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The nightmare before Christmas for bankers

Source: huhuonline.com

“There are two options in situations like this. One is to have a massacre, and the other is to ease people off slowly…. However, a massacre is better when you are cleaning up. The fact is that the banks can no longer sustain their expenses and so, a cut back is inevitable” – Bismarck REWANE, MD/CEO Financial Derivatives Limited

If I were running Intercontinental Bank Plc or Oceanic Bank Plc, there are two distinct individuals I could have retained in the recently concluded right-sizing exercise announced in the last four days. I am more than a little bit sentimental about these gentlemen because of what they have done for the firm; anxious about the timing of the action and most certainly concerned about their well being.

Yet, for the entire furore about the sack of bank workers, and for all the headline grabbing threat about what such an action will create; it has now become apparent to the market that not taking these actions represents a much bigger threat to banks and bankers. The evidence just does not support a retention of the status-quo; period.

While those affected would have to unlearn, learn and relearn as they move into a new phase of life – dealing with mortgage repayments, ever-growing bills to maintain life in a country spiralling out of control and proportionate quality of life, changing relationships and esteem – the advice is to take heart and use the season to reflect on answering the what next question.

Make no mistake about it, many families will have few reasons to celebrate this season – it is a nightmare scenario no matter how prepared one was for such inevitability.

Why? This country does not take job creation seriously and more so, in an economic downturn where the management of the economy appears to have taken a back seat to politics and power issues; the opportunity for a quick bounce back appears blurred. Further, the options for a similar-type job opening or an entrepreneurial endeavour may not be there for some. But then, such is life.

Recall that in the wake of the financial meltdown that impacted Wall Street, we all watched CNN relay a vivid image of financial services workers carrying our boxes containing their personal belongings out of offices they had occupied for more than twenty years (for some) and going home. The looks on their faces were varied but it all reflected their intelligent conclusion that this was inevitable.

The lesson here - once a bank or any institution has been determined to be in a working capital challenge situation and the management has confirmed the inevitable option of right sizing the workforce – it is time to go. At one of the banks that recently announced the staff exits – a key member of a unit moved on to become a CEO of a service company to buttress this point.

As the American experience teaches us – these institutions need talents to bounce bank and when they do, there will be opportunities for those that are defined by value – old and new alike – in the new firm.

Reviewing commentaries on the action so far, two issues become apparent – either for their misunderstood purpose or simply because we collectively have an amnesia on issues that affect us. First is the reasoning behind the CBN directive on how to manage the huge wage bill inherited by the interim management of these banks; and second is the conclusion around the inevitability of the decision to right-size the workforce as in any turnaround engagement.

Seeing the Finishing Tape from the Starting Block: When a national newspaper broke the story of the CBN directive to the 'Lamido Eight' on the need to reduce cost, including staff emolument by 30 per cent – the market treated it as one of the sensational outburst from a CBN Governor growing in fame for his colourful comments and ability to shock the system.

Yet, a more informed insight revealed the reasoning – the CBN was merely responding to feedbacks it had received from the banking industry and its system review. It was reported that one of the CEO's of the 'Lamido Eight' had complained about an inherited monthly wage bill of N5bilion which could not be sustained.

The need to cut off expenses obviously goes beyond that of staff but as any employer of labour or entrepreneur knows, staff costs goes beyond the pay – it goes to the heart of service, competency, operational efficiency, productivity, culture, and shared values.

According to Bismarck Rewane, CEO of Financial Derivatives Limited, “Banks in Nigeria had been operating beyond their capacities, now that the fundamentals have changed, they had to adjust”. He went on to lay clearly an assessment of the consequence of the actions – “the massive layoffs in the banking industry will bring to equilibrium, the price of labour in the sector because bank workers have been over priced. Yet, the sackings will not be as bad on the economy as was being expected but rather bring a fair value to the system”

The right-sizing conducted thus far, was on the top of every banks to-do-list even if they chose many clichés to describe it depending on their sensitivity for their audiences - sack, layoffs, retrenchment, disengagement, downsizing, retooling, or the more sassy term – capacity alignment.

Last week, Intercontinental Bank released 1,389 staff members and on by noon on Monday, Oceanic Bank released over 1000 across the board. Wema Bank and Spring Bank had taken action in September with about 500 and 200 members of staff respectively.

To debunk the notion that the actions were a reaction by banks under 'administration', one simply needs to recall that First Bank and Stanbic/IBTC released 485 and 300 staff respectively in October while UBA is reported to have or is contemplating releasing an additional 1,000 staff a month after it had released 400. FCMB and SKYE Bank are equally reported to have carried out (still on-going for some cadres) its own internal adjustment to cope with its realities.

Thus, the attractiveness of the argument that action was needed to get the whole banking system back on track and eliminate the era of indiscriminate expansion without basis, appears compelling. The counter argument to this relates to the fact that it could also indicate a weak condition in the so called cleared banks as well.

Some will mutter about stable doors and horses; and they will be right. It was the inadequacy of the supervisory role of regulators and the incestuous relationships that existed which provided dangerous incentives to banks to take the crazy risks and decisions that have brought them to this point.

Let no one be in doubt. Moments like this falter to deceive.

Although these banks have put together a reform and transformation agenda, the ability to generate the momentum needed to create the rate and speed of change required to deliver results will be severely tested by the resilience of a weakened system.

These banks could, for all intents, be listed as endangered specie; not on account of poor management skills to turnaround these firms but by the sheer volume of work and issues needed to be dealt with.

It is for this reason that the current management should refocus on the very reason they are there – to which I would assume is - to assure of the going concern of the business and deliver shareholder value.

Heading to 2010: The fine line between hope and despair

Delivering shareholder value under a situation where the shareholders are deemed to have lost their holdings – cannot sue the managers themselves (or have not yet explored this option of suing their erstwhile CEO's) – and as such have found themselves under administration of sorts.

Without a clear owner in sight at this time – the only responsibility officer for the banks is the CBN – the regulator; who must recognise that it has found itself in a cul-de-sac.

The issues are far deeper than the soap opera that has since played out amongst those affected and those gaining from the new order – the divide are admitting new members daily, yet no one is focussing on the central question that should have been obvious by now.

What is the central mandate in this process? The facts as made available are – CEO's and Executive Directors were removed by the CBN and new ones appointed to work with the board of the banks; CBN injects additional funds whilst using state agencies to pressure recovery of due debts; the focus on 'cleaning out' the books to eliminate bad debts and the eventual publication of the true worth of the banks for the market and potential buyers (who still have to do a due diligence); and the pruning down of the bloated expense profile of the banks; including the non-value adding subsidiaries and associate businesses making up the group.

The despair side of the business has been delivered and we must ask questions about the hope issues – what are the banks doing about deposits, credits to consumers, customer service delivery, fee-based activities and general business focus.

This Christmas, the nightmare comes to an end and we will judge the banks, and indeed the CBN, on a new scale – how much of the hope they can give, not how much of the despair they can dish out. Seasons Greetings!

Olufemi Awoyemi, FCA

MD/CEO Proshare Nigeria Limited

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