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2009-07-01:Again, In the Eye of the Storm

Like a bad coin, the issue of Spring Bank acquisition by Bank PHB last week resurfaced with great intensity threatening the peace and harmony the bank had enjoyed in the last seven months following its acquisition by the latter, Lucky Fiakpa writes

Remi Bbalola

Remi Bbalola

The decision by Bank PHB to acquire   Spring Bank was seen as the best thing that could have happened to the latter after the consolidation of the six legacy banks – Omega Bank, Fountain Trust Bank, Trans International Bank, Guardian Express Bank, Citizens Bank and ACB International Bank. For the first time, the morale of staff of Spring Bank was said to have been enhanced with the performance incentives introduced by the new management as the bank’s quality of service was also said to have significantly improved.

Again, for the first time since 2005, Spring Bank is set to declare profit for its financial year ended April 2009 and which result is expected to be released soon. This will be the first time the bank would be declaring profit since the coming together of the six banks that formed Spring Bank in 2005.

By the un-audited result, Spring Bank will be returning to profit barely five months after Bank PHB acquired it. The management, led by Charles Ojo, a former executive director in Bank PHB, has grown deposits by over 80 per cent, from about N109 billion as at December 2008 when it took over to about N180 billion by the year ended April 30, 2009, it was gathered.

During the same period, the new management grew the profit before tax (PBT) from a deficit of about N2 billion to over N2 billion. The bank believes the turnaround in its fortunes within only five months has helped restore the confidence of staff, customers and shareholders who now stand a chance of receiving dividends for the first time in five years.

These are indeed great feats. But not all the shareholders of Spring Bank are applauding it. A cross section of the shareholders believe the acquisition of the bank by Bank PHB did not follow due process or better still was not proper and would not support the latter in any way. In fact, the acquisition of the bank has been a subject of several legal suits between the aggrieved shareholders and Bank PHB.

The grouse of the shareholders is that there was an agreement that a post-merger adjustment, PMA, be done upon the composition of the organs of administration by the banks’ shareholder representatives within a year of post-consolidation but that was not done. This led to series of crises that culminated in the sack of the board by the former Central Bank of Nigeria, CBN, governor, Professor Chukwuma Soludo, and the constitution of an interim management board, IMB, led by Suleiman Ndanusa.

At some point, the IMB submitted a draft final report to the CBN on the PMA. Two out of the six members of the Legacy Bank, from the BankOne Group – Fountain Trust Bank Plc and OmegaBank Plc – declined to be part of the execution of the draft. The non-execution was occasioned by issues bordering on the perceived rejected shares, i.e. bubble capital, arising from the controversial Guardian Express Bank shares and the warehoused shares.

These were the shares sold to Bank PHB Plc individually and in concert with Westcom Technologies and Energy Services Limited. They amount to about 10 per cent of the total equity. This actually kick-started the tortuous process of the bank acquisition.

With this share transfer process completed, Bank PHB on November 28, 2008 commenced the actual process of the bank’s acquisition with a N21 billion bid for more than three billion units of Spring Bank’s shares. On December 1, Bank PHB advertised for a mandatory bid to acquire majority shareholding in Spring Bank. As at that time, it already has 33 per cent of the bank’s shares and the bid for three billion more units was aimed at upping its stake in the institution up to a controlling 51 per cent shareholding. On December 18, 2008, Bank PHB announced the successful acquisition of the embattled bank.

Shareholders’ Grouse
Not amused by this development, the aggrieved shareholders went to court to contest the legality of the acquisition. Apparently not comfortable with the slow process of the country’s judicial system, the shareholders also sent petitions to the presidency for intervention.

Their main bone of contention was that the “mandatory bid” Bank PHB sought was illegal because two-thirds of the 33 per cent it claimed were “rejected” and “warehoused” shares. The rejected shares, also referred to as “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.

The directors were Dr. Cosmas Maduka, who purchased two billion units with N2.4 billion; Chief Tony Ezenna, 834 million units and Edwin Mmuomenam, 240 million units all funded by legacy Guardian Express Bank plc. Also to confirm it was the report of the Nigeria Police Special Fraud Unit released on 1 July 2008.

The shareholders contended that Bank PHB acquired the shares of these directors illegally, that the acquisition was a contravention of the law, as the shares, which various findings had condemned as toxic, should have been voided and returned to the bank. The “warehoused” shares, calculated to be about 10 per cent, were also said to have been sold to Bank PHB via proxy.

Babalola’s Findings
Given the series of petitions, the presidency was said to have directed the Ministry of Finance to look into them and report back to it. The Minister of State for Finance, Mr. Remi Babalola, who was saddled with the responsibility of doing this job reportedly turned in the report about two months ago.

The report which was leaked to the public last week, noted that the haste to merge the Legacy banks without proper due diligence notwithstanding the provision of a PMA which was not complied with facilitated the crisis that affected Spring Bank. It refers to a letter, dated 25 August 2008 from the Attorney-General and Minister of Justice, Michael Aondoakaa to the immediate former CBN Governor, Professor Chukwuma Soludo, which emphasised that there was substantial evidence of fraud by the directors of Legacy Citizens Guardian Group, namely, Maduka, Ezenna, Anthony Ifeanyichukwu and Mnuomenam.

In all Babalola stated that the Spring Bank acquisition was improper for six major reasons: One, he noted that the post-merger adjustment exercise was fundamental to the determination of the ownership structure of Spring Bank Plc and should take precedence before any other interests or purported sale of shares in the bank.

Two, the report of the joint CBN/NDIC Joint Investigation Team should have been implemented per the position of the shares purportedly acquired under an explicit breach of banking practices by some of the then directors of Legacy Guardian Express Bank, namely Maduka, Ezenna, Ifeanyichukwu and Mnuomenam. Three, the recommendations and directives made by the Attorney-General and Minister of Justice on 25 August 2008, the report says, were ignored by the CBN, thereby disregarding the law.

It also declares that the actions and conduct of the interim management board were not done in good faith, professionally and impartially and that the CBN acted without due regard for the law in the conduct of its statutory responsibilities despite the recommendations of the Attorney-General and Minister of Justice.

Lastly, the report castigated SEC for what it calls tampering with the subject matter of substantive suits before the courts and contravening the case law of principle of lis pendis. Babalola draws the attention of President Yar’Adua particularly to two suits: Barrister Abdul Wahab Muhammed & three others Vs Bank PHB plc, Spring Bank plc, CBN and SEC and Lord Chief Udensi Ifegwu and Emmanuel Okorie Vs Bank PHB plc & six others. These two suits, the report maintains, render any administrative decision subjudice at that stage and until their conclusion (or withdrawal), it will be difficult to resolve the various issues at stake.

The report ends on a three-point advice that the President ensures that the directives of 25 August 2008 made by the Attorney-General and Minister of Justice be fully implemented, that the ministries of Finance and Justice should convene a meeting of the CBN, SEC, NDIC and the principal parties involved in the PMA exercise to resolve all the outstanding issues within three months from the date of the meeting and lastly, the CBN should invoke its powers under sections 33, 36, 37, 38 and 39 of BOFIA should the PMA not be concluded within the said three months.

Bank PHB’s Position
However, in a two-page paid advertisement last week, counsel to Bank PHB, Fidelis Oditah, SAN, regretted that a supposedly government document that has not been acted upon has to be had to be treated on the pages of newspapers. Oditah also stated that the opinion of the Minister of State was “one-sided, jaundiced, biased and misunderstands both the relevant facts and legal issues involved”.

For the minister to have said that the PMA exercise “is very fundamental to the determination of the ownership structure of Spring Bank”, the lawyer believes was an error of judgement. The rights of Spring Bank shareholder, he stated, are in no way contingent upon the conclusion of any post merger share adjustment exercise to be carried out pursuant to any historical scheme of merger.

Post merger, he noted, “is not going to result in any cancellation of any existing shares. If and when it takes place it might result in the issuance of new shares, but that cannot prevent existing shareholders from selling their shares to Bank PHB or anyone else.

“Indeed Spring Bank shares continue to be bought and sold daily on the Nigerian Stock Exchange, NSE, notwithstanding the extancy of the purported post merger share adjustments.

“Similarly, if meetings of Spring Bank shareholders were to be called, it is persons whose names are on its share register that would be entitled to attend and vote at such meetings. If a dividend were to be paid by Spring Bank, it is its registered shareholders that would be entitled to receive such dividends.

“The rights of shareholders are not frozen awaiting some historical and now time-barred post merger share adjustment,” Oditah stated.

He referred to the PMA exercise as time-barred because, according to him, the exercise has a life of one year and that period expired on February 1, 2007. To extend it, Oditah says would have required the support of 75 per cent of the shareholder of the six federating banks to pass special resolutions amending the scheme of merger so as to provide for a longer period.

Instead of doing this, he noted, some of the aggrieved shareholders went to court to seek among other things the extension of PMA time frame. Mr. Justice Tijani Abubakar, however dismissed the proceedings on the grounds that the correct procedure was for the aggrieved shareholders to have gone back to all the shareholders to get approval for the proposed material variations of the scheme.

Apparently not satisfied with that ruling, the shareholders lodged an appeal on January 29, 2009 and that was the only case Oditah admitted is pending as issues relating to the acquisition of Spring Bank by Bank PHB is concerned. But as at the time of the acquisition, he says, there were no outstanding injunctions. “Historically, two injunctions were granted – one by Justice A. R. Mohammed and another by Justice Lambo Akanbi.

“On 18 November 2008 Justice A. R. Mohammed dismissed the proceedings and discharged his injunction. That was almost 10 days before SEC gave approval to Bank PHB on 27 November 2008 to proceed with the mandatory bid.
“As for the Justice Lambo Akanbi injunction, it was an interim ex-parte injunction which lapsed after 14 days and was not extended. Indeed another application for injunction was filed before Justice Lambo Akanbi after the expiry of his earlier injunction.

“In a ruling given on 17 December 2008, the learned judge refused to grant another injunction. If, as the minister wrongly stated, there was an outstanding injunction granted by Justice Lambo Akanbi why was it necessary for another injunction to be sought?

“It is thus clear that when SEC gave final approval for the mandatory bid, there was no outstanding injunction,” Oditah stated.

He even said that the post merger share adjustments would have been concluded if the aggrieved shareholders did not reject the report which had been signed by four out of the six shareholder representatives.
From the foregoing, he said, Bank PHB “complied with all extant laws of Nigeria and court orders relevant to acquisition of shares in Spring Bank”.

Genesis of the Problem
The emergence of Spring Bank, post consolidation, may have been founded on quicksand. Except for a few of the management team that were optimistic that whatever differences that existed could be papered through, the merger that brought the bank about was bound to have serious hiccups.

Spring Bank is made up of two broad groups – Bank One and the Citizens-Guardian Group. Bank One comprised of Omega Bank, Fountain Trust Bank and Trans International Bank. Guardian Express Bank, Citizens Bank and ACB International Bank constituted the Citizens-Guardian Group on the other hand.

Some analysts have said that the bank’s problem stems from its inability to integrate culturally. The three banks in the Bank One Group have their ownership rooted in the Yoruba race while the three in the Citizens-Guardian Group have their roots in the Ibo race.

There is a thick divide between the Yorubas in the Bank One Group and the Ibos in the Citizens-Guardian Group, which led to mutual suspicion by the two groups of one trying to dominate the other.

Somehow in the sharing of offices, the Yorubas took the chairmanship while the Ibo had the chief executive position. This tended to suggest two parallels within the bank and the line of loyalty as well. The fear is that whenever the management took a decision that affected the Yorubas, it is seen as victimisation of that particular race no matter how rational that policy might seem. The reverse may just be true for the Ibos.

Troubles started for the bank when the six legacy banks started expressing doubts of the actual contribution of each of them to the group. The CBN had expected them to resolve this among themselves without stress. However, the inability of the bank’s board to resolve the issue of the contributions of each legacy institution to its capital led to special CBN/NDIC examiners to re-certify the bank’s capital.

The regulatory authorities conducted a bank-by-bank contribution to the shareholders’ fund. At the end, it was revealed that only the former Guardian Express Bank and ACB International brought positive capital to the merger.

“However despite its weak capital base, the other indicators show that the bank has a strong promise; its deposit base and liquidity situation are strong. It was in the light of this that the new capital structure of the bank (and relative contributions of the legacy institutions) as well as the deeply divided and acrimonious board, that the CBN decided earlier to dissolve the board and call for a reconstitution by the legacy institutions,” Soludo had explained.
He further assured that “the CBN and NDIC stand to provide necessary support to the new board to recapitalise the bank and ensure that it meets the aspirations of the shareholders, depositors and the Nigerian public,” which he said would be completed within the shortest possible time.

But the intervention of Soludo was seen by the Yoruba group as support for the Ibos’ attempt to sell the bank to one of their own just because he is an Ibo man. Likewise, the current intervention of the Minister of State for Finance may have been seen as some tacit support for the Yoruba cause by the Ibo group.




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