Flurry Of Mergers - African Business Magazine
Flurry Of Mergers

Flurry Of Mergers

After a fairly tumultous three years, West African, particularly Nigerian banking has now settled down and has begun the process of consolidation. But the landscape has changed dramatically following the Nigerian Central Bank’s ruthless weeding out of badly managed banks. Mergers and acquisitions have proliferated. Michael Nwadike describes the new winners and losers in this round-up of the industry in West Africa.

Access Bank’s Group Managing Director Aigboje Aig-Imoukhuede now has a new office at the heart of Victoria Island in Lagos. He operates from the eighth floor of the defunct Intercontinental Bank headquarters few weeks after Access Bank, one of the few that survived Central Bank Governor Lamido Sanusi’s axe wielding, acquired a 100% stake in the bank, previously ranked among the top four in the sector.

The collapse of Intercontinental Bank is yet to sink in for its over 6m customers, who were quickly integrated into the new owners’ network, which until now boasted only 600,000 customers. All assets, liabilities and undertakings of Intercontinental Bank, including its real estate and intellectual property rights were transferred to the new owner after regulatory and shareholders’ approvals were secured. Access Bank is now ranked among the top four in terms of market size and assets in the sector.

At a court-ordered general meeting where the acquisition was wrapped up, Aig-Imoukhuede admitted that legal issues concerning the takeover still give management concern, but reaffirmed that sufficient provisions have been made to address any ‘shock’ that may arise.

Having seen the speed and precision at which the Access-Intercontinental deal was finalised, Ecobank Nigeria moved quickly to conclude its takeover of defunct Oceanic International Bank, while Sterling Bank takes over Equitorial Trust Bank and First City Monument Bank annexed FinBank.

Oceanic Bank was acquired after the requisite legal and regulatory approvals were secured by Ecobank Nigeria and the deal was sealed last December to create one of the strongest financial institutions in Nigeria, in terms of branch network, asset size, customer base and revenues, with significant operational synergies.

Managing Director of Ecobank Nigeria, Jibril Aku, said both institutions have moved expeditiously to establish ‘a single, integrated organisation’. He said the merged entity will be a top-tier bank in Nigeria, with a strong retail franchise, and a top-five position in terms of assets, customer base, deposits and branches. “The merger will result in cost savings due to economies of scale. These savings are expected in the areas of information technology, procurement, cost of funding and elimination of duplicated costs,” he explained.

The Ecobank Group said it wants to be a leading bank in Middle Africa. It said the bank’s focus is shifting from expansion to reaping scale benefits and that as the Group comes to the end of its expansion phase, the focus is moving increasingly to developing scale and integrating the network. With the Oceanic acquisition, Nigeria will be the main driver of earnings over the next few years for the bank with non-performing loans targeted at 5% or below.


Likewise, the First City Monument Bank’s (FCMB) merger with FinBank recorded a significant boost with the approval by Finbank’s shareholders in a court-ordered meeting. The shareholders approved the resolutions that the irredeemable non-cumulative preference shares of the bank be varied into redeemable non-cumulative preference shares.

Chairman of FinBank Board of Directors, John Udofa, explained that the merger when fully consummated would result in a bank with significantly larger market share in terms of customers, branches and assets. “The merger will not only produce fresh opportunities for shareholder value creation and enhance the capabilities of the two banks, but would also result in a world-class banking institution with better products, service levels and an overall improved customer experience,” he added.

Equally, Sterling Bank has said it will offer shareholders of Equitorial Trust Bank (ETB) and Asset Management Corporation of Nigeria (AMCON) 20% of the enlarged entity post-merger. The bank said the offer is not a cash consideration deal as Sterling will issue new shares representing 20% of its outstanding shares. Sterling Bank said it will issue 3bn new shares to acquire the privately held bank.

Head Market Risk, Greenwich Trust Limited, Babatunde Obaniyi, said the mid-tier bank expects to almost double its customer base and branch network following the deal. The Sterling Bank and ETB deal has won the backing of the ETB board and Chief Mike Adenuga, the billionaire founder of the bank. The duo have signed a Transaction Implementation Agreement (TIA), which reflects the main commercial terms of reference on which agreement has been reached in principle by the boards of both financial institutions in close consultation with AMCON.

Sterling Bank – one of the banks that survived the joint stress test by the CBN and Nigeria Deposit Insurance Corporation (NDIC) in 2009 – until recently was considered an attractive partner for foreign financial institutions looking to leapfrog an entry into Africa’s fastest growing financial services market. The development ends speculations on the bank’s strategic growth options as it finally opts for domestic consolidation over foreign dominance.

Since the CBN’s intervention, the future of ETB, long considered unique because of its binding relationships with businesses linked to its major shareholder in the mobile telephony, real estate and telecoms sectors, has been less obvious. While a few other rescued banks had significant majority shareholders, none had such a close dependence on trading entities connected to a single shareholder for customer volume. This has made the ETB founders buy-in to any deal vital for potential acquirers.

Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, said it would be of tremendous benefit to both parties, the stock market and the shareholders. The combination of both financial institutions would create an institution with over N36bn ($228m) in customer deposits, N550bn ($3.5bn) in assets and more than 185 operational branches across Nigeria.

Nationalisation and recapitalisation

These transactions are fallouts of banking reforms which the CBN Governor, Sanusi Lamido Sanusi started immediately he assumed office in June 2009. The reforms have led to not only mergers and acquisitions in the sector, but culminated in outright nationalisation of three banks – Mainstreet Bank (formerly Afribank), Keystone Bank (formerly Bank PHB) and Enterprise Bank (formerly Spring Bank).

The Union Bank of Nigeria Plc is at the final stage of its recapitalisation exercise and decided to raise funds from shareholders through a rights issue. Also, it signed a Scheme of Arrangement with potential core investor, African Capital Alliance Consortium (ACA) which would be investing $750m and would be allotted 60% of the bank’s total shares, while the remaining 19% shares will be allotted to AMCON and 21% to existing shareholders. The AMCON boss, Mustafa Chike-Obi said the rights issue was a success, adding that the bank has fully recapitalised.

Two others – Unity Bank and Wema Bank – have since recapitalised. Wema Bank adopted a Regional Banking licence, to enable it cut costs and concentrate on the southwest and Abuja, where it has its major strengths.

Wema Bank Managing Director/CEO Segun Oloketuyi said, after a critical review of the operations of the bank, it was clear that the decision to adopt a regional structure has paid off bountifully. He said the choice of southwest and south-south geo-political zones as a business territory has culminated in efficient deployment of resources by the bank with its attendant profitability.

CBN Deputy Governor, Financial System Stability, Kingsley Moghalu, said the apex bank nationalised the three affected banks weeks ahead of the 30th September 2011 deadline given them to recapitalise or face liquidation, as there was nothing to show that they would attract investors before the expiration of the ultimatum.

He explained that if the banks had been left till the end of the deadline, they would have become “carcasses” as their financial health had deteriorated. This fact, he said, was known by operators of the interbanks market. He noted that to ensure public confidence in them, the apex bank has extended interbank guarantee to them.

Managing Director, Afrinvest West Africa Limited, Ike Chioke, said the regulator’s action was necessary to quickly arrest anomalies in the three banks. For him, allowing the crises in the banks to persist would spell doom for the institutions and the economy, as there was no evidence the banks would do anything before the end of the deadline. He said shareholders of the banks were not bothered that past managements were mismanaging their banks.

“Although debate over the authorities’ pre-emptive action continues, it is difficult to see the justification for not taking action ahead of the end-September deadline,” said Razia Khan, head of Africa research at Standard Chartered. She said that by stepping in early to safeguard a small number of institutions and guarantee their deposits, the authorities may have protected the wider financial system. From this perspective, there were few arguments in favour of delaying intervention.

New market leaders

According to the CBN, banks operating in the country are now sound from a capital perspective following the exercise. The apex bank revealed that the average Capital Adequacy Ratio (CAR) of all the banks operating in the country rose significantly to 17.12% after the recapitalisation exercise. It also revealed that the average of the lowest capital of all the banks in the country currently stands around 10.69%, while the highest stands at an average of 41.23%.

A Senior Analyst at Profund Securities Limited, Chijioke Obiagwu, pointed out that the exercise would lead to efficiency in the system, availability of services to small and retail customers and payments systems efficiency. “Besides improvements in cost and profit efficiencies, mergers and acquisitions, we also anticipate that the exercise would make banks earn higher profits and improvement in the quality of their service. We expect Nigerian banks to be as technology-savvy as their counterparts in developed countries,” Obiagwu added.

With that development, the total number of banks in the country is expected to reduce from 24 to 20 while the total cost of operations in the industry is also expected to reduce in the long run, as the head offices of four of the rescued banks would be eliminated.

Banks such as FirstBank, Guaranty Trust Bank and Zenith Bank are the top players in the industry. But these acquisitions have opened up fresh opportunities for new market leaders to emerge.

The CBN had, in 2009, injected $4bn into 10 banks, saving them from collapse, and has been seeking new investors to recapitalise them. It set up asset management company AMCON last year to absorb non-performing loans from the banks in order to make them attractive for new investors.

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Written by African Business Magazine

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