Acquisition Highlights

• To inject N678bn lifeline
• No longer bridge banks
• Banks to be sold in three years time
• To operate as national banks
• Four of the eight rescued banks account for 80
percent of negative asset value of the eight banks

Nigeria’s financial regulatory authorities Saturday moved into the final phase of plans to forestall the systemic collapse of the banking industry with the handing over of the three banks nationalised on Friday to the Asset Management Corporation of Nigeria.
The Nigerian Deposit Corporation of Nigeria had taken over former Afribank Plc, Bank PHB Plc and Spring Bank Plc following the withdrawal of their licences by the Central Bank of Nigeria over their inability to meet the September 30 deadline to recapitalise.
It created three bridge banks, Mainstreet Bank, Keystone Bank and Enterprise Bank, to take over the assets and liabilities of the banks in the interim.

A bridge bank is a temporary bank established and operated by financial regulators to acquire the assets and liabilities of a failed bank to facilitate its resolution.
However, at a ceremony Saturday in Lagos, NDIC sold the three interim banks to AMCON through a subscription agreement. The transaction terminated the existence of the bridge banks.

NDIC Managing Director, Mr. Umaru Ibrahim, announced the transaction at a media briefing where the agreement on the transfer of ownership of the banks to AMCON was signed.

His AMCON counterpart, Mr. Mustapha Chike-Obi, said N678 billion would be injected into the three new banks to raise their capital adequacy ratio to 15 percent respectively and also to enable them to pay back the funds that CBN injected into them in 2009.
The CBN had injected a N400 billion lifeline into five banks, including Afribank, in the first tranche of banks it rescued in August 2009, and injected another N200 billion when it intervened in the operations of three banks—Equatorial Trust Bank, Spring Bank and Bank PHB—  two months later.

Chike-Obi explained that AMCON would issue bonds tomorrow to raise the funds to pay bank the CBN.
According to him, while a total of N285 billion will be given to Mainstreet Bank (formerly Afribank), Keystone Bank (formerly Bank PHB Plc) will get N283 billion while Enterprise Bank (Spring Bank) will get N110 billion.

AMCON will recapitalise the banks, manage them for about three years, before finding new investors.
Chike-Obi said the decision to take over the banks was taken after due consultations among the regulators.
He said: “We need a stable banking system. Also, we have emphasised that no depositor will lose their money. That was the mandate given to the regulatory authorities and that is the mandate we are all pursuing.

“Depositors’ funds are safe, the employees’ jobs are safe. These banks will now operate in a stronger position than they were yesterday. AMCON will oversee these banks, the management will run these banks as going concerns and CBN will regulate these banks in pursuant to its mandate.

“This is not a case of government interference; this is a case of government doing what it is expected to do. This is being done in pursuant to the provision of the AMCON Act 2010 and we hope that these banks would in the future be seen as shining, individual, competitive entities.”

Ibrahim pointed out that by the subscription agreement, AMCON has become the owner of the three banks and will provide sufficient capital to restore the banks to the level of capital adequacy required for their operations.
“With the successful sale of the bridge banks, the NDIC has fulfilled its primary objective of ensuring that depositors in the banks do not lose their funds.

‘The capital provided by AMCON through share subscriptions will strengthen the banks’ liquidity and allow them to carry on business and meet all their obligations as they fall due.

“The liquidity position of the banks will be further enhanced by the willingness of the CBN to extend the guarantee of their interbank obligations until December 31.

“AMCON has identified independent and credible persons with significant and required experience to fill the boards and senior management positions for the bank and will be seeking the approval of the CBN for their appointments.

“AMCON is confident that the new teams will manage the banks to establish strong market positions and effectively compete in the Nigerian banking sector,” he added.

Ibrahim said the Securities and Exchange Commission and the Attorney-General of the Federation were aware of the plan to create the bridge banks, adding that SEC will soon make a pronouncement on the shares of the former banks listed on the Nigerian Stock Exchange.

For clarity, CBN’s Deputy Governor, Financial System Stability, Mr. Chiedu K. Moghalu, stressed that the new banks are “no longer bridge banks as at today (Saturday). They were bridge banks as at yesterday (Friday).”

He said the three new banks had been issued commercial banking licences, with a national jurisdiction.
He described the regulators’ actions as the most effective in dealing with the malaise creeping into the financial sector, adding that the NDIC took the decision to transform the three banks after an assessment of the eight rescued banks. President Goodluck Jonathan, he revealed, endorsed the plan.

Moghalu stated: “Four of the eight rescued banks have signed Transaction Impleme-ntation Agreements and those four banks represent nearly 80 percent of the negative assets value of the eight intervened banks combined.

“Those three banks, in the assessment of the CBN, could not have met the deadline for the recapitalisation of the banks. Since the banks could not have met the deadline, there was no point in prolonging the situation.

“I will like to draw your attention to Section 39 of the NDIC Act which clearly states the legal basis for the action we took. Bridge banks have been used in various parts of the world; they are a very neat way of resolving the problem. The most important thing is that it prevents the liquidation of the three erstwhile banks.”

Moghalu added that by the action of the regulators, “the banking crisis of 2008 and 2009 have been finally, firmly and fully resolved.”
“What has happened is that these three banks have been in a bridge status for some hours this weekend. They are now full banks on their own, having been acquired by AMCON.

“We hope that there will be no legal challenges from the shareholders. But everyone is free to legally question the implication of our action,” he added.