value accretive, it will allow us to invest in Nigeria’s economic upswing and benefit from the expansion of the middle and mass market that our country continues to experience.

“FCMB is better placed to continue in its growth to become one of the leading banks in Nigeria by franchise value.

Financial Performance
The bank’s unaudited financial results for the nine-months ended September 30, 2012, showed steady improvement in year-on-year performance. The bank’s profit before tax went up by 23 percent to N12.1 billion as its annualised Return on Equity (ROE) also increased by 45 percent in September 2012. It attributed this to improvement in its balance sheet.

However, the group’s net revenues for the same period went up by 36 percent (year-on-year) to N34.5 billion. Non- interest revenue stood at N6.6 billion, indicating an eight percent growth.

In the same vein, the group’s operational expenses (year-on-year) went up by 60 percent. It attributed the growth in operating expenses to the consolidation of FinBank numbers for the first time in 2012.

But it also recorded loan loss provisions of N1.3 billion in the third quarter period against the write-back of N0.8billion it recorded in the second quarter. This, it said came from a recovery of previously-provisioned assets from both FinBank and FCMB.

Share Price Movement
FCMB’s share listed on the Nigerian Stock Exchange (NSE) has not been inspiring this year. This has also been attributed to the delay in the merger process.  THISDAY checks showed that the share price, which stood at N4.10 per share at the end of the first trading session on the NSE, has shed 21.5 per cent of its value year-to-date, compared with the N3.22 per share it was as at closing bell of November 7, 2012.

The stock quoted on the banking sub-sector of the Nigerian bourse has traded around the region of N3 per share since May 5, when it closed at N3.79 per share. The highest value it has attained this year was the N5.70 per share it got to on May 2. FCMB’s market capitalisation was N52.393 billion as at November 6, 2012 when it ranked 22nd on the NSE’s capitalisation ranking.

Consumer Financing
In a recent interview with THISDAY, Balogun said the bank had been very effective in consumer financing space. According the FCMB boss, presently, the bank disburses over 10,000 personal loans monthly. He had anticipated that the number would rise to over 120,000 personal loans yearly with the conclusion of the merger.

He added: “And that is growing every month and we are doing it with less than two per cent of those loans going into default and even when they do go into default, the loss is not 100 per cent. You will see that in the next few years, a lot of our innovations are going to be in the area of retail finance because we believe that interest rates would not always be high in Nigeria.

“The deposit gathering retail strategy is very possible because the monetary authorities have a very tight monetary policy. We see the retail as heavily under banked. Our position is that as a supportive bank, it is critical that our credit focus should be in the consumer space.

“Now that we have mastered several lending models that will enable us to grow in tens of thousands a month, then we would be able to fulfill the mandate we have set for our self, which is really to empower a lot more Nigerians.”
Continuing, Balogun averred that FCMB had migrated from an investment bank to a retail bank.

“Even though we are doing 10,000 to 12,000 a month, we are barely scratching the surface. We have credit products for entrepreneurs and self-employed people as well,” he added.

Tags: Business, Nigeria, Featured, FCMB

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