On April 04, 2011, AMCON came out unequivocally to say that “none of the 10 banks rescued by the Central Bank of Nigeria (CBN) will be nationalised, despite huge investments the corporation has staked in them” https://www.proshareng.com/news/singleNews.php?id=13489

According to the report where he was speaking in an exclusive interview with The Nation, the AMCON boss said that “its equity is zero in Wema Bank and Unity Bank after both institutions recapitalised. For other banks in which the corporation has equities, AMCON will pull out or become a minority holder, after they have found new partners or investors”.

He added - "There is no nationalisation of banks. There is no desire to do so. AMCON has no desire to run or own any bank. We will exit at a good time to maximize recovery. We will exit in a very public way by announcing how we are going to exit. We will publish it, and we will do it in a way that will not affect the market. When we get rid of our stakes, it will be done publicly and in a very transparent manner," Chike-Obi said.

AMCON issued N600 billion worth of bonds to 22 lenders to absorb all remaining non-performing loans, in addition to the N1.03 trillion it issued on December 31, last year. This will see it list N1.7 trillion bonds backed by government guarantees on the Nigerian Stock Exchange.

The AMCON boss had said the corporation had cleared all bad bank loans and was on track to recapitalise lenders rescued in a $4 billion bailout 18 months ago by the end of the second quarter.

The corporation issued N600 billion worth of bonds to 22 lenders to absorb all remaining non-performing loans, in addition to the N1.03 trillion it issued on December 31, last year. The AMCON boss had said it intended to complete the issuance by Wednesday. This will see it list N1.7 trillion bonds backed by government guarantees on the Nigerian Stock Exchange.

He said that since the loans were acquired end of December, the corporation has not yet begun recovery. "We intend first to look at all these loans on a case-by-case basis, talk to the debtors, and see if we can restructure these loans. Its only after we discussed with debtors that we can then decide which loans will perform, which loans we should restructure, and which loans we have to basically classify for closure. Only after we have done these can we say we have started recovery process. It’s a long term process, and I think that to focus on how much we recovered at this point defeats the process," he said.

The AMCON boss explained that what the corporation did was to inform the banks that they should continue with recovery as they have been doing until the AMCON can take control of the process directly.

He said that in buying a loan, AMCON had a loan purchase agreement where banks agreed to continue to act on its behalf up till six months before the loans are brought in-house for the corporation to manage.

In a further move to cement the argument on July 18, 2011 the AMCON boss foreclosed the nationalisation of banks as an option https://www.proshareng.com/news/14239.

So What Changed?

The Central Bank of Nigeria (CBN) on Friday evening after the close of normal business withdrew the licences of Afribank Plc, Bank PHB and Spring Bank Plc alleging that they lacked the necessary capacity and ability to beat the recapitalisation deadline.

The banks were immediately taken over by NDIC through the “bridge bank mechanism” which re-named them as Mainstreet Bank (former Afribank), Keystone Bank (Bank PHB) and Enterprise Bank (Spring Bank).

AMCON, on Saturday immediately took over the bridge banks and promised to inject N678 billion into their operations, to keep them alive.

On Sunday, new boards were appointed for the nationalised banks by AMCON, each having a chairman, managing director and five executive directors.

In making the case for the change of heart, the Managing Director and Chief Executive Officer of the Nigeria Deposit Insurance Corporation (NDIC), Alhaji Umaru Ibrahim, revealed that the three banks whose licences were withdrawn would have been “more than dead” if allowed to exist till the September 30 recapitalisation deadline given to them.

This action, it is reported met with the consent of the Minister of State for Finance, Mr. Yerima Lawal Ngama in the absence of a substantive Minister of Finance.

Ibrahim explained that the NDIC needed to take over the banks because it believed they would not have been able to recapitalise given that they had not signed their Transaction Implementation Agreements (TIAs) by last Friday.

He also said there were prospects that the banks would be bought over by good investors who would have what it takes to continue with banking business, adding that as licensed insured banks, the corporation would continue to monitor and examine them in a comprehensive manner to make sure they play by the rules, just like the other deposit banks.

He further added that the current move was by no means a liquidation exercise.

“You must plan and you must plan to execute things very well and that was what we did in the interest of the nation’s economy and in the interest of the stability of the financial system and the banking system and the depositors in particular – and we said this is a scheme which guarantees all depositors; nobody is going to lose his money, we are not into liquidation or anything like that,” he said.

Yet the reality is that “having transferred the asset and liabilities of these banks to the bridge banks (Mainstreet, Keystone and Enterprise Banks respectively) which will be run by the AMCON, shareholders no longer have holdings in these banks (by implication the shares have no value)” – according to Vetiva Capital.

Fait Accompli?

The nationalisation of Afribank Plc, BankPHB Plc and Spring Bank Plc on Friday August 5, 2011 before the stipulated period by CBN (September 30^th 2011) would appear to be a conscious decision taken as at the point of the announcement of the deadline in the first place.

For some it raises key questions while for others it simply lays to rest the question of CBN’s ability to anticipate and respond to very key signals from the market.

Yet, analysts within and without continue to raise questions which have largely remained unanswered.

We intend to publish in a separate publication a catalogue of this questions.

Needless to say, and without prejudice to the precedent set in Savannah Bank vs CBN, it appears that this ‘deal’ as packaged is a definite fait accompli; or so it would appear.

Dealing with the NSE Angle left Unanswered!

While the management of the Nigerian Stock Exchange (NSE) has been doing its best to bring sanity to the activity of the bourse as alluded to in our 100 days after report, the developments with respect to the nationalised banks has raised curious issues that cannot be ignored.

The NSE needs to shed more light on the ‘grey areas’ that appear apparent with regards to how public companies become private companies without delisting processes initiated before such is made public.

It could well be that this is in the nature of how business gets done with governmental interventions; but with the market, it should be expected that clear and unambiguous rules should be in place to guide such actions to establish a level playing field and help both local and international investors have a clear idea of risks and rewards in investing in banking stocks in Nigeria.

We strongly believe that the impact of this on the Nigerian Capital Market (NCM) is weighty and attach with it dire and grave consequences for both common/retail and institutional investors.

There are few pertinent issues that immediately arise:

1. According to Chike-Obi, AMCON “being a majority shareholder in the each of the three defunct banks, lost more than any other shareholder since it owned 80 per cent of shares in Spring Bank, 46 per cent in Afribank and 15 per cent in Bank PHB. In the main, and if we are to accept the logic of AMCON, these are substantial losses to tax payers for which it remains liable – as it had full control of the management of the banks (CBN appointed the current management for the last two years at a minimum though in the case of Spring bank it was for more than 4 years).
2. The announcement of the Full suspension did not come from the NSE but the SEC and leave one to wonder who is directly in charge at the NSE in the absence (as it would seem) of a functioning council or quasi board of directors.
3. The claim by the NDIC appear to be an ‘anticipatory bankruptcy’ claim for which the market had no information about and had traded on the stocks on the very day the announcement was made suggesting imperfect information to the market who had relied on the statements from the CBN and assurances given by the AMCON CEO,
4. The take over by NDIC would indicate the action taken against a failed bank for which no information or signal was available to the market to act on – thus suggesting culpability on the part of the market managers of a cover-up on the financial condition of the banks listed on its bourse.
5. The role of the Corporate Affairs Commission (CAC) in the matter is obviously non-existent. It is understood that a listed company cannot transmute to a private company without necessary papers filed with the CAC and disclosure made to the market.
6. The process for the orderly liquidation of banks (as against other non-banking quoted companies) has not been legislated open leaving room for such concerns as is the case in other climes.

Other Issues Arising for the NSE

The full suspension on these banks translates to a total loss of investment for the retail investors which could have benefited from an exit as prescribed in previous commentaries.

How does this sit with the investors’ protection argument made by the SEC and NSE when it did not take any step to educate investors?

A respected stock market operator had opined that "the shareholders and management cannot claim that they did not know that time was running out, so it was good to take them out with minimum impact".

On the surface, that would be a reasonable position to take but for the fact that the CBN, AMCON and MoF had given the market a different set of values with which to judge it – the integrity of its statements and its commitment not to shift the goal post as it suits them.

Make no mistake, we are committed to a resolution of the banking impasse as early as yesterday but it is crucially important that the end-game is achieved without a compromise of the process or the rules guiding such.

The immediate question thus would be that “what other options have the CBN and AMCON considered? Did the CBN educate the "shareholders" of their options”?

The public assumes (and that may be debatable based on pronouncements documented) that most of the current shareholders of these banks are aware and knowledgeable of the impact the transaction will have on them – that the transaction will wipe out investors’ current holdings, because as a shareholder, the debtors have precedence over their shares?

The CBN had become frustrated with the seeming intransigence that presented itself over the knotty issues of ownership that preceded this current Central Bank administration which does not offer any relief to the owners.

The banks with the exception of Bank PHB had unique shareholding problems which had been a sore point for the CBN or in the case of spring back, caused by the CBN’s inaction in time past and for which it had been under the administration of the CBN since 2007.

The action and its impact therefore on the NSE is far reaching and has yet remained an issue to be addressed at some stage.

Consequential Effects

It would be reasonable to expect that the consequence of this action will be reflected in the market and could well plunge the market further into negative territory.

The market closed today below the 23,000 psychological line.

It may be appropriate to recall our opinion as envisaged in our Q2 NCM report that “the sustained cloudy atmosphere coupled with unstable trend in the banking sector would not help the state of affairs in the coming periods as the sector remained the volume driver in the market while the likely trend reversal is built around the thriving outcome of recapitalisation and merger & acquisition in the sector”. https://www.proshareng.com/download.php?item=reports/TheH12011NCMRepor03071.pdf

Kudos for an Action yet to be fully appreciated!

The protection of depositors funds in the banks acquired appears to be the primary motivator as explained. This appears a better step than those taken in the past that has left a number of previous bank customers scared to engage the banks.

Recall that a number of claims are still being settled by the NDIC with a number of unresolved issues remaining outstanding.

The problem however goes beyond the depositors interest as questions must be asked as to the current balance at take-over compared to the balance as at the time of intervention of this depositors funds – cum profits declared in the intervening periods.

Flashback on Price Trend for the Nationalised Banks

In the past five years, the three banks have not performed so well as regards to yearly price performance and appreciation as revealed by the price movement analysis. Although, Afribank Plc and BankPHB Plc recorded impressive uptrend in the year 2007 to close with year appreciation of 18.98% and 22.59% respectively.

The table below sheds more light on the five years trend.

In addition, further analysis revealed a depressed outlook when considered with the last two years in our analysis (which represented the intervention period by CBN). The three banks recorded an average of -89% price depreciation within this period of intervention by CBN. Afribank Plc shed -87.74%, BankPHB dipped by -88.48% while Spring Bank plunged by -89.80%.

The below charts put the trend of these banks in proper perspective.

Afribank Plc dropped from N5.22 recorded on the 14^th August 2009 when CBN took over the management of the bank to close at N0.64kobo, respresenting -87.74 loss recorded as at August 5^th 2011 when the bank was nationalised.

Similar trend was observed on BankPHB Plc as it dropped from N4.95 recorded on the 14^th August 2009 to close at N0.57kobo, respresenting -88.48% drop as at August 5^th 2011 –loss recorded during the period while its YTD stood at -68.85%.

Spring Bank Plc dropped by -89.80% from N5.59 recorded on the 14^th August to close at N0.57kobo as at August 5^th 2011, recording YTD of -68.85% loss.

However, this revealed that the intervention had no positive impact on the banks as market price performance revealed. In the meantime, market perception remained negative and bearish within this period – further pointing to the failure of the intervening management team to reverse the trend as expected.

Factually, the table below showcased the performance of these banks when AMCON presented its valuation for the purchase of bad loans in the banking sector.

The Three Banks vs. Banking Index

Asrevealed by the chart below; the three banks nationalised were on the slope (a position that has clearly informed the CBN action bvut which has always been the case since it intervened in the banks) as market sentiments remained negative towards the banks.

It must be noted though that Spring Bank Plc and Afribank Plc experienced some rally during this period but latter lost ground to negative sentiments (mostly around its inability to resolve its ownership and PMA issues).