Nigeria: Nigeria’s bad bank

Amcon, Nigeria’s resolution vehicle set up next its 2009 financial crisis, has made a lot of evolution restructuring the billions of dollars of loans it holds. But its chief executive Mustafa Chike-Obi says its work will get harder and argues against calls for it to be wound down quickly.

Unlike several other senior Nigerian financial figures, Mustafa Chike-Obi does not have a reputation for pretentiousness. From presently on he did insist on one particular perk at the same time as he became chief of the Investment Management Corporation of Nigeria (Amcon) on its creation in 2010. “I asked for a large office,” he tells The Banker in an interview in Lagos, “because I wanted debtors to be intimidated at the same time as they came in to see me.”

It is easy to understand why. Amcon was Nigeria’s answer to its 2009 financial crisis. Set up and owned by the government, it was tasked with removing billions of dollars-worth of toxic assets that had crippled the banking sector. In all, it bought N3700bn ($23bn) of non-performing loans (NPLs) from commercial lenders at a cost of N1700bn. Mr Chike-Obi’s job is to recover as much price from those as he can.

The process has been difficult. Amcon took on 12,000 loans from across a broad range of industries. Simply sifting through and deciding how to restructure them has been arduous work for its 270-odd staff. Mr Chike-Obi says they are ahead of schedule, having so far recovered just over half the loans by volume at a rate of about 115%.

From presently on he admits that while this puts Amcon on course to meet its target of an in general recovery of 80% from the N1700bn it spent, the remaining loans are tougher cases. “We recognise that it will get harder,” he says. “You get the easier ones done initial.”

It is not only NPLs that Mr Chike-Obi, who used to be a senior mortgage trader at Goldman Sachs in the US, has to contend with. As part of its clean up, Amcon as well spent N2300bn recapitalising several lenders, a lot of of which it still has stakes in, and nationalising three once it became clear nobody would buy them.

Diamond in the hunt?

The government had hoped to sell the smallest of the national-controlled lenders, Enterprise Bank, by presently, but is instead in the final stages of a sale, waiting for the few remaining candidates to finish due diligence and make binding offers. “It has been slower than we wanted,” says Mr Chike-Obi. “We got 24 expressions of interest, which was additional than we thought, and had to review them all.”

Amcon, which is the direct owner of the nationalised banks, still expects to sell Enterprise and one other, Mainstreet, by the end of the year. The biggest, Keystone, will be privatised last. “We wanted to do it sequentially,” says Mr Chike-Obi. “We felt that as Enterprise was the smaller and cleaner bank, it would be easier to transaction with initial. And any mistakes we make, we can make sure we don’t repeat them with the next banks.

“We decided that Keystone would be last, mainly because it had a management change halfway through. We needed to give the new managing director a luck to implement his policies.”

The three lenders are small by Nigerian standards – Keystone, with $2.5bn of assets, is only the 16th major in the country, according to The Banker Database. But all of them returned to profit in 2012, which is one of the reasons they have attracted plenty of interest from investors, foreign inclunding local. FirstRand, South Africa’s second biggest bank, said it will consider buying Keystone or Mainstreet, while some analysts think that Bob Diamond, the former Barclays chief executive, will mount a bid via the $325m cash shell he listed in London last December.

It is easy to understand why. Amcon was Nigeria’s answer to its 2009 financial crisis. Set up and owned by the government, it was tasked with removing billions of dollars-worth of toxic assets that had crippled the banking sector. In all, it bought N3700bn ($23bn) of non-performing loans (NPLs) from commercial lenders at a cost of N1700bn. Mr Chike-Obi’s job is to recover as much price from those as he can.

The process has been difficult. Amcon took on 12,000 loans from across a broad range of industries. Simply sifting through and deciding how to restructure them has been arduous work for its 270-odd staff. Mr Chike-Obi says they are ahead of schedule, having so far recovered just over half the loans by volume at a rate of about 115%.

From presently on he admits that while this puts Amcon on course to meet its target of an in general recovery of 80% from the N1700bn it spent, the remaining loans are tougher cases. “We recognise that it will get harder,” he says. “You get the easier ones done initial.”

It is not only NPLs that Mr Chike-Obi, who used to be a senior mortgage trader at Goldman Sachs in the US, has to contend with. As part of its clean up, Amcon as well spent N2300bn recapitalising several lenders, a lot of of which it still has stakes in, and nationalising three once it became clear nobody would buy them.

Diamond in the hunt?

The government had hoped to sell the smallest of the national-controlled lenders, Enterprise Bank, by presently, but is instead in the final stages of a sale, waiting for the few remaining candidates to finish due diligence and make binding offers. “It has been slower than we wanted,” says Mr Chike-Obi. “We got 24 expressions of interest, which was additional than we thought, and had to review them all.”

Amcon, which is the direct owner of the nationalised banks, still expects to sell Enterprise and one other, Mainstreet, by the end of the year. The biggest, Keystone, will be privatised last. “We wanted to do it sequentially,” says Mr Chike-Obi. “We felt that as Enterprise was the smaller and cleaner bank, it would be easier to transaction with initial. And any mistakes we make, we can make sure we don’t repeat them with the next banks.

“We decided that Keystone would be last, mainly because it had a management change halfway through. We needed to give the new managing director a luck to implement his policies.”

The three lenders are small by Nigerian standards – Keystone, with $2.5bn of assets, is only the 16th major in the country, according to The Banker Database. But all of them returned to profit in 2012, which is one of the reasons they have attracted plenty of interest from investors, foreign inclunding local. FirstRand, South Africa’s second biggest bank, said it will consider buying Keystone or Mainstreet, while some analysts think that Bob Diamond, the former Barclays chief executive, will mount a bid via the $325m cash shell he listed in London last December.