THE DEMISE OF SKYE BANK
Skye bank collapse sends shock waves to all of us especially for those
‘related' with Skye bank. Some of us are customers, shareholders, employees;
know someone who works with them.
It's a panic period for customers who are seen in droves trying to
withdraw their money from Skyebank. Some life savings and investment savings
are shored up with Skye bank. However, if you deposit money with Skyebank, do
you need to worry?
The Banking industry is one of the most regulated industries in Nigeria.
We will discuss in another piece why you should not press the ‘panic button'
yet.
This is Lagos state bank. That is
the bank used by Lagos state.
Let us take a close look at one of the problems that affected Skye bank.
Skye bank acquired Mainstreet Bank(Formerly Afribank) in 2014. Skye bank
used short-term funds for the acquisition. Mainstreet banks was a long-term
investment and indebted and its executives engaged in sharp practices, no
wonder, former Mainstreet bank MD is alleged to have embezzled N1b naira.
Skye bank bided N126 billion to acquire the entire issued and fully
paid-up ordinary shares of Mainstreet bank with short-term funds.
Let me break it down for us. You work with a company and earn N50,000
per month. You saw an advert to buy land somewhere for N600,000. You approach
your MD for a loan but he approves the loan under a condition you will pay back
in 12 months. You know what that means? Your N50,000 salary will be used to pay
for the loan every month. If you agree, how will you take care of yourself? How
will you feed? How will you meet up with other obligations?
If you take the loan, it is obvious, you need supporting activities that
will earn money or help from somewhere to take care of yourself for the next 12
months or else you will break down.
Do you get the point? You cannot invest your short-term funds for a
long-term investment that might likely start generating profit in the next
three years.
Skye bank put the cart before the horse. They acquired Mainstreet bank
with short-term funds and was illiquid(No cash) and started making efforts to
raise the fund locally from investors but it proved abortive because its
capital base had been decimated by inside credit, which is non-performing.
Having tried to raise the money locally and failed, the bank's
management tried to convince a Moroccan bank and a South African bank to invest
in it but after due diligence on the bank and its chairman, the Banks pulled
out.
An expert on Merger and
acquisitions posited that IPO(Initial
public offerings) are a good way for a
company to raise money in any M&A especially when assuming the debts of the
investee company.
The prospect of an upcoming M&A transaction can make investors more
excited about the company's future, as it signals an ambition to expand and a
long-term strategy. IPOs always attract market buzz, so by timing the IPO with
an M&A transaction, companies can maximize investor interest and drive up
early share prices.
Lessons:
Instead of acquiring Mainstreet bank with short-term funds, Skye bank
should have issued IPO from its shareholders and the public so as to raise N126
Naira to acquire Mainstreet bank. Skyebank.
Apply matching concept that always guides accountants in their dealings.
Do not use short-term funds to invest into Long-term funds. They do not match,
rather invest short-term fund to short-term investment while you invest
long-term funds/savings into long-term investing.
We all use one bank or the other. Always be interested in the financial
decision and activity of your bank. Always read news online about your bank,
request for the half-year financial statement and read. If you do not
understand anything, post it to my blog (yourfreelanceaccountant.blogspot.com
or go to my FB page---fb.me/baasinat. I will answer the questions about your
bank.
There are other reasons why the bank is now extinct. This is just the
beginning. I will unfold the other reasons for you on Friday.
.
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