By Yinka Ogunnubi
Some people have asked me what happened to Diamond Bank and what led to the acquisition (aka merger) by Access Bank. I fully understand the sentiments behind the question. However, a look at the key figures of #DiamondBank will help explain what happened.
First, I can tell you for free that before 2014, #DiamondBank was doing quite well. Under Alex Otti who took over the bank in 2011 from Emeka Onwuka, it recorded a PAT of N22b in 2012, N32.5b in 2013 and N28.36B in 2014. Its total assets rose from N565b in 2011 to N1.5tr in 2013.
#DiamondBank began its downward trend in 2014 when Uzoma Dozie (the son of the founder) became the CEO. In the first full year of his leadership, profit went down from N28b to N5.6b in 2015 and then to N3.5b in 2016 before declaring a loss of N9 billion in 2017.
The bank since 2013 has not paid dividend and since 2017 has been eroding equity. With the decision to write off close to N180b of bad loans before it’s merger with Access Bank is concluded, the equity of #DiamondBank will be further eroded. Ponder on that for a second.
Concerning the NPL, there is no clarity yet. We will know in 2019. It’s however speculated that a lot of it is due to insider loans and exposure in the Oil & Gas sector. What is certain however is that these NPLs contributed to the loss position & erosion of equity.
In addition to fines from the NSE and CBN, #DiamondBank also had to deal with downgrades of ratings from Fitch and S&P because of liquidity concerns given its repayments on Eurobond of $200m maturing in May 2019, $100m from Afexim due in Mar 2019 and $70m from IFC due July 2019.
#DiamondBank fully expects to meet these obligations by selling off some of its foreign subsidiaries and assets. They might also get from help from Access bank. Whether this will be pre merger is to be seen.
What are the post merger take aways? Well for shareholders, you’re getting N3.13 per share for a share worth N0.87 at the time of offer. The biggest losers in this deal will be the Carlyle Group who bought over Actis shares in 2014 valued at $147m (N7.38 per share).
On current price, Carlyle Group could lose close to N12b. So if you are worried about the value of your #DiamondBank shares, spare a thought for major shareholders like Carlyle Group, Kunoch Holdings, and Diamond partners. The good news is that the value can be recovered in Access.
Finally on the issue of jobs and on whether some staff in #DiamondBank will be sacked. It is good to hear the commitment from Access bank that staff will not be sacked. But frankly, that is not the correct question to be asked. The correct questions to be asked should be.
Of the 650 branches of #DiamondBank how many will be retained by Access Bank? This question is very relevant because it is in branches that you retain staff. We know what happened to intercontinental bank and how access bank suddenly became a real estate player selling off assets.
Many intercontinental bank staff lost their jobs. Secondly, what is the nature of integration that will take place and at what level? Frankly, it will be naive to believe that this merger will not result in job losses. Maybe then the question to ask is “how many?
In conclusion, this is a good deal for both parties. Access bank which has always pursued inorganic growth will enhance their BS from this with an additional $200m tier two capital to shore up its CAR. #diamondbank shareholders too get to cut their losses and hope for better ROI.
As for the staff, the vast majority will be fine. For customers, it is better value for money as they get to enjoy the best of both worlds. For Uzoma, he’ll be very fine trust me. For CBN, the last thing they need is another Skyebank in their hands. So they’re cool.
Yinka Ogunnubia is a Lagos based finance professional with extensive experience in corporate treasury and finance spanning 15 years. This article was culled from his twitter wall.
You can follow via twitter @yinkanubi