1. Diana Corbo Haitham Hamid Omowaleola Orepitan Raghav Mimani Bank PHB & Spring BankNigeria, December 2008
2. Recapitalization In Nigeria Recapitalization was an attempt by the Central Bank of Nigeria (CBN), to solve the problem of bank distress and failure, and to reposition the industry for national and global economic challenges In the year of 2005, Nigerian banks were required to increase their minimum capital from US$15m to US$195m, an increase of 1,300 per cent The recapitalization exercise resulted in the shrinkage of the number of banks from 89 to 25 merger/acquisition involving 76 banks which altogether accounted for 93.5% of the deposit share of the market
3. Background Spring Bank Merger of 6 banks – 4 major, 2 minor Guardian Express($76.83m) , Citizens International($59.90m), ACB International ($0.32m), Fountain Trust($0.63m), Omega Bank ($74.33m)and Trans-International($22.07m) As at December 22, 2005, CBN approved a total of $234.08m as representing the total shareholders funds of the newly formed Spring Bank The parties that formed the bank were from two strong ethnic groups from Nigeria, the Igbo and the Yoruba
4. Crisis at Spring Bank CBN was negligent in verifying Spring Bank’s claim of $234.08m The short time CBN mandated banks to raise their minimum capital base was obviously not enough for Spring Bank to recapitalize or find suitable merger partners The post merger verification result showed the level of shareholders funds was of negative value of $372.84m instead of positive figure of $234.08m Not all the six “legacy banks” actually had the level of shareholders funds that they claimed they had at the time of the merger Arguments ensued amongst the six legacy banks about the quality of their assets for consideration in deciding board position allocations ACB was the oldest bank in the group and felt that they were more important Full blown board room crisis because the contending parties became split along ethnic lines Spring Bank directors owed the bank huge debts that they incurred through insider loans they gave to themselves in their legacy banks but which they did not disclose at the point of the merger
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6. Bank PHB lacked the kind of presence it wanted in the western and eastern parts of the country which Spring Bank had
7. Bank PHB offered Spring Bank shareholders a premium of $0.05 each for a stock that had been on technical suspension at $0.04 each in compliance with Security Exchange Commission (SEC) mandatory bid rule 131
8. The Nigerian Stock Exchange (NSE) lifted the imposition on Spring Bank’s stocks from full suspension to technical suspension
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10. The Acquisition – The Good(Shareholders) The offer from Bank PHB may be the best opportunity Shareholders can sell and make some profits The bid price is at a 25 percent premium on the current market price of N5.59 of Spring Bank Plc on the Nigerian Stock Exchange (NSE) “The offer price is very good, considering that Spring Bank has not been able to pay dividends to shareholders in the last three years” According to Renaissance Capital: Good deal for Bank PHB and Spring Banks shareholders Also good for customers, regulators, and employees emergent institutions expanded distribution network additional comfort of banking with a much larger bank and extended product offerings
11. The Acquisition – The Bad The acquisition is the first hostile acquisition involving two listed firms on the Nigerian Stock Exchange (NSE) The shareholders averred that the “mandatory bid” Bank PHB sought was illegal. Two-thirds of the 33 per cent it claimed were “rejected” and “warehoused” shares The rejected shares (bubble capital) were alleged to have been fraudulently acquired by some directors of Guardian Express Bank and Citizens Bank plc, two of the merging partners in Spring Bank Most banking analysts agree will change the competition dynamics in the Nigerian banking industry in favor of Bank PHB
16. Health After Transaction The Bank showed a very healthy financial and operational measures despite the tough economic environment The bank has moved from the 17th bank in Nigeria to rank among the top 7 in assets, top 5 in deposits and top 3 in capital CAGR showed healthy growth in operating profit. Bank PHB offered more than 977 % return to investors, the highest by any Nigerian bank Instituted new IS system which has improved flexibility, reliability and performance Bank PHB emerged as one of Gambia’s most acceptable brands with the third largest market in that country – through acquisition
17. Future Plans Bank PHB has embarked on an offshore expansion with Africa as its first platform Plans are also at an advanced stage for the opening of three new subsidiaries in Sierra Leone, Liberia and Ghana as well as the US First and strongest bank in Nigeria to offer Islamic Banking and therefore has potential growth in this market as the first to market
18. Sources http://www.businessdayonline.com/index.php?option=com_content&view=article&id=1995:bank-phb-completes-acquisition-of-spring-bank-&catid=1:latest-news&Itemid=18 http://www.saharareporters.com/reports/exclusive/3066-spring-bank-the-questionable-takeover-the-news.html http://www.bankphb.com/general/news.php?n=35&mode=story&y=2009 http://www.bankphb.com/general/aboutus.php?p=41&mode=content Entrepreneur newsletter (September 2007) www.enterpreneur.com/tradejournal/article/16596676 Business Hallmark News (News twist in Spring Bank’s Acquisition by Tony Chukwunyem & OkeyOnyenweakwu. 29 June, 2009 www.bizhallmark.com/index.php/penmalink The News - ‘Spring Bank Acquisition Illegal’—Ministerial Report http://www.bankphb.com/general/investor_relations.php http://www.google.com/finance?q=s%26p+500+banks http://gulfnews.com/business/banking/nigeria-on-track-to-be-africa-s-islamic-finance-hub-1.640710 http://www1.albawaba.com/en/news/nigerian-bank-chooses-red-hat-and-jboss-soa-solutions-mission-critical-banking-applications-ban http://www.news.dailytrust.com/index.php?option=com_content&view=article&catid=26:business&id=3956:bank-phb-writes-off-n16bn-margin-loans&Itemid=111
Editor's Notes
By any measure, the recapitalization requirements announced in 2005 were of a magnitude. The merits of the exercise were widely applauded and, indeed, have led to a radical transformation of Nigeria's banking system for the better but there was also a downside on how to professionally manage all that extra liquidity and to put it to profitable use.The shareholders putting up such investment naturally expect returns and so there is no room for complacency by the banks despite their piles of cash.
The total shareholders funds was made up the following: Guardian Express Bank $76.83m, Citizens $59.90m, ACB $0.32m, Fountain $0.63m, Omega $74.33m, Trans-International Bank $22.07m.
In June 2007, Spring Bank Plc, one of the 25 banks that emerged from the recapitalization exercise, was declared insolvent by CBN in 2007 and the board of the bank was dissolved.CBN conducted another verification exercise post merger alongside the Nigeria Deposit Insurance Corporation (NDIC) a few months later.For instance, in the case of Citizens, the bank had converted depositors’ funds to equity to shore up its shareholders' capital. The CBN/NDIC verification team showed that the bank's shareholders' funds were in a deficit. It was also discovered that by means of financial engineering, some of the banks had used bubble capital to increase their shareholders funds and that this had given them a better bargaining edge during the pre merger discussions.To prevent a run on the bank, CBN stepped in and sacked the board of directors but afterwards appointed an Interim Management Board (IMB) on June 25, 2007. to oversea the affairs of the bank . The IMB was given an 18th month period to stabilize affairs at the bank, which due to the crisis had seen the Nigeria Stock Exchange (NSE) placing the bank’s shares under full suspension to protect investors.
The bank's move to acquire Spring Bank began to manifest in the week of August 15, 2008, when 3.45 billion units of Spring Bank's changed hands for $150.38m in just 373 deals on the floor of the stock exchange. Bank PHB acquired 33% stake in Spring Bank through two investment outfits, Westcom Technologies and Energy Services Limited. In order to comply with SEC's mandatory bid rule 131 which states that having acquired up to 30 per cent but less than 50 per cent of Spring Bank's shares, Bank PHB was to offer a fair price to other shareholders of Spring Bank if it wants to have controlling stake in the bank. By December 18 2008, Bank PHB had obtained approval from the CBN to appoint a new board and management for Spring Bank. The new team resumed four days later and soon embarked on an aggressive rebranding of Spring Bank.
Rencap stated that this is not only a good deal for Bank PHB and Spring Banks shareholders but also for customers, regulators, and employees.Customers of both banks, according to the report, will benefit from the emergent institutions expanded distribution network as they will also have the additional comfort of banking with a much larger bank and extended product offerings.
