Trustees question Ubank sale

Reserve Bank rejects assertion that offer from Nigerian lender was superior

Trustees of troubled Ubank, which is under Reserve Bank curatorship, have expressed deep dissatisfaction with the decision to sell a majority stake to African Bank for R80m.

Ubank was placed under curatorship in May after its capital adequacy ratio fell to about 3%, far below the industry average of more than 15%. Zola Beseti, a director at audit firm KPMG, was appointed the bank’s curator. Mineworkers have a stake in the bank via the National Union of Mineworkers (NUM), which represents them through the Teba Trust Fund.

African Bank announced last week that it would buy a majority stake in Ubank’s disclosed assets and liabilities for R80m and take on the lender’s employees and depositors. But a source close to Ubank who spoke on condition of anonymity said it was unfair and uncompetitive for the curator to name African Bank as the successful bidder.

“African Bank and Ubank are doing the same thing. They operate close to each other ... where there is African Bank there is a Ubank branch in front. If you are doing the same thing, then obviously you are going to retrench,” he said in reference to the future of the bank’s 700 employees.

Teba Trust Fund chair and former NUM president Joseph Montisetse told Business Times they were unhappy with the acquisition and had agreed to appoint a financial expert to look into the matter before they decided on a way forward.

He said the trustees did not understand how African Bank could acquire Ubank for just R80m when it was worth more than R4bn. The trustees further wanted clarity on what the acquisition means for depositors’ money.

“African Bank is going to close all the branches of Ubank. Ubank is operating not only in SA but as far as Swaziland, Lesotho and Mozambique, where the mineworkers originate. That is why we need a transitionary financial expert to look into this matter. Only after the expert gives us an analysis of the whole transaction will we be able to make an informed decision,” said Montisetse.

NUM deputy general secretary Mpho Phakedi said the trustees would also engage African Bank over the acquisition.

“We want to believe that the process was fair. What we are comfortable with is that the depositors’ money is secured, and going forward the depositors, who are our members, will know where their money is. The process did not take too long so we are happy with that. It was finalised within a short space of time”.

He said the process was still unfolding and there were various processes the trust needed to understand, including what would happen to Ubanks’ clients outside SA. “As you know, Access Bank [a Nigerian lender] was the bidder chosen by the trust but things didn’t go our way. It is spilt milk,” Phakedi said.

The Minerals Council SA, which jointly administers the Teba Trust Fund with the NUM, said it had a meeting with the curator last Friday to update the trust on the choice of African Bank and the trust would convene a board meeting to deliberate on the matter and then pronounce its views on the transaction.

“The curatorship has been successful in protecting the depositors’ money,” the council said.

Responding to questions from Business Times, the Reserve Bank said the decision to place Ubank under curatorship was taken in accordance with the requirements of section 69 of the Banks Act and after a series of talks with the bank and its stakeholders over a long period.

The acquisition had been done by the book, it said.

“Only banks registered in terms of the Banks Act were invited to bid for the assets and liabilities of Ubank as a substantial portion of Ubank’s liabilities are deposits from the general public, which can only be held by registered banks.

A competitive process was undertaken by the curator and a number of banks participated in the process,” it added.

“Following an extensive due diligence process, the parties had agreed on a total cash consideration payable to Ubank of up to R80m, subject to the fulfilment of conditions in the agreement. The purchase consideration is not the only requirement and there are also regulatory capital requirements.”

But the source close to Ubank said the central bank should have considered the offer from Nigeria’s Access Bank, which was prepared to inject R800m, allowing Ubank to increase its capital adequacy ratio. He said a deal with Access Bank would have been ideal because it was not a direct competitor to Ubank.

“Access does not have branches in the mines; it does not have branches in the rural areas, it would have been good for competition. The amount of R80m is questionable. Remember, African Bank is still under curatorship and owned by the SARB [South African Reserve Bank]; are we saying the SARB is looking after its own kids or what?

“They [the Reserve Bank] knew that Access Bank was the trustees’ preferred bidder, but they wanted African Bank to take over that asset so they had to put the curator in so they could say it was an independent assessment,” the insider alleged.

In response, the Reserve Bank said because SA’s commercial banks are subject to regulatory capital requirements, African Bank had confirmed to the curator that it would be able to meet the prudential capital adequacy requirements after the transfer of the disclosed assets.

“The reference to the R800m [injection by Access Bank] conflates the purchase consideration with the regulatory capital requirements. As indicated, in addition to the purchase consideration, African Bank is obliged to also comply with the regulatory capital requirements.”

Contacted for comment, African Bank said: “Following the announcement of the curatorship of Ubank we participated in a competitive bidding process led by the curator, resulting in the announcement of the bid outcome”.

In a statement issued last week announcing its acquisition of the majority of assets and liabilities of Ubank, African Bank said the deal was attractive and fitted into its strategy of building a scalable diversified and sustainable banking business with a compelling listable proposition.

“Ubank has a unique market position within the mining sector and a distribution footprint that complements African Bank’s existing national offering. The lending book of Ubank can be efficiently absorbed into African Bank’s larger lending book. African Bank has been working to diversify funding sources and has added significant retail deposits over the last few years. The addition of Ubank’s deposit base would accelerate this effort,” it said.

In May, shortly before placing Ubank under curatorship, finance minister Enoch Godongwana said he had been dealing with the Prudential Authority’s concerns that Ubank’s capital adequacy levels had faltered over the previous 18 months. He also said he had dealt with the inability of the board and its shareholders to adopt and implement an action plan to reverse the decline.

Only banks registered in terms of the Banks Act were invited to bid for the assets and liabilities of Ubank as a substantial portion of its liabilities are deposits from the general public SA Reserve Bank