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We bought performing loans from banks to save them from collapsing – AMCON


At the height of the financial crisis that rocked the global economy in 2008, Central Bank of Nigeria pressed for the realisation of the Asset Management Corporation of Nigeria which had been in the pipeline for years. The company was set up to buy non performing loans from banks.

It has performed the function to some extent, but there are still issues in the financial services sector to be resolved. Managing Director of the company, Mr. Mustapha Chike-Obi spoke to Financial Vanguard on some of the issues. Excerpts

What is your thought on the move by the National Assembly to strip the Central Bank of its autonomy?
Am not sure there is a move to strip the CBN of its autonomy. I think the National Assembly is only reviewing the CBN’s Act. There are some ideas that have been put forward, but it is completely unadvisable to tamper with the autonomy of the CBN.  It is not the best practice. The whole world has gone to the level of an autonomous, independent Central Bank essentially for economic growth.

The National Assembly is still gathering information. So, I think that when they finish gathering the information, and they hold public hearing, am hopeful, they will arrive at the correct decision. The way to deal with the CBN is not by tearing the economy apart. I am certain they will come to the right decision.

And if by chance there is a review of the Act that finally tampers with the autonomy, how do you think that will affect the economy?

In a simple way, it will be disastrous. The National Assembly cannot do a worse thing than tamper with the CBN’s autonomy. So, I am very confident that they will not do that. I don’t want us to speculate about any problem; they are doing their job, they are gathering information, and they are listening to people. When they are through with gathering information, I am very confident that they will do what is right for the economy.  So, I am not really worried about it.

You once said that you are looking for advisers to advise you on the sale of the nationalized banks. How far have you gone with that project?
First of all, the banks were not nationalized. So, I reject that claim of nationalisation. The fact that the banks are owned by public institution does not mean that they were nationalized.

What was done to them?
They were bridged, which is a lawful exercise in the NDIC’s Act and recapitalised by AMCON, which is also a lawful exercise in the AMCON’s Act. None of those acts is nationalisation. I have made it very clear; nationalisation is a process that leads to public ownership, but the fact that a company is owned by a public institution does not mean that it is nationalised.

The example I give is, if the CBN building is owned by CBN, which is a public institution, does that mean that the CBN building was nationalised? There are many ways that public institution could be owned by government, but yet they are not nationalization. Be it bridging or recapitalisation, both of which are legal under their respective laws.

So, on my initial question, on the proposed sale of those banks, how far have you gone?
We have kicked it off. We have advertised for advisers. Well, we are not advertising for advisers for a sale. We are looking for advisers to tell us what to do with the banks to get maximum value. Everybody assumes that means to sell. It might mean going public with those banks; taking them to the stock exchange as in public offering so that Nigerians can own the banks again.

So, we are looking for advisers to tell us the best thing to do. It may well be that a sale is the right thing to do. In that case, we will consider a sale, but right now, we are just looking for advisers to re-evaluate the banks and then tell us the best way of exit without affecting the financial market, and yet get the best value from it.

There are some people that believe that those banks are not yet matured for sale. How healthy are they to attract new core investors?

That’s why we need advisers. When the advisers look at them, they will tell us if they are ready or not. They will tell us whether to keep them; whether to merge them, whether to sell them, whether to go public; all of these. They will tell us what to do with the banks, and when they tell us, we will consider the experts’ opinion. There is no point me and you guessing whether they are ready for sale or not. We will get very competent advisers and they will tell us what we should do. They will tell us what steps to take to get the best value.

Up till now, nobody has said anything concerning the shareholders of those banks; the people that lost money in those banks. What is going to happen to them?

You need to be very careful when you talk about shareholders. There were shareholders in Bank PHB; there were no shareholders in Keystone bank. We did not buy Bank PHB. We recapitalized Keystone bank. Keystone bank is a completely different entity from Bank PHB. So, the people that were shareholders of Bank PHB who had issues with what happened, their issue is with the NDIC.

It was the NDIC that bridged their bank, and when they bridged their bank, they created a new bank called Keystone bank. AMCON’s interaction with Keystone bank has nothing to do with Bank PHB. As a matter of fact, AMCON was the largest shareholder in Bank PHB before it was bridged; larger than Habib bank which was the second largest shareholder.

So, we lost more as an institution than any other shareholder, and so shareholders that have a problem should address that with the NDIC. Let me say this, I think the NDIC did the right thing. These banks had failed as institutions. The depositors’ funds were in danger; and the only thing NDIC could do was to act in the best interest of the depositors as the law compels them to do. They must protect the depositors, which is what the law tells them to do.

Mustapha Chike-Obi

A bank like Bank PHB had negative capital of over two hundred billion (N200 billion), so what exactly did shareholders own. It was worth negative two hundred billion or more. So, there was nothing they lost; they lost their shareholding two years ago, not when it was bridged. When it was bridged, the bank was in danger and depositors needed to be saved.

But some shareholders still believe that they should have been asked to recapitalise their banks instead of bridging them?

But that’s what they say. You see, you reporters have a duty to report the truth. The banks were intervened on in 2009. CBN gave them two years to recapitalise the banks, they didn’t recapitalise for two years. It was extended to 30th September, 2011. They still hadn’t made any progress to recapitalise them. When are they going to recapitalise, forever?

They were given over two years to do this and they didn’t. That’s the fact and then, in addition to that fact, Union Bank just had a rights issue as part of its recapitalisation exercise where they asked the original shareholders to bring a small fraction of the money required and they didn’t. The rights offering had to be cancelled, only AMCON subscribed to the right offering. The shareholders didn’t. So, when people tell me that they should have given them chance to recapitalise, they are not being honest with the fact.

However, if anybody wants to recapitalise any of the bridged banks on the same basis that AMCON did, they are welcome. We will sell to them as many shares as they want on the same basis that we recapitalised the banks. So, anybody that tells you that they want to recapitalise the banks, there is an open invitation. We will show them the term that we used to recapitalise the banks and they are welcome to join me on that basis.

If you are saying that anybody that wants to recapitalise any of the banks is free to do so, does it mean that the bridge option can be reversed?

No! The shares are now owned by AMCON. We paid for those shares. If anybody wants to buy those shares from me, any ex-shareholder of any of those banks that wants to buy the shares on the same term that we bought them, he is welcome. Any! So, if they want to help me recapitalise those banks on the same term I did, I give them an open invitation to come and do so. But I assure you that they won’t come.

But sincerely, don’t you think that CBN and NDIC should have allowed the September 30th deadline to elapse before bridging those banks?

First of all, let explain something to you. To recapitalise a bank is not something you go to the market and do in one day.  To recapitalise a bank takes a number of steps. Let me tell you what it takes. It takes issuing a Memorandum of Understanding; that has to be approved by the board of directors. Then from there, you go to what is called Transaction Implementation Agreement; that also has to be approved by the board.

Then, you take that to the Securities and Exchange Commission and you go to the court; then you have court-ordered sanction, approval of the Transaction Implementation Agreement. When the court approves, you go to SEC, then SEC must approve. So, the whole process takes somewhere in the best case, a minimum of three months- from the MoU to the conclusion.

So, when you get to the middle of August or middle of July and there has been no MoU signed, you know that there will be no transaction by September 30th. It is impossible. So, when they say September deadline for recapitalisation, that doesn’t mean September deadline for MoU. It means MoU should have been signed in March to meet September 30th recapitalisation deadline.

It is like somebody walks in now; your husband walks in now and says ‘I want to eat and you say what do you want to eat and he says rice and you say okay.’ Then he says ‘where is the rice’. If he is asking for rice now, he knows that it will take may be an hour before it will be ready. So, if you want to hit the deadline, you should not wait for September 30. By July 15th, you know there will be no transaction that can happen by September ending.

Here is the danger, if you wait till September 30th, other people know it; by September 15th, there will be a run on the banks that you will never believe. If you have a deposit in the bank, and the deadline is September 30, will you wait till that day to take your money out? No! All the government agencies will have taken their money out; institutions will have taken their money out.

There will be a run on the bank and that is exactly what we cannot afford. So, once we got to July 15th, everybody knew that the September 30th deadline has been breached. Every single bank that was not bridged had signed MoU by July 15th. So, there is a problem, if you wait till September 30th, the banks will be liquidated. That is what people don’t understand. They hadn’t even done the first step to capitalisation, and you say we should wait for September 30th? That would have being irresponsible, and they knew it.

And what you don’t know which they don’t tell you is that Afribank’s board of directors wrote to CBN and told CBN, ‘please ask AMCON to recapitalise us’. There is a letter to that effect. The MD of Spring bank came here and asked AMCON to recapitalise the bank because it was making huge loses. What do you want us to do?  I will give you another fact. AMCON owned 80 per cent of Spring Bank shares by the time it was bridged. The largest shareholder of Spring Bank was AMCON. So, in terms of who lost the most money by the bridging, it was AMCON.

Now, on the issue of Union Bank’s recapitalisation, if you had listened to SEC’s presentation at the House of Reps hearing, SEC commissioners alleged that AMCON coerced them to clear Union Bank for recapitalisation. What do you have to say to that?

Let me ask you a question. How can AMCON coerce SEC?  SEC is a regulator, AMCON is not. In what possible way can AMCON coerce …

(cuts in) it was an allegation…
I understand. I am asking you; if I allege tomorrow that you jumped out of this building, people will laugh at me. Some allegations don’t make sense. AMCON doesn’t have any coercive power over any regulator. We don’t have any regulatory power. How can we coerce SEC into anything?  Moreover, the SEC DG is on my board of directors, she is one of my directors!  How can I coerce her into anything? So it makes no sense. Now, the Union Bank transaction, what part of it was coerced? I don’t understand. What part did they say that we coerced them to agree to?

Okay, there was an allegation that the proceeds of their last public offering before the bank’s crisis was unaccounted for and because of that, they refused to accent to recapitalisation of the bank, is it true?

Let me say something. First of all, before AMCON came into being, there was public offer by Union Bank and there was an allegation that they did not use the proceeds of the offer for the purpose of the offer. That’s the allegation. We have letters to save us from Union Bank in the market. AMCON’s only job is to fill the loss; to recapitalise these banks to zero in order to facilitate the M & A (Mergers and Acquisitions) transactions. So in the end, the bottom-line was that the proceeds were used by Union Bank allegedly as working capital.

Whatever it was used for, there was a negative equity in Union Bank. AMCON’s only job was to fill the negative equity. There was negative equity from people who did foolish things. It is not our job to pry on that. The bottom-line is that we wrote a letter to SEC, for whatever purpose that was used; we are going to fill the negative equity to facilitate the merger transaction. That’s our job. That was what we did.

Now, it is entirely impossible; there is a long history. (I wish the lawyer was here, I would have shown you the file, back and forth, of the whole issue), but in the end, it was irrelevant. What does it matter that Union Bank misused N5 billion of the proceeds of the public offer it did five years ago. Is it because you are going to make…, Union Bank is a big bank, and because the last MD used the proceeds badly, you are going to hold up the recapitalisation?

How many people does Union Bank employ? Ten thousand people; had a minimum of 1.2 million customers, and a deposit of N500 billion. You are going to put all of that in jeopardy because there was some bad behaviour for which the man…, I think they are in court. Look, everything that I know and I think that was the fact was done for the interest of Nigeria’s financial system, the depositors and the employees.  Those were the three major people that were considered.

If investors lost money, it is unfortunate, but that is what investment is. I have invested in businesses that went bankrupt and nobody asked the government to come and bail them out. Why stop at banks, why are they so emotional about banks? How about if you have a Hotel and it goes bankrupt, should government bailout the business? How about if you have an airline? Are we going to bailout Dana Airline?

Dana Airline is probably going to be in financial difficulty. We have airlines- Bellview for instance, they lost all their money. Should we bail them out out? So when investors keep making this petition, there is no government anywhere in the world that will ever agree that it is its job to bailout an investor who has lost his money. No where! But government tells people, ‘go and put your money in the bank so that when you go to get the money, it will be safe.’

And so, if we didn’t do that, the banking system will collapse. You will have your in-law who will tell you one day to give him money to start tailor business and it may not work. Should the government give you the money back? I have never understood this investors’ issue about how investors feel that it is government’s job to give them back the money that they lost.


Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.