A Tale Of How AMCON, CBN Helped Skye Bank Get Into Financial Trouble

A recent article from Thisday has revealed the major roles three Federal Government agencies played in the current financial troubled waters Skye Bank finds itself in.

The article written by Ijeoma Nworgugu explains in details how several bad decisions by the now resigned Board and Management team led to a major loss of value for a bank in one of the most remarkable financial stories of 2016.

The article blames the controversial role of the BPE, AMCON and CBN inadvertently played in the erosion of capital that is now likely to shareholders of Skye Bank their investments. Here is an excerpt

The Role of BPE –  The Bureau of Public Enterprises in 2013 sold 10 out of 11 Discos to local Nigerian firms for millions of dollars. The discos, mostly run down were funded by their Nigerian acquirers via foreign denominated loans provided by local Nigerian banks. She explains the connection here.

Integrated Energy Distribution and Marketing Company Limited, a firm fronted by Ayeni, his longtime partner, Capt. Osa Okunbor, and former military head of state, Gen. Abudulsalami Abubakar, had acquired the Yola and Ibadan Discos for $228 million in 2013 under the privatisation programme.

A year later, Integrated Energy returned Yola Disco to the Nigerian government on the grounds that it was impossible to operate and access the assets of the electricity distribution firm in the North-east due to the Boko Haram insurgency. After a joint evaluation of the electricity asset, as provided under the terms of the share purchase agreement, the BPE, in the twilight of the Jonathan administration, had approved $186 million as the sum to be refunded to Integrated Energy.

But as this article is being written, nothing has been refunded to the company and its shareholders, even as the penalties and interest on their Skye Bank loan continue to mount. Of course, Ibadan Disco, which was retained by Integrated Energy, is in no better shape, as almost all the loans extended to investors during the privatisation process have gone bad.

The Government is currently owing the bank’s obligors $186 million which at current exchange rate is about N52.6 billion. If this money is paid back to Mr Ayeni, he could likely use it to reduce N30 billion the article said he owes the bank.

The Role AMCON Played – In 2014, AMCON announced that Skye Bank had won the bid to acquire Mainstreet Bank for a sum of about N100 billion. We wondered how the bank would pay for the acquisition considering that it was higher than its market capitalization. They eventually acquired the asset and now some analysts consider it as one of the reason why the bank’s cost of risk has increased. The article summarizes their role;

Ayeni and his financial misadventures aside, the bigger setback for Skye Bank stemmed from its exorbitant acquisition of Mainstreet Bank. Information provided by officials of AMCON that was responsible for the Mainstreet Bank sale, showed that the valuation of the bank was put at N75 billion, implying that no sensible prospective investor that had undertaken a proper due diligence of Mainstreet Bank should have offered to pay anything in excess of N80 billion to N100 billion for the bank.

Yet, Skye Bank, which had embarked on an aggressive growth strategy to catapult itself into a Tier 1 bank, offered N126 billion for Mainstreet Bank. This was to become Skye Bank’s undoing. The snag was that Skye Bank did not have the balance sheet to support the acquisition of a much bigger bank. Not a few market analysts watched with keen interest and wondered where and how its management was going to raise the N126 billion for Mainstreet. It has now come to light that Skye Bank’s management used its deposits to pay for Mainstreet, effectively putting depositors’ funds at great risk.

CBN’s role – The Central Bank of Nigeria as the regulator could have stopped the sale to Skye Bank since it must have known of the potential impact on the bank’s financials. Rather it went ahead to sanction the deal by not stopping Skye Bank and is now faced with a decision of not only selling Skye Bank to AMCON but Skye Bank plus the Mainstreet Bank that AMCON previously owned. Here is how the article captured their role;

The bigger worry for the banking sector was that this was an inexcusable gamble that escaped the scrutiny and regulatory oversight of the CBN and the Securities and Exchange Commission (SEC), both of which did not appear to have done any capital verification on the sources of funds brought in by Skye Bank for the Mainstreet acquisition before approving the transaction. Had the CBN, in particular, performed its regulatory role diligently, it is most likely Skye Bank would have remained a safe and sound bank.