On a table in the Presidency sits a vital document from the Minister of State for Finance, Remi Babalola. The letter, dated 31 March, 2008 and addressed to president Umar Yar’Adua himself, concerns the contentious issue of the acquisition of Spring Bank plc by Bank PHB plc. The issue in that document may well be yet another test for the moral strength and Rule of Law advocacy of the president and the much-touted no-nonsense resolve of the new governor of the Central Bank of Nigeria, CBN, Sanusi Lamido Sanusi.
Spring Bank was a merger of six banks - Guardian Express Bank, Citizens Bank, ACB International Bank, Fountain Trust Bank, Omega Bank and Trans-International Bank, all known in the consolidation arrangement as Legacy banks. To achieve the conditions required by the CBN in the consolidation programme, representatives of the merging banks executed a Heads of Agreement which categorised the Legacy banks into two groups - the Citizens Guardian Group and Bank One. The document provides that after due diligence and capital verification, a reasonable time would be given to make adequate merger adjustments. There was also 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 a PMA was never done and, consequently, crisis became the moniker for Spring Bank. The CBN had to, in June 2007, dissolve the bank’s board and management and appoint an interim management board, IMB, headed by Suleiman Ndanusa.
On 18 December, 2008, Bank PHB announced completion of acquisition of the troubled bank. The successful take-over was a culmination of a process which began on 28 November 2008 with a N21 billion bid for more than three billion units of Spring Bank’s shares. On 1 December, Bank PHB had advertised for a mandatory bid to acquire majority shareholding in Spring Bank; it had earlier amassed 33 per cent of the bank’s shares and the bid for three billion more units was aimed at jacking its stake in the institution up to a controlling 51.
But the deal has since been mired in controversy. In courts have been a litany of suits instituted by some aggrieved shareholders of Springbank. The shareholders averred 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. A series of letters signed by the then Attorney-General of the Federation and Minister of Justice, Chief Bayo Ojo had, indeed, spoken of establishment of a fraud committed by some directors of Guardian Express who were then (in 2007) members of the Spring Bank board. Similarly, a joint investigation report of the CBN/Nigeria Deposit Insurance Corporation on the matter confirmed that a certain “volume of shares being held by the listed directors were funded directly by their bank (i.e. Legacy Guardian Express Bank plc.) through forgeries and manipulation of bank records, thereby contravening the law.” 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.
An usually reliable source in the Presidency told this magazine that the office, inundated by numerous petitions, early this year directed the Federal Ministry of Finance to co-ordinate responses to the petitions from regulatory bodies. It is the report on the investigation of the petitions and the responses that is awaiting the President’s action. Our source in the Presidency believed the document is, in fact, lying on the table of the Chief Economic Adviser to the President, Tanimu Yakubu.
The Babalola report notes 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.
Aondoakaa affirmed that in the Spring Bank merger, there was breach of the provisions of Section 159 of the Companies and Allied Matters Act; that the CBN, which has supervisory responsibility to implement the report did not do so and that the CBN failed to implement fully the remedial measures earlier suggested by Ojo, his predecessor. Aondoakaa called for an immediate implementation of the adjustment of the PMA in line with the Heads of Agreement and that “those who benefited from the fraud are not allowed to do so in order to restore the confidence of the investing public”.
Most importantly, the Chief Justice declared that “the shares regarded as bubble capital under the Final Report CBN-NDIC Joint Investigation Team on the PMA be voided.”
The Babalola report mentioned that the IMB submitted a draft final report to the CBN on the PMA. Two members of the Legacy Bank, from the BankOne Group - Fountain Trust Bank plc and OmegaBank plc - would, however, not 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. “The shares were then sold to Bank PHB plc individually and in concert with Westcom Technologies and Energy Services Limited. The warehoused shares were not offered to members of the company i.e. shareholders of Springbank plc.,” the junior Finance Minister reports.
In investigating, Babalola observed that the shares of Spring Bank plc “were under full suspension prior to the purported sale.” To effect the sale, he notes, the shares were allowed to be purchased by the IMB who had requested that the full suspension of trading in the shares be lifted to technical suspension by the Nigerian Stock Exchange. The reports hints at the urgency the IMB attached to the the conclusion of the acquisition of Springbank before the end of its tenure in December 2008 and draws attention to “the several suits instituted and court injuctions obtained variously by shareholders and shareholder representatives against the purported sale of the shares to Bank PHB and its assigns, agents and those in concert while the share transactions were being processed by the Securities and Exchange Commission, SEC.” The suits were ignored.
The verdict in the Babalola report is that the Spring Bank acquisition was improper for six reasons it listed: One, the post-merger adjustment exercise is 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 lampoons 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.
Generally, the document concludes, SEC acted beyond its scope of responsibilities in the approval of the sale of shares of Springbank plc to Bank PHB plc and Westcom Technologies.
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.
The Presidency, TheNEWS learnt, is still studying the Babalola report more than two months after the Minister of State for Finance submitted it. But the moral implication, as it concerns the President directly, is not lost on those who are aware of it. The Yar’Adua family is known to possess a strong stake in the moribund Habib Bank, one of the two partners (the other is Platinum Bank) that merged to own Bank PHB, the key beneficiary of the acquisition that is now being deemed illegal. Followers of the Spring Bank/Bank PHB debacle are interested in how he will resolve it without fear or favour.
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