By NBF News

In the heat of the deadline set by the CBN for rescued banks to recapitalise, the Managing Director of Union Bank, Mrs. Funke Osibodu, had an interactive session with journalists. She answered probing questions from the media. Excerpts:

WILL Union Bank still be around by September 30?
•Mrs. Funke Osibodu
Indeed, we will definitely be around. Our recapitalisation process is progressing well. I believe that prior to this time, the last public communication on the recapitalisation process by us was in relation to the execution of the Memorandum of Agreement (MoA) with a group of private equity investors, led by the ACA Consortium. We did at that time highlight the members of the consortium.

You will also recall that at that time, we had mentioned that we would be proceeding to the next phase in the process, that is, the negotiation and execution of the definitive and robust agreement called Transaction Implementation Agreement (TIA).

This is the agreement that provides for the fine details of how the recapitalisation process and the imminent investment by the Consortium will be implemented.

As published this month, we have now signed this agreement. It is a detailed document where the way the relationship will work and the way bank will be recapitalised has been agreed on.

With the execution of the agreement, the recapitalisation process is now in full steam. The TIA is officially announcing the engagement of Union Bank and the core investors, subject to the approval of the regulators and the shareholders.

Substantive agreement
With the signing of the TIA, we have gotten, as an institution into what we call a substantive agreement which will be presented to two key parties: the regulators and the shareholders for their blessing.

It will now no longer be left in the hands of both the Management and Board, but the determining parties will now be the Regulators and the Shareholders.

On the regulators side, the initial key regulators to approve are the Central Bank of Nigeria (CBN), the Securities and Exchange Commission (SEC), and the Federal High Court.

Therefore in terms of next steps in the process, following the execution of the TIA, we will obtain the CBN approval of the TIA, and then we will be approaching the SEC for clearance of what is known as the 'scheme documents' and separately the Rights Issue Circular.

Once we have the SEC clearance of the scheme, we will be making an application to the Federal High Court to convene what is known as the Court Ordered Meeting of the shareholders for the scheme whist we will also call for a meeting of the shareholders to approve the proposed rights issue.

At this meeting, the shareholders will be presented with the recapitalisation proposal and once approved by the shareholders and sanctioned by the Federal High Court, then this will trigger the injection of capital into the Bank by our three partners,

the Assets Management Corporation (AMCON), who will make sure that the negative capital of the bank is restored to zero, and then there is the core investor and the shareholders who will get the capital of the bank to capital adequacy level.

The shareholders money will come in through a Rights Issue. We expect that once shareholders approve, and the Federal High Court sanctions, the three partners will bring in money by September.

So Union Bank will be around, well after September 30. That in a nutshell is what we are doing on recapitalisation.

How comfortable are you with the shareholders in view of the contention of most of the rescued banks' shareholders since the process started. Are there factors disturbing the process? Have there been issues with the shareholders and the foreign investors?

I think each bank is unique in its own way and the process for each bank is unique. I can speak authoritatively for Union Bank and I can be very clear on that side. What is common is purely the aspect relating to how we all came into the bank through CBN's intervention. Beyond that, each bank is arranging its recapitalization in its unique way.

There will always be the shareholders who agree and those who do not agree. And even when you take every institution, even without the CBN intervention, every bank among its shareholders, will have those who will disagree with what is going on in their bank.

But I believe that there has been too much emphasis on those who do not agree. What is going to be very useful is to request for the number and the volume of shareholding that those who disagree represent. How many are they?

Though the law allows you, even if you are the only dissenting voice to raise your issue and even if you have only 1 share, it does not mean that this cuts across all shareholders.

We have over 500,000 shareholders. When you have over 500,000 shareholders, you should not expect everybody to be saying the same thing.

But you should be able to do your best for those who are saying something different and to show them all the evidence that you are doing the right thing, and that is what we are doing.

So we should not generalise that all the shareholders are in disagreement of the process. For Union Bank, we expect success and the reason is very simple. We have carried along, our various constituencies in different ways.

We have had different meetings with different groups of shareholders and stakeholders so that they are updated.

We also made sure that openly, when they have questions, they are free to call us. I think in the last four weeks, several stakeholders have called me to find out if we can meet the September 30 deadline and I have always told them the position.

For Union Bank specifically, on our foreign investors, we have been very careful on how we went about choosing them. If you remember, I did tell you that there were many parties that were interested and we went through a rigorous process in selecting them.

At Board level, there is a Board committee, and then there is the main Board and then we had the external advisers also, who were assisting us with the process. We went through a rigorous process to choose.

Confirmatory due diligence
But beyond that, even before we signed the agreement, the investors had to come to Nigeria and were interviewed by us (the management and the Board). They were interviewed so that we can know that they are who they said they are and also to know the value they are bringing to the bank.

We also went through a process for them to show that they can commit the money we are demanding, because we do not want to start a process and later find out that the parties don't have the money.

Having done that within ourselves as Board, we went to the next stage where we carried out full due diligence on each of them. They call it confirmatory due diligence, where all parties do the full detail review of each other to know that what they think they are,  is what they really are.

If some of you come to our bank, it is not unusual to see some foreigners hanging around the bank and they fly in at different times and have their own different types of review.

We also had international third parties who were doing their own due diligence on them, so that we also, can independently get information from those parties.

This was the period we used to make sure that we get to the stage where both parties are very comfortable. So in that process, I believe we have done substantial unveiling of each other, that we do not expect any surprise.

I believe that because the Board and management did a decent job at the initial stage, during the second phase we did not find anything that will affect the transaction. So we are now at a stage where having signed the TIA we will now go through the regulatory approval.

Please explain the negative capital?
I will use some analogy. As you know, for all of us (intervened banks), we have negative capital. It is not unusual for a company to have negative shareholders' fund. It will always be negative when you are not making profit and when whatever capital you put into the company has been eroded.

Negative capital
So for instance, if you have capital of N50 million as a company and you made a loss of N120 million, automatically, your capital is no longer N50 million, it is N50 million minus N120 million, which means that your capital is negative by N70 million.

When your capital is minus N70 million, if you are an ordinary company, you can decide to bring in some money or you use profit to work your way out of it over time.

When your capital is negative, it is almost like saying you are bankrupt because everything you own has been wiped out as a shareholders.

However, in the banking system, it goes beyond that, because banking is a licensed and regulated business and because banking has a major party; the depositors, in that business. Often, the capital that the shareholders bring in is less than what the depositors put down.

So if you look at banks, even those that do not have negative shareholders capital, compared with their depositors' funds, capital is always small compared with the deposits.

Because the regulators licence banks to be able to take other people's money, use it and intermediate for others, the regulator has its rules about what the capital of the bank should be, vis a vis the deposit it is taking and vis a vis  the various things it is doing.

Even internationally, there is what is called the Capital Adequacy Ratio (CAR), where your capital must be a minimum of a particular amount of your qualifying assets.

So it means that even if you have capital and it is positive, you can only grow by as much as that capital allows you to grow, vis a vis how you relate it to your total assets.

So, if you come down to Union Bank, we have negative capital because our income is less than our expenses and we have given out loans that went bad and could not be repaid. By our audited accounts in December 2010, our negative capital was N182 billion.