By NBF News

Intercontinental Bank MD- Lai Alabi
The last week announcement of proposed merger between Intercontinental Bank Plc and Access Bank Plc hardly came out of the blue since the Central Bank Governor, Mallam Sanusi Lamido Sanusi, had, recently in London, hinted about it and other things cooking in the banking industry. But the questions being asked by the banking public is this:

What impact will the business combination make in the nation's business terrain? What benefit will the take-over of the rescued bank bring to the economy? Stakeholders expressed divergent views on the matter.

Commenting on the proposed merger, Mr. Bismarck Rewane, the CEO of Financial Derivatives Co., a brokerage firm, told Bloomberg that 'the merger is a welcome development as it reduces systemic risk in the banking industry. The alternative would have been to liquidate Intercontinental, which would be risky to the economy.'

Also, Mr. Aigboje Aig- Imokhuede, the Managing Director of Access Bank stated that 'the merger will create the fourth largest bank in the country, 'the process is subject to approval by regulatory authorities, the judiciary and shareholders, so it is premature to give details of the terms.'

Reviewing the strengths and weaknesses of the merging entities, Mr Kayode Tinuoye, an investment researcher with Afrinvest West Africa Ltd, said that Intercontinental Bank was a very strong bank in terms of assets and shareholders' fund before the crisis in the banking industry. But the crisis eroded its capital base. One of its attractive strengths is in retail banking with over 300 branches across Nigeria. This is an edge above its peers. Another aspect of interest is the bank's cutting edge technology.

In terms of management, the Managing Director, who was appointed by the Central Bank of Nigeria CBN) was chosen after careful consideration, which means that he is competent. Other members of the management team are also credible. The bank has strong management to be leveraged on. Generally, the bank has focused personnel because we knew Intercontinental Bank before the crisis was a good magnet to quality manpower.

As for its weaknesses, Tinuoye said most of the weaknesses have been taken care of. 'For instance, the eroded capital which is the bank's greatest undoing, has been taken care of by AMCON. Intercontinental Bank has little focus on institutional banking. This is the area in which that Access Bank will play important role.'

As for Access Bank, he also praised the financial institution as a very strong bank in terms of institutional and corporate banking. He added: ' It is however growing its retail banking aspect. The bank has strong assets quality in terms of non-performing loans ratio to total loans. This is because of its aggressive loan recovery strategy.In its latest report, loans rose 16 per cent in 2010, boosted by lending to corporate clients, said Seyi Kumapayi, Chief Financial Officer of the bank.

Access reduced its non-performing loan ratio to 8.1 per cent in 2010, from 19 percent a year earlier, Kumapayi said. The bank plans to lower it to 7.5 percent in 2011.It has strong technology platform that enable it minimize cost effectively. In terms of management, the bank has a good management team that has brought it thus far.' Commenting on its weakness, Tinuoye said Access Bank has weak retail distribution network. 'This is where it will leverage on the retail network of Intercontinental Bank.'

As for what is expected from the corporate marriage, Tinuoye said it is expected that there would be a lot of benefits. 'In M and As, the parent company stands to harness energy and knowledge, set an industry standard by involving partners and also gains economies of scale or global reach as well as risk reduction. The merger and acquisition between Access Bank and Intercontinental Bank will bring about expanded market for the banks and more businesses.

Market share of the emerging company may get to 8 or 9 per cent which will be a great improvement when we look at Access Bank's 3 to 4 per cent current market share. Earnings would be boosted significantly, thereby enhancing shareholders' value in the long-run. I say long run, because there will be a lag between integrating all processes and profit generation; A kind of gestation period, during which things like IT platforms would be integrated. So, the real benefits are expected to start pouring in from end 2012.'

As for Intercontinental Bank, he said that its retail banking strength would be a perfect match to Access bank's lean retail banking division while Access Bank's strong institutional and Corporate Banking division will provide a perfect synergy to Intercontinental Bank's little exposure to this division. 'It will be a win-win situation for shareholders of both institutions. We will have less concentration of market share of the industry which has been under the dominance of two banks.'

In terms of employee response, whether the transaction is described as a merger or an acquisition, the event will trigger uncertainty and a fear of job loss. 'So, I expect that there will be a rationalization of branches especially where the two banks have branches close to each other. But this might not be much because it is observed that the two institutions rarely have branches so close to each other, unlike banks like Oceanic and First Bank of Nigeria Plc. In other words, there will be minimal laying-off of staff. The parent company will have stronger workforce. It will also have a more efficient management team. Notably, the bigger the bank, the more efficient is the use of resources.'

Name change
On the name to be adopted, Tinuoye explained that there are certain issues to be looked at before the name of the parent company could be determined. 'The major aspect in my opinion is the aspect of shareholding. Access Bank's shareholders are likely to have greater ownership of the new entity. For instance, AMCON which has injected fund into Intercontinental Bank will own about 8 per cent. Intercontinental Bank's shareholders out of the magnanimity of CBN through AMCON's activities, will own 10 per cent, while Access Bank's shareholders will own about 82 per cent.

In this instance, I propose ACCESS-INTERCONTINENTAL BANK just like we had Stanbic IBTC Bank. It is a good thing to shareholders even though those from Intercontinental are not happy about share dilution that would be the aftermath of this deal.' The news agencies early last month quoted the CBN boss as saying that two of the eight financial institutions bailed out in 2009, have signed agreements with core investors to recapitalize them for more efficiency. In fact, Sanusi made no pretences about his faith in the deals when he certified them real, assuring the stakeholders that the apex bank was fully in support of the plan when he said:

'I can confirm that two banks have signed Memorandums of Understanding (MoUs), I'm just not able to disclose their names because we do have an approval from the Securities and Exchange Commission (SEC)'. According to him, one of the MoUs was signed almost two weeks before his interview in London while the other was signed a day before he got into the United Kingdom. 'We have two that are ready to sign in the next week or two,' and two others that are also close'. He stated.

Shortly after, Union Bank Plc announced that it had entered into negotiation with a core investor. Giving the details, it stated that its Board of Directors has signed a memorandum of Agreement (MoA) with the African Capital Alliance Consortium (ACA Consortium ) to invest $750 million in the bank. The MoA will in the main, provide a framework for the process by which the bank would be recapitalized.

A week later, precisely last week, Intercontinental Bank Plc and Access Bank Plc came out with their own merger plan. The two banks announced on Tuesday that they have signed a Memorandum of Understanding(MoU) for the purpose of business combination which is expected to result in the emergence of one of Africa's largest financial institutions.

In a joint statement, they explained that 'the retail banking operations of Intercontinental Bank coupled with the wholesale and commercial banking strength of Access Bank offer a high degree of synergy and complementarily unique in the Nigerian banking environment.'

But almost immediately, the apex bank came out with a disclaimer saying that it has not granted approval for any (MoU) so far, calling speculations and comments on the process premature and unnecessary. The apex bank stated that an MoU can only lead to actual transaction if and when CBN issues no objection and other regulatory approvals, insisting that the CBN and other regulators will ensure that all relevant factors, including professional advice from the financial advisers are adequately considered before any approval is granted.

According to its Head, Corporate Communications, Mallam Mohammed Abdullahi, the trend of signing the MoUs is welcome as it shows the intrinsic value that investors see in Nigerian banks and the process signals that the solution to the banking crisis is in the horizon. He added: 'The process which is being driven by the parties involved and not the CBN will have to be approved by the boards and shareholders of the banks concerned. Therefore, all speculations and unsavoury comments on the process are premature and unnecessary. For the avoidance of doubt, the CBN and other relevant regulators will be guided by appropriate considerations including due diligence on investors and the advice provided by financial advisers to the parties before approving MoUs and subsequent transactions'.

Access Bank Plc was incorporated in 1989 as a private limited liability company with ownership residing with Nigerians and Nigerian institutional investors. The Bank was subsequently listed on the Nigerian Stock Exchange in 1998. In January 2002, it was successfully recapitalized and consequently came under its current leadership.Its shareholders' funds stood at N28.9 billion as at end of 2008 financial year.

Despite the daunting challenges faced by corporate Nigeria last year, the 2010 financial year turned out to be a good one for shareholders in Access Bank as the board is recommending 50Kobo dividend per share for them out of the profit recorded for the year. Details of its trading results released by the board early this week revealed that Group audited results for the period ended December 31, 2010 shows that all key financial indicators surged higher than what it posted the previous year.

For instance the bank's profit before taxation for the 12 months ended December 2010 rose to N16.2billion while gross earning rose to N91.1billion. At the same time, its total loan portfolio rose by 16 per cent to N456billion with deposit liability also growing by 15 per cent to N509.6billion in the year under consideration. This leaves the bank with loans to deposit ratio of 88.3 per cent, as well as capital adequacy and liquidity ratios of 26.52 and 36.91 per cent

The commercial bank with operations across eight African nations and in the United Kingdom also gave details of how it fared in other areas of its business in the year under consideration.

Commenting on the results, Group Chief Executive of Access Bank, Aigboje Aig-Imoukhuede said: 'The macro prudential initiatives instituted by the Central Bank of Nigeria to stimulate the Nigerian economy towards the path of sustainable growth and to ensure recovery of the Nigerian Banking sector have provided a launch pad for Banks with strong fundamentals to grow their business profitably.

He expressed appreciation that the 2010 performance places Access Bank amongst the leaders in the Nigerian banking industry and more importantly our focus on business sustainability will ensure the sustenance of our renewed growth trajectory. Access Bank pioneers adoption of International Financial Reporting Standards (IFRS) in Nigeria Access Bank wins the award of most active Global Trade Finance Programme (GTFP) issuing Bank in Africa Commenting on the performance of the bank's strategic Business Segments, Herbert Wigwe, Group Deputy Managing Director said 'I am pleased that we almost doubled our gross earnings from Commercial Banking business in the financial year ended 2010.

This combined with successful efforts to recover provisioned assets ensured the segment returned to strong profitability. Our treasury business contributed strongly to bottom line profits, whilst our increased ending to top corporates clients by our Institutional Bank came at reduced margins.We see tremendous opportunities in our Retail Banking segment and have made significant various investments around personnel, risk management capacity, and product development all geared towards an aggressive retail expansion drive in 2011'.Access Bank plc is a full service commercial bank operating through a network of over 110 branches and service outlets located in all major commercial centers' and cities across Nigeria and in 7 African Nations and the United Kingdom.

Intercontinental Bank
Incorporated on February 9, 1989 and listed on the Nigerian Stock Exchange(NSE) on January 29, 2003. On August 14, 2009, its erstwhile Managing Director, Dr Erastus Akingbola was sacked by the CBN on issues bordering on alleged corporate governance abuse.

Its shareholders' fund as at December 2009 was said to have plunged to negative N380.343 billion from healthy N200.4 billion recorded in February 2008. Recently, the Asset Management Corporation of Nigeria (AMCON), in its bid to bring the bank's negative shareholders' funds to zero before new investors come in, as well as return it to minimum capital adequacy exchanged bonds worth N146 billion for its assets.

As for its financial performance, its half-year unaudited financial account for June 2010 showed that it posted a pre-tax profit of N5.1billion from a loss position of N139.95 billion recorded in the corresponding period of 2009.

This, according to reports obtained from the Nigerian Stock Exchange (NSE), represented a growth of 180 per cent over the N1.8billion profit recorded in the first quarter of 2010. The bank's deposits also grew by 16 per cent from N503.96 billion to N582. 79 billion.