Note: I have added an update from Union Bank (see below) but since the source has not been deleted, I will leave the piece. More so, the references from both Atlas Mara and Union Bank (at NSE) are older than the new “rumour” . More so, I did take this as rumour and the perspectives are not materially affected in any way.
What is in a rumour? The latest is that Access Bank is acquiring Union Bank Plc Nigeria. Of course when you see the problem the majority shareholder of Union Bank is in, the rumour passes the basic tests: “Atlas Mara, which is owned by Bob Diamond, 69, has about 50 percent stake in Union Bank, and currently seeking to raise fund for his dwindling investments caused by impact of coronavirus. Since its listing on the London Stock Exchange in 2013, the company has lost over 95 percent of its value, and is now seeking fresh opportunities to shore up its balance sheet. This has also led to its decision to sell its Tanzania and Rwanda interests to KCB Group Plc of Kenya”.
Period, Atlas Mara has to sell assets. But whether Union Bank will be part of the yard sales is something that is not clear.
The rumour apart, the Union Bank’s challenging trajectory is evident. As banks become technology companies that offer banking services, the construct of network effect begins to play a major role in the industry. Just as we cannot have another WhatsApp of value in Lagos, or Twitter in Boston, or Facebook in London, or Google in Toronto, Nigeria cannot have many banks of value by 2025. As we digitize these banks, what I have called the Invertibility Construct and the Construct of Diminishing Free Monetization begin to happen, creating a vicious circle for most smaller banks. Simply, most smaller banks will fade over time as winners-take-all paradigm begins to work.
Today, if you remove Zenith Bank, GTBank can buy most local banks in Nigeria and still have a change. Those gaps will keep expanding as the banking ecosystem attains a steady state where category-kings become extremely dominant, digitally. It is what it is because this construct – winner-takes-all – works irrespective of the sector, provided everything is moving to the web.
The FUGAZ (First Bank FBH, UBA, GTB, Access and Zenith) will triumph as they are doing at the moment. The digitization of the sector is offering them leverages which the smaller banks do not have: for 2020, “UBA reported growth of 10.8% cent and 28% in gross earnings and profit after tax (PAT) respectively.” In most African countries where UBA operates, it is well ahead on digital therein – and if that is the case, UBA becomes the category-king, and that means, it would capture more value, going forward.
Back to Union Bank, it has to find a working path because as time goes, most small national banks – all boutique services – will keep losing value as winners-take-all begin to shape the industry. This does not mean that it has to exit, it simply needs to find a category to win. That is what tech firms do, they find a category within a sector, and try to dominate it. The digitizing banking ecosystem is running that playbook through fintechs which find a category. But doing everything when you are small, and lagging, may not be a good idea! Why? You have limited leverageable factors which can compound over time.
Update from Union:
Thank you for your keen and thoughtful analysis of various topical issues pertaining to the financial sector, and the fresh perspective you bring to these discussions. We have come to regard you as a well-respected voice in our industry and beyond.
Your objective, unbiased stance is the reason we are reaching out to provide some clarity concerning your recent article titled ,‘Besides the Rumours of Access Bank Acquiring Union Bank Nigeria’.
We are aware of recent rumours resulting from an article by a blogger who regurgitated an old, misleading news article which has since been debunked.
Please read our statement to the Nigerian Stock Exchange debunking the rumour ( http://www.nse.com.ng/Financial_NewsDocs/32241_UNION_BANK_OF_NIGERIA_PLC%20RESPONSE_TO_ONLINE_PUBLICATI.pdf ) , and Atlas Mara’s statement addressing this issue here ( https://otp.tools.investis.com/clients/uk/atlas_mara1/rns/regulatory-story.aspx?cid=744&newsid=1446833 )
We are sure you will agree that editorial articles/analyses should be based on facts, not rumours and speculations, and as such we hope that you consider updating your article, based on the factual statements referenced above.
Please do not hesitate to contact me should you have questions or require further clarification.
Thank you very much for your time and attention.
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