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From Skye Bank to Polaris: How poor corporate governance blew away N2trn assets

By Emeka Anaeto, Business Editor, Babajide Komolafe, Peter Egwuatu and Nkiruka Nnorum
T
he Nigerian Stock Exchange, NSE has notified the investing public that the shares of Skye Bank Plc will be suspended from trading on the floor of the Exchange effective Monday, 24 September 2018.

According to statement by the bank : “This action is taken following the recent regulatory action of the Central Bank of Nigeria, CBN, revoking the banking license of Skye Bank and in exercise of the powers of The Exchange pursuant to the Rules on Suspension of Trading in Listed Securities, Rulebook of The Exchange (Issuers’ Rules).”

The Exchange, however, did not say what becomes of the fate of the equity investors  rather, it merely said, “further developments will be communicated as appropriate in due course.“

Just before CBN anniunced the take over , investors on Friday traded 2,931,537 volume of shares of Skye Bank  in 47 deals at N0.77 per share, while the volume of shares traded for the 5 days trading last week stood at 52, 486.693 units valued at N34,339,324.77.

Shareholders kick

But the regulatory actions have not gone down well with the investors, especially the retail investors whose investments have been torpedoed. They have told Financial Vanguard that a joint counter-action against the actions of the regulatory authorities would be underway.

National President,   Constance Shareholders’ Association of Nigeria, Shehu Mallam Mikail, who spoke the minds of their shareholders told Fianancial Vanguard that the action taken by CBN on Skye Bank was tantamount to a system of mafias against voiceless retail shareholders’ which will erode the confidence of investors in the capital market and which is likely to effect the economy.

Noting that it was the same CBN that appointed the interim board and management since 2016 till date and extended their tenure for next two years without coming out to call for a meeting with shareholders to brief them of their stewardship till date.

The apex bank, while announcing the takeover of the bank last weekend, said the action was necessitated by the shareholders’ inability to recapitalize the bank.

But Mikail disagreed with the apex bank stating: “The CBN is now saying the bank need recapitalisation, have they ever asked shareholders to recapitalise the bank?, which is capital no”, and as at the close of market today (last Friday) the stocks were traded, now what kind of regulation is this in Nigeria where an action can be taken without due process and what signal are our regulators portraying to the world?

Tokunbo Abiru

“Then, there is no interrelation of information within regulators for shareholders to be able to take action that is likely to save their interest.

“This action by CBN is to show that we do not have government which can protect the economy and this is just a slap on the face of shareholders and we will not take it lightly with all bodies concerned. We will challenge the actions”.

Another section of shareholders, Progressive Shareholders Association of Nigeria, PSAN, while wondering why the apex bank did not sack the board and management after it had literally indicted them, also lamented the plight of the ordinary investors in the bank.

National Coordinator, Mr. Boniface Okezie, stated: “Now that CBN has taken over the bank, it ought to have sacked both Board and Management and reconstitute a new Board and Management.”

He stated further: “This action of interfering and taking over of banks by the CBN will result to distortion in the capital market and banking sector and as well send wrong signal to investors.

“Why should investors always bear the brunt when CBN intervenes and take over banks?   Is it a crime for shareholders to invest in banks? I think CBN should henceforth refrain from interfering in shareholders matters.

“I can assure you that shareholders are determined to speak with one voice and take up the CBN. Although we are in court already over the acquisition of Afribank and others, and we are willing to challenge this fresh illegality by the CBN in the court of law.”

Okezie further maintained that shareholders groups will rally all other stakeholders in the bank to challenge the decision of the CBN and other sister agencies and ensure that “justice is not only done but seen to be done on the matter.”

Our dilemma, by shareholders

Founder of Noble Shareholders Association, Gbadebo Olatokunbo, said that the withdrawal of the license by the CBN has added to the dilemma shareholders faced with sale of nationalised banks.

Olatokunbo stated: “While retail investors were still grappling with the loss of investment, occasioned by the global financial crisis, they were faced with the dilemma arising from the sale of the three nationalised banks, Bank PHB now Keystone Bank, Afribank which became Mainstreet Bank and Enterprise Bank and now, this one.

“These are the things discouraging local investors. CBN should hold the directors of the bank responsible; they should not allow shareholders suffer the way they did when the other three banks were nationalised.

“I wonder what will be the fate of shareholders. It is a big disappointment; I am just going through my holdings to know how much I have there. The directors of the bank must be made to pay for this.

“It’s high time regulatory agencies start dealing with offenders, instead of companies, because companies couldn’t operate herself, some people refused to observe the rules for their selfish desires and they should be the ones to be punished and not the companies or the shareholders, after all the CBN approved their appointments, before the shareholders endorsed at AGMs (Annual General Meetings).

 

‘Hold directors responsible’

“The Directors of Skye Bank must be held accountable, their properties should be sold to offset the debts and not the ordinary shareholders that entrusted the companies to them.”

Patrick Ajudua, National Chairman, said: “As usual, the minority shareholders are at the losing end. We have to acknowledge that the primary function of CBN in this instance is protection of depositors. Therefore, they don’t have any obligation to the shareholders; it falls within the power of SEC (Securities and Exchange Commission) to protect investors in the capital market, particularly they minority shareholders.”

Continuing, Ajudua said: “The CBN contributed to this. The CBN knowing fully the situation with Skye Bank allowed it to purchase Mainstreet Bank. “When Skye Bank was taken into the CBN intensive care unit, it continued to prescribe the wrong diagnosis by continuously granting the bank access to its lending widow. It is when the bank is in a state of coma that the CBN removed the   life support machine and pronounced it dead.

“Tell me why the minority shareholders should suffer for sins committed by the Board and Management of the bank. Are we (the ordinary shareholders) the ones that granted the non performing loans. Are we the cause of regulatory failures on the part of CBN, NDIC, NSE and SEC,” he queried.

Founder of Noble Shareholders Association, Gbadebo Olatokunbo, said that the withdrawal of the license by the CBN has added to the dilemma shareholders faced with sale of nationalised banks.

Olatokunbo stated: “While retail investors were still grappling with the loss of investment, occasioned by the global financial crisis, they were faced with the dilemma arising from the sale of the three nationalised banks, Bank PHB now Keystone Bank, Afribank which became Mainstreet Bank and Enterprise Bank and now, this one.

“These are the things discouraging local investors. CBN should hold the directors of the bank responsible; they should not allow shareholders suffer the way they did when the other three banks were nationalised.

“I wonder what will be the fate of shareholders. It is a big disappointment; I am just going through my holdings to know how much I have there. The directors of the bank must be made to pay for this.

“It’s high time regulatory agencies start dealing with offenders, instead of companies, because companies couldn’t operate herself, some people refused to observe the rules for their selfish desires and they should be the ones to be punished and not the companies or the shareholders, after all the CBN approved their appointments, before the shareholders endorsed at AGMs (Annual General Meetings).

Emefiele CBN Governor

“The Directors of Skye Bank must be held accountable, their properties should be sold to offset the debts and not the ordinary shareholders that entrusted the companies to them.”

Patrick Ajudua, National Chairman,  New Dimension Shareholders Association, NDSA,  said: “As usual, the minority shareholders are at the losing end. We have to acknowledge that the primary function of CBN in this instance is protection of depositors. Therefore, they don’t have any obligation to the shareholders; it falls within the power of SEC (Securities and Exchange Commission) to protect investors in the capital market, particularly they minority shareholders.”

Continuing, Ajudua said: “The CBN contributed to this. The CBN knowing fully the situation with Skye Bank allowed it to purchase Mainstreet Bank. “When Skye Bank was taken into the CBN intensive care unit, it continued to prescribe the wrong diagnosis by continuously granting the bank access to its lending widow. It is when the bank is in a state of coma that the CBN removed the   life support machine and pronounced it dead.

“Tell me why the minority shareholders should suffer for sins committed by the Board and Management of the bank. Are we (the ordinary shareholders) the ones that granted the non performing loans. Are we the cause of regulatory failures on the part of CBN, NDIC, NSE and SEC,” he queried.

Stockbroker’s view

Commenting as well, Chartered Stockbroker and Chief Executive Officer, Sofunix Investment and Communications, Mr. Sola Oni said : “  The revocation of license of Skye Bank Plc by the Central Bank of Nigeria was sudden though the bank has been technically insolvent over the years. The new development has imposed additional responsibilities on those saddled with the task of ascertaining a company’s going concern status to act in the nick of time before  burble busts.

“Skye Bank’s share price has been discounted significantly on The Nigerian Stock Exchange over a long period through investors’ reaction to the company’s challenges.

“The apex bank’s rescue technique through Polaris Bank tilts more in favour of depositors. What is the fate of the real owners, the equity holders?

“Although shareholders take the highest risk and in good time, highest return, action must be expedited to attract strategic investors in order to bring the bank on the track. This is the only way the shareholders can heave a sigh of relief.

“The development is a sad commentary and capable of further putting investor confidence in a quandary. The Nigerian Stock Exchange’s corporate action of trading suspension on the defunct Skye Bank’s shares is consistent with its investor protection obligation as a Self Regulatory Organization ( SRO).”

 

Skye Bank:  From Mainstreet to Polaris

The revocation of the operating license of Skye Bank Plc and nationalisation of its assets through a bridge bank called    Polaris Bank last weekend    is the culmination of a series of poor corporate governance actions which blew away N2.2 trillion worth of banking assets    over three years.

Financial Vanguard  investigations revealed that the banking entity called Skye Bank as at December 31st 2014 had total assets of N1.4 trillion.

However, according to the announcement of the Central Bank of Nigeria (CBN) last week, the bank    which was formed in 2006 through the merger of five    banks, namely, Prudent Bank, Bond Bank, Reliance Bank, Cooperative Bank and EIB International Bank, had negative asset value of N786 billion, with perpetual dependence on regulatory support to meet    customers’ obligations.

The figures above indicate that the      directors of Skye Bank from 2015 took actions that led to the erosion of banking assets worth N2.2 trillion.

Origin of the crisis

Prior to the decision of the Ayeni and Durosimi-Etti led board in 2014 to acquire Mainstreet Bank, a bridge bank sustained by regulatory oxygen, Skye Bank, was doing pretty well as a financial institution with subsidiaries in West and Central African countries. The bank also has subsidiaries in the mortgage, insurance, stock broking and information technology sectors.

According to its audited financial statement for year ended December 31st  2013, the bank grew its profit after tax by 26.7 percent to N16 billion in 2013 from N12 billion in 2012.

That year, its total asset grew marginally to N1.1 trillion, while shareholders funds rose by 12.7 percent to N119.6 billion from N106 billion in 2012. Further analysis show that the bank’s cash position grew by 53.6 percent to N203 billion in 2013 from N132.6 billion in 2012.

But in 2014, the    Ayeni    and    Durosimmi-Etti led board of the bank surprised the financial market when it decided to acquire Mainstreet Bank, a nationalised bank sustained by regulatory oxygen.

Worse still the directors of Skye Bank surprised the financial experts by agreeing to pay N126 billion for a bank with net asset value of N59 billion.

The mood in the financial market to this acquisition was captured by analysts at Proshare as follows: “When the amount bided by Skye Bank for Mainstreet Bank was announced, the market took a pause. The math appeared unclear based on publicly available records and the most recent returns rendered. Skye Bank Plc with a market capitalization of less than N40 billion was announced to have agreed to pay N126 billion for Mainstreet Bank. With that amount, Skye Bank could have bought FCMB and Wema Bank or Sterling Bank and Wema Bank, while offering good premiums to each bank’s shareholders. So why pay so much for Mainstreet Bank?”

A bank chief executive close to the acquisition deal described this decision of Skye Bank board as “reckless desperation”.

To fund the acquisition, the Skye Bank directors executed some financial wizardry including a N30 billion commercial papers and loan from four banks, which was repaid with proceeds of Mainstreet Bank’s AMCON Bond holdings.

This implies that Skye Bank bought Mainstreet with just N30 billion commercial paper loan, which however worsened its financial health.

But the acquisition triggered a gradual and steady decline in the financial condition of Skye Bank.

According to the bank’s audited results for year ended 2014, the bank’s profit after tax fell by 47 percent to N9.7 billion from N18.53 billion in 2013. Bad loans rose      by 58 percent to N18.9 billion from N12 billion in 2012.

This downward trend continued in 2015 financial year.

That year, bad loans jumped up by  47 percent to N27.53 billion from N18.99 billion in 2014. The impact of the sharp rise in bad loan on the bank’s profitability was aggravated by 95 percent increase in Employee Benefit and Compensation cost, and 17 percent increase in administration and general expenses.

Hence at the end of 2015, Skye Bank moved from a profit after tax of N18.7 billion in 2014 to a loss of N40.726 billion.

The persistent decline in the bank’s financial health led to the intervention of the CBN on July 4th  2016, with the sacking of the Chairman and  all Non-Executive Directors on the Board as well as the Managing Director, Deputy Managing Director, and the two longest-serving executive directors on the management team.

To this situation CBN stated: “These proactive moves have become unavoidable in view of the persistent failure of Skye Bank Plc to meet minimum thresholds in critical prudential guidelines and capital adequacy ratios, which has culminated in the bank’s permanent presence at the CBN Lending Window.

“In particular, Skye Bank’s Liquidity and Non-performing loan Ratios have been below and above the required thresholds, respectively, for quite a while.”

The Board’s  flip flop

Interestingly the board of directors that blew away Skye Bank’s assets was largely the board that grew the bank into a diversified and highly profitable bank. The board was composed of seasoned bankers and business technocrats including a former deputy governor of the CBN.

The major actors on the board then includes the then Chairman, Dr  Olatunde Ayeni. He  joined the board in January 2008, and was appointed as the Chairman of the Board on December 13, 2011.

Next is Mr. Kehinde Durosimi Etti,  who served as the Managing Director of the bank up till 2015.    He served as  Deputy MD/CEO to Mr. Akinsola Akinfemiwan who was the founding MD/CEO of the bank. Both Durosimi Etti and Akinfemiwan were seasoned bankers with decades of experience at executive levels in the industry.

Next  is  Mr Timothy Oguntayo    who took over from Mr. Durosimi-Etti in 2015 as Managing/CEO of the bank.  Mr. Timothy Oguntayo was appointed to the Board of the Bank on August 18, 2009. He was the pioneer MD/CEO of Skye Financial Services Limited (the investment banking arm of Skye bank) before the Bank’s divestment from it in 2012.

Another prominent member of the board was Mrs  Amaka Onwughalu, who  was appointed to the board on November 30, 2008. On April 14, 2014, she was appointed as Deputy Managing Director of the Bank.

The Polaris Bank agenda

According to the CBN revocation of the license of Skye Bank last week and the creation of a bridge bank named Polaris Bank to assume its assets and liabilities was due to the failure of the shareholders of Skye bank to inject funds to recapitalise the bank.

Responding to questions from  Financial Vanguard,  CBN Governor, Mr. Godwin Emefiele    said:    “Even before the CBN intervened in July 2016, the bank was making loses, the bank had serious liquidity challenges and that was the reason we stepped in.

“What it meant was that the capital had been fully eroded and they needed to bring in money.    We are saying before July 2016 they did not bring money to recapitalise the bank and post-July 2016 they did not bring money.

“The bank continued to rely on liquidity support from the CBN. And we just thought there was no need to continue doing that. And for this bank to continue to live under the live support of the CBN and the government, the bank might as well become a wholly owned institution belonging to AMCON (Asset Management Company of Nigeria) which is owned by CBN and the government.”

Thus, Polaris Bank was created to legalise the status of Skye Bank as a national bank following the failure of the shareholders of to inject money to restore the financial health of the company.

According to the Managing Director/Chief Executive of Nigeria Deposit Insurance Corporation (NDIC), Alhaji Umaru Ibrahim, what has changed is the ownership status of the bank and the new name to indicate the change in ownership.

He explained: “The NDIC carried out the Bridge Bank option to resolve the Skye Bank Plc in order to make certain that its depositors are fully protected as their deposits with Polaris Bank Limited remain insured under the NDIC Act and the customers of Skye Bank Plc can also continue to transact their businesses with Polaris Bank Limited thereby ensuring the non-disruption of their banking transactions.

“Furthermore, the adoption of the Bridge Bank model for the resolution Skye Bank Plc guarantees that most of the employees of that bank will not lose their jobs and they will continue their employment with Polaris Bank Limited under fresh contracts of employment.”

AMCON: the Polaris challenge

As the new owners of the Skye Bank now trading as Polaris Bank, AMCON has three responsibilities.

The first is to recapitalize the bank, which it has done by injecting N786 billion term loan into the bank, thus bringing its net asset value to zero.

The second is to stabilize the bank and make it attractive for purchase by interested buyers. The third, which may be the hardest, is to sell the bank.

The task of selling Polaris is compounded by the sunset of AMCON which is four years away.

According to Emefiele, the CBN and NDIC hopes that AMCON will be able to sell Polaris before 2023, its sunset year, otherwise the ownership of Polaris will be transferred to CBN and Ministry of Finance, which are also the owners of AMCON.

 

Polaris CEO  points way forward

Polaris Bank Limited Group Managing Director/CEO, Tokunbo Abiru, has pledged the commitment of the new bank to deliver on its mandate to all stakeholders, even as he expressed appreciation to customers for their patronage, support and loyalty.

Abiru who stated this on a breakfast feature on Arise TV yesterday, also assured customers of the old Skye Bank saying “our customers are in for a better deal with Polaris Bank”.

“Polaris is a new chapter, we are stable and alive. With strong, capitalization, liquidity, strong management and clean loan books with adequate capitalization which are key indices for a healthy banking institution, the future could only be brighter for all our stakeholders.”

Predicting the future of Polaris, Abiru said: “our future will be hinged on strong corporate governance and with robust business operations, we’d build and enhance a sustainable enterprise that would be the pride of every stakeholder.”

The new bank comes into operation with the injection of a massive N786billion by the Nigeria Deposit Insurance Corporation (NDIC) on Friday, September 21, 2018.

Polaris also retains the experienced management team that helped repose public confidence in the old Skye Bank.

Apparently, in a show of confidence, CBN had retained Abiru and his team and extended another two-year mandate for them.

“This means whatever money customers had in Skye Bank remains same in Polaris bank. The only difference is the name change and investors coming on board with fresh funds into a bridge institution’’ an industry source educates.

Also, an erstwhile customer of the defunct Skye, Wale Adedipe, has expressed optimism that the new bank would meet expectations of stakeholders “as it is in good hands.”

Industry watchers have also expressed confidence Polaris would surpass expectation based on the belief the Abiru management which performed well within the restrictions of Skye Bank, now has more than it takes to do better with Polaris based on the massive injection of funds and great support from the Central Bank.


Disclaimer

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