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5 RESCUED BANKS: SHAREHOLDERS' VERDICT ON RECAPITALISATION

By NBF News
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The banking sector crisis that began two years ago will soon be a thing of the past. This is because shareholders of rescued banks in Nigeria have voted in support of their lender's scheme of arrangement, paving way for the recapitalisation plan of each.

The Central Bank of Nigeria (CBN) had earlier met with various shareholder associations of the banks, and assured them that, although their shareholders' funds have been wiped out by the actions of the previous managements of the banks that they had appointed, the CBN would do its best to ensure that they are accommodated in the recapitalisation process.

Despite improvements that were recorded by the CBN-appointed management since taking over, the rescued banks remained in grave situation. There continues to be value attrition as the banks record operating losses, thus increasing the potential cost to the Government. The rescued banks remain technically insolvent since all of them recorded negative Net Asset Values as of December 2010. According to data from CBN : Oceanic Bank International Nigeria Plc recorded N94.261 billion negative asset; Union Bank of Nigeria Plc N135.894billion; Intercontinental Bank Plc N330.709 billion; Based on the above records, the apex bank concluded that so long as these banks continue to fund the gap with interest bearing liabilities, they will continue to run operating losses especially in an environment of rising interest rates like ours. It therefore fixed a recapitalisation deadline of September 30. This move seems to have spurred the banks into action. A few weeks before the deadline, the five of them signed their individual Transaction Implementation Agreements (TIAs) with investors and merger and acquisition partners. Thus Union Bank Plc, Intercontinental Bank Plc, Finbank Plc, Equitorial Trust Bank and Oceanic Bank Plc got approval from CBN and had their interbank guarantee to December 30, 2011.

As the deadline drew closer, CBN proactively revoked the licenses of Springbank , Afribank and Bank PHB with their assets and liabilities transferred to newly formed 'bridge banks' by the government unit; Nigeria Deposit Insurance Corporation (NDIC). The Assets Management Corporation of Nigeria (AMCON) came in and recapitalised the nationalised banks. It injected N285 billion ($1.87 billion) into Mainstreet Bank, formerly Afribank, N283 billion into Keystone Bank, formerly Bank PHB, and N111 billion into Enterprise Bank, formerly Spring Bank.

'This is the first banking crisis in the history of Nigeria in which not a single depositor lost their deposits or not had access to their money; For the first time the CBN chose not to liquidate banks so as to ensure that depositors and creditors do not lose their money. In the United States alone, over 1,000 banks have failed since the outset of the financial crisis. In Nigeria, not a single bank has failed and we are optimistic that this will indeed remain the case,' stated the deputy governor, Financial System Stability, Central Bank of Nigeria, Dr. Kingsley Chiedu Moghalu in the heat of the storm.

He added that in the past, these banks would have been transferred to the NDIC for liquidation, but, the magnitude of the problem and the associated risk to financial system stability necessitated a 'change of policy gear' in the approach to resolving these problems.

Meanwhile, analysts believe that the banks are far from being fully capitalised until knotty issues in the terms of the TIAs are resolved and the banks receives AMCON's money, but CBN insists that at the moment, not only the recapitalization of the banks but also the banking reform program in Nigeria is 99 per cent completed.

Oceanic Bank
Shareholders of Oceanic Bank Plc on Tuesday 27 September, in Lagos unanimously approved the proposal for a business combination with EcoBank Transactional Incorporated Plc. The shareholders also endorsed restructuring of the bank's share capital and recapitalisation, bringing to a successful conclusion of business combination of both Banks. Upon agreement on a transaction for the recapitalisation of the bank, ETI would own 100 per cent of the share capital of Oceanic Bank, which means ETI, would merge Oceanic bank with Ecobank of Nigeria Plc.

At a Court Ordered Meeting in Lagos, the board authorized the terms set out in the Transaction Implementation Agreement (TIA) it signed with Eco Bank Plc last July. As agreed under the terms of the TIA, the price at which the Investor Ordinary and Preference Shares are to be issued is based on the Investor's volume weighted average per share on the Nigeria Stock Exchange, over the last 60 days prior to the execution of the TIA. This amount is N15.47 ($0.1032). The bank's share price as at the date of the scheme was N1.15. Therefore 20 Oceanic Bank shares will be exchanged for 1 ETI Ordinary Share.

Intercontinental Bank
At its completion board meeting in Lagos on Monday 26 September, the board ratified the terms set out in Transaction Implementation Agreement (TIA) it signed with Access Bank Plc last July.

Chairman of Intercontinental Bank, Raymond Obieri explained that by the restructuring plan, shareholders of the Bank will get one new share for every seven held, after Access Bank injects N50 billion naira ($323 million) to recapitalise the rescued lender. The chairman added that recapitalisation was preferable to nationalisation. Access bank will this month, spend N50 billion to acquire 75 percent of the shares in Intercontinental and combine the operations within 12 months of the merger. Existing shareholders will get 10 percent of the recapitalised Intercontinental while a state-owned 'bad bank' set up to absorb non-performing loans from failed lenders will take a 15 percent stake.

Union Bank
The 94-year-old institution will retain its brand name: Union Bank, 'Big Strong and Reliable.'

At the Court Ordered Meeting held in Abuja on September 30, 2,955 Union Bank shareholders translating to a total number of 2,174,349,978 shares voted in favour of the recapitalisation scheme. This represents 99.9 per cent of the value of shares of shareholders present at the meeting. Only 189,000 shares voted against the scheme, representing 0.01 per cent of value of shares of shareholders present. The shareholders would receive three (3) new Union Bank shares in exchange for sixteen (16) currently held.

Under the Union Bank's recapitalization deal, the bank would receive about N76 billion ($500 million) equity capital and N30 billion ($200 million) Tier 2 capital from a consortium of international investors to retain its nearly century-old brand and regain its competitive verve as one of the strongest and reliable banks in Nigeria. African Capital Alliance (ACA) is leading other partners in the deal.

Equitorial Trust Bank
Shareholders of Sterling Bank Plc and Equitorial Trust Bank (ETB) Limited have approved the merger of the two banks, paving the way for Sterling Bank to assume all assets and liabilities of ETB and becoming one of the biggest banks in Nigeria.

At the separate Extra-ordinary General Meeting (EGM) of the banks in Lagos, shareholders overwhelmingly supported the business combination describing it as a fair deal that would benefit all stakeholders of the bank, especially shareholders who envisaged better returns. With the approval, Sterling Bank would issue two ordinary shares of 50 kobo each in exchange for one ordinary share of N1 each of ETB. This implies an exchange ratio of two shares for two shares exchange ratio where ETB's share is subdivided into 50 kobo nominal value.

Speaking at the EGM, chairman, Sterling Bank, Dr. Suleiman Adegunwa, said the business combination would further strengthen Sterling Bank into a formidable financial institution, wider branch network and strong retail franchise. Also, group managing director, Sterling Bank Plc, Mr. Yemi Adeola, remarked that apart from acquiring the bank without any negative equity funds, having been recapitalized by the Asset Management Corporation of Nigeria (AMCON), Sterling Bank would get new cash of N8.5 billion from ETB while there are also provisions to protect the bank from any undisclosed material information.

FinBank
Also, barely twenty-four hours ahead of CBN's deadline, shareholders of First City Monument Bank (FCMB) Plc, on Thursday, 29th September, unanimously approved the acquisition of Finbank Plc. This paved way for further negotiations towards a 100 percent acquisition deal between both banks. Finbank shareholders' fund were negative N107.3 billion and loss after tax of N2.5 billion based on unaudited half year accounts as at June 30 2011. AMCON is expected to provide the money needed to cover this negativity gap. Then Scheme Shares constituting 100 per cent of the paid up share capital of FinBank will be issued to AMCON.

Each existing shareholder of FinBank will exchange 60 shares with 1 FCMB share (or 10 kobo as cash consideration). Also, AMCON's 6 Scheme Shares will exchange for N1.02 as cash consideration or 1 FCMB share. This again means that FinBank's 16,721,199,469 ordinary shares of 50 Kobo each will be (reconstructed) reduced to 4,278,800,531 ordinary shares of 50 kobo each to be held by AMCON before final transfer to FCMB Investments Limited (FIL ). All these are based on approval by Finbank's shareholders expected to hold their EGM soon.

In an extraordinary general meeting of FCMB in Lagos, overwhelming 99.97 percent of shareholders present voted for the bank's resolution to acquire Finbank through its wholly owned investment subsidiary, FIL. FCMB is offering N6 billion as the total consideration to AMCON and existing Shareholders in respect of its acquisition of FinBank.

Addressing shareholders on the expected gains of the acquisition, the Group Managing Director Mr. Ladi Balogun said the acquisition would strengthen FCMB into a formidable financial institution with wider branch network and strong retail franchise. In the next one year, there will be merger and acquisition that will result in the combination of Finbank and FCMB into a single legal entity with a new name as would be agreed by the boards of both institutions.

Next step
Within a few days, AMCON will bring negative shareholders' fund to zero, with about N800 billion, so that core investors can complete their investment as stipulated in their various TIAs. The corporation will do that through the injection of AMCON bonds into the banks as consideration for the issuance of the Scheme Shares to it. Shareholders shall be entitled to receive their share of the Scheme Consideration in the form of either respective bank's shares or cash or a combination of both in accordance with their respective decisions.

The CBN, working closely with the Ministry of Finance, Nigeria Deposit Insurance Corporation (NDIC) and Securities and Exchange Commission (SEC), has led the governments' efforts to stabilise the banks and mitigate any adverse impact on financial system stability, with a firm commitment that depositors and creditors would not lose any money.