By Kelechi Mgboji
Assistant Business Editor
Near distress condition of Skye Bank Plc was quickened by its over ambitious acquisition of rescued Mainstreet Bank in addition to rafts of dealings under the radar rife among board members.
The Central Bank of Nigeria (CBN) had, Monday July 4, intervened in Skye Bank by removing 10 executive and non-executive directors including board chairman, Olutunde Ayeni, and the Group Managing Director, Timothy Oguntayo, and in their place appointed Tokunbo Abiru as new MD, and Mohammed Ahmed as Board Chairman.
Only two new executive directors who joined the back last year and who were not involved in the boardroom crisis at the bank were left to guide the new management for continuity sake.
An ex-board member of the tier two bank classified as systemically important bank (SIB) disclosed to TheNiche that liabilities arising from Mainstreet Bank purchase were much more than projected.
“The extent of its liabilities was not completely clear despite due diligence. And the deal and integration of the acquired entity ended up gulping more funds than initially projected,” said our source.
Acquisition deal gone awry
Skye Bank bought Mainstreet Bank in 2014 from the Assets Management Corporation of Nigeria (AMCON) with hope of strategic expansion and growth from expected positive impact but it turned out more problematic as the bank could not raise needed capital to finance the long term investment.
Our source who did not want his name on print disclosed that the bank, instead, used short term capital reserves of the bank to the tune of about N130 billion to finance the acquisition of Mainstreet while a whopping N10 billion was said to have been lavished on upgrading its branches and acquiring new work tools for the acquired entity.
“The acquisition with technology network upgrade chopped off about N150 billion from the reserves of the bank from over N200 billion before the deal, down to about N50 billion after the exercise,” said our source.
Tokunbo Martins, CBN Director of Banking Supervision, confirmed this reckless, over ambitious investment that negates prudential guidelines when she appeared on a local television programme on Friday, July 8.
Responding to the question as to why CBN allowed Skye Bank to take over Mainstreet, she said: “What happened then was that they came out as the highest bidder which was, may be, over ambitious of them.
“Yes, they won the bid and were allowed to buy the Bank but with one condition they had to bring in capital. You can’t use short term depositors’ fund to finance the bank.
“They were committed to bringing funds but unfortunately they are working in the same economy where oil price has gone from where it used to be to where it is today, and every other thing has gone wrong with the economy.
“So, they weren’t able to bring in capital before everything went burst. That was one the major things that aggravated their liquidity position.
The bank had hoped to increase market share and ultimately ramp up stakeholder value from the acquisition of Mainstreet Bank that combined to make new Skye Bank with combined branch network of over 450 which many considered would be a great asset.
Skye Bank had emerged the preferred bidder after a rigorous bidding exercise that spanned five months, with over 20 bidders contending. It had on October 9, 2014, paid the mandatory deposit of 20 per cent for the acquisition of the target bank, with a pledge to complete the 80 per cent balance within the agreed time frame. On Friday, October 31, ahead of the November 3, 2014 deadline, the balance was paid.
TSA cleared N120bn off reserves
The implementation of the Treasury Single Account (TSA) in September 2015 took away about N120 billion and further weakened the bank’s liquidity condition.
Central Bank of Nigeria (CBN) had directed all deposit money banks (DMBs) to transfer public sector funds to a consolidated account domiciled with the apex bank.
DMBs’ compliance with the September 15, 2015 implementation deadline of the directive took away a total of about N2.5trillion from the entire banking system resulting to severe credit crunch.
Being a brain child of government, Mainstreet had enjoyed tremendous patronage and good will from many parastatals and agencies of the federal government on one hand and those of the Lagos State government on the other hand. But it seems that all of federal government’s patronage ceased at the introduction of TSA leaving Lagos as the bank’s major customer in couple of transactions including monthly salary of workers.
Insider credit, board squabbles deal deadly blow
Insider credit advance to board members estimated at about N150 billion dealt deadly blow on the bank which was particularly why the CBN removed the management and board of the bank.
A list of 100 chronic debtors released by AMCON in January showed that Skye Bank individually accounted for a total of N16.46 billion and jointly had N104.80 billion bad loans together with Zenith Bank, Intercontinental Bank, First Bank of Nigeria and Union Bank.
The replaced Chairman of the bank, Ayeni, allegedly owed the bank about N102 billion for several years without servicing the loan.
Other non-executive directors of the bank who owed the bank include Jason Fadeyi, the chairman of Pan Ocean Oil company, who is said to be owing N90 billion.
Several firms believed to be owing Skye Bank huge debts that are not servicing their loans include Atlantic Energy, owned by Jide Omokore and Kola Aluko (N70 billion); Oando Oil Company (N20 billion); and Captain Osa Okunbo. Aluko’s brother, Kunle, is among the 10 board directors who removed by the CBN.
Boardroom squabbles
Huge non-performing insider loans occasioned insider boardroom squabbles between some board members and the management leadership who were not happy over failure to service the loans.
TheNiche gathered that between the sacked board chairman, Ayeni, and the group managing director, Oguntayo, there was no love lost.
The email of the ex-GMD to members of staff announcing his resignation alleged that counter forces from within and outside the bank made it impossible to achieve steady progress.
Oguntayo’s email reads: “The last two years, of my stewardship as the GMD/CEO, have been eventful and challenging. I have put all that I have into turning the fortunes of this bank around, working with each and every one of you.
“However, the results have not been commensurate with the efforts. There have been counter forces from within and outside the bank that made it impossible to achieve steady progress.
“It is in this vein that I have offered to resign my appointment as the MD/CEO with immediate effect. I enjoin you all to cooperate with the new management that would be announced soon.”
Boardroom squabble scares investors
Prospective investors who could have helped recapitalise the bank were said to have been scared away after due diligence unraveled raft of dealings in outright violation of prudential guidelines coupled with messy insider wrangling.
The efforts of the bank at raising needed capital in line with CBN directive failed flat.
Two offshore lenders from Morocco and South Africa bank initially competing to partner with the bank and bring in much needed funds to make it to become a universal bank pulled out at the last minutes without informing the management having done their due diligence on the bank and its board.
The existing local shareholders of the bank confirmed interest in increasing their stake but also failed due to internal crisis.
CBN had given December 31, 2016 deadline for Skye Bank to raise a minimum of N50 billion but the bank’s management failed after several efforts ruined by internal squabbles.
Forestalling a run on the bank
To forestall the problem of customers withdrawing their funds from the bank, the new management sent this message to customers on Tuesday, July 5: “Skye Bank’s new management has taken charge of the bank, with the backing of the CBN. The CBN has assured safety of your deposits. There is no cause for alarm.”
But for the intervening public holidays between Tuesday and Thursday, July 7, there had been a run on the bank since Monday, July 4 after CBN announced the removal of the management and board as depositors rushed to withdraw their savings out of fear that the bank might be in distress and unable to meet obligations to its customers.
CBN assures customers
To forestall impending run on the bank, the CBN came out strongly on Wednesday, July 6 to condemn the speculations going round that some deposit money banks in the country are distressed.
However, in another development, the apex bank has admitted that there are only one or two other banks that also have liquidity challenges which is being addressed by the banks in question in satisfactory manner.
A press release signed by CBN Acting Director, Corporate Communications, Isaac Okorafor, denounced what CBN described as malicious rumours and unfounded speculations that some banks in the country may have gone or may be going into distress.
The statement reads in part: “The CBN wishes to reiterate in the strongest terms that these rumours and speculations are untrue and do not reflect the actual health of the individual banks and, indeed, the entire banking industry.
“For the avoidance of doubt, the infusion of a new Board and Management for Skye Bank PLC is a proactive regulatory action meant to ensure that the bank does not continue to fail in its relevant prudential ratios. Neither Skye Bank nor any other bank in the industry is in distress.
“Therefore, the CBN would like to request the general public to ignore speculations or rumours to the contrary as they could only be the handiwork of mischief makers who do not mean well for the Nigerian banking system and its economy.
“The CBN further stressed that as the regulator of the industry, the CBN said it reassures the banking and general public that their deposits remain safe in any Nigerian bank.
“There is, therefore, no need for panic withdrawals from any bank.”
The CBN added: “Going by both the CBN’s Examination Reports as well as analysis from market watchers, International Credit Rating Agencies, and Development Finance Institutions, the Nigerian banking industry remains strong in spite of the global economic challenges emanating from the collapse of global commodity prices.
“The apex bank, therefore, urges the banking public to remain calm and go about their normal businesses without panic.
“It is important that we do not create problems where none exists.”