Bank nationalisation: Meet the biggest losers

Although the acquisition of the three bailed-out banks, Afribank, Spring Bank and Bank PHB by the Asset Management Corporation of Nigeria (AMCON) at N679 billion last week may have come to many as a surprise, it was something long anticipated by the core shareholders of the affected banks. Before the CBN hammer fell on them, […]

Although the acquisition of the three bailed-out banks, Afribank, Spring Bank and Bank PHB by the Asset Management Corporation of Nigeria (AMCON) at N679 billion last week may have come to many as a surprise, it was something long anticipated by the core shareholders of the affected banks. Before the CBN hammer fell on them, the bank shareholders have been battling to shore up the financial position of their banks as their share prices continue to plunge in the capital market.

As at August 5, 2011, not only had the shareholders lost N30 billion as stated by the management of the Nigeria stock exchange (NSE), both core investors, particularly, the families of late Musa Yar’adua, Professor Pat Utomi, families of  Late M.K.O Abiola and other may have lost  a whopping N120 billion in the three nationalized banks.

For instance, in the former Bank PHB Plc, 16 core investors had 3.355 billion ordinary shares in 2008 and it was worth about N85.6 billion at a trading share price of N25.51 before its license was revoked by the CBN. And as at August 5, 2011, the shares on the stock exchange was worth just N1.9 billion as it was traded for N0.57 per share.

Some of the key shareholders and the value of their shares at N25.51 per share of Bank PHB pre-2008 intervention by CBN included: Kola Abiola, 192,121,592 shares worth N4,901,021,811 ; Pat Utomi, 83,097,700 shares worth  N2,119,822,327; Francis Atuche, 1,066,150,289 shares worth N27,197,493,872.39; Yar’adua family represented by Murtala S.M, 209,774 shares worth  N5,351,334.74, Habib Bank Pakistan shares, 1,266,057,863 worth N32,297,136,085 and Shell Petroleum Development Company (SPDC) 200,326,164 shares worth N5.1billion.

As at when the bank’s license was revoked, the shares was quoted N0.57 equals thus the value of the 3.355 billion ordinary shares was reduced to about N1.912 billion on the floor of the stock exchange.

Before the acquisition, the core shareholders had lost N83.668 billion with Kola Abiola’s, 192,121,592 shares amounting to a mere N109.5 million from N4.9 billion; Pat Utomi’s 83,097,700 shares worth  N2.1 billion worth only N4.7 million; Francis Atuche, 1,066,150,289 shares worth N27.2 billion was reduced to N15.5 million; Yar’adua’s, 209,774 shares worth  N5,351,334 now valued only at N119,571; Habib Bank Pakistan’s, 1,266,057,863 shares worth N32.3 billion was shredded to N721.7 million and Shell Petroleum Development Company (SPDC) 200,326,164 shares worth N5.1billion was reduced to N114.9 million.

Atuche and Habib Pakistan have the highest equities in the bank.

Bank PHB also lost its investments in Spring Bank Plc following the nationalization of the bank; the bank invested about N21 billion in buying over three billion units of Spring Bank shares at N7.00 per share from shareholders in a bid to take its stake in the bank above 51 percent. Other shareholders however challenged the takeover in court and the sale was later reversed. Other shareholders who have permanently lost their stakes in Spring Bank include the Kola Daisi family, former owners of Fountain Trust Bank and Segun Agbetuyi, former managing director of Omega Bank Plc. The bank was formed from the merger of Citizens International Bank, Guardian Express Bank, ACB International Bank, Omega Bank , Fountain Trust Bank, Trans International Bank.

Afribank, one of the banks also taken over by the CBN, listed shares on the Stock Exchange was 9.5 billion valued at N26.50 per share. The value thus was about N251.5 billion. As at August 5th, when the bank license was revoked, Afribank shares closed at N0.64 (N6.1 billion).

The bank’s major investors who lost their stakes in Afribank include Osa Osunde, former chairman of Afribank Plc who had about 42 million shares in Afribank in 2008, based on the bank’s last published annual account. Chukwuemeka Okwousa, another ex- director of Afribank also had about 12 million shares, while Jabez Olawuyi, former managing director of Dunlop Plc who was also on the board of Afribank, had about 1.3 million shares.

Asset Management Corporation nominees were the biggest single shareholders in Afribank as of 2008 with over a billion shares or 17.58 percent of the bank’s stakes. The governor of the Central bank of Nigeria (CBN), Sanusi Lamido Sanusi had in June this year raised alarm over the state of the eight rescued banks and said they were still in grave danger and technically insolvent with negative asset values of N1.28 trillion.

Intercontinental Bank led others with the highest negative assets value of N330.709 bn 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, N94.261bn and Spring Bank, N87.869bn. Equitorial Trust Bank recorded the lowest negative asset value of N27.253bn.

With the development, NSE has commenced the process of delisting of the shares of the three banks, an indication that all the investments would be wiped away. Some analysts who spoke to Weekly Trust worry about the development.

Frank Ogiemien of Partnership Investment said the takeover of the banks would clearly slow down the economy as no lending is taking place now. He said the exercise has sent very disturbing signal to the investing public that putting ones money in equity is worthless and should be avoided as much as possible. The regulators, he said, acted to preempt whatever steps the taken over banks were taking to salvage their position and continue in business.

He said: “Also, much of the money some majority shareholders had in these banks were perceived to be ill- gotten wealth which must be taken back by the government by all means and as things stand, l do not see these banks surviving beyond the immediate future as they are likely to die gradually after all they have gone through.”

Opeyemi Agbaje, an economist and a director at Lagos Business School also expressed concern over the new development, saying that all the economic data suggests that the “reforms” have had a negative impact on employment, private sector credit, financial sector contribution to GDP, financial sector growth, exchange rate management, etc.

He said: “I see no reason to project anything but negative short term consequences of this further intervention. I am surprised that the CBN took action against these banks well ahead of its own well publicized September, 30 deadline. I will not be surprised to see legal challenges against the CBN’s action.”

He said he would be expecting that the apex regulatory body, the CBN put up a quick plan for the sale of the three “bridge”banks. “Our experience with bank nationalization in the 70s to 90s was not good,” he said.

Also, David Imafidon Adonri, Chief Executive Officer, Lambeth Trust & Investment Company Limited said the nationalized banks were owned by diverse shareholders who have now totally lost their investment. He said: “The banks were technically liquidated by NDIC and subsequently acquired by AMCON. With their recapitalization by AMCON, the banks have successfully cruised to the end of their rescue journey. Although shareholders as ultimate risk bearers in liquidated enterprises lost completely, protection of creditors and depositors has saved the banking industry of adverse consequences attendant to outright bank failure wherein all stakeholders would have lost.”

Adonri said failure of the rescued banks was not because they were family enterprises, adding that GTBank, FCMB and Zenith Bank have semblance of family ownership yet they have successfully mustered high degree of good corporate governance to emerge strong and profitable. H e said: “Soon after the rescued banks were nationalized, panic set into the banking sector of the Nigerian Stock market where massive dumping of bank shares forced the banking index into all time low for the year. But with the knowledge now that the action would actually increase confidence in the entire banking industry, there is massive resurgence of demand for bank shares.”

The Group Managing Director, Finmal Financial Services Limited, Umaru Kwairanga said the impact on share holders has “been disastrous”.

He said: “Estimates of the potential financial loss to shareholders of the three banks is over N30 billion but it should also be remembered that many bought these shares at 20 to 30 times current market values. There is also the wider implication that the suddenness of the action and resultant uncertainty and panic triggered a general sell-off of equities that will further negatively impact our fragile stock market thus compounding the woes of investors. As for the influence and culpability of families and owners with major stakes in the three banks, I think this is limited as the CBN had taken over the management of these banks for close to two years. Prior to that I believe it was only Bank PHB that had controlling shares belonging to a few family blocs and control was exercised largely at board and not managerial level.”