Merger & Acquisition: FBN Holdings Can’t Acquire Heritage, Polaris Bank

The management of FBN Holdings Plc has refuted reports linking the bank with purported moves to acquire Heritage and Polaris Banks, describing the reports as mere speculation in view of its size and what it called “historic support in backstopping the industry,” a certain online newspaper has reported.

According to the report, the lender’s Company Secretary, Seye Kosoko, said “recent events in the industry have thrown up merger and acquisition opportunities for banks.

“There will always be speculation on FirstBank’s involvement on account of its size, liquidity, systematic importance and historic support in backstopping the industry.”

Daily Independent had recently reported that financial advisers were putting finishing touches to a merger arrangement between First Bank of Nigeria, Heritage Bank and Polaris Bank.

But Kosoko said “Inorganic growth remains a strategic consideration for all financial institutions, but from FirstBank’s perspective, will only be considered when it is value accretive to shareholders and other key stakeholders.

“Similar to other Nigerian banks, FirstBank continues to scan sub, Saharan Africa, in general for potential acquisition.

“FBN Holdings Plc is mindful of its responsibilities as a Premium Board listed company and will make appropriate disclosures should it find such value.”

Interpreting Kosoko’s statement, an industry analyst who did not want to be mentioned said that the Secretary’s comment that “acquisition and merger will only be considered when it is value accretive to shareholders and other key stakeholders,” is highly instructive.

“That comment nails the speculation as well as disposition of the first generation bank to wit: if FBN Holdings has to acquire any bank at all, it may not be Polaris and Heritage Banks because acquiring both banks could be more toxic than valuable.”

According to the analyst, FBN Holdings itself had liquidity issues, and has been struggling to stabilize since after oil price plunge of 2014-2015 which left huge nonperforming loans of over N2.3trillion, wiped off shareholders funds and threatened the future of the bank.

He said: “Shareholder fund was wiped off, and in view of its systematic importance regulators granted some kind of forbearance enabling management to manage the liquidity crisis over three year period of loan provisioning.”

The analyst continues: “I am sure FBN has not fully come out of the adverse impact of the huge NPLs which is why it has not been able to pay substantial dividends to shareholders in the last three financial years – 2017 (25kobo), 2018 (26kobo) and 2019 (38kobo) per share.

“The little dividends were being paid from the contribution of the Group’s subsidiaries, not the bank itself because it is still grappling with the exposure, and hopes to conclude the provisioning by end of 2020.

“So, how can the bank dream of buying two banks of similar toxicity? If it goes ahead to acquire or merge with both banks, then the fate of defunct Skye Bank that transformed to Polaris Bank could as well befall them.

“In fact, it will be counterproductive for an FBN grappling with quantum NPLs to acquire or merge with Polaris and Heritage with toxic value,” the analyst concluded.

However, David Adonri, said the possibility of First Bank acquiring Polaris and Heritage Banks must not be ruled out because the Tier 1 bank is expected to conclude its heavy provisioning by end of this financial year when it would have completely cleaned up its balance sheet.

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As to the toxicity of Polaris and Heritage Banks, the Managing Director and Chief Executive Officer of Capital Equity Limited noted that the central bank which managed Polaris for sometime may have cleaned up some of the negative balance sheet and that the management of Heritage Bank could be undertaking similar process of cleaning up the balance sheet to reduce the toxicity.

Exclusive Reporters analysis of Polaris Bank’s financial statement for the period ended December 31, 2019 shows N3.47billion retained earnings as against retained losses of N26billion in 2018.

In other words, the bank is gradually trying to rebalance its negative balance sheet and zero working capital after the Central Bank intervention of September 2018.

Many Troubles of Heritage Bank

In an elaborate report mid 2019, Proshare Nigeria had analysed the many troubles of Heritage Bank, and concluded thus: “Heritage Bank’s weak liquidity, impaired shareholder funds and high loan impairment, needs action not tolerance. The time to act is now!”

In the widely circulated report, Proshare stated it had cause to commit resources to investigate and produce an hitherto unpublished “Confidential Report” on Heritage Banking Company Limited (HBL), at the instance of the advisory board members who wanted to know the true state of the bank which had another financial institution handling clearing operations for it at some time.

It went ahead to draw up a long list of issues militating against the bank including but not limited to its acquisition of former Enterprise Bank in November 2014.

Here are some of the issues which Proshare highlighted in the report: HBL’s non-performing loans (NPLs) portfolio, which are amongst the most challenged in the industry. Impairment charges in half year 2018 (H1 2018) was estimated at N37.5billion but by year end, we extrapolated that the figure should settle around N634.5m;

• The bank posted an operating loss before tax of N38.5billion in H1 2018 and a loss of N4.4billion in the unaudited figures for the month of December 2018;

• The bank’s leverage has been a major sore point for management. The banks debt to equity ratio was -0.17. The negative value reflected negative shareholders fund which could be impaired by as much as $1bn;

• Equity capital has been virtually wiped out by accumulated losses, a legacy issue;

• The bank’s regular recourse to the CBN’s short term borrowing window highlights persistent liquidity resolution issues;

• Corporate governance has been a challenge as a number of the bank’s directors have allegedly been involved in a series of poor performing insider loan transactions, and little known about such resolutions (if any);

• The bank’s 2018 unaudited financial figures shows a dire situation in several operational metrics; and

• The bank has not been engaged in direct cheque clearing for a while, HBL’s instruments have been cleared through a third party first tier bank which got a full CBN guarantee against clearing loses.

 

 

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