Investigation Reveals Where Bank Loans Went Bad

A Fortune&Class in-house panel of experts has, after a review of the bad loans accrued to the five banks currently under the Central Bank of Nigeria’s direct supervision, submitted that the Federal Government holds largest liability in repayment to the banks. The committee of experts nonetheless observed that the figures made public by the CBN also affirmed that the affected bank officials must have been heavily involved in unethical manipulation of the stock market even as the panel agreed that the banks, indeed, tried to play their economic role of financial intermediation by providing a big chunk of their facility for real sector activities.

The conclusions of the panel’s review may put the lies on the generalized opinion prevalent in the public place of the bulk of the five banks financing going into loans for stock market trading and the importation of petroleum products.

The panel reports that 51 per cent of the N747,000,000,000 alleged bad loan, approximated at N375,487,000,000 was given out by the banks to the real sector. The classification of the real sector, in the consideration of the panelists includes activities in construction, manufacturing, imports of raw materials for industries, farming and telecommunications.

Interestingly, the panel reports that a mere 22 per cent of the N747billion bad loan aggregated at N163billion can be attributed to the stock market while N218billion, about 27 per cent of the bad loan has been tracked to have been borrowed by players in the oil and gas sector.

The Case For Union Bank

Taken on individual profiling, Fortune&Class panelists submit that the sanctioning of Union Bank managing director should raise questions because of the five banks under the CBN’s thumb, Union Bank’s hope of recovering its bad loan is more assured because the bulk of the bad loans atissue are facilities given to entities in the real sector.

Of the total N73.582billion bad loan attributed to Union bank N66billion summed up to be loans to the real sector. The bank’s only stock market related bad loan is the N1,291,737,218 granted to GMT Securities.
In the same vein, the bank’s only outstanding to the oil gas sector is the N6,251,658,228 taken by Zenon Oil and Gas. Panelists argue that Zenon has a higher likelihood of paying up because of its track record in the oil and gas sector.

It is not, however, a shared optimism, as in the hope of recovery of the bad loan from a company like Femi Otedola’s owned Zenon when compared to the N28.5billion Oceanic Bank is expecting Rahmaniyya Global resources, a company in the petroleum products marketing sector, to repay it.
Rahmaniyya’s operations are reportedly hampered at the moment.

Crosscheck of operations at the Apapa depot of the company shows that not much activities are going on there. A senior staff of the company confides that operations have been hampered because of the company’s huge indebtedness to banks. The official took time to protest that the company’s situation became bad because an appreciable percentage of the loans secured at commercial banks were usually given out as kick backs to officials of the banks where the loans originated from.

Where Oceanic Bank May Lose Out

As a stand alone, Oceanic Bank’s loans are locked into the real sector, that is about N122billion of a total N278.2billion. The worrisome aspect of the bank’s bad loan portfolio, as it were, would be the N56billion exposure to the stock market. This figure aroused much concern because just six companies, as recorded, were found worthy enough to enjoy margin loan from the bank. The panelists reasoned that what the figures suggest is that officials of the bank merely decided to employ the services of this small number of stockbrokers to help it exploit the stock market.

The panelists also submit that the larger percentage of Oceanic Bank’s expected repayment from the bad loans tracked to the oil and gas sector of about N100billion hold no prospect of recovery in consideration of the track records of most of the entities that secured the loans.

Intercontinental Bank shares the same fate that may befall the recovery efforts of Oceanic Bank. With N34billion outstanding from just seven stock-broking houses most of which have continued to dispute the figures in the public domain.

Bad Loan Recovery Challenges For Intercontinental Bank

As in the case with Oceanic Bank, all of the brokerage houses involved have protested that the loan accounts were opened jointly with the banks. Some even complained that they never received any cheque book on the account that was in the joint names of the brokerage house and the bank.

In different letters of protest forwarded to the banks, some of these brokerage houses had hinted at being asked to engage in stock market manipulation by the bank. One of such protest letters written and forwarded to Intercontinental bank which Fortune&Class got a copy, reads:
“…Your bank also included clauses in the contract that gives you the sole right to decide which stock can be purchased and when such can be sold. The records presented to us even show that some of the shares purchased with the margin loan included the stock of your bank.”

The letter from the lawyer tells of more worrying aspects of the margin loan where it notes that:
“Our client mentioned the fact that they never solicited the loan but rather your bank approached them with the offer of the loan…even as their accounts were debited for the processing and management fees for the transaction before they had even had any opportunity to review or sign the offer letter.”
For our panelists, it is issues like these that may stunt efforts to recover the bad loans for Intercontinental Bank. This is besides the crisis of the Federal Government non-payment of petroleum products subsidy differentiation to oil marketers that secured a large part of the N79billion loan that was used in importing petroleum products into the country.

‘Afribank played big in the Stock Market…sure to lose big’

Not even the EFCC Chairman can yet fathom how the five companies that Afribank granted about N60billion to trade the stock market, would pay back their exposure in the current lacklustre stock market.

Whose interest was the bank management advancing by farming out the huge sum of N60billion to just five entities? Again, it is believed that the bank played big in the stock market to forward its interest. “That N60billion cannot be recovered in the short term,” one of our panelists said.

Finbank Liberal Lending Policy

Of the five embattled banks, Finbank Plc profiles a liberal lending culture. Though we can’t say for certain how the loans were collaterised, the fact of farming out its loan to a larger number of borrowing entities compared to other banks in the bad loan quagmire, suggests that recovery of debt may be easier Finbank.

The bank’s total non-performing loans as calculated by the CBN is approximated at N42.4billion. Of this, about N15billion was borrowed out to 83 operators in the real sector. This is just as the total sum of N11.1billion bad loan accruing from stock market activities, was granted to nine entities with the highest calculated to still owe about N3billion.

The same liberal lending policy shows in the figure of the loans repayment of N14billion from 17 entities in the oil and gas sector.

The Sector That Is Sure For Repayment

Our panel of experts are of the opinion that bad loans accrued in the real sector may easily be recovered because of the quality of collaterals that would have been provided before approval to draw down. This, however, excludes any insider related dealings.

Compared to loans to the real sector, recovery of bad debts accrued from stock trading activities may be considered hopeless in consideration of the state of the Nigerian stock market, the macro-economic environment and the harsh realities of the global economic meltdown. The collaterisation of loan assets in margin loan is linked to securities purchased, the lender is, however, supposed to dispose of with the securities in the open market when prices go below an agreed threshold. But it turned out that these banks didn’t effect the power of cashing the securities by selling off when the prices of the securities slid below the agreed threshold. Thus, the lenders are left with collaterised securities that are way below the worth of the loans.

Same is the extant downside of the oil and gas sector. With consistent sliding petroleum product prices and the unwillingness of the Federal Government the only buyer of petroleum products in Nigeria, to pay up the difference between the landing cost of petroleum products in the country and the price at which the marketers are mandated to sell to retailers, the expectation of bad loan recovery from the entities in these sector may be challenging.

Who Is Paying Up

The Economic and Financial Crimes Commission has said that it had so far recovered a sum of N25.5billion out of the N1.143 trillion of total non-performing loans of the five banks.

The break-down of recovered debt and the banks are as follows; Intercontinental bank N7, 736, 571, 744.19; Finbank.N1, 590, 417, 332.05, AfribankN7, 551, 121, 378.69, Oceanic bankN8, 033, 481, 868.65; Union bank N659, 240, 400.78.

Executive Directors Took N5bn Unsecured Loans Each

More troubling revelations have continued to emerge from the banking industry in the wake of the sack of five bank chiefs and members of their senior management cadre. Some top banking industry staff have started talking of the justification of the action of the Central Bank of Nigeria’s Governor, Sanusi Lamido Sanusi to sanction the affected bank chiefs and their senior management cadre because of their connivance to fleece the bank.

Specifically, the entire management board of one of the banks is said to being investigated by the CBN to ascertain how each Executive Director got approval of N5billion loan facility.

IBRU FAMILY RECRUITS SENATE LEADERSHIP, PRESIDENT’S WIFE TO SAVE CECILIA

The Ibru family reportedly threw all its influence and moneyed privileges into the battle to mitigate the public embarrassment of Mrs. Cecilia Ibru, sacked Managing Director of Oceanic Bank and wife of the patriarch of the Ibru’s clan, Olorogun Michael Ibru.

Details emerging in the wake of the sudden appearance of the erstwhile Managing Director of Oceanic Bank at the office of the Economic and Financial Crimes Commission (EFCC) last Wednesday, indicate that the wife of the Chairman of the Ibru organization was advised to beat a tactical retreat to allow the family deploy its massive goodwill in the nation’s political arena to stave off the prospect of an embarrassingly long detention for Mrs. Ibru by the EFCC.

Knowledgeable insiders to the horse trading that led to the eventual emergence of the woman fondly revered as the Nigeria’s first lady of banking, confided in Fortune&Class Weekly that the Ibru family pulled all the plugs through the Senate and the Presidency to get certain assurances from the EFCC before Mrs. Ibru was given the green light to submit herself at the EFCC.

“Seriously, we have only heard about the ingenuity of the Ibru family in making money, but I was a witness to another aspect of their lives these past days when I experienced their ability to move around and lobby office holders to intervene in the roiling crisis that had claimed one of their own, Mrs. Ibru. It’s not as if you saw any of the Ibrus physically, but there were many people lobbying on her behalf especially at the Senate,” the source said.

“You know, the second day after the Governor of the Central Bank of Nigeria, Sanusi Lamido (Sanusi) made those earth shaking pronouncements about sacking five bank chief executives, the President left the country in company with his wife, Turai. The next level of authority, in the real sense of it, at that time, was the Senate. And it was to the Senators that the Ibru lobbyists took their battle to get political pressure to be applied on the EFCC boss to provide lighter treatment and shortened detention for Mrs. Ibru. The fulcrum of the argument of the lobbyists is that the Central Bank of Nigeria was making a mountain out of a mole hill by its decisions to sack the bank managing directors and their arrest by the EFCC.

“The lobbyists pleaded with the leadership of the Senate to prevail on the Chairman of the EFCC, Mrs. Farida Waziri, to make a commitment to making Mrs. Ibru’s detention before taking her to the court as short as possible.

“Of course, they got sympathetic ears in the Senate. The Senate leadership made overtures to the Chairman of the EFCC who insisted that Mrs. Ibru must first surrender herself to the anti-grafts agency before she could determine the next step.

“Hajia Binta Turai, wife of President Umar Yar’Adua also played a peripheral role in the Ibru EFCC saga. Two of the first lady’s friends were drafted to talk to the EFCC Chairman to provide a soft landing for Mrs. Ibru, the source said.

Mrs. Ibru had, as part of her battle to stop her arrest and detention, dragged the Central Bank of Nigeria and its governor, Sanusi Lamido Sanusi before a Federal High Court in Abuja over her compulsory removal from office, demanding the sum of N50 billion for “exemplary, punitive and aggravated and general damages.”

The EFCC, however, declared Mrs. Ibru and Mr. Erastus Akingbola of Intercontinental Bank wanted on Sunday, 23 August, after failing to honour invitations for interrogation, sequel to their sack on August 14 along with three other bank MDs, Mr. Sebastine Adigwe of Afribank, Okey Nwosu of Finbank and Bartholomew Ebong of Union Bank.

A statement issued by EFCC Head of Media and Publicity, Femi Babafemi, explained that Ibru and Akingbola “are wanted in connection with fraudulent abuse of credit process, insider trading, capital market manipulation and money laundering running into billions of Naira.”

Investigation Reveals Where Bank Loans Went Bad
A Fortune&Class in-house panel of experts has, after a review of the bad loans accrued to the five banks currently under the Central Bank of Nigeria’s direct supervision, submitted that the Federal Government holds largest liability in repayment to the banks. The committee of experts nonetheless observed that the figures made public by the CBN also affirmed that the affected bank officials must have been heavily involved in unethical manipulation of the stock market even as the panel agreed that the banks, indeed, tried to play their economic role of financial intermediation by providing a big chunk of their facility for real sector activities. (read more)

World’s Richest List: Why Mike Adenuga, Jimoh Ibrahim didn’t make it

In a direct confirmation of Fortune&Class Weekly news report of last week, the Forbes magazine, the United States of America’s compiler of the annual list of the world’s richest, Mr. Femi Otedola, Chief Executive Officer of Zenon Oil and Gas and largest shareholder of African Petroleum joined Alhaji Aliko Dangote on the world’s richest […]

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2009 Forbes Profile of Billionaires: Femi Otedola joins Dangote on World’d Richest List

Femi Otedola(l), Aliko Dangote(r)

Nigeria may have the honour of having two of its citizens listed in the 2009 edition of the annual Forbes list of the world richest. Fortune&Class Weekly can report that Mr. Femi Otedola, Chairman of African Petroleum Plc and Zenon Oil and Gas would join Alhaji Aliko Dangote, the first Nigerian on the list […] Continue reading here.

CHEVRON CORPORATION BACKS OUT OF SALE OF CHEVRON NIGERIA TO DANTATA

When on 19 September, 2008 the media relations unit of Chevron Corporation USA circulated a press announcing that its subsidiary, Chevron Africa Holdings Limited had agree to sell Chevron Nigeria Holding to Corlay Global SA, the press release carried a caveat in compliance with the Cautionary Statement Relevant to Forward-Looking Information for the Purpose of “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995.

The cautionary statement informed readers that:

“Some of the items discussed in this press release are forward-looking statements about Chevron’s activities in Nigeria. Words such as “anticipates,” “expects,” “intends,” “plans,” “targets,” “projects,” “believes,” “seeks,” “estimates” and similar expressions are intended to identify such forward-looking statements. The statements are based upon management’s current expectations, estimates and projections; are not guarantees of future performance; and are subject to certain risks, uncertainties and other factors, some of which are beyond the company’s control and are difficult to predict. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Unless legally required, Chevron undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.”

The caveat may just be appropriate because in the wake of the announcement of the agreement of sale of the downstream operations of Chevron Nigeria to Sayyu Dantata’s MRS, the intensity of the legal battle which had dogged the process of bidding for the 60 percent holding of Chevron Corporation held through Chevron Africa, moved some more notches and in the light of this, it is believed that the Chevron is considering appropriate channels to announce a reversal of its announcement.

Femi Otedola, Zenon Oil and Gas and Africa Petroleum Chairman had secured an injunction at a Lagos Federal High Court restraining Chevron from selling the 60 percent holdings without recourse to his 19 percent minority holding which, he claimed, may be jeopardized if the contested 60 percent holding was sold to another bidder who may lack the required expertise and resources to profitably operate the business.

Despite the injunction, Chevron parent office in San Ramon in the United States of America had gone ahead to announce the agreement to sell to Dantata’s company in defiance of the court order. Industry insiders reasoned that the announcement might have been a pre-emptive move to undermine the legal process in Nigeria. But beyond this consideration, industry insiders have argued that Chevron must have been emboldened to make the announcement in consideration of the influence of the backer of Sayyu, a profiled wealthy industrialist whom Chevron believes could pull the right strings in Nigeria to side-step the court proceedings and to also get the backing of the political power base in the country to talk Otedola into surrendering his claims to Chevron.

As was expected, Otedola initiated, through his lawyers, contempt proceedings against Chevron at the Federal High Court but last week Wednesday, he dramatically applied to withdraw the contempt proceeding in the court. This had sent some confusing signals to a growing population of the bid for Chevron.

A source close to Otedola, however, informed that the withdrawal of the contempt charge was strategic.

“The contempt proceeding had to be withdrawn because it may turn out to be a distraction from the main issue of the case.” The source said.

Another source believes that application to stop the contempt proceeding in court may not be unconnected with new revelations that Chevron Corporation, the parent company of Chevron Nigeria may have, indeed, stalled the process of transfer of the 60 percent holding in Chevron Nigeria to Dantata’s MRS in part, because of the on-going legal tango, and in part, because the required sum of money to consummate the purchase have not been made to it.

“The fact is that most Nigerian banks that are supposed to finance the acquisition have backed out, so it’s as if it is difficult to raise the fund locally.”

Any one of the two reasons for the reported abortion of the sale agreement might have thrown the spanners into what the initiators of the MRS bid for Chevron had planned by way of making the Nigerian public pay indirectly for the funding of the 60 percent shares of Chevron Nigeria.

“The strategy to my mind is simple. If the banks financed the acquisition of Chevron, it would have been easy for Sayyu and his backer to pay back the banks simply by selling 25 percent of the holding of Chevron to Nigerian investors through the Nigerian Stock Exchange. This way, they will still hold majority holdings in the company and they would have used money raised from ordinary Nigerians to pay back the money the banks used to finance the initial acquisition.” The source reasoned.

Meanwhile, Chevron has also made public its intention to sell its downstream operations trading under the Caltex brand name in Kenya.   According to AP, the front runners eyeing Chevron’s elaborate retail network include State-owned National Oil Corporation of Kenya and Gulf Africa Petroleum Corporation (Gapco). The two control a paltry 3.65 per cent and 2.65 per cent retail market share respectively.

Speculation is also rife that the cash-rich Oil Libya is equally an interested party, perhaps seeking a foothold in the Mombasa-based Kenya Petroleum Refinery Limited (KPRL), which has been much sought after by big multinationals, and is partly owned by Caltex.

The law, as spelt out under the Kenya’s Energy Act, requires Chevron to notify the Energy Regulatory Commission (ERC) of its intention to divest or transfer the licence to another oil marketer.

Previously, only the Treasury was notified in the event of divestiture by any firm.

“If the sale of Chevron will be through competitive bidding, this process may take some time to be concluded,” said Mr Peter Nduru, Head of Petroleum at ERC.

Treasury is reportedly pushing for Chevron to sell off only its Kenyan business unit to National Oil, despite plans by the global petroleum giant to sell its Kenya and Uganda operations as one bundle.

The AP report, however, observed that unlike in Kenya, this sale transaction on Chevron Nigeria was closed quickly when Chevron Nigeria hurriedly announced the agreement to sell to MRS.