Streamlining mergers, acquisitions - The case of Merchant Bank Ghana
What is the way forward for Merchant Bank?
As with many banks around the world—from America to England and Mainland Europe and Africa’s Nigeria—the story has been the same- Bailout! Bailout!!!
Around the world, many banks with severe NPL problems eating them off at distressing rates normally receive some form of bailout or other forms of capital injection to survive. In Europe and North America, the solution has been bailout funds. In the US, for the example, the Treasury Department has pumped over $200 billion into hundreds of banks through its Capital Purchase Programme in an effort to prop up capital and support new lending. The top beneficiaries included Citigroup Inc. $25 million; Bank of America Corp. $15 million; JPMorgan Chase & Co. $25 million.
In the UK, reports from the National Audit Office shows a mighty £1.162 trillion financial support given by the government to the Banks since 2009 with Royal Bank of Scotland and Lloyds Banking Group receiving about £464.57 billion. In mainland Europe, the Spanish Government received well over €100 billion from the ECB to bail out its local banks.
As noted above, in Nigeria eight of the large banks that were carrying a considerable number of toxic assets were rescued when the Central Bank took over the toxic assets and cleaned up their Balance Sheets with about USD2.6 billion through a Special Purpose Vehicle- Asset Management Corporation of Nigeria (AMCON). The $2.6 billion purchase of bad debt to rescue the Nigerian banks also led to the incarceration of most of the chief executives involved. After cleaning up the books, the banks in Nigeria were offered for sale so that the banks could be properly re-capitalised. Five out of the eight have been sold and the three remain nationalised. Banks like Intercontinental Bank for example was taken over by Access Bank and today, Union Bank has been acquired (65%) by Stanchart.
In Ghana's case, struggling banks like Merchant Bank still carry these assets in their books with a very superficial reprieve in the form of ring fencing. Obviously, our Central Bank is not in for bailouts this time round.
Is the Government of Ghana willing to give Merchant Bank a bailout of about GH¢200 million?
This is less likely at this hour. For this reason, banks in Merchant Bank’s situation will have to look elsewhere for the knight in shining armour. Therefore, under the FirstRand Transaction, it appears it is the existing shareholders and not Bank of Ghana who will be providing the "housing" and pursuing the recovery exercise.
There are lots of parallels with what is happening in Nigeria and what is currently happening Ghana with the Merchant Bank case. The difference, however, is that the Nigeria exercise was conducted peaceably with no media obsession in running down any bank. Thus the financial system in Nigeria remains sound because of the system’s ability to carry out these transactions in a much more professional manner.
Lamentably, in Ghana, we continue to do ourselves in: with some sections of the media misinforming the public and some politicians also feeding off a pure business exercise for a somewhat fleeting political gain. These actors choose to be completely blind to the damage being visited on the bank with this negative publicity. The damage extends to the financial system and the country’s ability to attract investors. Let us not forget the future of Ghanaian workers is also at stake and so also is the interest of shareholders whose investment continue to diminish.
Things are looking up for the bank as there is hope with this FirstRand deal. The FirstRand deal is above all expected to free the bank of the NPLs and expand Merchant Bank’s balance sheet to go in for big ticket transactions. This deal involves a transfer of technology, world-class processes and procedures and enhanced products and services for customers. It also offers the staff an enhanced opportunity for development.
The scary thing though is the negative spin and factual errors which are being bundled around in the media and in the political amphitheatre, generating more problems for the already ailing bank. Merchant Bank has a strong heritage with many interest groups with diverging agenda. With the announcement of the deal, many have also awoken to capitalise on the situation either by spoiling the party for their momentary straight-laced interests. Let us be reminded that capital hates noise and noise often leads to capital flight.
It is so embarrassing that a perfectly legitimate process has attracted so much negative press in our country. A strategic partner putting much needed capital into Merchant Bank is not different from what has happened around the globe with banks since the global financial crisis of 2009. Many who understand banking would cheerfully applaud the steps taken by the shareholders, board and management of Merchant Bank—especially being able to attract a suitor of the stature of FirstRand into our country.
Therefore, the elimination of momentary political gains from the analysis is a far-sighted approach which can restore confidence in the nation’s ability to handle transactions of this nature. One can only be hopeful that the regulators–the BOG and the South African Reserve Bank—in their good wisdom will approve the transaction.
Story: David Asante