The relative stability and confidence in the banking sector was jolted last week following a purported ruling by a Federal High Court sitting in Lagos restraining the three bridge banks from managing nationalised banks’ assets.

By way of background, the bridge banks are Mainstreet Bank, Enterprise Bank and Keystone Bank. They took over the assets and liabilities of Afribank, Spring Bank and Bank PHB respectively.

The ruling, which was unexpected sent jitters into the spines of the industry regulators, including the Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Corporation (NDIC), the affected banks, and worst hit was the Asset Management Corporation of Nigeria (AMCON), the current manager of the affected banks.

Spontaneously, this ignited strategic and marathon meetings among the concerned on the way forward. Until Thursday's clarifications by the same Justice Charles Archibong of the Federal High Court, it was confusion all the way.

Journey to the ‘Bridge’

The journey to the ‘Bridge Bank mechanism’ by the industry regulators actually started in August 2009. Concerned about the poor level of corporate governance, unguided credit boom and the unfortunate deterioration in asset, loan quality of insured institutions, the CBN/NDIC conducted a special examination of the 24 banks which revealed that ten banks were in grave financial condition.

This led to the removal of chief executive officers and executive management teams of eight banks and their replacement. The apex bank went ahead and injected N620 billion into the affected banks as tier 2 capital and declared that no bank would be allowed to fail.

Owners of Wema Bank and Unity Bank were able to adequately re-capitalise their banks while Union Bank is being recapitalised by its shareholders and consortium of international investors.

Four of the intervened banks, namely Oceanic Bank, Intercontinental Bank, Finbank and Equitorial Trust Bank have all found willing merger partners/acquirers. Access Bank successfully completed the acquisition of Intercontinental Bank effective October 14, 2011. Ecobank Transnational Incorporated (ETI) acquired Oceanic Bank, FCMB acquired Finbank while Equitorial Trust Bank was also acquired by Sterling Bank.

According to the regulators, while it became apparent that the remaining three, Spring Bank, Bank PHB and Afribank were not making efforts that might likely yield any meaningful results by the end of September 2011 deadline, they had to further intervene in the affairs of the banks.

Consequently, the CBN revoked the licences of the three banks on August 5, 2011. The NDIC after due consultation with the apex bank and Federal Ministry of Finance established three bridge banks for the subsequent transfer of assets and liabilities of the affected banks.

On the same day, the three banks were acquired by AMCON which injected N678.8 billion into the bank and subsequently appointed new managers.

Shareholders’ grouse

The implication of the bridge bank arrangement is that the assets of the shareholders in the affected bank had been eroded. This attracted litigations from several shareholding groupings. In the lead are the Progressive Shareholders Association of Nigeria (PSAN), Nigerian Shareholders Solidarity Association (NSSA) and Proactive Shareholders Association of Nigeria (PSAN).

The shareholders among whom are Boniface Okezie, Adeyemi Kehinde, Adebowale Bolanle and Cole Alexander in the motion ex-parte sought for an order to restrain the three new banks, the CBN, the NDIC and AMCON from further dealing with the assets, businesses and operations of the nationalised banks.

The aggrieved shareholders of the affected banks had gone to court to challenge the nationalisation of the three banks, saying that the actions violated their rights to freedom from compulsory acquisition of property guaranteed under the constitution and the prohibition of nationalisation of enterprises contained at Section 25 of Nigeria Investment Promotion Commission Act.

Joined as respondents in the suit are the three nationalised banks, the CBN, NDIC, AMCON, the Securities and Exchange Commission (SEC), the Nigerian Stock Exchange (NSE), the three banks and the Minister of Finance.

In the suit, the shareholders argued that the revocation of the licences of the banks by the CBN Governor, Sanusi Lamido Sanusi, was prejudicial to their rights to invest in public quoted companies in accordance with the Nigeria Investment Promotion Commission (NIPC) Act and the Investment and Security Act (ISA).

Part of the reliefs sought by the shareholders include a declaration that the action of the CBN, NDIC and the AMCON in purporting to transfer the assets, businesses and operations of the nationalised banks to the new banks is a breach of their fundamental human rights to freedom from compulsory acquisition of property as guaranteed by the constitution.

They are also seeking for an order of the court for the respondents to jointly and severally pay them punitive damages to be determined by the court through their lawyer for the diminution in the value of their shares of the nationalised banks as a result of the unlawful and malicious conduct of the CBN governor.

The shareholders are equally seeking an order of perpetual injunction restraining the three new banks, the NDIC and the AMCON from offering for sale or advertising or representing to any person, any intention or offer for sale or transferring or purporting to transfer to any person any interest in the assets, businesses and operations of the three nationalised banks.

Comments on the ruling

Justice Charles Archibong of the Federal High Court in Lagos on Thursday clarified that the order granted on Monday was made specifically to freeze dealings in the equity of the affected banks in relation to the relief in the main application of the applicants for the enforcement of their fundamental rights in the suit.

The judge added that the order was not intended to freeze the day-to-day business or banking operations of the affected banks.

He submitted that the order was equally not intended to interfere with the current management of the banks in any way, other than to freeze dealings with the equity of the targeted banks.

Counsel to the plaintiffs,  Chuks Nwachukwu, said the order of the court should not be misconstrued to mean a disruption of the banks’ activities.

“We do not need to distress people unnecessarily. The banks have not been closed down, money is not lost. The court has only said respect the fact that this matter is before the court. Don’t misrepresent to anybody that you have taken over these banks because what you have done can be undone by the court. Don’t  give a note of finality to it.”

Head, Corporate Communications, CBN, Mr Mohammed Abdullahi, and the Head, Corporate Communications, NDIC, Mr H. S. Birchi, in a joint press statement, explained: “The CBN and the NDIC state categorically and with all sense of responsibility that we are not aware of any such order as no such order has been served on either the CBN or the NDIC.

“We thus urge all customers of the said banks as well as the general public to continue transacting their business with the banks as hitherto done and hereby issue our assurances once again that all depositors’ funds in these institutions are safe and banking operations will continue as normal. These banks are fully insured by the NDIC and all depositors are assured of the safety of their funds.”

Managing Director and Chief Executive Officer, Financial Derivatives Company Limited (FDC), Mr Bismarck Rewane, described the directive by the court as “a reckless ruling.”

Rewane explained: “It is one of those things I call reckless ruling. What we are talking about here is the system. These banks had negative capital and AMCON came in to fill the hole. The ruling is systematically dangerous and the judiciary must try to align its interest with the economy. It is an ineffective order and nobody is going to obey it.”

Managing Director and Chief Executive Officer, Cowry Asset Management Limited, Mr Johnson Chukwu, said the ruling was doubtful, arguing that it would not be implemented.

“Does the court want the three banks to go under? That judgment may be difficult to implement because it is like trying to resurrect the dead. If the shareholders have any claim, which I doubt because these are new banks, they should seek for compensation,” he advised.

A university teacher, Dr. Osaro Obobaifoh, said it was high time the regulators dialogued with the minority shareholders, stating that they are too important to be ignored.

“I have always been of the opinion that CBN should dialogue with the shareholders. They cannot be ignored. The future of depositors in the three banks is the key issue here,” he said.

The three affected banks in similar statements assured their customers that banking operations would go on as usual, urging members of the public to disregard any statement or statements that the banks have been restrained from carrying on business.

“The bank strongly believes the statement that an order was made is false and a mischievous attempt to tarnish the image of Honourable Archibong J, embarrass the judiciary, bring the administration of justice to disrepute, injure the depositors of the bank and bring the orderly operations of a new bank to a halt. The bank is certain that no order was made ex parte requiring the bank to shut its doors to millions of our depositors and customers.”

Conclusion

The consensus opinion is that it is high time all various interest groups closed ranks and allow peace to reign in the industry. A further crisis will spell doom for the affected banks and the industry in general.