BH Exclusive - The Violation of Union Bank Plc

31/05/2011 IKECHUKWU OMEIFE & OKEY ONYENWEAKU (Repro June 13, 2011)

By the time Sanusi Lamido Sanusi was appointed Governor of the Central Bank of Nigeria in August 2009, Union Bank of Nigeria Plc was a very financially sound institution. Its only problem had to do with in-fighting in the executive management team over the succession of the MD/CEO, Bartholomew Ebong whose tenure had been extended by the CBN. The only other problem the bank faced was business development; how to grow its business by re-engineering its processes and operational systems. In order to achieve that, the bank had retained the management company, Accenture, which embarked on a comprehensive review of the bank's processes.

But the CBN thought differently. In its statement announcing the sacking of the Executive Management, it alleged that “Union Bank of Nigeria Plc is in dire need of capital. The issued and paid up capital of the Union Bank of Nigeria Plc has been lost, Union Bank of Nigeria Plc has insufficient capital to cover its liabilities. It has therefore become imperative to take urgent action in order to arrest the deteriorating state of Union Bank of Nigeria Plc, save the bank from failure, and pave the way for the repositioning of the bank for its stability and growth.”
However, exhaustive investigations carried out by BH revealed that the CBN's position was not correct to say the least and was based on a patently false evaluation of the bank's financials. A former Director of the bank told BH that the apex bank (CBN) merely read the bank's financials in manner that would enable it arrive at a predetermined position, that is, “Union Bank of Nigeria Plc was financially distressed, so as to take it over.” Even the rescue team headed by Funke Osibodu which was sent to reposition the bank was surprised on arrival to discover that the situation was not as dire as the CBN had announced to the public. A member of the bank's staff union put it rather sarcastically, “When Funke and co arrived, instead of an empty treasury, they found a honey pot,” and alleged, “they have been licking it ever since!”

There were three clear items in which CBN's analysis were faulty.

(1) The bank had re-evaluated the assets of some of its prime real estate holdings. It is common knowledge within the banking industry that Union Bank of Nigeria Plc has some of the most valuable real estate holdings in the country. The only other bank that can compete with it is First Bank of Nigeria Plc. Unlike some of the new generation banks, which tend to lease many of its office buildings, Union Bank actually owns its buildings. The exercise produced an asset re-evaluation of N25 billion discounted at the BN rate of 45 per cent. The bank applied to the CBN for approval to incorporate this figure into its financial statement for the period ended 31st March, 2009. The request was delayed and finally on Thursday, August 1, 2009, it was declined. The CBN asked the bank to appeal its decision. BH can now confirm that the denial by the CBN was part of the grand scheme to undervalue the bank as grounds for its seizure. Subsequently, the CBN quietly approved the request which the Osibodu team incorporated in its March 2009 accounts.

(2) Union Bank of Nigeria Plc had extended a facility of N30 billion to Transcorp Nigeria Plc to finance its acquisition of NITEL Plc. When the Federal Government reversed the sale of NITEL Plc to Transcorp, BPE informed Union Bank that the Federal Government would issue bonds to the banks as repayment for the loans. When the joint CBN and NDIC team visited Union Bank on the stress test, they were shown the letter. But the CBN pointedly ignored it and treated the credit as a non-performing facility. That worsened the bank's loan - loss situation. Interestingly that facility has now been paid in full.

(3) Union Bank of Nigeria Plc had exited the Discount Window in May and was not exposed to the CBN on that transaction at all. BH's findings reveal that it resorted to the window in the first instance, not because of any systemic liquidity problems, but as an investment vehicle. The window offered attractive yields because of the low cost of funds. The treasury department of the bank traded with the funds it sourced from the window at very attractive margins. But the CBN claimed that by resorting to the window, the bank indicated its fragile liquidity problems. It is noteworthy that at the time of the CBN intervention, Union Bank's net exposure to the inter bank market was just about N50 billion. When CBN intervened, it injected N120 billion. Sources within the bank told BH that “we had no need for the inflow at all.” To prove that, the bank merely invested the bulk of it in treasury bills. It was already liquid enough to meet its operational needs. The truth really, was that Union Bank of Nigeria Plc was actually awash in cash. The new management team was reportedly pleasantly surprised to make that discovery. “So they settled down to dealing with the money!” a source in the bank alleged.

On October 7, 2009, the Board Establishment Committee of Union Bank Plc met at the boardroom, Stallion Plaza at 36, Marina Street, Lagos. The meeting started at 11.00a.m. Present were; M. Ahmed; O.I. Osibodu, GMD/CE; A.M. Adeosun; P. Ikeazor; I.A Kwargana, F.B.O Odimegwu;  O. Okoloko;  O. Olusanya;  F.A. Shonubi, and C.P. Udofot. In attendance was Mrs. E.I. Odikanekwu (Mrs.), the secretary of the board. Many important issues were listed on the agenda including outsourcing of non-utility staff functions, staff appointments, organizational revitalization, revised staff loan categorization and interest rates, etc. However, the most interesting item, at least, to the executive directors, was item 11, remuneration for GMD/CE and Executive Directors. At that point the Executive Directors excused themselves from the meeting to enable the other directors discuss their remunerations. Mrs. Funke Osibodu, GMD/CE informed the members that “even though the CBN had directed that the new Executive Directors should be entitled to the compensation of the exited Executive Directors, her team was already earning far higher than what was being offered.

Ordinarily, there should have been no discussions on the issue, given the CBN directive that was crystal clear. But the Osibodu executive management team was determined to enjoy the largesse it had discovered at Stallion House. One of the non-Executive Directors who was present BH was reliably informed, opposed the GMD's proposal to pay her team more than what the CBN had prescribed. The sourced revealed: “But Funke told him that she would put the issue to vote. She did and of course, our pliant board voted to approve her proposal!” When the meeting rose by 3p.m., they had agreed to recommend to the board thus:

1) The annual payment to the Executive Directors of the bulk sum of N68 million and the details should be worked out by the management in terms of basic salary and allowances.
2) That the chairman of the board and the chairman of the Board Establishment and Services Committee should work together to fix the GMD/CE's total emolument.

The meeting also agreed to purchase “the new available 'S' and 'E' series models respectively of Mercedes Benz cars for the Group Managing Director/Chief Executive and Executive Directors. The meeting also agreed to pay members of the Executive Management team three years Housing Allowance in lieu of accommodation where needed to the Group MD/CE and the Executive Directors.”

On May 25, 2010, the Executive Director, Operations, IT and Services, originated a memo to the Group Managing Director, 'RE: Payment of Outstanding House Allowance.' “The board at one of its sittings approved that Executives could collect their Housing Allowances for three years in advance… It is now considered an auspicious time to pay the advance on our housing allowances.” The ED proceeded to seek for permission to pay; F. Osibodu - N26,765,753.42, Kunle Adeosun - N30 million, Philip Ikeazor - N30 million, Ibrahim Kwargana - N22,438,356.16,  Ade Shorubi - N21,986,301.37, thereby making a total of  N131,190,410.95. The GMD/CE promptly approved the memo the very next day, May 26, 2010.

It is interesting to note that the Osibodu management team was contracted for a two year term by the CBN. A member of the Senior Staff Union who spoke to BH wondered, “Why would people on a two-year contract collect housing allowances for three years?” That question and similar others are being asked all over the various branches of the bank in the country. An employee in Kano main branch sent an SMS to BH last week, wondering how a rescue management team should earn double and even triple the salary of the previous management. “Ebong was earning about N36 million per annum. His ED's earned about N26 million at a time when the bank was buoyant. Now, they say we are broke, and yet the new people are earning such huge sums. So what would they have earned if we were not broke?” he queried.

However, it is not the executive management team alone that is enjoying the good times. Other members of the board have also been living it up. On August 19, 2010, Mr. Somuyiwa A. Sorubi, the acting Secretary wrote a memo to the GMD/CE: Re: Payment of Benefits of Retired Directors. In the memo, he sought for approval to pay various sums of money in various currencies, totaling N157,381,408.02, US $75,600.00 and £13,250 to the outgoing directors: Prof. M.G. Yakubu, Engr. I.A. Gobir and Mr. O. Olusanya. By August 20, 2010, the GMD approved the memo. In what has turned out to be a major scandal, the three retired directors whose retirements have taken effect, are still on the board of the bank. In an extra-ordinary development which has no precedent in the bank's history, the GMD took the issue of their retirement to the bank's Annual General Meeting which took place in Maiduguri last year and got it to approve their continued stay on the board until the bank is fully recapitalized. However, BH has learnt that the issue was never agreed on by the board to be included in the agenda of the AGM. Sources close to the board told BH that when she was confronted by some aggrieved board members, she apologized and alleged that it was the mistake of the company secretary to have put the issue on the agenda in the first place. Interestingly though, she has continued to allow the status quo to prevail with the retired directors still on the board of Union Bank Plc. Inside sources in the bank told BH that “it is a deliberate ploy by Mrs. Osibodu, who is apprehensive that their exit would facilitate the emergence of new members on the board who will not be amenable to her strategies. The feeling is permissive in the bank, especially among the rank and file that the GMD/CE is interested in acquiring the bank for herself. Whereas BH could not corroborate this view, it is strongly held by many especially members of the union. According to them, “it is this ulterior motive of the GMD/CE that is at the core of the problems of the bank and informs the numerous antics of the GMD, especially her insistence of vitiating the value of the bank to enable both her and her cronies buy it cheap”, a union leader told BH.

On June 10, the ED operations, IT and Services, wrote to the GMD requesting for his approval to pay education and furniture allowances to members of the Executive management. The amount he requested for was N68,286,301.37 which was the amount outstanding from April 2010 to September 2010. The ED stated that “the payments had been deliberately delayed by Executive Management until it was clear that the bank was on the path of recovery.” By implication, he believed that the Bank was now on a path of recovery! Six days later, precisely on the 16th, the GMD approved the payments, thus confirming that the Bank which the CBN had claimed was distressed was now fully on the path of recovery, barely one year later. The question now agitating many staffers of the bank and other industry observers is, “if the bank is on the path of recovery to warrant such huge emoluments by its management team, then why is the CBN still classifying it as distressed and insisting on selling it? As a union official asked BH, “then why not allow it to continue on this path of recovery?”

On 23rd August, Mr. J.O. Okanlawon, Head, Protocols, wrote to the DGM, Foreign Operations, seeking approval to pay retirement benefits to Prof. M.G. Yakubu $28,000 and £5,250; Engr. I.A. Gobir $23,800 and £4,000; Mr. O. Olusanya $23,800 and £4,000 respectively. The approval was granted the next day.

On May 25, the Head, Procurement Services originated a memo to the GMD requesting for approval of N58,080,000 to purchase status cars; M/Benz E350, Land Cruiser LC 200 VX V8 8-S ATLS vehicles for four members of the Executive management group including Mr. Philip Ikeazor, Mr. Kunle Adeosun, Mr. Ibrahim Kwargana and Mr. Ade Shonubi. The first set of the same cars had earlier been allocated to the officers involved. The total cost of status cars allocated to the four members was N116 million approximately. If you include the cost of the cars bought for the GMD, the total amount would be N144,173,400 only!

The total salaries and emoluments of the GMD is shrouded in secrecy. But given the princely sum of N68 million which the ED's earn, many people in the bank believe that it would be in the neighourhood of N100 million. However, sources in the bank said that her real jackpot is in estacode and other travelling allowances. “It is in travelling that she makes her kill!”a union member told BH. Sources within the bank told BH that she travels often, both locally and internationally.

Another issue worrying Union Bank stakeholders is the $13 million dollars of the bank which the previous management had invested in the subsidiary of the bank in Benin Republic, as part of its equity contribution to the bank's initial public offer (IPO). The money was meant to demonstrate the commitment of the Headquarter's bank to the vision of the bank and thus make the IPO successful. In the event the IPO never held and the money was placed in a deposit account at the rate of two per cent interest per annum. However, a routine audit examination by the CBN discovered the money which it claimed was used to recapitalize the bank without its prior approval and ordered it to be returned within seven working days. The money was duly returned, but with $6 million short and the two per cent interest. Up till now, the balance is yet to hit the account of the bank.

Another avenue for leakage in the bank, according to documents made available to BH, is image making. The bank allegedly pays N5 million monthly to a public relations company (name withheld) to handle brand consultancy services for it.

A member of the union also accused the GMD of running down the bank. “Okay, at the time of the CBN intervention, we were exposed to the Interbank market to the tune of N50 billion only. Today, the bank is exposed to the same market to the tune of N100 billion and another N120 billion to the CBN intervention window, totaling N220 billion. And yet the CBN accused Ebong of running down the bank. So, now who is actually running down what?

Also, the management has employed about 1,500 staff, mostly at the management level. This has shot up management cost by over N600 million annually.

Every week, leading members of the various unions in the bank meet in a hidden location somewhere in the sprawling Lagos metropolis. They call it “The Bunker”. It is a command post of sorts, where they meet to make strategies in what one of them has termed “the mother of all battles, a battle to save Union Bank from Sanusi/Funke for the workers and shareholders.” The members have apparently sworn oaths of fidelity and commitment to their cause.  In a special clandestine meeting with BH they vowed never to give up. “Listen to us, Funke will never buy Union Bank. No one will buy it. That bank belongs to the workers who have suffered for it and the shareholders. It will remain for them.” BH learnt authoritatively that they have made contacts with some important people in the society, including eminent traditional rulers and top government officials. They have also succeeded in forcing unity among past executives of the bank who had hitherto squabbled among themselves. They are resolved to confront the challenges frontally. Perhaps, unknown to the GMD, the union has permeated every structure in the bank, collecting information and documents of whatever transactions that take place. One of them told BH, “I think the problem with Funke is that she underrated us. Anytime she coughs in her office, we know. In fact, anything we want to know, we get to know, she does not understand the power of a union. Well, we will teach her!” BH also learnt that some leading officials of the bank have visited several countries in Europe, South Africa, Middle East and the USA to investigate Alliance Capital and some of the other institutions offering to buy the bank. One of them told BH, “our next line of action is to file legal action in each of those countries challenging these companies.”

BH EDITOR'S NOTE
Business Hallmark made strenuous efforts to speak with officials of Union Bank of Nigeria Plc on these issues. Mr. Francis Barde, Principal Manager, Corporate Affairs, demanded written questions which we duly provided. But he pleaded that the answers to the questions were beyond his competence, since some of the issues dealt with Executive Management decisions. The Public Relations consultant of the bank approached us several times to stop the story. The Public Relations department of UBN Plc even sent us a fully written story to be used instead. Of course, we declined. We were subjected to various other forms of pressure, all designed to stop the story. However, we insisted on reporting this story in fulfillment of our duties and obligations to journalism and the public interest. We believe that it is the core objective of journalism that the truth should and must be reported.

Source: Business Hallmark

crispgg:

I hope that those nairalanders who think that Sanusi is a messiah will have a rethink now. All those MD's he appointed are having the feast of a lifetime. The guy at Intercontinental too de chop hin own passe passe.
An article in the guardian of today showed that around 40,000 people have lost their jobs to Sanusi's indiscretions. CBN staff complain that he does only what he thinks fit, doesnt take advise from anybody.
By the time the guy finishes with our economy we go hear am o!
I only hope Jonathan gets rid of him before then.

MAYOWAAK:

Almost two years into his stewardship at the apex bank, Sanusi Lamido Sanusi receives a down-to-earth appraisal of his banking ‘reforms’ by AKPABIO UMOYEN-ESSIEN, an Ontario, Canada-based financial analyst and consultant to leading international financial and development institutions.

CURRENT Central Bank of Nigeria (CBN) Governor, Sanusi Lamido Sanusi chose the Bayero University, Kano in February 2010 to outline his vision for Nigeria’s banking sector reforms, eight months into its implementation. He said his strategy for the Nigerian banking sector (if he still remembers, given that there is yet no documented Blueprint) will be based on four pillars namely:

• Enhancing the quality of banks;

• Establishing financial stability;

• Enabling healthy financial sector evolution; and

• Ensuring the financial sector contributes to the real economy

He was full of fire and zeal and high on the euphoria of public praise after sacking the managing directors of eight banks. Two years on, how has the CBN Governor fared on his outlined goals for the Nigerian banking sector? Few discerning analysts were quick to point out that the reform agenda as outlined above was vague.

The quality of banks: The question is: What are the criteria to measure the quality of a bank. Is it quality of services, quality of the bank’s board, management and staff, quality of financial reporting or all of these combined. The CBN Governor never defined the criteria of quality of banks so it is quite difficult to measure him on this goal.

But we want to assume that when he said quality, he meant all the criteria we outlined above. So we look at quality of services of banks under two years of Sanusi. What policies have Sanusi put in place to enhance the quality of services of Nigerian banks?

Forgive us, but we cannot find anything Sanusi has done to increase the quality of services of Nigerian banks. What we find is that Sanusi’s actions have actually compounded the quality of service delivery in the banking sector. What Sanusi’s hasty reforms have done is to reduce the banking options in the Nigerian banking sector putting pressure on a few banks. Several reports, including banks’ returns to CBN for 2009 compared with 2010 have shown that four banks now control nearly 50 per cent of the market in the banking industry from ten banks that controlled this same share of the banking industry before Sanusi. On deposits, for instance, these[b] four banks have N4.5 trillion out of N10.7 trillion deposits[/b] in the banking system.

The significance of this concentration of the Nigerian banking space is obvious on the impact this has had on the quality of service delivery. Beside poor services, customers are also subjected to pay all forms of charges by these leading banks as customers have little choice.

The four leading banks also now control more than 70 per cent of banking industry profit (Q1 2011 Reports). What Sanusi’s reform has done is to create four banks that are now too big to fail and 20 banks that are too fragile to offer meaningful support to the economy.

The current structure of Nigerian banks, a result of Sanusi’s reforms has created the biggest single threat to his second stated goal of ensuring financial stability in the Nigerian banking space. How do you enhance financial stability when a few banks have become financial monopolies?

How do you ensure a healthy evolution of the Nigeria financial sector, Sanusi’s third stated goal in the financial sector, when just four banks are now in charge of the Nigerian economy? Where is fair competition in the Nigerian banking sector? How do you strengthen the remaining 20 banks when they have been boxed into an uncomfortable corner in the Nigerian banking industry?

The quality and strength of majority of Nigerian banks have significantly dropped in two years of Sanusi. This is basically because Sanusi’s methods have damaged the ability of many Nigerian banks to compete in the Nigerian banking space. Sanusi’s hasty reforms has not had a damaging effect on just the so-called rescued banks, it has also damaged even the banks that were not rescued.

Non-rescued banks also sick?

The impact of Sanusi’s hasty reforms on even the healthy banks can be easily seen when the AMCON announced its intention to buy toxic assets from the rescued banks. It soon turned out that it was not just the rescued banks that rushed to AMCON to sell these toxic assets. Even the[b] so-called non-rescued banks eventually sold significant amounts of toxic assets (without coercion) to AMCON.[/b] And interestingly even after the non-rescued banks sold toxic assets to AMCON, their 2010 financials show that most of them still made significant provisions for non-performing loans.

Why are the non-rescued banks still making significant loan loss provisions? Sanusi’s hasty actions on the so-called rescued banks, the publication of the names of entrepreneurs in national papers just because they took loans from banks, impacted negatively on the capacity of several of these entrepreneurs to either refinance or get fresh loans from banks resulting in many of the existing loans of these banks to go bad. Many bankers will tell you that the disruptions Sanusi’s actions caused in the financial system are still reverberating today.

The 2010 financials of many of the non rescued banks showed that many of them are still making significant provisions for non-performing loans while even some of them that claimed not to have[b] significant non performing loans are now engaged in public disputes with their customers over non- performing loans in excess of N200 billion, which obviously were not previously provided for.[/b]

Businesses have been destroyed and many Nigerians have been thrown out of their jobs because their employers can no longer get new loans from banks. Nigerians should not be deceived. Nowhere in a capitalist economy are loans not the normal norm of running a business. What Sanusi’s actions have done is to create the perception that borrowing money to run a business is bad. It is not. In all places all over the world, businesses run basically on bank lending. Lending is the fuel for a capitalist economy.

Creating unemployment: Sanusi recently admitted that the rate of unemployment in Nigeria has hit 49 per cent of employable Nigerians. After making that statement, Nigerians should not forget that Sanusi in two years has contributed significantly to this level of unemployment in the country.

His activities in the banking sector have contributed to about 40,000 jobs being lost in the banking sector in two years. The disruption that he caused the banking sector and the subsequent starving of funds to the real sector from the banks has resulted in some manufacturing companies either closing down completely, or reducing their production capacity significantly. This act has also led to significant job losses in the real sector of the economy.

A good example of what Sanusi’s reform has done to the real sector is what is happening in the aviation sector of the economy. Most airlines are currently struggling to remain in business primarily because their existing loans have been cut off and they are also not getting fresh loans. Today, a good number have stopped flying and the few that are flying are doing so at great risks to their passengers. Yes, the CBN has stepped in by providing financial support to the aviation sector, in the same way it has done in many sectors of the economy.

The illogic of CBN special funds: But the illogic of the CBN various special funds intervention in the economy however is like the logic of the executioner who deliberately cuts off your legs and then hands you artificial legs, but then goes around telling the world of the good he has done to you by giving you artificial legs forgetting that you would not have needed those artificial legs in the first place, if he had not cut off your legs. It is also known that artificial legs can never be as effective and flexible as your original legs. It is the same with the CBN intervention funds. They are not as flexible or effective as bank loans though they are cheaper.

As any businessman will tell you, for any business to succeed, you need consistent access to finance.

The CBN funds are one-off intervention funds which do not give the businesses benefitting consistent access to working capital. That is the challenge with these funds. Most insiders will tell you that the CBN, in a few years will have the biggest portfolio of toxic assets in the banking system. This is primarily because the intervention funds they provided to the real sector has either been used to pay-off existing loans or have been used to buy inputs that had stalled because the businesses were not getting fresh loans from the banks. After the funds have been used for these initial purposes of refinancing existing loans or getting new inputs for production, the lack of fresh loans from banks has resulted in most companies not being able to continue production.

AMCON: In as much as the setting up of AMCON (first proposed by Prof. Chukwuma Soludo) is a good idea, Nigerians should watch the activities of AMCON carefully. What is clearly emerging is that AMCON is going to be used to do the dirty works of the CBN. The CBN has positioned AMCON to take over these loans that it has given that would most likely go bad. This is to cover the back of the CBN and prevent public outcry.

AMCON currently has over N3 trillion of toxic assets in its custody bought at prices that were negotiated with CBN appointed managers of rescued banks. This could not be described as fair pricing as being touted by those positioning to benefit from these huge assets now in possession of a government controlled body.

What determined which assets the rescued banks will sell to AMCON? Could some of these assets that were sold have been restructured and recovered and written back into the books of the banks? What value of assets that could have been recovered has been sold at significant discount to AMCON?

AMCON is also said to in future buy all bank toxic assets above five per cent of the banking industry. What does this mean? Besides encouraging reckless lending in the banking sector, it is also careful camouflage to ensure that the CBN creates an impression that the banking system is healthy. I challenge the CBN Governor to tell us where else in the world, where you have a body standing by to buy off toxic loans above a certain percentage from banks?

AMCON is an emergency bank rescue vehicle. Everywhere it is set up in the world, what it does is intervene just within a period of time to resolve banking challenges and not to be the toxic loan laundry arm of the CBN or the existing commercial banks.

The state of the banks the CBN took over: For close to two years, the CBN has installed its own management in eight banks under the pretext that these banks were about collapsing and need good management to survive. But how have these banks fared under the management of the CBN?

ANY staff within these banks will easily tell you how life has been taken out of these banks where CBN installed its own management. For almost two years, all the eight banks under CBN have seen their financial situation deteriorate into critical states. Most members of the CBN installed management were failed managers in their various institutions until the CBN picked them up to come and manage institutions that were far bigger than any institution they have ever managed before their appointment.

What has emerged in the two years of CBN installed management are banks without direction and staff that are highly demoralized. Figures obtained from the CBN clearly show that at the close of 2010, all the CBN taken over banks were highly dependent on the interbank market. Of the N900 billion inter-bank takings as the close of 2010, the eight CBN managed banks accounted for over 90 per cent of these takings. These were the same banks that when the CBN took over, he told the world that their indebtedness to the interbank market stood at N247 billion. Now even after pumping in N620 billion into these banks, after they have sold their toxic assets, their net interbank indebtedness is now in excess of N800 billion more than thrice the figure when the CBN took over these banks.

From when the CBN management took over these banks till date, while other banks not managed by CBN engaged in aggressive loan recovery drive, the CBN installed management sat patiently, waiting to offload toxic loans at significant discount to the AMCON. In two years, none of the CBN managed banks was able to recover up to 10 per cent of the non-performing loans they inherited. Insiders in these banks will tell you that the CBN managed banks did not consider it their mandate. So what was their mandate? Nigerians should ask. To sit down, earn fat salaries, and wait for AMCON to bail them out while they negotiate the sale of the banks to their cronies or CBN preferred cronies. How sad.

Recapitalisation of rescued banks: Two years of motion without movement, Sanusi has not been able to achieve the recapitalisation of a single bank. Sanusi would want Nigerians to believe that this is due to the intransigent attitude of the Boards or shareholders of rescued banks. But the truth is that these banks have not been recapitalized because of Sanusi’s arrogance and fear of being exposed for what he really is, someone out to destroy viable businesses borne of a deep hatred of capitalism. Since Sanusi took over the banks, he has consistently insisted that shareholders have lost their stakes in these banks. This lie he has been repeating consistently hoping that it will become the truth. But everyone knows that no matter how a lie is repeated, it cannot become the truth.

This lie was punctured by Sanusi himself recently when he was forced to admit that Oceanic Bank, one of the banks that he forcefully took over has “vital assets.” One of the assets he named is a 10 per cent holding in Airtel. Is it not interesting that Sanusi was willing to sell Oceanic Bank to his preferred core investor despite this vital asset. We all know how valuable Airtel is. Bhati Airtel had to pump in $10 billion to buy over the African assets of Zain. Nigeria is the biggest asset that Zain had and by implication, Nigerian assets will worth a significant part of this $10 billion.

Definitely, any financial analyst will tell you that 10 per cent stake in Airtel, if sold today will go a long way in recapitalizing Oceanic Bank even if it does not recapitalise the bank fully. So, why the insistence that Oceanic Bank should be sold by all means? Why the lie that shareholders have lost their stakes when Sanusi knew all the while that the 10 per cent stake in Airtel was acquired with shareholders’ funds? Globally, when businesses are in trouble, they sell noncore assets. Why is Sanusi standing in the way of Oceanic bank selling noncore assets to recapitalise itself?

It is not only Oceanic that has vital assets that can be sold. It is also known that Bank PHB has the majority stakes in Spring Bank and significant stakes in Afribank. In an arm’s length transaction, controlled by the shareholders of these banks, they could easily negotiate the sale of these noncore assets to preferred investors and use the proceeds to recapitalise their operations. But the CBN would rather stand in the way of these deals for some strange reasons best known to Sanusi.

Credit growth: For two years, Sanusi has not been able to unlock credit growth to the Nigerian economy. Credit growth in the banking system has stalled. In taking over the banks that Sanusi took over, he made Nigerians believe that the banks’ managements were reckless in their lending. This simplistic explanation of a more complex problem has led to the pursuit of the diversionary ego-driven desire to jail a few individuals and the neglect of the fundamental wider challenges facing the Nigerian financial system. Any keen observer of the Nigerian banking industry will tell you that it is not just reckless lending that creates N3 trillion in toxic assets.

There are wider challenges within the financial system like the legal framework for recovering loans that has not been tackled. There do exist structural challenges that direct bank lending to a few sectors and a few individuals within the economy engenders. There are infrastructural challenges and there human challenges. Sanusi’s explanations of these challenges have been simplistic and thus the solutions have been pedestrian.

Capital: In two years of Sanusi’s reform, both the so called healthy and the unhealthy banks are not in a position to raise fresh capital. The real sector is also strapped for fresh capital as no fresh capital raising has succeeded in the capital market in two years. Instead of the CBN action breeding confidence in the financial system as touted by Sanusi, confidence in the Nigerian financial system has taken flight.

Once more, SEC and CBN, both regulatory authorities in the financial system will tell you to blame this challenge on individuals within the system rather than the system. But this is another simplistic explanation of a more complex problem. Retail investors who were the biggest source of funds in the Nigerian capital market have been deeply wounded by the fall in the capital market. But their confidence in the capital market have been further bruised by Sanusi’s statements claiming that they have lost their stakes in the banks.

In tackling the CBN-inflicted banking crisis, the regulatory authorities in both the capital market and banking have shown great disrespect for retail investors who have sustained the market in the last 40 years. This attitude may hurt capital market activity for years to come and may stretch into generations if repair mechanisms are not put in place to restore the confidence of retail investors in the Nigerian capital market.  The consequence of the neglect of Nigerian retail investors is the current dominance of trading activities on the floor of the exchange by foreign hedge funds, which now control more than 60 percent of trading on the floors of the exchange. The impact of this trading on the stability of the capital market is obvious to any discerning player in the Nigerian capital market or financial sector.

No confidence in the financial sector: The evidence of the lack of confidence in the financial system is obvious. The pressure on the Naira has been unprecedented in Nigeria’s history. In two years, the CBN Governor has spent more than $40 billion trying to prevent the depreciation of the Naira without any success. It has led to a massive run down of the country’s external reserves in a period when earnings from crude oil sales have been at a historic high.

Even after a widely acclaimed and credible election, the Naira has remained under pressure showing that the uncertainty over elections had nothing to do with the pressure on the Naira. There is a total absence of confidence in the Nigerian financial system engendered by the wrong-headed reforms of the CBN. The style of reforms has shown absolute disrespect for ownership rights creating fear in the owners of private capital.

The CBN governor’s tactics and antecedents show he has no respect for capitalism. He is a socialist to the core who by accident has been made the manager of capitalist institutions with enormous powers in a capitalist economy. His goal is to use capitalist institutions to destroy the very fabrics of capitalism in Nigeria and therefore promote his socialist tendencies.

His efforts at breaking down the promoters of business in Nigeria are a clear evidence of this tendency.

Sadly in his blind urge to destroy capitalist institutions in the country, he has also left the Nigerian economy exposed. Nigerian banks, now largely prostrate, are no longer in a position to finance indigenous players wanting to take advantage of the emerging opportunities in Nigeria’s oil, gas and power sectors of the economy. This has left the commanding heights of the Nigerian economy exposed, to be taken over by foreign companies, compromising ability of Nigerian youths to take over the commanding heights of the Nigerian economy in future.

Leadership Newspapers in honouring Sanusi Lamido Sanusi as their man of the year 2010, described him as an “Islamic scholar with deep convictions.” That is what Sanusi is. Any other appellation is a misnomer. His continued stay at the CBN is a death knell for the survival of the Nigerian economy. Nigeria should take stock now, and make the right decisions.

Last line: Just as I was getting this material ready for the press, my attention has been drawn to the alarmist statement by the CBN Governor, Sanusi, on The Guardian front page of Tuesday, May 31, 2011: “CBN gives banks date to recapitalise or face liquidation”.

According to the report, based on an exclusive interview with The Guardian, “the license of any rescued bank that is yet to recapitalise by October 30, this year will be revoked by CBN, which will subsequently hand it over to the Nigeria Deposit Insurance Corporation (NDIC) for liquidation.” This announcement alone would create panic in the industry and lead to massive run on deposits in the affected banks, further weakening the banking industry as I argued above, sending many more thousands of Nigerian youths to the crowded labour market, causing more social unrest, and above all worsening an already weakened economy that has suffered from lack of access to credit in the last two years. Nigerians should reasonably be worried now!