The Rape of Union Bank Plc

By the time Sanusi Lamido Sanusi was appointed Governor of the Central Bank of Nigeria in August 2009, Union Bank of Nigeria Plc was a very financially sound institution. Its only problem had to do with in-fighting in the executive management team over the succession of the MD/CEO, Bartholomew Ebong whose tenure had been extended by the CBN. The only other problem the bank faced was business development; how to grow its business by re-engineering its processes and operational systems. In order to achieve that, the bank had retained the management company, Accenture, which embarked on a comprehensive review of the bank’s processes.

But the CBN thought differently. In its statement announcing the sacking of the Executive Management, it alleged that “Union Bank of Nigeria Plc is in dire need of capital. The issued and paid up capital of the Union Bank of Nigeria Plc has been lost, Union Bank of Nigeria Plc has insufficient capital to cover its liabilities. It has therefore become imperative to take urgent action in order to arrest the deteriorating state of Union Bank of Nigeria Plc, save the bank from failure, and pave the way for the repositioning of the bank for its stability and growth.”
However, exhaustive investigations carried out by BH revealed that the CBN’s position was not correct to say the least and was based on a patently false evaluation of the bank’s financials. A former Director of the bank told BH that the apex bank (CBN) merely read the bank’s financials in manner that would enable it arrive at a predetermined position, that is, “Union Bank of Nigeria Plc was financially distressed, so as to take it over.” Even the rescue team headed by Funke Osibodu which was sent to reposition the bank was surprised on arrival to discover that the situation was not as dire as the CBN had announced to the public. A member of the bank’s staff union put it rather sarcastically, “When Funke and co arrived, instead of an empty treasury, they found a honey pot,” and alleged, “they have been licking it ever since!”
There were three clear items in which CBN’s analysis were faulty:
(1) The bank had re-evaluated the assets of some of its prime real estate holdings. It is common knowledge within the banking industry that Union Bank of Nigeria Plc has some of the most valuable real estate holdings in the country. The only other bank that can compete with it is First Bank of Nigeria Plc. Unlike some of the new generation banks, which tend to lease many of its office buildings, Union Bank actually owns its buildings. The exercise produced an asset re-evaluation of N25 billion discounted at the BN rate of 45 per cent. The bank applied to the CBN for approval to incorporate this figure into its financial statement for the period ended 31st March, 2009. The request was delayed and finally on Thursday, August 1, 2009, it was declined. The CBN asked the bank to appeal its decision. BH can now confirm that the denial by the CBN was part of the grand scheme to undervalue the bank as grounds for its seizure. Subsequently, the CBN quietly approved the request which the Osibodu team incorporated in its March 2009 accounts.
(2) Union Bank of Nigeria Plc had extended a facility of N30 billion to Transcorp Nigeria Plc to finance its acquisition of NITEL Plc. When the Federal Government reversed the sale of NITEL Plc to Transcorp, BPE informed Union Bank that the Federal Government would issue bonds to the banks as repayment for the loans. When the joint CBN and NDIC team visited Union Bank on the stress test, they were shown the letter. But the CBN pointedly ignored it and treated the credit as a non-performing facility. That worsened the bank’s loan – loss situation. Interestingly that facility has now been paid in full.
(3) Union Bank of Nigeria Plc had exited the Discount Window in May and was not exposed to the CBN on that transaction at all. BH’s findings reveal that it resorted to the window in the first instance, not because of any systemic liquidity problems, but as an investment vehicle. The window offered attractive yields because of the low cost of funds. The treasury department of the bank traded with the funds it sourced from the window at very attractive margins. But the CBN claimed that by resorting to the window, the bank indicated its fragile liquidity problems. It is noteworthy that at the time of the CBN intervention, Union Bank’s net exposure to the inter bank market was just about N50 billion. When CBN intervened, it injected N120 billion. Sources within the bank told BH that “we had no need for the inflow at all.” To prove that, the bank merely invested the bulk of it in treasury bills. It was already liquid enough to meet its operational needs. The truth really, was that Union Bank of Nigeria Plc was actually awash in cash. The new management team was reportedly pleasantly surprised to make that discovery. “So they settled down to dealing with the money!” a source in the bank alleged.
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