The Central Bank of Nigeria’s (CBN’s) weekend sudden turnaround and liquidation of Skye Bank Plc took the financial services sector by surprise. The revocation of the licence and establishment of a bridge bank to take over the assets and liabilities of Skye Bank evoke the bitter experience of the previous losses by investors in three nationalised banks. In this report, Capital Market Editor Taofik Salako examines the undercurrents around the defunct Skye Bank.
There had been much enthusiasm around Skye Bank’s shares recently. In the last trading session on Friday, few hours before the Central Bank of Nigeria (CBN) announced its decision to liquidate the bank, Skye Bank was one of the top 10 highest gainers, rising by 4.05 per cent to close at 77 kobo. The bullish trading at the weekend rounded off a week-long positive sentiment that saw the bank closing last week with a week-on-week gain of 14.93 per cent, the seventh highest for the week and exceedingly above the average of 0.66 per cent for the entire equities market. The price appreciation underscored the increase in momentum of transactions on the bank’s shares. Skye Bank has been one of the more active stocks.
The CBN last July extended the tenure of the board of directors and management of Skye Bank for another two years till June 30, 2020. The apex bank on July 4, 2016 taken over the management of the Skye Bank by reconstituting the board of directors and management of the bank to pave way for a new team to take charge of the bank and resolve various issues that were perceived to be hindering its optimal performance. The apex bank gave the new board and management a mandate with particular focus areas to turn the institution around positively. CBN attributed the extension of tenure to “stellar performance of the board”.
In a show of confidence and regulatory compliance, the board and management of the bank on August 13, 2018 issued their last communication to the investing public. In the regulatory filing signed by Company Secretary and General Counsel, Skye Bank Plc, Babatunde Osibodu, the bank explained the delay in the submission of its half-year results for the period ended June 30, 2018.
“The bank’s unaudited financial statements for the period ended June 30, 2018 were approved by the board at its meeting of August 09, 2018, and have been presented to the Central Bank of Nigeria (CBN), as the bank’s primary regulator, for approval. As with the bank’s audited financial statements for previous financial years (2016 and 2017), the unaudited financial statements for the period ended June 30, 2018 shall be published as soon as the CBN grants its approval,” Skye Bank stated. The board reassured the investing public of its commitment to “transparency, full disclosure, and compliance with regulatory requirements”. There were no profit warnings, no suspension due to delay in results, no cautionary statements and any such alerts that are required by extant rules and regulations in terms of any material change.
A kick in the teeth
Addressing the media at the weekend, CBN Governor, Godwin Emefiele, noted that the apex bank took the “proactive action” in July 2016 because of unacceptable corporate governance lapses as well as the persistent failure of Skye Bank to meet minimum thresholds in critical prudential and adequacy ratios, which culminated in the bank’s permanent presence at the CBN Lending Window.
According to him, the focus of the action then was to save depositors’ funds and to ensure that the bank continued as a going concern, being a systemically important bank. Part of the intention was also to stem imminent job losses to staff if a liquidation option had been adopted.
“These objectives have been fully achieved and the bank has been able to meet customer obligations, having curtailed the liquidity haemorrhage and restored depositor confidence. Indeed, the bank’s performance has improved considerably compared to the pre-July 2016 era,” Emefiele said.
He however noted that the result of examinations and forensic audit has revealed that Skye bank requires urgent recapitalisation as it can no longer continue to live on borrowed times with indefinite liquidity support from the CBN. “The shareholders of the bank have been unable to recapitalize it,” Emefiele said.
“As a responsible and responsive regulator and in consultation with the Nigerian Deposit Insurance Corporation (NDIC), we have decided to establish a bridge bank, Polaris Bank, to assume the assets and liabilities of Skye bank. The strategy is for the Asset Management Company of Nigeria (AMCON) to capitalize the Bridge Bank and begin the process of sourcing investors to buy out AMCON. By this decision, the licence of the defunct Skye Bank is hereby revoked,” Emefiele said.
He assured all depositors that under this arrangement, their deposits shall remain safe and that normal banking services shall continue in the new bank on Monday, September 24, 2018, to enable customers to transact their businesses seamlessly. All customers of Skye Bank shall be automatic customers of the new bank and their accounts and records duly purchased by Polaris Bank.
“Given the good performance of the board and management, the CBN shall retain them. In addition, all employees of Skye Bank shall be absorbed by Polaris Bank under a new contract unless any employee decides to opt out. We wish to assure the general public that the Nigerian banking industry remains safe and resilient and that the CBN will continue to live up to its responsibilities of promoting stability in the banking and financial system,” Emefiele concluded.
Bolt from the blue
Most stakeholders were surprised at the turn of event for Skye Bank, which had in 2014 consummated a N126 billion deal that what was widely regarded as one of the biggest acquisitions in Nigeria. From financial reporter+s to shareholders, capital market operators and analysts, there were many questions with few or no responses. Most analysts were quick to point at the contradictions in the apex bank’s statement and what shareholders regarded as incorrect assertion on the move to recapitalise the bank. Shareholders and capital market stakeholders were unanimous that there was never a time that the issue of recapitalisation was table before shareholders. At what point did CBN decide on liquidation and bridge bank option? Were the board and management of Skye Bank aware of any discussion, no matter how preliminary, in this regard? Why did the CBN refuse to release the interim and audited financial statements of the bank for more than two years for consideration by shareholders? Given the good rating of the bank and its board and management, why will the apex bank resort to the drastic option of bridge bank? Did the apex bank consult the Securities and Exchange Commission (SEC) and Nigerian Stock Exchange (NSE) before the liquidation of a publicly traded quoted company with thousands minority retail shareholders? So many questions that should shed light on the extent of transparency and compliance with due process.
“It is worrisome that CBN appears to be thinking about the banking sector and depositors alone without consideration for the investors and capital market. Action like this tends to erode the little confidence that remains in the market,” Executive Vice Chairman, Capital Assets Limited, Mr Ariyo Olushekun said.
“The development is a sad commentary and capable of further putting investor confidence in a quandary,” Managing Director, Sofunix Investment and Communications Limited, Mr Sola Oni said. The NSE scurried for a late-night statement placing the shares of Skye Bank on suspension with effect from today, Monday, September 24, 2018. “This action is taken following on the recent regulatory action of the Central Bank of Nigeria revoking the banking license of Skye Bank…,” the Exchange stated in a three-paragraph statement.
Shareholders were miffed and unsparing in their criticisms of the decision of the apex bank. “CBN’s takeover of Skye Bank is a very sad and avoidable story. A total lost for all the minority shareholders of the bank. Though CBN said the owners were not able to recapitalise the bank, I can’t remember when the CBN-imposed management called on us to bring money and we refuse,” National Publicity Secretary, Independent Shareholders Association of Nigeria (ISAN), Mr Moses Igbrude said. National President, Constance Shareholders’ Association of Nigeria Mikail Shehu said the action taken by the CBN has further exposed the fault lines in the regulatory framework. “It is tantamount to gang-up against the voiceless retail shareholders. It will erode the confidence of investors in our capital market with negative implication on the economy. It is the same regulator that appointed the interim board and management since 2016 till date and extended their tenure for the next two years without even calling shareholders to brief us on their stewardship till date. Now CBN is saying the bank needs recapitalisation, have they ever asked shareholders for capital injection?” Shehu said.
According to him, the action of CBN shows that there is little protection for investors in the economy. He said shareholders might consider legal action against the CBN and other related parties to seek redress against what he described as a thoughtless decision.
“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,” Oni said.
While the apex bank lauded Skye Bank’s board and management, shareholders said the directors did not live up to their words. Alhaji Muhammad Ahmad, the founding director-general of the National Pension Commission (Pencom), who was appointed by the CBN as the new chairman of Skye Bank, had during a working visit to the NSE assured the investing public of the safety of their investments. He said the reconstitution of the board of the bank by the CBN was not a takeover but an intervention to correct observed corporate governance issues under the old board. While explaining that the ownership of the bank remains in the hands of the shareholders, Ahmad said the CBN does not own the bank and has not taken over the bank, stressing that the apex bank was fully behind the bank and would support it to fully stabilise.
He reassured the bank’s customers and investors that the bank was not distressed but only had corporate governance issues under the old board adding that the bank’s fundamentals remain strong and it remains one of Nigeria’s leading and retail banks. Mr. Tokunbo Abiru, a former commissioner for finance in Lagos State and executive director at FirstBank of Nigeria, who was appointed as the new group managing director, corroborated Ahmad.
Abiru said the management team and the board would work to achieve value enhancement for shareholders, customers and other stakeholders by bringing the cost-income ratio to acceptable levels, improve the risk assets quality and work towards increasing the liquidity and capital adequacy of the bank.
Failed acquisition
Igbrude said the acquisition of Mainstreet Bank by Skye Bank was the beginning of the failure of the bank. Skye Bank had in 2014 acquired the entire issued shares of Mainstreet Bank from the Asset Management Corporation of Nigeria (AMCON) in a deal valued at N126 billion. It was hailed as a game changer by several pundits. Skye Bank, with dominant operations in the Southwest, had sought out Mainstreet Bank to deepen its penetration of the Southeast and Southsouth regions. Some 26 per cent or 54 branches of Mainstreet Bank’s network were located in the two regions, which also accounted for 28 per cent of Mainstreet Bank’s over 1.9 million customers, second only to Lagos with 37 per cent. Besides, a second generation leader, Mainstreet Bank had a large pool of loyal institutional and corporate customers as well as a history of successfully managing agricultural loans, with agric loans accounting for 12.6 per cent and 16.9 per cent of its loan portfolio in 2012 and 2013, second only to ‘general’ sector. Mainstreet Bank was also a product of takeover of Afribank Nigeria Plc, a publicly quoted bank, by the apex bank.
The CBN had taken over the trio of Afribank Nigeria Plc, Bank PHB Plc and Spring Bank Plc to create three bridge banks of Mainstreet Bank Limited, Keystone Bank and Enterprise Bank. AMCON subsequently acquired the banks.
“While shareholders of Skye Bank have now lost their investments, what happened to the management who took the decision to buy Mainstreet Bank and those professional consultants who did the due diligence reports that the management relied on to take the decisions?” Igbrude quipped.
Olushekun called on capital market regulators to strengthen their investors’ protection mechanisms by ensuring that companies do not take advantage of investors.
As shareholders rue their losses, their concerns extend beyond the immediate takeover. Who is next? That’s a worry that may reverberate on other banking stocks in the days ahead.