Dark Clouds Over Ecobank, TTB Merger
The merger talks between The Trust Bank (TTB) and Ecobank Ghana have taken a new dimension as the Bank of Ghana and the Ministry of Finance and Economic Planning have ordered the halt of the ongoing tallks with the former setting up a panel of eminent persons to conduct a wide-ranging hearing of the contending issues and advise the Bank of Ghana on the way forward.
Strangely enough, the merger talks between the two entities have rather generated serious public debate with some constituents protesting and demonstrating againt the proposed merger.
In fact, the interest shown sometime by Standard Bank of South Africa the parent company of Stanbic Bank, to acquire Agricultural Development Bank (ADB) also generated similar controversy just like the proposed merger talks between TTB and Ecobank Ghana. That controversy might be well understood as most Ghanaians are averse to foreign companies taking over profitable Ghanaian ventures.
This time round the situation is not like the Standard Bank intending to acquire ADB, but two local banks with the same shareholder merging the operations of the two entities. However, the difference is that Social Security and National Insurance Trust (SSNIT) has more than 60 per cent stake in TTB as against 0.9 per cent in Ecobank and one therefore wonders the rational between the sale or merger of the bigger entity by SSNIT to Ecobank.
Earlier this year, SSNIT, which is the majority shareholder of TTB, objected to a merger talks between HFC Bank and TTB.
HFC is noted for its strength in long-term loan financing, in the areas of mortgage and corporate banking, for which their merger with TTB (a known SME/Retail bank in Ghana) would have been a perfect marriage that would have led to the formation of a true Ghanaian owned universal bank.
Exclusive documents sighted by the Graphic Business indicate that ETI had valued the entire TTB at a market price of GH¢220.85 million or US$145.2 million at a value of GH¢12.62 per share. This offer was made to only SSNIT excluding the other shareholders.
This means that if the proposed sale should go ahead, ETI will buy SSNIT’s 61.11 per cent stake at approximately GH¢134.85 million or US$87.5 million.
Only last year existing shareholders of TTB including SSNIT had a rights issue valued at GH¢8.32p per share and sold it among themselves to raised some GH¢66.6 million in new equity.
Some analysts have questioned the power of the minister to stop the process and not Bank of Ghana, which could issue such a directive. There are others who believe it is well within the minister’s right as head of the government institution that is responsible for SSNIT which holds majority shares in TTB in trust for Ghanaians.
The minister’s order comes days after the Central Bank announced the setting up of a three member committee to probe into the merger deal.
The Bank of Ghana ‘s release reads, “As the regulator of the banking system, the Bank of Ghana is committed to ensuring that any merger does not limit competition but inures to the benefit of the national economy and, in particular, the banking system” and added that “The Bank has therefore decided to set up a panel of eminent persons (suitably informed of the issues) to conduct a wide-ranging hearing of the contending issues and advise it on the way forward”.
Reliable sources close to the deal say the regulator had also rejected the proposed appointment of former Sports Minister, Mr Mohammed Muntaka Mubarak as the new board chairman to replace Albert D. Osei, a retired banker from the World Bank, all in an effort to sell TTB.
PROTESTS
There has been widespread protest against the deal. Two pro-government groups, one called BRIDGE and the other, the Coalition for the Protection of Individual Liberties and Constitutional Rights (COPCOR), have called on government to intervene and block the proposed sale.
Recently, the Progressive Road Contractors Association (PROCA) joined the fray, claiming that the sale of TTB to Ecobank would collapse the road construction industry. The two pointed out that traditionally only TTB, National Investment Bank and the former Amalgamated Bank have supported local road contractors. Since Amalbank was acquired by Bank of Africa, this support has dwindled and PROCA’s members fear that the same would happen if TTB is swallowed up by Ecobank.
PROCA is joined by other customers of TTB who fear that as SMEs they would be pushed down the attention list if they become customers of Ecobank. Graphic Business has learnt that several customers of TTB have decided to move their business elsewhere to avoid such a fate if the acquisition goes through.
At the moment, TTB’s deposit base declined marginally in size, from GH¢287 million by the end of the first quarter of the year to GH¢285 million by the end of the second quarter, following the public announcement of the acquisition plans, and has since stagnated at that level. Ecobank has tried to allay the fears of the deal’s critics by emphasising plans to create the requisite synergies in expanding its SME operations, but TTB’s SME customers are doubtful that they can retain their pride of place within the Ghanaian subsidiary of one of Africa’s biggest multinational financial groups.
To be sure, neither members of the SSNIT scheme, nor TTB’s minority shareholders are enthused over the deal, based on the comparative financial performance of the two banks.
PERFORMANCE OF ECOBANK AND TTB
Actually Ecobank has the better performance, with regard to returns on equity over the past five years but only just averaging 36.22 per cent, ahead of TTB’s 32.41 per cent. However, critics of the proposed acquisition point out that this is only because TTB’s returns on equity for 2010 was seriously diluted by a massive recapitalisation exercise, which more than doubled the bank’s equity base.
In terms of returns on assets, TTB has done slightly better than Ecobank, delivering an average of 3.88 per cent over the past years, ahead of Ecobank’s 3.69 per cent. However, Ecobank is clearly ahead in terms of profit growth rate, averaging 39.41 per cent over the past five years, well ahead of TTB’s 26.68 per cent. With the new capital injection, TTB is expected to increase its profits by 67 per cent by the end of 2011 and another 50 per cent in 2012, a profit growth rate that Ecobank is unlikely to match.
SSNIT itself says it is restructuring its investment portfolio and this is why it wants to sell its stake in TTB. This, however, does not explain why it wants to substitute its majority stake in a high-performance local bank for a minority stake in a high-performance foreign bank. Besides, TTB’s ROE is better than that achieved by most of the other 11 banks in which SSNIT has an equity stake.