After four years of on-off
merger negotiations, First Bank of Nigeria is back in talks with
Ecobank Transnational, the pan-African banking group headquartered
in the West African state of Togo. If a deal is finally
consummated, it would create one of sub-Saharan Africa’s biggest
lenders, reports Douglas
Blakey.

Four years after Nigeria’s largest bank by
market cap, First Bank, and Togo-headquartered pan-African lender
Ecobank first discussed getting together, merger talks have again
been revived, heralding a possible fresh wave of consolidation
within Nigeria’s banking sector.

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Both banks remain tight-lipped on any deal,
stressing that at the moment, only talks have taken place.

“Both institutions continue to talk. We have
been talking for the past four years but there is no decision yet,”
Ecobank spokesman Richard Uku told RBI.

Previous attempts to agree terms of a deal
foundered because shareholders were unable to agree on a valuation.
Ecobank’s triple listing in Nigeria, Ivory Coast and Ghana (though
not in Togo), and the resultant regulatory hurdles which would have
to be cleared, mean that any merger agreement this time around will
be far from straightforward.

Founded only 24 years ago, Ecobank has grown
very rapidly. It now has a branch network of over 600 branches
across 26 countries, with staff numbers topping 10,000. First Bank
has a network of more than 400 branches in Nigeria, Africa’s most
populous nation.

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First Bank has for many years been among
Nigeria’s most profitable banks but it has been hit by increased
competition from rivals, in particular Zenith and Guaranty Trust,
and a souring Nigerian economy. In the past year, its share price
has fallen by 60 percent while its dividend yield at 6 percent is
among the lowest in the sector and half the sector average.

Performance

First Bank of Nigeria – key
indicators, 2008
 

FY08

FY07

Y-o-y % change

Net interest income (NGNbn)

73.97

39.63

87

Commission and other income (NGNbn)

34.34

26.43

30

Profit before tax (NGNbn)

38.02

22.1

72

Profit after tax (NGNbn)

30.47

18.35

66

Loans and advances (NGNbn)

437.7

219.2

100

Deposits and current accounts (NGNbn)

661.6

581.8

14

Total assets (NGNtrn)

1.16

0.76

53

Source: First Bank

Ambitions to grow in Nigeria

As recently as last December, Ecobank demonstrated its
pan-African ambitions by forming an alliance with South Africa’s
Nedbank to co-operate across 30 African countries (see RBI
604). But it has, more specifically, made no secret of its
ambitions to grow its Nigerian presence.

In its 2008 report, the bank’s chairman, Mande
Sidibe, wrote: “In Nigeria, we continued our strategy to build
scale by acquiring one additional failed bank during the year. We
have significantly improved our market position and our performance
in this important market.

“We remain open to opportunities for combining
with other banks.”

For 2007, the most recent year for which
full-year results are available, Ecobank reported its best set of
results in the country, with profit before tax growing 98 percent
to $79.9 million, while assets grew 183 percent to $2.8
billion.

In an attempt to fund further rapid expansion
across Africa, Ecobank launched an innovative rights issue in late
2008, which it described as the biggest cross-border share issue on
the continent. It announced at the end of February it had raised
$551 million, far short of an initial target of $2.5 billion.

Despite the capital shortfall, Uku hailed the
exercise – shares were offered in Nigeria, Ghana and the Ivory
Coast – as a success and bristles at the suggestion the outcome was
a disappointment.

“We saw the result as a success,” he insisted.
“We went from a position of having 7,733 shareholders before the
offer to more than 140,000 shareholders. We saw this as a cup
half-full story and not half-empty.”

In addition, the bank also raised $150 million
during the year in long-term loans from leading international
development finance agencies. “The offer coincided with much
turmoil in global financial markets as well as the general decline
in the Nigerian stock market,” he added.


Performance

Ecobank – fundamentals, 9M08 vs
9M07
 

9M08(1)

9M07(1)

% change

Net interest income ($m)

276.7

196.8

41

Net fee and commission income ($m)

204.2

129.9

57

Gross revenue ($m)

824.5

473.8

74

Profit before tax ($m)

160.2

118.9

35

Net profit ($m)

103.9

78.6

32

Loans to customers ($bn)

3.90

2.64

48

Deposits from customers ($bn)

4.83

3.58

35

Total assets ($bn)

7.74

4.96

56

(1) to September Source: Ecobank

A need for further consolidation

A possible deal with Ecobank comes at a time of possible banking
consolidation in Nigeria. An initial consolidation programme
launched five years ago cut the number of financial institutions to
25 firms from 89 but a second wave of deals is now anticipated,
fuelled by the ongoing global banking crisis.

Since 2004, the only banking merger of note in
the country has been South African-based Standard’s purchase of
Nigeria’s IBTC Chartered in August 2007, subsequently merged with
Standard’s Stanbic Bank subsidiary to form Stanbic IBTC.

While African banks have generally avoided the
worst of the economic downturn, having steered clear of the toxic
subprime mortgage assets which floored their Western peers,
analysts have expressed concern that a number of Nigerian banks
face a potential liquidity crisis as a result of exposure to the
capital markets.

Sharp falls in commodity prices and, in
particular, the collapse in world oil prices will also result in
little or no Nigerian economic growth in 2009, further increasing
the likelihood of merger activity.

Since the turn of the year, Nigerian banking
sector share prices have tumbled – the country’s leading banking
shares have lost around 37 percent on average. This has had a
dramatic effect on the overall economy with banking sector shares
accounting for 65 percent of the country’s stock exchange market
cap.

But despite the gloom, positive news has
emerged from the banking community.

In particular, Nigerian banks have recognised
the need to reassure international investors of their financial
health via greater disclosure. In early March, the Nigerian
Bankers’ Committee ruled that all banks from 2009 onwards would
report to a December year-end, a ruling regulators had
unsuccessfully attempted to introduce last year.


Distribution

Nigeria – banks, ranked by branch
numbers

United Bank for Nigeria

613

First Bank of Nigeria

410

Union Bank of Nigeria

405

Afribank

305

Intercontinental

300

Zenith Bank

276

Skye Bank

255

First Inland Bank

220

Unity Bank

216

Platinum-Habib Bank

207

Spring Bank

183

Guaranty Trust Bank

138

Diamond Bank

132

Access Bank

120

Fidelity

108

Oceanic

81

Stanbic IBTC

65

Ecobank

30

Source: Banks, RBI

“The cusp of real retail expansion”

Optimism from many of the country’s senior bankers about the
sector’s prospects also remains high, with Stanbic IBTC’s CEO,
Chris Newson, telling RBI in March (see interview, RBI
609): “All the indications are that Nigeria is on the cusp of
real retail expansion.”

IFRS accounting standards are also likely to
be imposed within the next year to two, with First Bank, Access and
Guaranty Trust Bank ready to report to IFRS regulations ahead of
any official change in accounting policy.

RBI
DealWatch

RBI DealWatch tracks
global financial services mergers and acquisitions, privatisations
and demutualisations, flotations, divestments, share stakes,
strategic alliances and joint ventures

Country

Participants

Type/value

Description

Date

Europe, Middle East,
Africa

Belgium

BNP Paribas, Fortis

Sale update

BNP Paribas will walk away from its attempt
to buy the assets of Fortis if shareholders of the Dutch-Belgian
group vote down the latest revised deal this month, BNP’s chief
executive said. “If it’s ‘no’, the game will be over for us. On
this point, I am ready to bet a box of chocolates, Belgian of
course,” Baudoin Prot, CEO of the French bank, was quoted as saying
by Belgium’s Le Soir newspaper. Shareholders are set to vote on the
deal at meetings on 28 and 29 April.

13 April

Global

Barclays

Possible sale of Barclays Global Investors
unit

According to UK press reports, Barclays is
prepared to sell its entire asset management arm, Barclays Global
Investors (BGI). On 8 April, Barclays said it had agreed to sell
its iShares asset management business to private equity firm CVC
Capital Partners for £3 billion ($4.4 billion), but retained the
right to seek a better deal for the entire unit for two months.

9 April

Global

ING

Strategy update

Loss-making and part-nationalised Dutch
bancassurancer ING is to sell operations worth up to €8 billion
($10.6 billion) to reduce risk and focus its business on Europe
(see page 2).

9 April

Germany

Hypo Real Estate

Possible nationalisation

The German government has offered to buy Hypo
Real Estate for around €290 million, having already provided €102
billion of credit lines and debt guarantees to bail out the ailing
mortgage bank. The German government insists it wants 100 percent
control of the lender, which lost €5.5 billion in 2008, so that it
can restructure it without obstacles and with lower funding costs.
Last month it agreed to take an initial 8.7 percent stake through
subscribing to new shares. Soffin, the government’s bank bailout
agency, said the offer “provides an opportunity for HRE
shareholders to sell their investment at an attractive price”.
US-based private equity investor Christopher Flowers headed a
consortium of investors that paid €1.1 billion for a 25 percent
stake in Hypo in 2008.

9 April

UK

HSBC

Capital raising

Europe’s largest banking group, HSBC, has
successfully completed its rights issue, raising £12.5 billion net
of expenses. The deal boosts its balance sheet following $10
billion losses at its struggling US retail unit, HSBC Finance, last
year (see cover story, RBI 608).

1 April

UK

Nationwide Building Society, Dunfermline
Building Society

Rescue acquisition

The UK’s largest building society,
Nationwide, has taken over failed Scotland-based mutual Dunfermline
Building Society, in return for a £1.6 billion payment from the UK
government. In terms of the deal, Nationwide has acquired
Dunfermline’s £2.35 billion retail deposits, its £1 billion prime
mortgage lending book, as well as its head office, 34 branches and
wholesale deposits. Dunfermline now joins other regional brands
operating in Nationwide’s expanding group, namely Cheshire Building
Society and Derbyshire Building Society, which were acquired last
year as rising bad debts crippled many players in the UK mutual
sector.

30 March

Country

Participants

Type/value

Description

Date

Bahrain

Al Baraka Banking Group

Strategy update

Bahrain-based Al Baraka Banking Group’s
chairman, Saleh Kamel, is reported to be finalising plans to launch
a $10 billion Islamic bank later this year.

6 April

France

La Compagnie Financiere Edmond De Rothschild,
Bank of China

Aborted sale

Bank of China has abandoned a planned €236
million ($313 million) investment in La Compagnie Financiere Edmond
De Rothschild, a local private bank, after failing to gain Chinese
government approval. China’s authorities have tightened scrutiny of
overseas investments by the nation’s banks following huge losses on
stakes in banks including Barclays and Morgan Stanley.

1 April

Denmark

Danske Bank

Strategy update

Danske Bank has said it intends to avoid the
Danish government taking a stake in the group and will instead seek
fresh capital from its shareholders as opposed to converting to
common equity a possible DKK26 billion ($4.6 billion) loan from the
state.

1 April

UK

Lloyds Banking Group

Possible sale of insurance business unit

According to a report from Reuters, Lloyds
Banking Group, the UK’s largest retail bank with over 3,400
branches, is to review its UK insurance operations. Lloyds’
insurance interests include life insurer Scottish Widows, which it
bought in 2000 for £7 billion ($10.4 billion) as well as insurance
units picked up when it acquired bankrupt UK rival HBOS at the end
of last year.

1 April

Switzerland

Credit Suisse

Possible share issue

Credit Suisse has said it will ask
shareholders at its annual general meeting on 24 April for approval
to issue up to 100 million shares of authorised capital, or 10
percent of its capital, “for the purpose of financing the
acquisition of companies,” equivalent to more than $3 billion at
current market prices.

24 March

The Americas

US

Revolution Money

Capital raising

Revolution Money, a US online
interchange-free payments platform launched in 2007, has raised $42
million in funding from investors including a Goldman Sachs
affiliate and existing investors Citi and Morgan Stanley (see page
20).

6 April

US

Banorte, Inter National Bank

Acquisition of outstanding stake

Banorte, Mexico’s fifth-largest bank, has
snapped up the 30 percent stake in Texas-based Inter National Bank
it did not already own for $147 million.

1 April

US

Fifth Third, Advent International Corp

Sale of payment processing unit majority
stake

Private equity firm Advent International is
to acquire a 51 percent stake in the processing arm of Fifth Third,
in a deal which values the unit at around $2.35 billion. Fifth
Third will retain the remaining 49 percent interest in the new
company, Fifth Third Processing Solutions.

30 March

US

SunTrust, Omni National Bank

Acquisition of assets

Georgia-based Omni National Bank has been
placed in receivership under the Federal Deposit Insurance
Corporation, with SunTrust Bank of Atlanta acquiring Omni’s
deposits and six former branches. Omni had $956 million in assets
and $796.8 million in deposits as of 9 March, according to the
FDIC. 23 banks have now failed so far in the US in 2009, reports
the FDIC.

27 March

Asia-Pacific

Japan

Citi

Possible divestitures

In addition to the proposed sale of its
Japanese retail brokerage Nikko Cordial, on the block since
February, Citi has been linked with the possible divestment of its
Japanese investment banking and asset management units. According
to analysts, the three units combined may fetch up to $8 billion,
little more than half the $14.9 billion Citi spent to acquire its
Japanese franchise. Citi had previously indicated its Nikko
Citigroup investment banking unit was a core asset it intended to
retain.

13 April

Pakistan

Royal Bank of Scotland

Sale of business units update

Royal Bank of Scotland’s Pakistan operations,
bought as part of its disastrous acquisition of parts of ABN AMRO,
have attracted the attention of local players MCB Bank and Habib
Bank, according to local reports. RBS is pressing ahead with plans
to scale back business in 36 countries (see DealWatch, RBI 608).
According to analysts, RBS could expect to obtain at least $266
million for the sale of its Pakistani unit.

3 April

Japan

MUFG, Morgan Stanley

Merger of brokerage units

Japan’s largest financial group, Mitsubishi
UFJ (MUFG), and US investment bank Morgan Stanley have announced
plans to merge their Japanese brokerage units, with MUFG set to
take a 60 percent stake in the yet-to-be-named joint venture, to be
formed by March 2010. MUFG acquired a $9 billion stake in Morgan
Stanley in October 2008 and has said the two firms remain in talks
about global alliances in other areas.

26 March

Taiwan

Bank of East Asia, AIG

Acquisition of securities unit

Hong Kong-based Bank of East Asia is to buy
the Taiwan-based securities arm of AIG, the latest instalment in
the fire sale of the failed US insurer, in a deal worth around $10
million to $20 million.

25 March

China

Industrial and Commercial Bank of China,
Goldman Sachs

Lock-up extension

Goldman Sachs is to retain the majority of
its stake in the world’s biggest bank by market capitalisation,
Industrial and Commercial Bank of China (ICBC – see China country
survey pages 18 & 19) for at least another year. Goldman, which
has a stake of 4.9 percent in ICBC, currently worth around $9
billion, said it would sell no more than 20 percent of that stake
before April 2010, extending an existing lock-up agreement that was
due to run until October this year and April next year. In
addition, ICBC and Goldman Sachs reaffirmed they will continue
their collaborative efforts under the existing terms of the January
2006 Strategic Cooperation Agreement. These efforts are focused on
sharing global best practices in areas such as credit, market and
operational risk management, corporate governance, corporate and
investment banking and asset management. Lloyd Blankfein, CEO of
Goldman Sachs, said: “The announcement underscores our firm’s
confidence in ICBC and our commitment to China. We look forward to
working closely with ICBC, one of the most important financial
institutions in the world.”

24 March

India

State banking sector

Possible capital raising

According to local press reports, Indian
state-run banks are set to raise between $4 billion and $6 billion
to boost capital adequacy ratios (CAR) above the government’s
minimum 9 percent standard. Analysts suggest around 17 of India’s
27 public sector banks, currently have CAR of 7.5 percent or
less.

20 March

Vietnam

HSBC, Bao Viet Insurance

Possible stake increase

HSBC is keen to raise its 10 percent stake in
Bao Viet, Vietnam’s biggest insurer, acquired in 2007, to 18
percent. “We are looking to do more with strategic partners,”
HSBC’s head of international operations, Paul Leech, told
Vietnamese reporters.

16 March

Source: RBI