By Our Correspondent
The recent resolution by the giant Mwalimu National Sacco Annual General Meeting to put up for sale the troubled Spire Bank has elicited mixed reactions, with critics offering options they argue would be in the best interest of teachers and ordinary members.
In the asset purchase agreement pending regulatory approvals by Sacco Society Regulatory Authority (SASRA) and the Central Bank of Kenya at the time of going to press, Mwalimu Sacco had agreed terms with a local large bank to liquidate its Spire Bank.
The deal, according to Mwalimu Sacco Chief Executive Officer, Kenneth Odhiambo, shall see the counterparty take over loss-making Spire Bank’s assets and liabilities rather than injecting in money through an equity purchase.
Media reports attributed to the CEO indicate the AGM resolved that they quietly exit the scene without the Sacco incurring extra expenses on a bank that has zero value.
But critics opine that by taking over Spire Bank’s assets and liabilities, Mwalimu Sacco will have to pay the big buyer billions of shillings to make up for the difference in assets and liabilities. Spire Bank’s liabilities exceed its assets.
With offers trickling in from willing buyers – including a group of local tycoons loaded with Murang’a old money – ahead of the March 30 deadline, it is felt that the bank should have been sold as a going concern, an arrangement that would see teachers retaining a residual equity as they wail to recoup their lost investment.
This model, it is argued, would best serve the interest of the ordinary teacher and member of Mwalimu Sacco mirroring transactions of Jamii Bora Bank, National Bank, Chase Bank and Fidelity Bank. In retrospect, all these transactions were structured on a going concern basis.
Having retained the services of independent transaction advisor NCBA Capital, NCBA’s investment banking affiliate last year, some say Mwalimu Sacco had better let Spire Bank’s licence sold to a private party on a going concern basis.
From NCBA Capital’s findings and guidelines, taking the asset purchase route would see Mwalimu Sacco incur nearly Sh2 billion to complete the transaction with a large local financial institution. It then transpired that a going concern transaction would see teachers potentially benefiting from a deferred consideration.
Having spent nearly Sh5 billion to acquire the lender from deceased business tycoon Naushad Merali, Spire Bank has cumulatively lost Sh4 billion over a five-year period.
Mwalimu Sacco paid Merali Sh2.4 billion in a controversial 2015 transaction to acquire a 75 percent stake in Spire Bank, going on to buy the remaining 25 percent shareholding in November 2020.
Apart from the bank, tears shall also be offloading other loss-making ventures including the Kisaju housing project and two parcels of land estimated at Sh300 million.
The cooperative made another Sh3.4 billion deposit which it could not withdrew without sinking the bank. To help the bank survive, teachers agreed to convert the deposit into a credit line for the lender.
They also issued a letter of support to regulators promising they would not let the bank collapse only to yield many years of loss-making, effectively draining resources from the bank and its owners and sinking it in negative core capital.
Spire Bank had as of September 30 a negative core capital of Sh3.4 billion rendering it Sh4.4 billion short of compliance.
The bank’s financial woes date back to 2016 when Merali made Sh1.7 billion cash withdrawal only days after selling the lender to Mwalimu Sacco sparking a chain of fallouts and leading to panic withdrawals and near-collapse.
Desperate to shore up its capital, the bank had breached all minimum capitation adequacy ratios stipulated by the Central Bank, with Merali’s unprecedented cash withdrawal accounting for 20 percent of the Sh8.5 billion deposits.
Mwalimu Sacco National Chairman, John Ochieng’, was recently quoted saying that the scheduled Spire Bank sale is part of their turnaround plan involving offloading of loss-making ventures. A major local suitor has been conducting due diligence ahead of the intended transaction.
