August 22, 2011

The recent acquisition of three erstwhile rescued banks by the Asset Management Corporation of Nigeria after they were bridged by the Nigeria Deposit Insurance Corporation (NDIC) has continued to generate a lot of comments by the public. AMCON’s managing director and chief executive Officer, Mr. Mustapha Chike-Obi, spoke with Obinna Chima, on issues that informed the decision the action of the regulators to safeguard the banking system. Photographs by Ijeoma Nwogwugwu

We recognise that you are not the CBN governor, but you must have met with him and the NDIC, before taking the decision on the banks. Why is it that the CBN could not wait for the September 30 deadline for those banks to recapitalise to elapse before taking action on the three defunct banks?

I think one of the most common misconceptions about this process is that the Central Bank of Nigeria was the one that acted.  The CBN did not act, Nigeria Deposit Insurance Corporation acted. The NDIC called the CBN to find out if the September 30 deadline was firm, and the CBN affirmed that the September 30 deadline was firm, that was the first thing that happened. The second thing that happened was that the NDIC then determined that those three banks, given the level of progress that they had made in their recapitalisation efforts, could not meet the September 30 deadline. And so, the NDIC decided that to protect depositors, it had to bridge those three banks. Having bridged those banks, which means taking skeletal assets and liabilities from the old banks and putting them into new institutions called bridged banks, the NDIC having done that, the CBN had no alternative, than to revoke the licenses of the old institutions because they were no longer banks. As the CBN had acted, and people should keep in mind, AMCON has always been committed to capitalising all those banks from negative capital to zero.  That has always been an AMCON commitment; AMCON was always going to inject capital to get them to zero.  The additional decision AMCON had to make was to put in additional capital to get them to full capital adequacy. That minimum required capital by the CBN, in this case was N25 billion for each bank. AMCON had always been involved in discussions as to how get the banks to zero. The bulk of the money, about N600 billion was to bring those banks to zero capital. That was always going to happen. The extra N75 billion was to bring them to full capital adequacy, to get AMCON in a position where those banks will not derive further help from anybody else. So we have had discussions all along, since November on how to bring those banks to zero. The decision to bring them to full adequacy of N75 billion, was not that far-fetched. So that was the process. Again, I go over it: NDIC determined they couldn’t make it, NDIC bridged them, CBN had to revoke the licenses and AMCON then recapitalised those three new banks to full capital adequacy.  That was actually what happened.

So what mandate did you give the new management of the three new banks?

The mandate is very clear: run those banks, make them successful, make them profitable, so that AMCON can sell them as soon as possible and recover as much money as it can. The additional mandate is that we do not want a single employee to lose their job because of that action. Any job losses that occur will be in the normal course of business. But no employee will lose a single job because of the action. That is very important to us. And anybody who wants to buy these banks will have to accept the fact that fact that we do not want employees to lose their jobs.

They have been recapitalised from a negative capital base to a positive one, but there is still this perception that shareholders have lost their investments in those banks. What is AMCON doing to educate the public?

I hear some of those comments and any time I respond to it, it appears as if I have no sympathy for the shareholders. But those banks would have been liquidated two years ago. NDIC has liquidated many banks in Nigeria in the past, and shareholders lost all their investment in liquidated banks. Those banks would have been liquidated two years ago, and shareholders would have lost all their investment two years ago.  What actually happened was that the CBN and NDIC thought they could keep the banks alive (in 2009), so that the shareholders could recoup all their money back. That went on for two years and they were given two years to recapitalise. But they failed to do so! In fact, the initial deadline for them, when I came to AMCON was June 30, the CBN extended the deadline to September 30 and still, investigation was made by appropriate authorities that those three banks could not make it. The fact of the matter is that the shareholders have lost their investment! That is the fact.  Of these shareholders, like I said many times, AMCON was the largest shareholder of those banks. In Spring Bank Plc, we had over 80 per cent, in Afribank Plc, over 45 per cent, in Bank PHB, AMCON had about 14 per cent and was the largest single shareholder, second to Habib Bank. So, yes, we have all lost our investment, but we are happy to say that the depositors didn’t lose their deposits and the employees didn’t lose their jobs. When companies fail, shareholders generally lose their investment. It has happened before, it has happened again! When Bears Stearns failed in the United States of America , shareholders lost their money. It is just the way the shareholding thing happens. So in this instance, once the banks were bridged, the shareholders lost all their investment.

At what point did they lose their investments, was it in 2009 when the CBN intervened or after the takeover by AMCON?

Economically, they lost their money a long time ago. Legally, they lost their money, when the banks were bridged. And the banks were bridged by NDIC, not CBN. As soon as NDIC stepped in, all the shareholders legally, lost their money. But as a matter of economics, they had lost it long time ago. And I will make one more point, the effort to get something for the shareholders which took two years, had resulted that in 90 percent of the cases, 90 percent by asset prices, shareholders’ funds prices, shareholders would get something. It was only in those three banks that represent about 10 per cent of the market, in which it happened. But in the others – Intercontinental Bank Plc’s shareholders will get something, Oceanic Bank shareholders will get something, FinBank’s, Union Bank shareholders will get something. The banks in which the shareholders came together to agree on the process to recapitalise their banks, will get something left for them.

What in your assessment, do you think caused the inability of the shareholders and management of the banks to recapitalise the banks?

Without expressing an opinion, I will give you the facts. They had two years to recapitalise, and you saw how much AMCON put in there. And I challenge any shareholder group, to bring the money AMCON put into those banks. And if they do and they are settled with CBN, they can have the banks back. I am more than happy to sell it back to them at any point in time, if they meet CBN requirements, they will have the banks back. But they had two years to recapitalise those banks, but they made no progress. Yet, everybody is complaining that we didn’t give them six more weeks. But these six weeks that we are talking about, if you know that a bank is going to be liquidated on September 30, what do you think will happen on September 15, if you are responsible?  You take everything out! So if we had waited till September 30, we would have had a case where those banks would not exist anymore. The employees would have lost their jobs, depositors would have lost all their money and you may have had a run on those banks. So the option of waiting until the last minute really was not on the table.

But what informed the decision of AMCON to retain the three managing directors of the erstwhile rescued banks as consultants to the three new banks where they served respectively?

Those managing directors did a terrific job when they were there. They were running banks that had no capital for two years. Now, you may not have run a bank before, but to run a bank with negative capital means many things. It means you have to fund your capital with interbank deposits at roughly 15 percent a month at some point. It means you cannot give loans, it means you cannot expand. It was just like running a car on four flat tyres, yet they kept those banks together, they kept the employees together, they kept depositors together, until when the action was taken. So we are keeping them on as consultants so that they can help in the transition.

Why didn’t you retain them to run the banks?

We did not retain them because we wanted to have a clean break. We did not want any lingering statement that they are the same old banks. We wanted to make it clear that these are brand new banks with new management, new capital and a new mandate to go and compete with GTBank Plc and Zenith Bank Plc and the rest of them. So they will remain for a while, to make sure that the transition is smooth.

But there is a perception that the former managing directors were imposed on AMCON by the CBN. Is this true?

I am the managing director of AMCON, nobody imposed anything on me. I was involved in the process, there were consultations, there was advice and at the end, I took the decision of retaining the former managing directors as consultant to those banks.

There is also the perception that some of these new executive directors and one of the new managing directors were sacked in 2009 during CBN’s intervention.

It is a fact and not a perception and I will explain this to you. Keep in mind when I say O chose those people, I chose them, but they had to be approved by the CBN. So I recommended them to the CBN and the CBN approved them. Of course, the CBN has the right to reject the recommendations. So the CBN was part of the process. But they were not imposed on AMCON by anybody. When events occurred in August 2009, there were many competent, well meaning directors that were removed as part of the process. But who on further investigations, were not guilty, did their jobs well and were very competent. So they were not liable. I can give you one example: Mr. Oti Ikomi, the new managing director of Keystone Bank Limited who was brought from Standard Bank to help clean up Oceanic Bank. He was in Oceanic Bank for just six months when all of that happened. He was not part of the problem, he was actually going to be part of the solution, but he was removed. Also, the managing director of Enterprise Bank Limited, Mr Ahmed Kuru, who used to be at Bank PHB Plc, was also trying to solve the problem, and he was also removed from the general sack of the bank’s executives in 2009.  I believe it was a good idea to look at these people who were competent, who were trying to solve the problem and try to rehabilitate them. So when we had the chance to consider them, we carefully considered them and we are happy to give them the chance to do their jobs again.

Under the new banking industry segmentation model, what category do the three new banks fall into?

They categorised as national banks. However, I believe one of them, Keystone Bank (former Bank PHB), has some international branches, so we have asked the CBN to waive them, but they have not responded yet. The Keystone management will decide if they want to keep those international branches and if they don’t want to keep them, they can decide to dispose of them. But the license is that of national banking.

How do you intend to sell the banks? Are you considering getting financial advisors?

Yes I will get financial advisors. We have many approaches for these banks. So far, 15 or 16 investors have put in requests for the banks; international, domestic, private equity firms. And we will look at the proposals; we will do what is best for the system. We have to get the most that we can get out of the banks. So if it makes more sense for us to run them for six months so that we can get a higher value for them, we may do that. But no job will be lost. We don’t want any systematic loss of jobs. So we are looking at getting financial advisors and we will be hiring new financial advisors that were not involved in the old process.

How soon are you doing that?

I think we will start the process of interviewing financial advisors next week (this week).

Despite the fact that you did everything avoid possible panic withdrawals in the banks, we gathered that there was some degree of withdrawals from the banks. To what extent did that happen?

You have to classify depositors into two groups: large depositors and retail depositors. There was no appreciable loss of retail deposits. On the matter of large deposits, some people called and we have given the necessary assurance. The Accountant General of the Federation told all ministries and government agencies that the banks were safe and that they should keep their money there. The presidency was also supportive of all the actions that were taken. I tell you that the president’s prior concern was for depositors and employees. And none of these is to show that people were not sympathetic to those shareholders, but shareholding is a risky thing. Sometimes you invest in something and go back home with good returns, sometimes you lose everything. In fact, it is amazing that people say the government should protect the shareholders from losses, it doesn’t make any sense.  Though I agree that government should not wilfully harm shareholders, but when you guaranteed somebody based on deposits for two years, guaranteed interbank placements for two years, you give them every support that you could, and they could not get together to recapitalise the bank, I just don’t know what else government could have done.

You are currently undertaking the rebranding of these banks, how much is AMCON going to spend on that exercise?

AMCON is not rebranding any bank. Those banks are individual, private enterprises.

(Cuts in) They are not private?

They are will be run as private enterprises. They will make decisions as to how to rebrand, how much they are going to spend in the rebranding, without any reference to AMCON. You know the dangers if government starts interfering in them, so we will not interfere. We will not do anything for them that the ownership of GTBank Plc would do for GTBank. We would be fiducially responsible for them, but on the other hand, they (the management) will be held accountable for failure.

What you have done so far, is the appointment of the CEOs and executive directors for these banks, what about the non-executive directors?

We are in the process of looking at that. We are appointing non-executive directors. We have had a number of nominations and considerations and we will look at it.  We think that in appointing non-executive directors, we need to have much broader consultations, than we did for the executive directors.

And you are sure that the government, and even the Peoples Democratic Party, will not intervene at this stage?

I will tell you, nobody has told me to do anything in my job in the past one year; nothing like that has ever happened. However, I think it is appropriate for people in government to make suggestions, I think it is appropriate for anybody to suggest names. I have gotten suggestions from captains of industry; I have gotten suggestions from people in government, but nobody has said you must do this or that. So we will consider it. I want to make sure that it is a responsible board and that it is widely acceptable.

Having played in worked in capital market, what do you think will be the impact of the action on the Nigerian capital market in terms of perception from foreign investors?

I have learnt over 30 years not to predict what happens to the stock market. So having said that, I don’t even care about that, but I will tell you what I think. I think that every international report about this has been positive. You can look at Standard Chartered’s analysis, which is very well respected worldwide; everybody had said that what we did was very responsible. We have had approaches to buy these banks, even by people who never had interest in buying those banks because of the shareholder problem. Today, I have letters here (points to his table) from them, saying they want to buy these banks. The absolute overwhelming verdict of international investors has been very positive. They are all asking why we had to wait so long before taking action. I have not seen a single negative report from international operators. Yet, all I hear from Nigerian experts is that it is going to scare away international investors. So I don’t know what will happen to the stock market, stock markets all over the world have been falling because of other events. I think the Nigerian stock market was down two per cent last year, which is nothing, compared with other markets. Besides, I always ask people like you (points at the interviewer), what would have happened on September 30, if we hadn’t done this and the NDIC had liquidated three banks? Maybe the market would have been down by 20 per cent! So my view is that that was the right thing to do and that when people think about it, they should know that it is positive for the Nigerian banking system.

Let’s move on to the other five banks that have signed Transaction Implementation Agreements. There will be some share restructuring, but what do think will be the magnitude of everybody’s investment in terms of the investors, such as AMCON, which is expected to still have some interest in those banks and then there are the core investors and other shareholders?

One of the principle objectives in that exercise is to make sure that the current shareholders get something. And if they get something and the deal is good enough, then over the years, as these banks start making profits, they may recover a large portion of their investments. That is the idea. There is a formula for which AMCON will put money into these banks to get them to zero. I don’t think it will result into any lose of pricing or value for any shareholder from what they currently hold. It is a very sad situation that people have lost a lot of money, but we are trying to make sure that they get as much out of it as we can.

AMCON also has the responsibility of taking over the non-performing loans of banks, have you finished doing that?

We believe that we have taken well over 90 per cent of the NPLs in the industry. We believe that NPLs are no longer a problem in the banking industry any longer and that the balance sheet of every bank is good. So I think that anybody that doesn’t do well in the future cannot blame it on NPLs.

Yet, despite the fact that the NPL issue has been resolved, banks are still risk averse in terms of lending.

Well, in terms of the bank you talk about, you must understand that, that was also why we took the action. Those three banks had negative capital. They couldn’t make loans because they had no capital. So we were looking at a case where 30 per cent of the banks could not even make loans. That was the problem and they were funding their negative capital with interbank deposits. So a lot of liquidity in the system was going to funding negative capital which in total, was about N1.8 trillion in negative capital in those banks. That was where a lot of the money was going to. Now, when you recapitalise these banks or you did what we did to those banks, they will be able to make loans. Today, Enterprise Bank can make loans. They have liquidity and capital, last week (before the takeover), they couldn’t. So, when you say banks are risks averse, it is not applicable to the entire industry. If you look at the healthy banks, they give loans, but when you add up all the others, if 30 per cent don’ give loans, it then affects the economy. And that was what was holding the Nigerian economy, the Nigerian credit market and Nigerian businesses.

Back to the TIAs that have been signed by the five rescued banks, what would happen if the shareholders of the respective banks refuse to approve the deals, will AMCON also come in once more and acquire the five banks?

Very good! If there is no deal, then I assume that the NDIC, I can’t speak for the NDIC, will protect depositors again, and I assume the CBN will protect the system and employees, and if AMCON is approached to recapitalise the banks, I assume AMCON will do it again.  If NDIC bridges the banks, CBN will have to revoke their licenses and if NDIC approaches AMCON to recapitalise the banks in the interest of depositors and employees, AMCON will do so. So it is up to the shareholders, they can get something or they can go through the bridging process.

So what advise do you have for shareholders of the banks?

I will say so many things. One, when you invest in any company, please watch your managers, watch your investments, and make sure that your managers are not doing anything that will erode your investment. The second thing is that the core of this problem was largely caused by careless, incompetence, and in some cases, fraudulent activities by management. That was what caused it. People have spent time in the last two years trying to recoversomething for the shareholders. However, we believe that the TIAs will be approved. But if shareholders do not agree to recapitalising their banks, then we will use what we have to do what the law empowers us to do. So my advice is that the shareholders can be responsible by looking at the TIAs and making the best out of them, because the regulators will act in the interest of the system and depositors.

And how are you going to address the legal challenges that may likely emerge from the process of the acquisition of three banks?

I will say a number of things. One is that we took extremely thorough legal advice which was given by the Attorney General of the Federation and Minister of Justice.  So we are comfortable with the legal position on this matter. But what I want to clarify is that NDIC bridged the banks, so if investors have any problem, it is with the NDIC, and they are allowed to address it in court. What they need to do is to give the requisite 90 days notice, which is the law before you can sue the NDIC. Then the court is the final arbiter. Or if they wish to sue the CBN for revoking licenses of shell banks, they can go ahead. But if the CBN had not revoked those licenses, it will be breaking the law. Or they can sue AMCON for buying and recapitalising something at the request of the NDIC, that’s fine. But they should be clear on what they are complaining about. Whether they are complaining about the right of the NDIC to do so, or the right of the CBN to revoke licenses of none existent banks, or whether they are not comfortable with AMCON recapitalising institutions in order to save employees and the system.

Do you think AMCON, which was created last year, has met the expectations of the government?

I will be very reluctant to judge AMCON. I think that other people are in the position to judge AMCON. AMCON reports to a number of people. AMCON reports to the national assembly, the presidency, Ministry of Finance and the CBN. I think those people can judge whether or not AMCON has performed very well. But all I know is that we take our job very seriously, we work very hard, we work long hours and we give the best we can.

Going forward, what should we expect from AMCON?

We have 9,000 borrowers. We have to talk to each of these borrowers to figure out how we can help them keep their businesses going and also get our money back. But that will take a long time and we are doing that at the moment. We also expect that when the recapitalisation exercise is over, we will recover our investment in those banks.

Speaking of the NPLs, which you have bought from banks, how are they going to be restructured with the debtors? Are they going be required to pay back under the same commercial terms they had with the banks?

You have to understand that AMCON is a resolution vehicle. We are trying to solve a problem and are not after individuals. Many of these borrowers owed the money because of a number of factors. The economy went down and many things happened. We want to sit down with the debtors and see how to help their businesses, while we get our money back. In some cases, this may involve giving them moratoriums, in some cases, it may even involve giving them more money so that those that have businesses, but have not finished the building the businesses can conclude them. So we will talk to them individually, but our focus is on growing the economy, getting our money back and keeping Nigerian employers. Those are the things we are looking at. We are not liquidators. We are not going there to say if they don’t give us our money, we will push them out of business. We are going to look at how to keep them in business. So we are considerate of getting our money back, keeping the economy going and keeping people employed.

There are definitely going to be some recalcitrant debtors, how are you going to resolve that?

If there are people that cannot pay or will not pay, we will pursue them with all the powers at our disposal to get the money. They must pay. We have probably met about 400 debtors and it is an ongoing process. We have resolved many of these loans.

Since AMCON has a finite lifespan, what guaranty is there that you would have resolved all these cases in the next ten years?

(Cuts in) That is not correct, that clause was removed by the national assembly. It was in the proposal, but it was removed. We are using a 10-year guideline for the resolution of these problems. These are things we intend to do in 10 years. But there is no legal lifespan for AMCON.

Naturally, a ‘bad bank,’ which AMCON is, is not supposed to exist in perpetuity, because you are only supposed to work as a resolution vehicle. Why is this case different?

I will tell you that AMCON is a unique resolution vehicle. We took what is best in every area and we have put it in AMCON. For example, in Malaysia which was the model for bad banks, it had three resolution vehicles. There was one that acquired the NPLs, there was a second one that disposed off the assets, and there was a third one that recapitalised the banks. So we put them all together in one place. The reason we didn’t want to do it the same way as the Malaysian model was that in many cases, when you get to a stage, you may miss some of the steps. So we are currently working with a guideline.

But don’t you think that this will enable bank customers to default on their loans, knowing that AMCON will come in again and takeover the loans?

AMCON doesn’t take over loans just like that. AMCON only takes over loans when a bank has classified it as an NPL. So for a bank to classify it as an NPL; that means the bank loses money. Banks don’t like to lose money.  The real issue as a moral hazard is whether or not AMCON will engage the banks, not the debtors, because the debtor has to go through the banks. And when we buy NPLs from banks after this exercise, we are buying it at one third of the price, which will be very punitive price. I don’t think any bank will want to come to AMCON to buy its NPL after this process, because we are going to pay them practically nothing and they would have lost all their investment. Before such loans come to AMCON, they (the banks) must have made provisions and would have lost 25 per cent already.

Source: Thisday