Targets N30bn annual cost savings from merger
Diamond Bank to write off all bad loans
By Babajide Komolafe & Peter Egwuatu
Access Bank Plc, yesterday, said it will raise Tier 2 capital of $250 million (N90 billion) to strengthen its capital base ahead of its merger with Diamond Bank.
Meanwhile the post merger entity will lead to annual cost savings of N30 billion, to be derived from consolidation of support functions and processes, the benefits of scale, branch consolidation and Headquarters centralisation.
Managing Director/Chief Executive, Access Bank Plc, Mr. Herbert Wigwe disclosed this while addressing the press at the bank’s head office in Lagos in company of Managing Director/Chief Executive, Diamond Bank, Mr. Uzoma Dozie.
Wigwe also disclosed that no toxic asset will be carried into the post merger entity, saying Diamond Bank will write off all its bad loans prior to the consummation of the merger.
He said: “We are about to conclude with some of our partners to raise Tier 2 capital, that will be ready for draw down before the end of January, and that is about $250 million.
“The issue of rights issues, which is $200 million which is additional N75 billion, we will be doing an extra ordinary general meeting (EGM) for it to support our capital, and the whole idea is that that cannot happen now, it will happen sometime next year. And the reason is to make sure that even though we have enough capital as at today, that in the emergent entity, we have the strongest capital base that is required to support an entity of that nature.
“We are not having toxic assets coming into our marriage. That is not what we intend to do. We have enough capital such that after Diamond has written off the bad loans, the new and larger enterprise can continue.
“Because we are doing that Tier 2 capital which we have finished, we are even increasing and creating much more capital buffers. So be rest assured that the new enterprise, large as it may be will be properly capitalised”.
Speaking further, Wigwe said: Following the signing of the Memorandum of Agreement and announcement of headline terms, which valued Diamond Bank at approximately NGN72.5 billion and will see Diamond Bank shareholders receive NGN3.13 per share in cash and shares, Access Bank and Diamond Bank are today announcing further details, including the rationale and benefits of the deal, the estimated cost synergies, the capital management plan and the timetable.
“Merger will form a leading Tier 1 Nigerian bank and the largest bank in Africa by number of customers, spanning three continents, 12 countries and 29 million clients.
“Transaction to be concluded via Scheme of Merger following Access Bank and Diamond Bank Court Ordered Meetings expected in March 2019 to approve terms. Subject to shareholder approvals, final SEC, CBN, and PenCom regulatory approvals and FHC sanction expected before end of H1 2019.
“Cost synergies conservatively estimated at N30 billion per annum, pre-tax, to be fully realized within three years post-completion while further revenue and balance sheet synergies to be evaluated by joint implementation committee.
“The pro-forma capital position of the merged bank will be in full compliance with regulatory requirements for significant financial institutions with an international banking presence. However, in order to meet international standards of best practice and ensure a robust capital buffer, Access Bank and Diamond Bank have jointly agreed a strategic capital management plan and expect to achieve a post-completion Capital Adequacy Ratio (“CAR”) of 20 percent at the bank level and 22 percent at the Group level.
Also speaking, Dozie said: “Diamond Bank will benefit from Access Bank’s strong culture of risk and capital management expertise and a clear strategy for sustainable growth. Access Bank will take advantage of Diamond Bank’s unparalleled retail banking expertise and strong digital offering. Together, the two companies would create one of Nigeria’s leading banks, with 29 million customers, including more than 13 million mobile customers, as well as 3,100 ATMs and around 32,000PoSterminals.
“Diamond Bank currently has 19 million customers, including 10 million mobile users. The combined operation will have relationships with both MTN and Airtel, ensuring that customers of the merged bank will continue to access a strong mobile banking proposition. Access Bank and Diamond Bank also operate from the same technology platform, which the boards believe will enable them to complete the integration with minimal disruption or impact on customers, in addition to generating significant synergies.”