AMCON and its acquisitions: Where do we go from here?

Because Asset Management Corporation of Nigeria(AMCON)  and its affairs are in the esoteric realm, known and discussed only by the initiated, it is important to discuss what AMCON is all about before delving into my concerns for today. AMCON is a state-owned ‘bad bank’ , established as a part of the Sanusi’s  banking reforms. Its broad role is to revive troubled banks by purchasing their non-performing loans(NPLs), recapitalising those in which the CBN has intervened, providing financial accomodation and consequently freeing up their balance sheets and providing liquidity to enable them perform their basic role of creadit creation.  There are some other ancilliary responsibilities. While AMCON is government owned, there are bad-banks(BBs) operated by banks. Even among the state owned BBs, there are those where the debts are purchased outright and those where the risks are retained by the troubled bank through a repurchase agreement. It has been established that the later option is better for banking stability. There is also the Malaysian Model which involves two institutions: Danaharta for NPLs and  Danamodal for recapitalisation and stabilisation.it is argued that Government BBs send clear messages, facilitate credit flows and are neater than several individual BBs.

Apparently, AMCON is modelled after the Irish(state owned/outright purchase)  and a combined Malaysian Model that handles NPLs, recapitalisation and stabilisation. But in Italy, banks are on their own. The Prime Minister has just rejected the idea of a state-owned BB , his country could not afford it and that it was counter productive as it might adversely affect the credit rating.( Financial Times, 10/2/14). Banks are however encouraged to  make their own arrangements and they are working on internal BB options. Intesa Sanpaolo is setting up an iternal BB with 55Bn Euro of its NPL  while Unicredit has already sold 700m Euros NPL to ANACAP Financial Partners & E950m to Cerberus European Investment

How has AMCON fared? One feature of AMCON management and their sponsor( as represented by Lamido Sanusi) is boastfulness! Speaking in Washington on 22/9/11, Sanusi declared that ‘AMCON is UNIQUE and there is non in the world that is similar. What we have done in Nigeria is to combine 3 institutions in Malaysia into one… He was supported by Chike Obi, who said that ‘This sinking fund has never happened anywhere else in the world!’. I had then wondered whether the 3-in-one model does not make AMCOM too big,  too unwieldy and with the ability to do everything-just like the CBN( or the CBN governor) and whether the banks willingly adopted the stabilisation fund option or they were coerced. I also noted that they did not consult the shareholders who owned the money. Two weeks ago, Chike Obi declared that AMCON had recovered over 50% of NPL, paid of N1trn of their debts, ahead of schedule, and ‘planned to pay-off extra N1trillion  in 2014 to reduce its indebtedness by 30% in the first 4 years. He also regalled the audience with details of how they saved the depositors funds, prevented the systemic collapse of the affected banks and saved thousands of jobs across the banks. Of course, we all know that unions in the banking industry are still battling their institutions over mass sack of workers in the past 4 years!

But a recent report by Financial Derivatives Company(FDC) gave AMCON, a pass mark.  FDC  racalled that AMCON was established during Nigerias worst ever financial crises, when 21% of nominal GDP,  35.8% of  baking assets and 71.6% of deposits were all at risk. It evalueted AMCON as a financial sector stabilizer and detoxifier and as a genral macro-economic stabilizer  using the following criteria: duration of the exercise, intervention cost, loss recoveries and restructured facilities, aggregate employee layoffs, level of national bankruptcies and liquidations, banking sector liquidity and aggregate taxes paid. Comparing AMCON(Nigeria) with Ireland, Sweden, US and Malaysia, it ranked AMCON 3rd  (better than Ireland and Sweden) and suggested that it should be institutionalized as a financial system shock absorbing detoxicant  It also admits that moral harzards are real.

 So, beyond boastfulness and self trumpet-blowing( as against the humble and decent option of allowing others to blow it for them), we have at least a fairly independent assessment of AMCON operations. We also recall that AMCON has been involved in some controversies over its role in the suspicious bridge banking operations that birthed Spring, Mainstreet and Keystone banks( a process which the House of Representatives actually declared fraudulent and criminal), the question of its lifespan as the IMF advised that it should be wound up, the moral-hazards inherent in such rescue operations and the recent allegation that the CBN deliberately  mumbled its financing records. My major concern today is the quantum and diversity of acquisitions that AMCON has quietly undertaken in the recent past in the process of performing its roles. AMCON has acquired or is in control of Aero-Contractors, Capital Oil, Peougeot Automobile Nigeria Ltd (80%), and Tinapa Business Resort. It already has 3 bridge banks and there was even a rumour of acquiring one of the regional banks in September 2013. It will be racalled that AMCON has gone beyond NPLs to acquire systemically important loans lika that of Zenon.

 Now let us assume that AMCOMs finances are limitless( after all,it just government backed papers) and that the acquisitions are legal. What about the capacity to manage these diverse and unrelated holdings? Does AMCON have inhouse capacity to manage or oversee these businesses or does it intend to grow its size and competence to that level or does it intend to outsource the management?  What about the business dimensions of these transactions and specifically, the cost to the tax payers?. We all know that the banks taken over by the CBN experienced certain levels of deterioration and even the FDC report referred to earlier declared that ‘In most cases the financial conditions of these banks actually deteriorated further during the quarantine’. Sometimes ago, a court granted the EFCC control over the Radio Station belonging to Ebeano Nnamani at Enugu. That was the end of the operations of that station together with its assets because EFCC was not structured to manage radio stations. Even ordinary houses handed over to EFCC are not in such wonderful shapes. I know that AMCON is not EFCC but  has it ensured that it can properly run these busineses in the interest of Nigerians? How long will AMCON run or own these businesses? FDC asserts that AMCON was set up with a limited life. How do these acquisitions affect the lifespan of AMCON? Having achieved initial progress, shouldn’t our banks be encouraged to indulge in internal arrangements, subject to supervisory and corporate governance conditionalities?. These questions should be discussed and debated in the interest of AMCON, the banking sector and the economy and it is proper that we do so as an AMCON ammendment bill is before the NASS. I have spoken!…

 Ik Muo