The Economic and Financial Crimes Commission is believed to be finalizing arrangements to prosecute the immediate past governor of Rivers State, Dr. Peter Odili. To this end, the anti-graft agency has assigned its officials to validate an initial report of the agency put together after an investigative process in 2006.
At the heart of the criminal misconducts thrown up by the EFCC investigative panel in 2006 is how the then governor, Dr. Odili, actively used an associate, Mr. Johnson Arumemi-Ikhide, the man famously known to be the owner of Arik Air, to loot sums estimated to be over N100billion from the treasury of the state.
The EFCC report trails the relationship between ex-Governor Odili and Mr. Arumemi-Ikhide thus:
“Prior to becoming a major contractor to the state government in 2000, Mr. Johnson Arumemi-Ikhide was a shareholder of, and an executive director in, Negris Engineering Nigeria Limited. He worked for the company for over 18 years before leaving the company as a result of misunderstanding with other management staff, to form Rockson Engineering Nigeria Limited in 2000.
“While he was still with Negris, he provided an interface between Negris and Rivers State Government during which two major contracts were secured for the company. The contracts were the supply and installation of generating sets and transformer worth N401,016,101.00. The other contract was for the supply, construction and installation of turbine power station worth N4,256,076,000.00 in 2000.
The report notes that:
“The second contract was about 60 per cent completed when Mr. Johnson Arumemi-Ikhide left Negris and suddenly became the consultant to Rivers State on the same contract using his then newly formed company, Rockson Engineering Company Limited. The remaining payments for the Negris contract were routed through his company where the sum of N734,764,749.00 is yet to be remitted to Negris.”
The report adds that:
“The incorporation of Rockson Engineering Company Limited in 2000 immediately Arumemi-Ikhide left Negris marked the beginning of siphoning huge government fund that ran into several billions of Naira through gas turbine contract scam.”
The report highlights how several billions of Naira were transferred into accounts owned by Mr. Arumemi-Ikhide:
“Rivers State Government diverted the sum of N30,031,446,589.70 at various times to account number CA 6010914407 at Zenith Bank Plc belonging to Rockson Engineering Company Limited between January 07, 2004 and December 06, 2006. Investigations also reveals that Rockson Engineering has several bank accounts with Bank PHB, Sterling Bank Plc, United Bank for Africa, First Bank Plc, Intercontinental Bank Plc and Union Bank Plc. These banks were involved in the inflated contracts between Rockson Engineering and Rivers State Government.”
The EFCC report further notes that its investigations revealed that funds were diverted from Rivers State Government’s account to Rockson Engineering Limited, where it was transferred instalmentally between March 2005 and November 2006 from bank account number 6571020007472 with Union Bank Plc to the following companies.
a. Alpha System and Commodity Company Limited—N3,957,734,700.00
b. Sea Petroleum and Gas Company-N6,623,940,500.00
c. Peg Magreet Shipping and Trading Limited -N638,320,000.00
d. Wopat Nigeria Limited – N276,100,000
e. Dairy and Livestcok Limited – N281,000,000.00
f. Arula Investment Limited – N330,000,000.000
All totaling N12,107,105,000.00.”
The investigative report made more revelations on how Mr. Aruremi-Ikhide, who the report claims has a long lasting relationship with Dr. Odili which dates back to the 1980s, was used as the main front man for Dr. Odili.
“It has also been discovered that a parallel account called Account 2, account number 0130215431600, was opened with UBA Plc in the name of Rockson Engineering. Form 2001, when the account was opened to 2002, the sum of N12,064,988,787.61 was paid into the account from the Rivers State Government. Interestingly, Mr. Arumemi-Ikhide denied knowledge of the existence of this account. So far the sum of N12,059,602,734.20 has been withdrawn from the said account. This is clear evidence of direct looting of the treasury of Rivers State,” the report asserts.

While he was still with Negris, he provided an interface between Negris and Rivers State Government during which two major contracts were secured for the company. The contract were the supply and installation of generating sets and transformer worth N401,016,101.00. The other contract was for the supply, construction and installation of turbine power station worth N4,256,076,000.00 in 2000.

In direct reference to how Arik Air was funded and established, the report explains:
“It has also been established that Arumemi-Ikhide, the business partner of the Rivers State governor, is the owner of ARIK AIR LIMITED. He used money received from the Rivers States Government to acquire all the assets and aircraft of the company estimated to be worth over N25billion.”
Further establishing a direct link between Dr. Odili, Mr. Arumemi-Ikhide and Arik Air, the report submits that:
“The political and business relationship between Dr. Odili and Mr. Arumemi-Ikhide has become more obvious since the former’s declaration to run for the Presidency. Investigations conducted at various hotels, such as Transcorp Hilton, Le Meridien, Sheraton, etc; in Abuja revealed that the Odili Campaign Organization made bookings worth N130million through his campaign management team. The money came directly from the accounts of Arik Air Limited. The origin of the money is linked directly to Mr. Arumemi-Ikhide for Dr. Odili’s campaign.

To be concluded next edition.

N17 Billion Debt Scandal:Yar’Adua positions to take over BankPHB from Atuche

The recent uproar over a N17 billion debt scandal involving BankPHB may have given impetus to the Yar’Adua family to start listening to the argument of close aides of President Umar Musa-Yar’Adua on the strategic need for the President to set off the process of enabling his family to take position for more dominant roles in the ownership structure of the bank.

Read the rest of the story here.



BankPHB may have lost the equivalence of N7billion directly to the United States of America’s property sector crises. Sources in the bank informed Fortune and Class Weekly that the bank had excitedly approved a proposal by one of its customers that wanted to invest in the USA’s property market in the aftermath of the subprime crises when prices of property started sliding.

The source confided that the customer had argued when the downward spiral of the USA’s property market commenced in its first phase that taking position in the sector by investing when prices had gone down would provide ample opportunities for profit taking. The customer who is said to be familiar with the USA’s property market asserted that the price slide would only last a short while.

To position in the property market by investing when prices initially dipped, the customer asked for a N14billion facility and approval was given. “It turned out that soon after the N14billion was invested, property prices literally went on a free fall. By the time the facility was called in, the value of the N14billion investment was in the region of N7billion.” The BankPHB insider said.

They say Bank PHB has the backing of Mr. President

The buccaneer style take over of Spring Bank by Bank PHB is still the subject of discourse in banking communities. Where two or more bankers are gathered, discussion invariably narrows down to the acquisition. Two groups have since emerge in any of such discourse, the leering triumphant group that put the joke on the opposite loser’s camp which protest a lack of fairness and equity in the acquisition of Spring Bank.

The Bank PHB group now takes the air out of the sail of the opposing camp with the boastfulness of the backing of the ultimate authority in the country.

Who else? The President, of course. This group regales the opposing camp of the acquisition being a done deal because it has the backing of the President Umar Yar’Adua.

The group that makes a case for Bank PHB may not be out of line, the President holds a 100,000 units of the shares of Bank PHB, that was after conversion of the shares Mr. President held in legacy bank Habib Bank, the bank that merged with Bank PHB.

The President used to sit on the board of Habib Bank as a non executive director, now would this mean that the President will close his eyes to the abuse of due processes because of his commercial interest in Bank PHB.

Investor Beware! A Preview of the Nigerian Capital Market in 2009

Capital market drivers. The prosperity of the capital market depends on the prosperity of the economy. Thus the capacity of the market to successfully provide long-term funds and a good platform to trade in the accompanying securities will depend on the strength of macroeconomic productivity. A productive economy is invariably one in which economic agents create value and earn correspondingly meaningful income. Because economic agents generally subscribe to primary offers of either debt or equity or purchase stocks at the secondary market if they have income it is only consistent to argue that vibrant markets are ones where the economies create positive economic value added.

There are, however, other reasons investments can be made. These other factors are usually considered if the budget constraint has been satisfied. Thus no matter how appealing the market prospects of a security is, in the absence of income there will be no transaction overtures from the demand side. The reverse cannot be the case because even badly performing securities can be deliberately purchased once there are the funds depending on the kind of strategy that is being pursued by the investor largely because these strategies ultimately aim at making profits or returns.

So when an investor consciously transacts on the securities of an obviously dead company, such decisions though in the short-run, can be with a long-term focus of acquiring, restructuring and turning around the stock’s underlying business operations for better performance. A good example is the acquisition game between bank PHB and some Springbank investors.

Similarly some old persons, for instance, may forgo the fat capital gains of stocks of companies which are still at the early stages in industry life cycle and consistently go for the moderate returns of stocks of companies at matured stages in the industry growth cycle. Although in this case, returns are fundamental, risk perceptions are considered. This risk consideration is not strictly of the stocks but on the perceptions of the impact of the business environment on such firm’s prosperity.

Overall, three important considerations for flourishing capital market existence are the income levels of the investors; investor evaluation of current and potential performance of company as well as the risk perceptions of the investor. These forces cover the supply and demand sides of the market but not of the market umpires. What of the umpires: those who ensure that the rules of the game are complied with? The importance or unpopularity of market umpires have become more critical because from recent experiences their unwarranted interference with the market process created more problems than solutions. So a fourth factor can as well be added as the role of market umpires and regulators.

Behaviour of market drivers in 2009 In order to predict the performance of the capital market in 2009, we have to examine how these four forces are likely to fare during the year. While it is possible to make some informed guesses about the likely behaviours of the first three, it is difficult to predict how the regulators are likely to behave during same period. So for the umpires, we can at best advise on what they should or should not do in order to ensure that the market performs better.

We start with individual incomes. The incomes of individuals are tied to the prosperity of firms who in turn pay them wages in return for the services offered. Possible exceptions here are the government employees may continue to earn their wages irrespective of whether government’s finances are doing well or not.

Although it is equally possible for government to respond to macroeconomic conditions and reduce the number of persons in its payroll, oftentimes such decisions are mired in serious political considerations and are oftentimes wrongly targeted so that those who lose their jobs may not necessarily be the people who should. Historical experience in this country also has not supported wage cuts in the public sector. So we concentrate on the private firms who are more flexible in responding to changes in the environment of business.

The factors which therefore determine the profitable performance of firms in Nigeria are: infrastructure adequacy, monetary stability, fiscal equilibrium, efficient justice system and ease of taxes.

The presence of these factors ensure that firms face minimal macroeconomic uncertainty and also much more able to compete more efficiently. How are these determinants likely to fare in 2009? Infrastructure inadequacy has been unresolved and cannot be resolved in 12 calendar months. On average, partially substantial resolution of Nigeria’s infrastructure problems given its current state – should last longer than 18 months. Power supply has remained the most problematic of the entire infrastructure nightmare which was seemingly, but in futility, addressed over the eight year reign of the past administration.

What of monetary stability? It is going to be a scarce commodity in 2009. The scale of the budget deficit and the pressure on the naira exchange rate following the depressed earnings from crude oil are good pointers to what should be expected in these regards. Such huge deficits will be financed with equally huge expansions in money supply. At present, some of the areas that the budget had specified as its financing sources are being contested by some other stakeholders in the federation account particularly state governments.

With such sustained pressure, the Federal Government and the Central Bank, will come up with more ingenious ways of creating money out of nothing. This has started with the deliberate allowance of the naira exchange rate to fall from N116.00/US$1.00 to N138.00/US$1.00 in less than 60 days which enabled the transfer of naira earnings from actively struggling and value-creating economic agents to the government and its monetary authorities.

More straightforwardly, by deciding not to defend the naira as it statutorily claims with the community fund (foreign exchange reserves) and allowing the naira to fall at such scale with such speed,

(a) the CBN has saved and will continue to save as long as the naira value falls that portion of the foreign exchange reserves that will have been used for such interventions. These savings can be monetized for direct use by the government (depending on the understanding and arrangement) and; (b) all government’s proposed dollar earnings in 2009 would have become higher in naira terms which in a way may plug the holes to be created

(1) should the Federal Government lose the contested revenue sources and

(2) should it have to re-do the clearly unrealistic assumptions that underscored the revenue side of the budget proposal.

Government’s expenditure plans far outweigh its earnings prospects. In the past, the deleterious consequences of this historically traditional policy indiscretion have been cushioned by good oil prices. Government is not an investor and in a highly corrupt environment such as ours and particularly now that it appears that the fight against public sector economic and financial crimes are seriously waning, most of these proposed deficit spending will definitely find their ways straight into the pockets of some powerful predators.

So having lost the opportunity to successfully execute the projects for which the funds are meant, we shall in turn suffer the inflationary and other economic-price consequences of these actions. Who feels the brunt? The firms continue to suffer lack of competiveness in the face of the inclement operating environment where basic infrastructure remains inadequate, firms will equally not able to effectively plan over a longer time horizon because of the heavy degrees of uncertainty injected by policy-induced inflation, distortion of relative prices and inevitably rising interest rates. Firms will equally suffer demand losses because of the reduction in the real worth of incomes in the hands of households (private consumers).

Take for instance, the issue of naira devaluation. Who benefits? Who suffers? More than 70 per cent of all intermediate input into industrial production that take place in this country are imported: raw materials, machinery even technical expertise, etc. With massive naira devaluation, how competitive can these entrepreneurs be? Yet the Central Bank has pitched the reason for naira devaluation on mercantilist premise: to promote exports? Which exports? Unfortunately the export industry in this country has as well been destroyed by exactly the same reasons which we have provided above.

What has happened in the devaluation game in effect therefore is the deliberate sacrifice of the economic well-being of majority of Nigerians and Nigerian businesses in order to meet a pre-determined motivation of government’s short-term financial objectives: a consequence of many years of deliberately neglecting to put in place policies and processes that will make the economy prosper along a natural path with minimal fruitful interventions.

What of the other factors that equally contribute to the prosperity of the economy such as efficient justice system and ease of taxes. We are definitely far from these. This administration which started off with a great promise on the pursuit of the rule of law appears to be pursuing a contrary objective. In recent times we were witnesses to the executive threats meted out in the name of justice to clearly guilty government thieves. Some received N3.5 million as fine for practically wrecking their states.

Some of the accused’s files are already joining the archives of the forgotten documents without even being called up after baton change at the EFCC. For genuine vanguards of the campaign to rid the country of this mess, his reward is bouts of inglorious dishonour culminating in an ultimate sack from the service.

On the area of taxes, my suspicion is that mid-way into 2009, the government will likely invoke the dropped raise in the value-added tax rate. It is my sincere wish that this does not happen. But what can possibly prevent its occurrence is the rebound of good oil prices. The Federal Government has already recognized the massive effects that taxes from non-oil sources can play in its finances in 2009. Thus if oil prices do not stabilize at more than US$45 per barrel, the government are most likely to raise the rate of VAT as it earlier intended.

The current desperation which resulted in the sudden devaluation of the naira justifies this position. Unfortunately, VAT if well implemented and at a higher rate has even more devastating consequences on businesses. Whereas corporate profit taxes are imposed on businesses that have already made profit, there is no such discrimination with VAT and thus firms are forced to internalize in part or full – the additional costs imposed by VAT rather than allowing its transfer to the customer in order to remain competitive in a tough operating environment. In effect many firms may have to give way in 2009 and many more will proceed to the fringe of extinction.

In all these, government still intends to use the capital market to finance some of its deficits. Because the returns on government bonds are much more certain than those that can be expected from firms in a highly uncertain environment of business – as the one we expect in 2009, – entrepreneurial activities will be massively crowded out.

With many foreign investors already gone; with many investors badly hurt in 2008; with prospects for laundering of government funds in the capital market very bleak etc, the level of participation in the capital market will obviously decline. With declines in participation, the hitherto demand pressure that have led to rapid price appreciations will be absent. The crowding out effects of governments’ capital market bond participation will not only limit the capacity of businesses to access fresh funds but will equally raise bank interest rates. Can market makers change the prospects here?

Let us start with the primary market. Market makers cannot fundamentally alter the current trend in the primary market. There is a seeming cessation and poor outing in new issues segment primarily because of the overall lull in the capital market owing to

(a) recent previous massive losses,

(b) heightened market and macroeconomic uncertainty,

(c) massive investor withdrawals particularly foreign investors and short-term speculators.

Market makers, by restoring short-term demands for securities in the market place can trigger equally short-term speculations in the market. Barring any major shock in the market place, market makers can enable the market to coast albeit at a low level over a reasonably long period of time. In the absence of good company fundamentals and income which drive long term investment (following harsh macroeconomic environment of business), market making may have very limited impact on the market. If however, the market regulators over-use market making process and thus create herd reactions, the system will be temporarily ballooned and leave more participants much more hurt.

In summary, the outlook for the year 2009 is that of low productivity (and of course low income) and high macroeconomic uncertainty. These are not consistent with the forces that enable the market flourish which we enunciated at the beginning of this work.

Since the Nigerian economy is umbilically tied to crude oil, reduced earnings from it relative to governments spending plans equally means reduced spending of the Nigerian masses and businesses; majority of whose incomes are tied to such public consumption levels. The peculiarity of this year’s proposed spending is that the present administration must show strong and determined commitment to its promise on infrastructure for it to regain its fast crumbling reputation as non-performer.

If that is the case therefore, unless there is a deliberate policy to use Nigerian firms for the provision of these infrastructure with attendant high performance risks a good percentage of these expenditures will flow into the accounts of expatriate engineering firms. To quickly correct an impression, the high performance risk alluded to here does not refer to any perceived technical inferiority of Nigerians but the high levels of possible compromise due to corruption.

Let me quickly add that the Siemens case equally proves that such compromise is not limited to Nigerians alone. Our conclusion however is that; reduced government spending will affect private consumption levels with consequences for the demand for goods and services supplied by firms.

Similarly, there shall as already stated high uncertainty with implications for high inflation, interest rates and low naira value.

What should stakeholders brace up to? In rough seas, sailors can take a variety of options: abandon the ship altogether and escape on lowered boats, struggle to salvage the ship or do nothing. The present condition of the market approximates a rough sea situation and participants have variety of options which may approximate sailors’ actions in rough sea depending on their specific contexts. For instance, many investors have already abandoned the equities market following the relative shock levels that they experienced in 2008. On the other hand, many market operators together with the regulators are bent on salvaging the market. The question is: which options should various stakeholders take in approaching the capital market in 2009?

Investors as we know are in purposeful pursuit of profit. How much profit that satisfies an investor is subjective and depends on each individual investor. Consequently how much more risk an investor is prepared to take for more returns is equally subjective and depends on investor risk preferences. Thus investors with high return; high risk profiles who have a longer time operational dimension may find the capital market in 2009 worth it. But that is given the scenario that alternative opportunities/markets such as the markets for properties, currencies, solid minerals and other commodities do not offer better returns.

A proxy measure for the returns in the capital market is the expected yields on government bonds which many smart operators will aggressively leverage on to play on in the market place given the possible poor outing of the equities market. This area will be a tough battle ground in which only well funded and technically aware operators can achieve meaningful success. Few operators in the Nigerian capital market meet this desiderata.

Recall that government will be a major player in the 2009 market with the issuance of bonds to finance its huge deficits. If that is therefore the benchmark return expectation, it is my considered opinion that in the short-to-medium term speculating in many other alternative markets will offer better returns than the equities (or capital market) market which will make it clearly not very attractive for the short-term high risk-taking investors.

Another way to look at it is that those who were most hurt in the market last year were the high risk-taking cum short-term inclined investor groups. This is where most of us (over 90% of the investor-side participants in the stock market in the last two years) belong to. At the time it became obvious to many Nigerians that the equities market had become an ATM of some sort where you simply slot your card and draw money, millions threw caution to the wind concerning the associated market risks and ‘went for the money!’. Many more persons borrowed their lives and used it in the gamble. Consequently, when this supposed ATM machine got bad, they were the most badly hurt.

Now this category of short-term inclined and high-risk-taking groups are not going to gleefully run back to the equities market without serious meditation and sophisticated professional guidance. The reasons are many:

(a) their fingers have been burnt and they are yet to recover from it. The nasty experience is enough discouraging factor;

(b) they have lost their own past savings and are using their current incomes to pay the interest due on the margin facilities used to build the now decimated portfolios;

(c) even though they are high-risk taking, the global uncertainty and domestic macroeconomic outlook are very indicative of the need for serious caution;

(d) the outlook for the market is not consistent with the typical risk-return calculation. Thus the expected return by the end of the day, may not justify the attendant risk if they decide to take a chance once more. Perhaps, because this group constitutes the largest proportion of the investor-universe in Nigeria, their indisposition to the market is in fact the ‘market sentiments’.

Naturally, the short-term focused but risk averse investor groups have naturally retreated further into their shells.

The high pro-risk investors with long term focus may want to stay on and wait for a longer period of time to see if the market will rebound. Unfortunately this category of investors with strong waiting power constitutes not more than 2% of the entire investor-universe in Nigeria . Another side of that coin too is that if this category dominates the market, they scarcely engage in aggressive short-term price speculations – which create market ebullience. On the contrary they speculate with a focus on the long-term which equally implies that less of the tradeable instruments are brought to the market.

On the other hand, if many of the investors in the Nigerian market who are largely short-term inclined decide to move into alternative markets, the likely obstructions include poor development of these markets as well as limited technical expertise to profitably speculate in them. For instance the commodities and solid mineral markets may provide very good alternatives but these markets are not yet well developed in Nigeria and there are limited technical know-how as regards how to successfully operate such markets.

This therefore provides some kind of opportunity for the professionals and regulators of the capital market. The immediate development of the Nigerian commodities market has become indispensable as this can provide credible alternatives in situations such as this. The situation equally calls for increased attention to the bonds market. Since this has more guaranteed returns as well as generously involves government with high capacity to honour debt securities issued, many more investors that are relatively risk averse and many more high risk investors who want to diversify their portfolio holdings will find that outlet more reassuring.

It is evident from the market gloom that many operators in the Nigerian capital market will die within the next few months. At present, many of these firms are finding it difficult to pay the salaries of their members. This therefore calls for many likely initiatives. One of such is mergers and acquisitions as well as organizational refocusing and repositioning. For the former, the question is: what is there to acquire in many of these firms? Some of these firms are set up just to deliver dealing activities. And thus their expanse of skill availability ends with stock trading. Regrettably too, in most (up to 80% of all) instances, these firms are equally poorly capitalized.

Now with the recent calamity already wrought on proprietary portfolio of capital market operators such as in the described firm who are forced to repay margin facilities taken at about 33% while the portfolio value for which the facility is taken in the first instance is worth less than 40% of their cumulative purchase value because of rapidly dwindling prices, what strategic impact will the merger of firms in this category have? Very limited too! It could be a merger of liabilities! The funds are not there. The technical expertise that could enable the strategic navigation of these companies into alternative opportunities is equally lacking.

Inevitably therefore, many firms will be sold at much lower value to stay afloat while many lay-offs should be anticipated. Over the years the research and strategy capabilities of the firms in the market never exceeded the writing of reports and were not very much encouraged by the management. Today this works against many of the companies as they have to pay more dearly with non-existent funds in order to refocus and reposition.

Operators in the market who are well capitalized should begin a refocusing and broadening of their business areas outside of core capital market activities. Massive retraining of staff in what it takes to successfully operate in alternative markets is imperative. With a devalued naira for instance, the commodities export market will be a good option.

In Conclusion. The regulators have a critical role in the entire process as they can either aggravate or ameliorate the current crisis in the market. In an uncertain environment, the quality of monitoring and fine-tuning of the market rules and procedures shall go a long way in minimizing the risk exposure of majority of the participants.

I personally do not believe that market decisions based on the sole discretion of one man can produce such high quality. For instance, for quite a long time, the Nigerian equities market has been run at the discretion and whims of one person. Although there may be semblances of collective deliberation and output, closer examination of the decision making process reveals very much the contrary. Such monopoly needs to be broken.

Perhaps the establishment of more Exchanges may be an answer as it will engender necessary diversification and competition. It is equally very important that the market regulators cooperate among themselves so as to always minimize prejudiced decisions that usually fallout from their personality wrangling and disagreements. Whereas such disagreements are inevitable, it should at best be to further the cause of market development.

The regulators also need to generously seek as well as process the informed views and ideas of many stakeholders before arriving at their ultimate decisions. Patriotism should be the watchword here. For instance, decisions taken by the regulators should always be at the interest of the larger number of market participants and not to protect the sectional interest of few, which for instance may have rightly or otherwise been behind the initial decision of the NSE to put a wedge restricting downward movement of share prices by 1%.

To end this piece, what if things do not fall out as predicted? What if oil prices get back to about US$60 per barrel? That obviously is my prayer. Welcome to year 2009.

Martin Oluba, Ph.D., DBA, is the President/CEO of ValueFronteira Limited and an advisor to Proshare. He can be reached at martin@valuefronteira.com


There is no concise dictionary definition of a bubble share, yet, this rather strange sounding lingo, has become the issue at the heart of the alleged controversial acquisition of Spring Bank Plc by BankPHB Plc. Roughly, bubble share may mean shares held by an individual investor or body corporate that, however, cannot be classified as part of the shares outstanding of a company. In other words, the shares have no credible placement in the books of the company; neither can the shares be accounted for by the owners.

In the present case of the very first hostile take-over of a quoted company in Nigeria as being prosecuted by BankPHB, so much is at stake; the first being the billions of Naira of depositors’ funds being deployed to buy and mop shares of Spring Bank, the target company and the second being the corruption of the well laid out company acquisition process as enshrined in both the Investment and Securities Act 2007 and the Companies and Allied Matters Act. On the far end of the scary spectrum is the risk faced by retail investors that without much crosschecks jump into the Spring Bank shares buying spree propelled by sentiment of high volume activities on the shares of the bank.

The background to the Spring Bank present outrage dates to the eve of the ultimatum for banks in Nigeria to capitalize. Two days before the expiration of the December 31, 2005 date, six banks, among others, were confronted with the possibilities of getting under the slams of the Central Bank sanction of corporate erasure if they could not meet up with the N25billion minimum shareholders’ funds. Fourteen of such banks were dissolved for not making the deadline.

But the six, Citizens International Bank, Guardian Express Bank, ACB International Bank, Fountain Trust Bank, Omega Bank and Trans International Bank, barely made it to the mark. It is, however, no secret that the six banks were strongly edged on into the marriage of mandatory capitalization by the Central Bank of Nigeria. The six banks went into the merger discussion in two different camps; Citizens International Bank, Guardian Express Bank and ACB International Bank had earlier been engaged in merger discussion but the three of them could not mass the needed N25billion collectively. The same was the case with Fountain Trust, Omega Bank and Transnational Bank; the three banks together were not able to raise the required N25billion.

It was rather like a saving grace when CBN invited the six to a meeting and counseled them to pool resources so as to be able to raise the N25billion minimum capitalization requirement. The two camps, now frequently referred to as the Citizens-Guardian Group and Bank One hurriedly signed the merger papers, after signatures and all, Spring Bank was birthed. The Citizen-Guardian Group ownership structure has roots in the Igbo speaking South East Nigeria while Bank One ownership was rooted in the Yoruba speaking southwest Nigeria.

But the provisions of the merger agreement were not without a caveat. A specific requirement in the agreement noted the obvious limitation of the merging banks to conduct due diligence on one another. The due diligence would have allowed each bank to know the true worth of the others in the merger and would have helped to determine the share holdings to be apportioned to each merging bank based on the weight of investment the banks are bringing into the new entity. So, the merger agreement insisted that the six constituent members of the then newly birthed Spring Bank Plc would do a post-merger adjustment. This adjustment would enable the banks review the credibility and truth of the claims of each merging bank and be able to portion the Spring Bank’s shares equitably.

As at the time the merger agreement was signed, Guardian Express Bank claimed it had brought a shareholders’ fund to the tune of N9,580,000,000 while ACB International said it had N420,000,000 shareholders’ fund. Citizens International Bank’s investment in the then new bank was N7,600,000,000 of its shareholders’ fund as claimed. Omega Bank claimed it was investing N9,530,000,000 of its shareholders’ fund with Fountain Trust Bank and Trans International Bank investing N810,000,000 and N2,830,000,000 respectively of their shareholders’ fund. Shares of then new Spring Bank were, in the interim, divided along the individual contribution of each of the merging bank.

Since these were yet unverified figures, the shares allotment were considered interim, only made for administrative convenience. This is what makes the shares in the bank bubble shares.

Naturally, the banks in the Citizens-Guardian Group provided the Managing Director while Bank One provided the Chairman of the board. Mr. Mike Chukwu and Rev. Canon Segun Agbetuyi were appointed Managing Director and Chairman respectively.

But no sooner had the new bank gone into operation than issues relating to the integrity of the figures provided by each of the merging bank started rocking the bank. There were claims and counter claims of insider related loans collected in the legacy banks and had turned liabilities for the bank. But rather than the non performing loans to have been declared as, indeed, non-performing, they were declared as part of the working assets the legacy banks brought into Spring Bank. And more troubling was the allegation that Guardian Express Bank and Citizens International Bank had over-stated their financial positions.

A crisis of confidence ensued on the board of the bank and it thereafter spilled to the public arena with the chairman of the board buying advertisement space in the print media to express as disenchantment with the situation at the bank, especially, as it related to the obvious support the CBN Governor, Prof. Chukwuma Soludo was giving the Citizens Guardian Group.

In a rather pre-emptive move, the CBN Governor sacked the board of the bank, leaving the Managing Director and for the first time, the Governor, tongue in cheek, informed the Nigerian public that the bank did not, in fact, meet the minimum capital requirement when it was approved to operate in the consolidation regime. The sacking of the board with the exception of the MD was protested against; even as new forms of rancour enveloped the proposed board that was to be reconstituted by the CBN with selected representatives of the legacy banks.

Eventually, the CBN had to dissolve the board and constituted a new board with members that had no form of relationship with the legacy banks, Dr. Sulaiman Ndanusa was appointed Managing Director. That was on June 5, 2007.

Since the assumption of office by Ndanusa, the only thing that had changed in the existence of the bank is that it has been saved and taken from the precipice of imminent collapse through what stakeholders have called Ndanusa trust worthy and expert management style. In truth, the bank lost N20billion depositors’ fund in the heat of the crisis of confidence in May/June 2007.

What did not change, however, remains the integrity question that still hangs on the contributory capitalization figures the legacy banks had claimed in the run up to the merger. The post merger adjustment was meant to clean up the figures and it was not until such was done that the bank could be said to have returned to normalcy.

Ndanusa under-scored the much in a cover letter, dated April 20, 2008, he forwarded to the Central Bank in which he noted that: “It is the firm belief of our Board that there can be no effective resolution of the Spring Bank crisis without putting to rest the issue of post-merger adjustments.”

A joint CBN and Nigeria Deposit Insurance Corporation investigating team had earlier in October submitted a report of their investigation in which they asserted there were a lot of discrepancies in the claim of the banks.

Besides, the multiple insider related credits that afflicted the books of the bank, the most contentious issue in arriving at an agreeable post merger adjustment position was the shareholding status of the legacy banks as at the time they individually approached the stock market to raise fund to shore up their capital in the run up to the N25billion capitalization deadline.

The report questioned the holdings of Mr. Cosmas Maduka in the bank. Maduka who owns Coscharis Motors was the single individual largest shareholder in Guardian Express Bank, the legacy bank had been considered to be the highest fund contributor to Spring Bank based on figures presented in the rush of the merger talk. This had also secured a seat for Maduka on the Board of Spring Bank. But the report of the CBN-NDIC investigating team traduced Maduka’s claims.

Alluding to apparent book cooking by legacy bank, Guardian Express, the investigating panel submitted that the bank (Guardian Express Bank) opened its Initial Public Offer on April 18 and closed officially on May 18 2005.

“During that period, the investor (Maduka) who was a major customer of the bank was said to maintain two current accounts, number 01-00004611 and 01-00004612 in the bank. The two accounts were used interchangeably to accommodate the customer’s credit facilities at different times. Before and during the bank’s IPO exercise, transactions posted to account 01-0004611 were mainly credited entries. The account had a credit balance of N2,023,844,922.50 on 11/5/2005 before a cheque of N2,400,000,000 for the purchase of shares was posted into it. The Second account number 01-00004612 which was purportedly opened in September 2004 carried mainly the debit transactions of the customer. The debit balance in the account peaked at N403,211,520.76 on 12/10/2004 before it was brought down to zero balance on 24/12/2004,” the report observed.

The investigating team report further noted that: “However, a review of the customer’s credit files showed that during that period (January to May 2005) he (Maduka) was enjoying credit facilities totaling N2,553,000,000, including two CPs of N1.953 billion and N310million respectively. In other words, the bank did not disclose the account that harboured the customer’s credit facilities during the IPO. We noted further that on June 14, 2005, shortly after the official closure of the IPO, account number 01-00004612 mentioned above which was suspended between January and May 2005, resurfaced and posting of debit transactions into it continued until 20/4/2006 when the debit balance on the account peaked at N2,548,797,899.48.”

The investigating team then averred that: “On that date, the balance was transferred back to account number 01-00004611. Considering the above facts, it is clear that the investor’s facilities during the IPO were merely suspended. As at December 30, 2005, the account balance was N5,961,522.40 (debit)”.

On account of these observations, the investigating team report recommended that the entire investment by Maduka arising from this transaction be rejected because it was financed with facilities from the bank.

This same bank accounting manoeuverings were located in the account of Chief Anthony Ifeyichukwu Ezenna, the proprietor of Orange Drugs.

“Similar to Coscharis Motors Limited, two accounts were maintained fro the investor/customer.” The investigating team report informed. “Account number 02-00022011 and 02-00022013, Account number 02-00022011 through which the customer paid for the shares recorded mainly credit transactions of the customer during the IPO. The balance in the account on 19/5/2005 was N1,031,046,215 (credit) before the cheque of N1,000,800,000 for the share purchase was posted. The second account harboured the debit transaction of the customer. The debit transaction of the customer during the period of the IPO which totalled N1,086,197,382 including interest charge were post valued to August 2005, that was three months after the transaction date. That debit balance increased to N1,170,243,085.22 as at June 30, 2006.”

Based on the revelation arising from the investigation of the books of the bank, the CBN-NDIC investigating team recommended that the entire investment made in the bank be rejected as it was financed from facility from the bank.

The grouse of the CBN-NDIC investigating team had to do with the financing of the purchase of the Guardian Express Bank Initial Public Offer with the bank’s depositors’ fund illegally loaned to the directors.

There were other cases too. The investigating team was particularly enraged with the inappropriateness of the account cooking conduct of Citizens International which it (investigating team) submitted that: “Subsequent to its IPO, Citizens International Bank (CIB) debited its customers’ deposit accounts without their consent as consideration for fully paid up shares of the bank. Following the customers’ protest, the bank created a fictitious loan account in the name of Citizens International Stockbrokers Limited (CISL) in order to make refund to these aggrieved customers. The expectation was that as CISL sell their shares, the loan will be defrayed. It is the on-going investigation that has enabled us to establish a link between the CISL and the IPO exercise of legacy CIB.”

On the basis of this discovery, the investigating team recommended that: “The sum of N5,107,084,950 involved in deposit-equity conversion…should be removed from the share capital of Citizens International Bank.”

Other anomalies too many to be recounted here were discovered by the investigating team; the recommendations of the investigating team were for the purpose of streamlining the share capital of the legacy banks in Spring Bank and to be able to determine which of the directors and investors in the Spring Bank should have what percentage ownership of the consolidated bank.

However, according to FORTUNE&CLASS investigations, it is these contentious share holdings held by Maduka and Ezenna that BankPHB had bought; this, inclusive of the shareholdings in the bank by Ondo State Government.

Sources informed FORTUNE&CLASS that for yet to be ascertained reasons, the CBN encouraged BankPHB to acquire the questionable shares which, a lawyer that we crosschecked with, said that at the minimum, should be warehoused as directed by the CBN until all issues pertaining to the post-merger adjustments are settled.

“The target for BankPHB was to acquire 30 per cent of the total holdings of Spring Bank. I think with the collaboration of the CBN they got Maduka and Ezenna and one other legacy bank director to sell the warehoused shares. At a premium for that matter, I mean, they sold it above going market rate. I am informed that BankPHB bought a unit of these shares from these men at between N8 and N8.50K, and we are talking of about 4billion units here.

“You may need to question the rationale of Francis Atuche, who is the Managing Director of the Bank spending this much of depositors’ funds on shares that are still subject to various court decisions and have been expressly described as not being attributable to the share capital of Spring Bank.”

Another source informed that BankPHB might truly have been encouraged by CBN because as the apex regulatory body of banks, the CBN should have known the controversial status of the shares acquired by BankPHB.

Even more curious is the role of the Securities and Exchange Commission in the controversial acquisition.

“While it is agreed in the company’s law that once a corporate body had acquired 30 per cent holdings in a target company it can apply to the SEC to commence a take-over bid, yet it is the responsibility of the SEC to ensure the status of the shareholding before giving the go ahead for the take-over process,” a lawyer informed.

But it would seem for other reasons the SEC did not give consideration to this requirement, reports indicated that the representatives of SEC were available at the Extraordinary General Meeting which BankPHB called as the first step to commencing the acquisition of the Spring Bank.

“The issue here is about the law, justification and equity,” the lawyer, who is knowledgeable in the matter concerning the controversial acquisition of bubble shares of Spring Bank, said.

“In the first instance, a court of law had ruled that the Extra Ordinary General Meeting should not hold and all the parties involved were served, including the SEC. Beyond the pronouncement of the court, it is also a statutory requirement of the law that if a take-over company was to hold an Extra Ordinary General Meeting where the issue on the agenda will be the resolution to support the acquisition of a company, the shareholders of the company to be taken over must meet at the another venue but at the precise time the take-over company is meeting. The shareholders of the target company must vote to accept the take-over bid.”

As things stand, the court has been active in the matter of the controversial acquisition. Various orders had earlier been made forbidding the sale of shares by any directors or shareholders of Spring Bank. And to put bite to the orders, the court presided over by Justice Hamed Ramat Mohammed, last week, extended the interim order restraining Spring Bank from any planned merger or acquisition with any other bank.

Again, more curious in the apparent under the table manoeuvres of the acquisition of Spring Bank, was the sudden lifting of the full suspension placed on the trading of the shares of the bank. When a share is placed on full suspension it is not permitted to be traded on. But weeks ago, the management of the Nigerian Stock Exchange suddenly upgraded the full suspension to technical suspension. When a stock is placed on technical suspicion it can be traded on, that is, buy and sell orders can be effected on it but the price would not move either upward or downward.

Suddenly, the shares of Spring Bank turned the golden pearl of the Exchange as massive volume activities were recorded on it. Those that continued to follow the unfolding issues of the bank’s acquisition submitted that the volume activities on the bank’s shares should not be surprising because of the obvious intention of BankPHB.

The upgrading of the full suspension on the stock of Spring Bank to technical throws more questions on the role of the NSE in the acquisition of the bank.

But what should worry depositors of BankPHB is the possibility of the court ruling, in the final analysis, against the acquisition of Spring Bank essentially as a result of the doubtful status of the shares so acquired. When that happens, it means that about N40billion of BankPHB’s depositors’ fund would have simply vanished into the pockets of a number of highly positioned business personalities.