kurus:

when the cbn oversees a trxn costing 550b, uses 500b of taxpayers money and access pays only 50b. At the end of the deal, access with its 50b gets 75% of the proceeds of the trxns.

It doesnt take a soothsayer to know that underhand dealings are going on. In the US and UK, what the govt did was to nationalise the banks and when the banks were stabilised, they sell the shares back into private hands at a profit!!!

Or you want it in even simpler da-da-da terms?

kurus:

when the cbn oversees a trxn costing 550b, uses 500b of taxpayers money and access pays only 50b. At the end of the deal, access with its 50b gets 75% of the proceeds of the trxns.

It doesnt take a soothsayer to know that underhand dealings are going on. In the US and UK, what the govt did was to nationalise the banks and when the banks were stabilised, they sell the shares back into private hands at a profit!!!

Or you want it in even simpler da-da-da terms?

kurus:

SO we the taxpayers provide the bulk of the money but get nothing in return? What kind of finance professional are you?

sulad82i:


The attached picture/slide cannot tell the whole deal that went into the merger but it obviously gets the wrong attention from some people who do not understand the business aspect of the deal.
A company with a controlling interest in the daily activity of the business does not always have the highest share of profit and loss and vice versa. As someone said in one of the preceding post, the buyer might not be in the same business but see the business as a "cash cow" -- meaning the business is very profitable to the investor-- but do not want to be involved in daily activities. So it makes business sense to invest in such business while someone else with little contribution is allowed to make the daily decisions. Sometimes, the ability to make decision in the firm can only be done by the party with the largest share or the largest controlling interest as determined by the shareholders/joint venture owners.

The picture above does not tell the whole story and that’s why my first response only addresses the legal aspect of it.

A major example is with Apple Inc. co-found by the late Steve Jobs, we all know that the man has the idea of what to provide for the consumers, but he also has some masters behind the door who are responsible for the needed funds. Just so you know too, his interest in Apple Inc. is not as much as his interest in Pixar
Another example is Elun Musk, he's the co-founder of Paypal and Tesla Motors but was eventually forced out of those 2 businesses by the major parties before co-founding Space-X.

sulad82i:


The attached picture/slide cannot tell the whole deal that went into the merger but it obviously gets the wrong attention from some people who do not understand the business aspect of the deal.
A company with a controlling interest in the daily activity of the business does not always have the highest share of profit and loss and vice versa. As someone said in one of the preceding post, the buyer might not be in the same business but see the business as a "cash cow" -- meaning the business is very profitable to the investor-- but do not want to be involved in daily activities. So it makes business sense to invest in such business while someone else with little contribution is allowed to make the daily decisions. Sometimes, the ability to make decision in the firm can only be done by the party with the largest share or the largest controlling interest as determined by the shareholders/joint venture owners.

The picture above does not tell the whole story and that’s why my first response only addresses the legal aspect of it.

A major example is with Apple Inc. co-found by the late Steve Jobs, we all know that the man has the idea of what to provide for the consumers, but he also has some masters behind the door who are responsible for the needed funds. Just so you know too, his interest in Apple Inc. is not as much as his interest in Pixar
Another example is Elun Musk, he's the co-founder of Paypal and Tesla Motors but was eventually forced out of those 2 businesses by the major parties before co-founding Space-X.

sulad82i:

From an Accountant point of view, the merger is completely legal and recognized internationally. This type of merger is called Variable Interest Entities (VIEs) and AMCOM will be required to consolidate the financial statement of the merged company with its own under the new International Financial Reporting Standard IFRS rule, and also the USA GAAP rule.

goggs:

My understanding is that AMCON's money is a loan to plug the hole in Intercontinental Bank's books which will be paid back at a latter date and hence not equity per se.

It would make sense to argue the posters position if AMCON were to have converted this 'loan' to equity. If that happens then Access Bank's share holding will slip and that would essentially mean that intercontinental Bank has been nationalised, and the ownership will revert to AMCON/CBN/FGN which I think is not the goal here.

Accounting Gurus, correct me if I am wrong.

hyelhira:

It is equity investment otherwise, AMCON does not even need to hold the 15% ab initio. AMCON's means of recouping that investment will be by selling its shares.

Ok. I see, Are you saying that there is no scheduled repayment plan? What happens if after the amortisation period the shares are not worth the principal and envisaged interest?

Just want to educate myself please. We are all learning everyday.

hyelhira:

I wish u read the merger scheme. Anyway, that ACCESS presentation will still do. Read through and tell me whether there is any mention of repayment. The only money that will be repaid is that 1st N100b injected on August 14, 2009.

My brother, the taxpayers in Nigeria are just being taken for a ride

goggs:


can I have a link to the Access presentation? I will love to go through first before reaching a conclusion. Thanks

kurus:

Ladies and Gentlemen,

This is Sanusi Lamido Sanusi ploy to own the recapitalised banks as a proxy for powerful northern interest who felt the north lost out in the last consolidation exercise.

Without going into a lot of technical jargons, what is happening is that the said northern interests will own all the extra new access bank shares to be created. So if access is paying 7.5% of the transaction cost but gets 75% of intercontinental, it means SLS and his cronies will get the balance of (75-7.5)% of the access bank shares to be issued for purchase of intercontinental(Aig and wigwe will also get small egunje shares). Effectively, SLS and his cronies have used AMCON funds to buy intercontinental and then merged intercontinental with Access bank.

SLS a-ss lickers can try and dispute the above facts, cos no finance professional will EVER advise his client to put up 500b for a trxn and the other guy who puts up 50b (90% less) now ends up getting 75% of what is being bought, except SLS is the one doing the mathematics involved.

deenee:

The whole merger  process is very valid. There is one point that we are all missing here; what is the current market price of Intercontinental shares now vis-a vis three years ago?

The price that Access will pay for the stake acquired in Intercontinental will be by and large determined by the current market price obtainable, hence if we are to go by this, Intercontinental would be sold for 'peanuts' compared with what what Access has put on the table! I am sure you will all agree that Intercontinental, like most other banks are trading at an all-time low. Also, the stake provided herein by AMCON cannot be converted ‘equity’ as some as suggested herein as it is meant to be a 'provisional investment' meant to create liquidity which has dried up due to the large number of NPLs most of these banks presently have in their books!

This situation is further exacerbated by the fact that a lot of ‘fictitious accounting’ had been going at Intercontinental and apparently, they actually have a negative balance sheet and even negative shareholders’ funds as a result of the mismatch between assets created and liabilities sourced vis-a vis the tenor of the liabilities and the repayment periods for the assets that they have been used to create. Furthermore, AMCON is not a licensed to carry out ‘bank services’ but rather, is a special purpose vehicle created by the government and enacted by law to buy up non-performing loans in banks hereby creating  ‘liquidity’ which is needed in the financial markets now.

So, what AMCON has done is to ensure that Intercontinental is an ‘attractive asset’ to discerning investors. There is no need evidently, to shed some ‘light’ on the technical details of the whole ‘transaction implementation process’ used for the deal because apparently , a lot of people are still trying to get their heads around the  ‘overall concept’

More so, I am appalled to see people comment here, that nationalized banks in the UK are making profit, which profit and where is the evidence to back up this claim? The banks that have been nationalised in the UK (top of the list include RBS and Lloyds TSB) are still making huge losses and there are massive redundancies there!  See link below to support my claim. The funds injected into the deal by AMCON will be repaid by the new owners once there is enough liquidity and the capital adequacy requirements as stipulated by the CBN has be met.

http://www.ft.com/cms/s/0/53bc5744-be68-11e0-ab21-00144feabdc0.html#axzz1aeY89vxe

deenee:

The whole merger  process is very valid. There is one point that we are all missing here; what is the current market price of Intercontinental shares now vis-a vis three years ago?

The price that Access will pay for the stake acquired in Intercontinental will be by and large determined by the current market price obtainable, hence if we are to go by this, Intercontinental would be sold for 'peanuts' compared with what what Access has put on the table! I am sure you will all agree that Intercontinental, like most other banks are trading at an all-time low. Also, the stake provided herein by AMCON cannot be converted ‘equity’ as some as suggested herein as it is meant to be a 'provisional investment' meant to create liquidity which has dried up due to the large number of NPLs most of these banks presently have in their books!

This situation is further exacerbated by the fact that a lot of ‘fictitious accounting’ had been going at Intercontinental and apparently, they actually have a negative balance sheet and even negative shareholders’ funds as a result of the mismatch between assets created and liabilities sourced vis-a vis the tenor of the liabilities and the repayment periods for the assets that they have been used to create. Furthermore, AMCON is not a licensed to carry out ‘bank services’ but rather, is a special purpose vehicle created by the government and enacted by law to buy up non-performing loans in banks hereby creating  ‘liquidity’ which is needed in the financial markets now.

So, what AMCON has done is to ensure that Intercontinental is an ‘attractive asset’ to discerning investors. There is no need evidently, to shed some ‘light’ on the technical details of the whole ‘transaction implementation process’ used for the deal because apparently , a lot of people are still trying to get their heads around the  ‘overall concept’

More so, I am appalled to see people comment here, that nationalized banks in the UK are making profit, which profit and where is the evidence to back up this claim? The banks that have been nationalised in the UK (top of the list include RBS and Lloyds TSB) are still making huge losses and there are massive redundancies there!  See link below to support my claim. The funds injected into the deal by AMCON will be repaid by the new owners once there is enough liquidity and the capital adequacy requirements as stipulated by the CBN has be met.

http://www.ft.com/cms/s/0/53bc5744-be68-11e0-ab21-00144feabdc0.html#axzz1aeY89vxe

dancewith:

You are the one who is missing the point. AMCON took over Bank PHB, Afribank & Spring Bank solely because they refused to negotiate this type of underhand and undervalued deals. AMCON said they have injected huge funds in these nationalized banks to turn their negative shareholders fund to positive and sell them when the right suitor and price comes along.

They have now cleaned out the balance sheet of Intercontinental and others by the same injection of huge taxpayers money. So why are they selling them for peanuts? Amounts barely enough to buy their headoffice buildings? This is the question you are missing. What liquidity have they provided? They have spent N550b to make intercontinental great again and now turned around to sell it for N50b! Does this make sense to you. Would you spend N1m redesigning your car and immediately sell it for N100,000?

Why not ask access to buy both the assets and liabilities of the bank just like was the practice in other takeovers before now e.g STB/Crystal? Or why not ask Access to provide the entire funds to clean out the books then take control?

No matter how you look at it, this deal stinks and must surely have the blessings of those at the corridors of power. I refuse to agree to those that want to pull wools over our eyes

goggs:


What if you buy a salvaged car  for N1m (cos the dealer tricked you into believing it was sound) and after a month you discover a mountain of problems that reveals the car is a right off, would you still sell it for N1.5? or N1m or for the true value of its worth (eg N.1m). Or would you trick someone else and sell for N1.2m cos your friend will condemn you if they found you got tricked. Get real man

The hole in Intercontinental bank is huge and the investment by AMCON maybe just enough to keep it afloat. What ever is pumpe in must be view relative to the size of the negative capital it has.

jobaskia:

Which ever way we all are looking at it. It' s basically hostile takeover not merger in the real sense of it.

deenee:

The whole merger process is very valid. There is one point that we are all missing here; what is the current market price of Intercontinental shares now vis-a vis three years ago?

The price that Access will pay for the stake acquired in Intercontinental will be by and large determined by the current market price obtainable, hence if we are to go by this, Intercontinental would be sold for 'peanuts' compared with what what Access has put on the table! I am sure you will all agree that Intercontinental, like most other banks are trading at an all-time low. Also, the stake provided herein by AMCON cannot be converted ‘equity’ as some as suggested herein as it is meant to be a 'provisional investment' meant to create liquidity which has dried up due to the large number of NPLs most of these banks presently have in their books!

dancewith:

You are the one who is missing the point. AMCON took over Bank PHB, Afribank & Spring Bank solely because they refused to negotiate this type of underhand and undervalued deals.  AMCON said they have injected huge funds in these nationalized banks to turn their negative shareholders fund to positive and sell them when the right suitor and price comes along.

They have now cleaned out the balance sheet of Intercontinental and others by the same injection of huge taxpayers money. So why are they selling them for peanuts? Amounts barely enough to buy their headoffice buildings? This is the question you are missing. What liquidity have they provided? They have spent N550b to make intercontinental great again and now turned around to sell it for N50b! Does this make sense to you. Would you spend N1m redesigning your car and immediately sell it for N100,000?

Why not ask access to buy both the assets and liabilities of the bank just like was the practice in other takeovers before now e.g STB/Crystal? Or why not ask Access to provide the entire funds to clean out the books then take control?

No matter how you look at it, this deal stinks and must surely have the blessings of those at the corridors of power. I refuse to agree to those that want to pull wools over our eyes

Maawitemi:

The process is valid indeed (lol), except that all the outputs are wrong.Thank God you also mentioned "the large number of NPLs most of these banks presently have in their books" - and that includes Aig and Herbert's perpetually restructured non-performing N16 billion loan in Intercontinental's books. Isn't it so nice they are profiting from this default?

What AMCON injected does not need to be converted to equity - it is equity. They promised to recover this by selling their holdings later. No core investor is scheduled to pay back any dime - go check the documents.

This thing has many "corner-corner". Please have a look at process defects as outlined by capital market operators here http://proshareng.com/news/15122 (Union Bank) and COMMENT - Issues in Banks' Recapitalisation EGMs - http://proshareng.com/news/15066

deenee:



Thank you for the response. However, I think that is expedient to understand what has transpired during the whole deal whilst opining that the analogy you have used re the nationalised banks does not add up. These banks were nationalised because even with the fresh injection of funds, there were still ‘ regular borrowers via the CBN ‘extended discount window’ and no ‘rational investor’ would touch them with a ten foot pole. More so, allowing them to become bankrupt (which is what would have happened if they were not nationalised) will just send another round of  ‘shock waves’ through the entire financial system and jeopardise the possible acquisition or merger talks underway.

At the’ point of sale’ or during the transaction implementation process, Intercontinental had more non-performing assets than liabilities hence the hole you have described herein and a very BIG one for that matter!

You also say that they should sell their buildings- who will buy them? Who has purchased the building of hitherto distressed banks like Liberty, the defunct National bank, All States Trust and others?  AMCON is not ‘Father Xmas’, so saying that AMCON has paid off the ‘liabilities’ (which should be called ‘assets’ in this regard) is a statement that should be given some afterthought! AMCON has only filled the ‘hole’ created by bad management/corporate governance at Intercontinental et al. and this has just been done temporarily. Have you bothered to ask yourself why the nationalised banks didn’t attract any investors?

Finally, Intercontinental is not ‘great’ again as put forward by you simply because the 550b non performing loans have be transferred to AMCON. What will make then great again is if they are able to make ‘real profit’, sustain it ,reward investors/ shareholders accordingly and trade at a reasonable market price. More so, the injection has only made the bank a ‘tenable investment worthy of consideration’ and 50b, paid by Access is perhaps the best offer it could get based on the current valuation (market price of stock on the exchange and assets-bear in mind that these ‘assets’-building et al. depreciate and lose their value as they ‘wear and tear’ whilst some are not even marketable) and a lot of other extenuating factors. But then again, this is a topic of discussion for another day!

deenee:



Thank you for the response. However, I think that is expedient to understand what has transpired during the whole deal whilst opining that the analogy you have used re the nationalised banks does not add up. These banks were nationalised because even with the fresh injection of funds, there were still ‘ regular borrowers via the CBN ‘extended discount window’ and no ‘rational investor’ would touch them with a ten foot pole. More so, allowing them to become bankrupt (which is what would have happened if they were not nationalised) will just send another round of  ‘shock waves’ through the entire financial system and jeopardise the possible acquisition or merger talks underway.

There is also one misconception that I would like to correct here, the funds used in this regard is not ‘tax payers’  money as you and most people connote.  Funds have been provided via the CBN( lender of last resort) through AMCON ( a special purpose vehicle) and in the form of debt. Intercontinental and others still have negative shareholders’ funds in ‘retrospect’ because of the non-performing loans at their disposal, hence saying that their balance sheet has been “cleaned out” is intrinsically incorrect. They have merely transferred the NPLs  which will be recovered at a later date to AMCON and AMCON has issued out debt coupons to them funded by the CBN. The intention in the medium term is to assign ‘ratings’ to these tranched securitised non-performing assets (which will be determined by their recovery rate thus, loans that have the  propensity to be repaid ‘quickly’ are rated higher  and vice versa), purchased by AMCON and make them tradable as ‘convertible debt instruments’ via the capital markets to the  investing public. When this is done, then we can say that ‘tax payers’ money is involved. To the best  of my knowledge, this has not been the case.

Also Intercontinental, like other ‘distressed’ banks have no ‘liabilities’ just assets and non-performing assets for that matter. At this point it is vital to reiterate that our definition of assets and  liability ‘accounting wise’ is  quite different from the way it is used here. In this context and as indicated  in the balance sheet of banks and other financial institutions, ‘liabilities’ refer to the different classes of funds sourced by the bank via savings and current accounts and fixed deposits; all which have varying cost of funds and tenors. They are termed ‘liabilities’ because the bank has a ‘moral obligation’ to make the funds attached to them available on demand- hence the reason why you can deposit your money and withdraw at ease and on demand (except, there is a liquidity crisis where assets are more than liabilities). It is also from these pooled class of liabilities that banks create ‘assets’-loans and advances of different classes ranging from the ‘ubiquitous’ overdraft to syndicated loans- arranged by different banks and where one bank is the lead financier. At the’ point of sale’ or during the transaction implementation process, Intercontinental had more non-performing assets than liabilities hence the hole you have described herein and a very BIG one for that matter!

You also say that they should sell their buildings- who will buy them? Who has purchased the building of hitherto distressed banks like Liberty, the defunct National bank, All States Trust and others?  AMCON is not ‘Father Xmas’, so saying that AMCON has paid off the ‘liabilities’ (which should be called ‘assets’ in this regard) is a statement that should be given some afterthought! AMCON has only filled the ‘hole’ created by bad management/corporate governance at Intercontinental et al. and this has just been done temporarily. Have you bothered to ask yourself why the nationalised banks didn’t attract any investors?

Finally, Intercontinental is not ‘great’ again as put forward by you simply because the 550b non performing loans have be transferred to AMCON. What will make then great again is if they are able to make ‘real profit’, sustain it ,reward investors/ shareholders accordingly and trade at a reasonable market price. More so, the injection has only made the bank a ‘tenable investment worthy of consideration’ and 50b, paid by Access is perhaps the best offer it could get based on the current valuation (market price of stock on the exchange and assets-bear in mind that these ‘assets’-building et al. depreciate and lose their value as they ‘wear and tear’ whilst some are not even marketable) and a lot of other extenuating factors. But then again, this is a topic of discussion for another day!

deenee:

Please let’s get it right. AMCON has not inject equity into these banks. Though, it has the power to do this under the jurisdiction of the CBN, what it has simply done is to acquire eligible bank assets(loans and advance) as stipulated in the AMCON act. I have attached a link to the AMCON 2010 act below for further guidance.

Thank you!

http://amcon.com.ng/AboutAMCON/CorporateOverview/MissionVision.aspx