Post-merger: Shareholders save Nigeria from losing over N3tn

By Peter Egwuatu
Shareholders of the five rescued banks by the Central Bank of Nigeria (CBN), last week saved the country from losing over three trillion naira if they had disapproved of the various merging proposals by the Board of Directors at the court-ordered Extra Ordinary General Meetings (EGMs).
Similarly, depositors of rescued banks have been assured of the safety of their money post-merger, following approvals received from the shareholders at the various court-ordered EGMs in support of the acquisition deals.

The shareholders of the five rescued banks supported the acquisition deals in order to enable the banks meet the recapitalisation deadline of September 30, given by the CBN.
It will be recalled that aside from the N620 billion bailout fund, about N3 trillion has been invested by AMCON in buying over the non-performing assets of these rescued banks.
“If these banks should be liquidated, the nation would have lost at least the N620 billion bailout fund, which is totally unsecured. But the frightening part is that the rescued banks have over N3 trillion in customers’ deposits guaranteed by CBN. This means that collectively, Nigerian tax payers will lose over N3 trillion if all these rescued banks are liquidated,” capital market operators noted.
However, the estimated loss was arrived at based on the N3.2 trillion deposits with the rescued banks currently being guaranteed by CBN and the N620 billion life line earlier given to these troubled banks.
Furthermore, the shareholders’ support for the various mergers signaled the end of further nationalisation of banks in the country if the threat by CBN is anything to go by.
The CBN had threatened shareholders that if they fail to approve the proposed merger schemes by their Board of Directors, it will either liquidate or nationalise the banks.
Already, CBN had nationalized three banks that it felt could not meet the recapitalisation deadline. These are former Afribank Nigeria Plc, Spring Bank Plc and Bank PHB.
From the combination arrangement approved by the shareholders of these five banks, the share exchange ratios are as follows: Each Oceanic Bank shareholder will exchange 14 of Oceanic shares for one of Ecobank Transnational Incorporated (ETI), each Intercontinental Bank shareholder will exchange seven shares for one Access Bank share; each Finbank shareholder will exchange 60 shares for one FCMB share, each ETB shareholder will exchange two shares for two Sterling shares.
The five rescued banks that held their court-ordered meetings are Oceanic International Bank Plc, Finbank Nigeria Plc, Intercontinental Bank Plc, Equitorial Trust Bank Limited (ETB) and Union Bank Nigeria Plc.
It will be recalled that CBN had disclosed that the eight rescued banks that failed the stress test jointly conducted by the CBN and the Nigeria Deposit Insurance Corporation (NDIC) were still technically insolvent, having negative assets of N1.28 trillion.
It should be noted that the managing and executive directors of the eight rescued banks were sacked after two rounds of stress test in 2009 and a N620 billion lifeline was given to them.
Intercontine, had the highest negative assets value of N330.709 billion as at December 31, 2010, while Afribank followed with N260.94bn. Bank PHB’s negative assets stood at N242.309bn, Union Bank had N135.894bn, while Finbank recorded negative assets of N104.751bn as at December 31, 2010. Others are Oceanic Bank – N94.261 billion and Spring Bank – N87.869 billion. Equitorial Trust Bank recorded the lowest negative asset value of N27.253 billion.
The CBN had said: “Despite the various improvements that have been implemented by the CBN-appointed management since taking over, the banks remain in a grave situation. There continues to be value attrition as the banks record operating losses and the potential cost to the government therefore increases.
“This situation will continue to worsen as long as the holes in the balance sheets of these banks, which were created by mismanagement and outright theft, are not filled with capital. So long as these banks continue to fund this gap with interest- bearing liabilities, they will continue to run operating losses, especially in an environment of rising interest rates.”
The apex bank, however, said that the situation could not be allowed to persist as it was affecting the overall objective of restoring normalcy and maintaining financial system stability. It stated, “The CBN cannot afford to keep the inter-bank guarantee in place indefinitely, whereas it is solely by this that the banks have been able to keep their doors open.
Further, the cost to the nation, if the banks continue to operate without capital, is incalculable. The risk to the financial system of these banks failing is imminent and cannot be afforded. In the face of the attempts by a small minority of shareholders to block the return of the ‘grave situation’ banks to normalcy and stability,the CBN is re-evaluating the options available to it under the Nigerian law.”
Speaking exclusively in a chat with Vanguard last week, Managing Director/CEO, Oceanic Bank Plc, Mr. John Aboh said: “The depositors’ funds with Oceanic Bank is very much safe as shareholders have given the bank the approval to reduce the entire paid-up share capital from N11,110,684,684,606.50 comprising 22,221,369,213 ordinary shares of 50 kobo each to zero, through the cancellation of every fully paid, issued, and outstanding ordinary share of 50 kobo each in the paid-up capital of the bank.”
He further noted that by moving the bank from negative shareholders’ fund to zero level, Asset Management Corporation of Nigeria (AMCON) will be committing N290,153 billion.
Similarly, Chairman of Intercontinental Bank Plc, Dr Raymond Obieri, assured depositors that their money with the bank was safe as a new company will be registered after Intercontinental Bank is delisted from the Nigerian Stock Exchange (NSE).
According to him, “Intercontinental Bank Plc sealed the acquisition deal with the Asset Management Corporation of Nigeria, AMCON, and Project Star Investment Limited, a special purpose vehicle representing the interest of Access Bank Plc will undertake a private placement leading to its issuing three billion ordinary shares of 50 kobo each and valued at N1.5 billion to AMCON and 15 billion ordinary shares valued at N7.5 billion to PSI Limited.
He further said on completion of the deal, existing shareholders of Intercontinental Bank will get one ordinary share for every seven previously held by the shareholders, representing 10 per cent of the new bank.
Speaking as well at the Equitorial Trust Bank (ETB)’s EGM, Chairman of the bank, Mike Adenuga said the merger with Sterling Bank was an attractive combination for all stakeholders of ETB.
According to him, customers of ETB will benefit from a wider and better-integrated array of services and technologies; employees will enjoy the advantage and opportunities of being a part of a larger and stronger company while shareholders will have the opportunity to continue to participate in the success of a bigger enterprise.
He said the Board of ETB considered the exchange ratio and terms of the business combination as fair deal noting that the merger have staved off possible liquidation and enabled ETB to achieve corporate renewal.
In similar manner, Managing Director of Sterling Bank Plc, Mr. Yemi Adeola, said that with the merger, Sterling Bank would have opportunity to become a major player in corporate banking and other services, which would strengthen Sterling Bank’s traditional strengths in structured and trade finance, cash management and treasury.
He pointed out that the merger would lead to economies of scale that would lead to reduction in operating while simultaneously widening the market share of the bank and market penetration, providing opportunities for increased revenues.
“With this merger, we are laying the foundation for future earnings, growth and better financial performance. We expect to increase earnings, cut costs and significantly build shareholder value,” Adeola said.
On concerns about the fate of employees and integration of the two banks, Adeola assured that Sterling Bank would not discriminate against any employee of the merging bank citing part of the scheme of merger which indicates that Sterling Bank would absorb all employees and place them on commensurate remunerations.

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