28 June 2009
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Like a bad coin, the issue of Spring Bank acquisition by Bank PHB last week resurfaced with great intensity threatening the peace and harmony the bank had enjoyed in the last seven months following its acquisition by the latter, Lucky Fiakpa writes
The decision by Bank PHB to acquire Spring Bank was seen as the best thing that could have happened to the latter after the consolidation of the six legacy banks - Omega Bank, Fountain Trust Bank, Trans International Bank, Guardian Express Bank, Citizens Bank and ACB International Bank. For the first time, the morale of staff of Spring Bank was said to have been enhanced with the performance incentives introduced by the new management as the bank's quality of service was also said to have significantly improved.
Again, for the first time since 2005, Spring Bank is set to declare profit for its financial year ended April 2009 and which result is expected to be released soon. This will be the first time the bank would be declaring profit since the coming together of the six banks that formed Spring Bank in 2005.
By the un-audited result, Spring Bank will be returning to profit barely five months after Bank PHB acquired it. The management, led by Charles Ojo, a former executive director in Bank PHB, has grown deposits by over 80 per cent, from about N109 billion as at December 2008 when it took over to about N180 billion by the year ended April 30, 2009, it was gathered.
During the same period, the new management grew the profit before tax (PBT) from a deficit of about N2 billion to over N2 billion. The bank believes the turnaround in its fortunes within only five months has helped restore the confidence of staff, customers and shareholders who now stand a chance of receiving dividends for the first time in five years.
These are indeed great feats. But not all the shareholders of Spring Bank are applauding it. A cross section of the shareholders believe the acquisition of the bank by Bank PHB did not follow due process or better still was not proper and would not support the latter in any way. In fact, the acquisition of the bank has been a subject of several legal suits between the aggrieved shareholders and Bank PHB.
The grouse of the shareholders is that there was an agreement that a post-merger adjustment, PMA, be done upon the composition of the organs of administration by the banks' shareholder representatives within a year of post-consolidation but that was not done. This led to series of crises that culminated in the sack of the board by the former Central Bank of Nigeria, CBN, governor, Professor Chukwuma Soludo, and the constitution of an interim management board, IMB, led by Suleiman Ndanusa.
At some point, the IMB submitted a draft final report to the CBN on the PMA. Two out of the six members of the Legacy Bank, from the BankOne Group - Fountain Trust Bank Plc and OmegaBank Plc - declined to be part of the execution of the draft. The non-execution was occasioned by issues bordering on the perceived rejected shares, i.e. bubble capital, arising from the controversial Guardian Express Bank shares and the warehoused shares.
These were the shares sold to Bank PHB Plc individually and in concert with Westcom Technologies and Energy Services Limited. They amount to about 10 per cent of the total equity. This actually kick-started the tortuous process of the bank acquisition.
With this share transfer process completed, Bank PHB on November 28, 2008 commenced the actual process of the bank's acquisition with a N21 billion bid for more than three billion units of Spring Bank's shares. On December 1, Bank PHB advertised for a mandatory bid to acquire majority shareholding in Spring Bank. As at that time, it already has 33 per cent of the bank's shares and the bid for three billion more units was aimed at upping its stake in the institution up to a controlling 51 per cent shareholding. On December 18, 2008, Bank PHB announced the successful acquisition of the embattled bank.
Shareholders' Grouse
Not amused by this development, the aggrieved shareholders went to court to contest the legality of the acquisition. Apparently not comfortable with the slow process of the country's judicial system, the shareholders also sent petitions to the presidency for intervention.
Their main bone of contention was that the "mandatory bid" Bank PHB sought was illegal because two-thirds of the 33 per cent it claimed were "rejected" and "warehoused" shares. The rejected shares, also referred to as "bubble capital", were alleged to have been fraudulently acquired by some directors of Guardian Express Bank and Citizens Bank plc, two of the merging partners in Spring Bank.
The directors were Dr. Cosmas Maduka, who purchased two billion units with N2.4 billion; Chief Tony Ezenna, 834 million units and Edwin Mmuomenam, 240 million units all funded by legacy Guardian Express Bank plc. Also to confirm it was the report of the Nigeria Police Special Fraud Unit released on 1 July 2008.
The shareholders contended that Bank PHB acquired the shares of these directors illegally, that the acquisition was a contravention of the law, as the shares, which various findings had condemned as toxic, should have been voided and returned to the bank. The "warehoused" shares, calculated to be about 10 per cent, were also said to have been sold to Bank PHB via proxy.
Babalola's Findings
Given the series of petitions, the presidency was said to have directed the Ministry of Finance to look into them and report back to it. The Minister of State for Finance, Mr. Remi Babalola, who was saddled with the responsibility of doing this job reportedly turned in the report about two months ago.
The report which was leaked to the public last week, noted that the haste to merge the Legacy banks without proper due diligence notwithstanding the provision of a PMA which was not complied with facilitated the crisis that affected Spring Bank. It refers to a letter, dated 25 August 2008 from the Attorney-General and Minister of Justice, Michael Aondoakaa to the immediate former CBN Governor, Professor Chukwuma Soludo, which emphasised that there was substantial evidence of fraud by the directors of Legacy Citizens Guardian Group, namely, Maduka, Ezenna, Anthony Ifeanyichukwu and Mnuomenam.
In all Babalola stated that the Spring Bank acquisition was improper for six major reasons: One, he noted that the post-merger adjustment exercise was fundamental to the determination of the ownership structure of Spring Bank Plc and should take precedence before any other interests or purported sale of shares in the bank.
Two, the report of the joint CBN/NDIC Joint Investigation Team should have been implemented per the position of the shares purportedly acquired under an explicit breach of banking practices by some of the then directors of Legacy Guardian Express Bank, namely Maduka, Ezenna, Ifeanyichukwu and Mnuomenam. Three, the recommendations and directives made by the Attorney-General and Minister of Justice on 25 August 2008, the report says, were ignored by the CBN, thereby disregarding the law.
It also declares that the actions and conduct of the interim management board were not done in good faith, professionally and impartially and that the CBN acted without due regard for the law in the conduct of its statutory responsibilities despite the recommendations of the Attorney-General and Minister of Justice.
Lastly, the report castigated SEC for what it calls tampering with the subject matter of substantive suits before the courts and contravening the case law of principle of lis pendis. Babalola draws the attention of President Yar'Adua particularly to two suits: Barrister Abdul Wahab Muhammed & three others Vs Bank PHB plc, Spring Bank plc, CBN and SEC and Lord Chief Udensi Ifegwu and Emmanuel Okorie Vs Bank PHB plc & six others. These two suits, the report maintains, render any administrative decision subjudice at that stage and until their conclusion (or withdrawal), it will be difficult to resolve the various issues at stake.
The report ends on a three-point advice that the President ensures that the directives of 25 August 2008 made by the Attorney-General and Minister of Justice be fully implemented, that the ministries of Finance and Justice should convene a meeting of the CBN, SEC, NDIC and the principal parties involved in the PMA exercise to resolve all the outstanding issues within three months from the date of the meeting and lastly, the CBN should invoke its powers under sections 33, 36, 37, 38 and 39 of BOFIA should the PMA not be concluded within the said three months.
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