Getting Bridged Banks Ready for New Investors

16 Dec 2012

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The planned divestment of Asset Management Corporation of Nigeria (AMCON) from the three bridged banks in the country in June next year has raised some fundamental questions bordering on continuity of the recovery mode and resolution of outstanding legal and labour issues, reports Festus Akanbi

As the Central Bank of Nigeria (CBN) and Asset Management Corporation of Nigeria (AMCON) put finishing touches to the sale of the three bridged banks come June next year, banking industry analysts have said the process is bound to return the industry into the centrestage of public discourse in view of a number of issues which need to be addressed before the institutions are handed over to new owners.

The bridge banks, which include Keystone Bank (defunct Bank PHB), Enterprise Bank (defunct Spring Bank) and Mainstreet Bank (defunct Afribank), were liquidated by the Central Bank of Nigeria (CBN) on August 5, 2011 and their assets and liabilities acquired by AMCON, following the inability of the defunct banks to recapitalise.

An indication that the authorities are ready to let go of the banks was given by the Central Bank Governor Sanusi Lamido Sanusi at the end of the fourth yearly Bankers’ Committee retreat in Calabar last week.

He explained that with the restoration of financial systems stability, the bank would commence a process that would enhance AMCON’s divestment from the three nationalised banks next year to aid their performance.

Managing Director, AMCON, Mr. Mustafa Chike-Obi, had told THISDAY in August that it had commenced measures to dispose the banks since, according him, AMCON was not willing to hold on to the banks for more than two years.
AMCON had injected N679 billion into the bridge banks to meet the minimum capital base of N25 billion and the minimum capital adequacy ratio of 15 percent.

The investment was approved by the Federal Government as part of the CBN’s financial sector reform and intervention programme aimed at cleaning up the nation’s financial system of the rot left by erstwhile managers of former Afribank Plc, Bank PHB Plc and Spring Bank Plc.
AMCON in August 2012 appointed two financial advisers – Citibank consortium and Renaissance Capital consortium – preparatory to the sale of the three bridge banks – wholly owned by the corporation.

While Citigroup is responsible for Mainstreet Bank, Renaissance Capital consortium is handling Keystone and Enterprise banks.
Although both the CBN and AMCON have decided to keep the list of investors bidding for the banks close to their chests, THISDAY check showed that apart from a number of the Nigerian banks bidding for the three banks being offered for sale, some foreign banks are also indicating their interest in the three bridged banks.

One of such is the South Africa’s second largest bank, First Rand Limited. The bank, which recently acquired a merchant banking licence from the CBN, is said to be eyeing one or two of the bridged banks. The planned acquisition of one or two of the bridged banks is to help fund its investment bank arm, Rand Merchant Bank (RMB).

FirstRand may buy a retail and commercial lender in Nigeria to support its investment bank and win access to consumer deposits for corporate funding, said Alan Pullinger, the unit’s chief executive officer.
“We are exploring various options in Nigeria, including the assets which form part of the Asset Management Corporation of Nigeria,” said Sam Moss, a director of FirstRand.

Capital Market Option
Earlier in the year, speculations were rife that AMCON might be considering listing the three bridge banks on the Nigerian Stock Exchange (NSE) as an option to make the banks more competitive.

Chike-Obi gave the hint at the opening ceremony of the 16th Annual Chartered Institute of Stockbrokers (CIS) Conference and Induction of new Associates held in Lagos. He said that the corporation was waiting on their advisers to take a decision as to whether to list the banks on the NSE or not.

According to him, over 25 unsolicited bids from investors have flooded the corporation asking to buy the banks.
“We are not in any hurry to sell the banks. They are fully capitalised and profitable. They are running as independent banks and we are very happy with them,” he said.

Unfinished Business
Analysts would like to know how the management of Mainstreet Bank, for instance, will resolve the faceoff with the local chapters of Nigerian Union of Banks and Financial Institutions Employees (NUBIFIE) and the Association of Senior Staff of Banks Insurance and Financial Institutions (ASSBIFI). The unions have been contesting the severance package handed over to some of the former staff of the bank, especially those inherited from legacy Afribank. The question is -will the current management of the bank be disposed to settling the labour issues in their banks?

Another question being raised is whether the six-month timeframe for the divestment will be enough for the current managements of the banks to prepare their handing over notes.

A director in one of the banks confided in THISDAY that although some of them are aware of the temporary nature of their assignments, it is unclear if all the three banks can achieve a seamless handover by June next year.

Analysts who were not comfortable with the June 1, 2013 hand-over date to new investors said there have been conflicting signals from CBN and AMCON over the readiness of the banks in recent times.

In a recent interview, AMCON boss had disclosed that the two financial advisers appointed to evaluate the three banks were yet to submit their report, explaining that the corporation was yet to determine the worth of the banks.
Meanwhile, the corporation insisted that the bridged banks have all broken even and will soon return to profitability.

Back to Reckoning
Executive Director, Finance and Operations, AMCON, Mrs. Mofoluke Dosunmu, said the banks had taken the necessary steps to drastically reduce the rate of their loss, through the efficient management of the banks.

She said, “I would be careful to say whether the bridged banks are profitable. What I would say is that they have taken necessary measure, corrective steps to ensure that the banks run better, going forward thereby, and showing improved performance.

“You find that the rate of loss has definitely changed drastically for those that have not broken even. And some of them have broken even.
“But if you’re talking about a whole year, while they might have been making loses as at December, between then and now they have broken even. But if you are looking at a whole year’s profit for 2011, you might not find profit at the end of that whole year but if you compare it with what it was before, you will see an appreciable difference.”

Dosunmu said confidence has been restored in the bridged banks, adding that they are now effectively competing with other banks in the country.

One issue that will definitely come up in the process of handing over to new owners is that of the fate of the current staff of the three banks.
In an industry replete with cases of industrial disharmony, banking industry watchers said unless the CBN and AMCON factor employees issue in the divestment process, history may repeat itself as previous arrangements had been mired by cat and mouse relationship between the staff and new management of banks in recent times.

A Lagos-based financial analyst, Mr. Timothy Alao, said the banks also have to contend with a number of legal battles initiated by some former shareholders of the bank who are still slugging it out with the authorities over their loss of investment brought about by the bridging option.

“Will new owners be ready to inherit these court cases or is there a way of assuaging the embattled local investors in a way to make them withdraw the cases from court?”

He, however, said the greatest challenge would come after the divestment, saying the banks which have been shielded by the regulators in order to allow them regain their lost glory would be made to compete with other banks in the industry.

Tags: Business, Nigeria, Featured, Bridged Banks

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