The Tribune Newspapers  had a rather instructive piece in Monday’s papers about the banks planning mergers.  Read below:

Banks plan merger, acquisition – To beat global credit crunc

By Lanre Oyetade, Odidison Omankhanlen, Tunji Adeleye and Adeolu Adeyemi

Against the backdrop of mounting effects of the global economic crisis, particularly on the nation’s financial sector, banks in the country have begun to seek alliances with one another with a view for merger and acquisition. Investigations carried out by the Nigerian Tribune showed that banks had begun talking to one another with a view to combining businesses. In particular, a bank which recently broke away from merger plans is already holding discussions with another bank.

A source in the bank, who confirmed this development, said the deal was being carried out with utmost secrecy to give room for the success of the merger. It will be recalled that the immediate past Managing Director, First Bank Plc, Mr. Jacobs Ajekigbe, gave this indication recently at the valedictory lecture organised for him by the Chartered Institute of Bankers of Nigeria (CIBN) when he said a second round of consolidation in the industry through market-determined combinations and alliances was imperative, stressing that very few banks exerted so much control over the liquidity of the banking system.

He noted that in the light of current global economic crisis, business combinations was the most appropriate response to margin compression and optimisation of technology infrastructure. According to Dr. Mobolaji Aluko, US-based political scientist, three big Nigerian banks are tied up in this Fortis/ABN Amro/BNP Paribas tangle.

He pointed out that Royal Bank of Scotland, one of the Nigeria’s asset manager, was one of the UK’s largest banks that was given 37 billion pounds with government owning a majority share. The overwhelming majority of Nigeria’s asset managers have been having significant trouble managing themselves and have given Nigeria’s foreign reserves toxic exposures.

Dr. Aluko said that instead of foreign reserves being piled up in foreign banks, government ought to have used them strategically in developing critical infrastructure as many long-suffering Nigerians had called for. The political scientist said that the massive decline in Nigeria’s foreign reserves led to stoppage of the entries since October last year. The lack of further entries on the foreign reserves in Central Bank’s website has further heightened the belief that Nigeria has suffered a major loss in its reserves.

As of October last year, the nation lost had $1.5 billion in its foreign reserves, through the three big banks. The Central Bank of Nigeria’s Director of Corporate Affairs, Mr. Festus Odoko, had said at the time that the decline in the nation’s foreign reserves was as a result of the rise in the demand for foreign exchange.

According to him, the decline was not as a result of the global financial meltdown but the function of market situation in Nigeria. He added that when the inflow was higher than the outflow, the reserves would go up, but when the outflow was higher than the inflow, the reserves would drop. Mr. Odoko said the only way out for the nation was to expand the sources of foreign earnings instead of concentrating on the reserves built from the oil revenues. The official report from CBN shows that the foreign reserves rose to $67 billion by the middle of 2008, but dropped to $53 billion by December.

This represents a decline of $14 billion within three months. However, a top bank chief executive officer, when asked, refused to confirm the merger plans, saying it was not unusual for organisations to seek mergers or acquisitions. He said in the light of the current global financial crisis, every organisation was looking for a way out, stressing that such business combinations could not be ruled out at this time.

Commenting on this development, a financial analyst and Chief Operating Officer, Landmark Investments, Mr. Okechukwu Amadi, advised banks to step up such discussions if they were not doing so yet, stressing that only strong and healthy banks could withstand the present financial crisis.

“I hope it is not belated. They shouldn’t waste time about it. Banks that are not particularly healthy should seek for acquisition and let the big banks help out. The banks need strength to withstand the current crisis,” he said.

However, a financial analyst, Mr. Dotun Mayowa, opined that it was foolhardy for banks in the country to contemplate any merger at this time. According to him, it was difficult to ascertain the level of healthiness in each of the banks, stressing that most of the banks were highly indebted to the CBN.

“It is a clear case of misdirection for any bank to take on another at this present moment. It is difficult to ascertain the level of healthiness. Besides, this moment of uncertainty calls for caution. The truth is that some of these banks are surviving by the grace of the CBN,” he stated. – Tribune