Skye Bank in the dock: The trial of Tunde Ayeni, erstwhile  chairman opens a pandora’s box of sleaze and insider abuses

Mr. Tunde Ayeni, former Board Chairman of the defunct Skye Bank

By OBINNA EZUGWU

On March 6, Mr. Tunde Ayeni, former Board Chairman of the defunct Skye Bank, along with Timothy Oguntayo, the bank’s former Group Managing Director (GMD), were arraigned before Justice Valentine Ashi of the Federal Capital Territory High Court, Apo, by the Economic and Financial Crimes Commission (EFCC), on a four-count charge, relating to criminal breach of trust to the tune of N4.6 billion.

One of the charges read: “That you, Tunde Ayeni, whilst being the Chairman, Board of Directors of the defunct Skye Bank Plc and Timothy Ajani Oguntayo, while being the Managing Director, MD of the defunct Skye Bank Plc on or about October 16, 2014 at Abuja within the jurisdiction of this Honourable Court, whilst being bankers entrusted with property, to wit: depositors’ funds in the defunct Skye Bank Plc’s Suspense Account, committed criminal breach of trust in respect of the sum of N1,000,000,000 (One Billion Naira) and thereby committed an offence contrary to and punishable under Section 315 of the Penal Code.” They pleaded “not guilty” to the charges.

The trial judge admitted them to bail in the sum of N500 million with two sureties each in like sum, who must be resident in Abuja, and must own a landed property “of sufficient value”, within Abuja metropolis. He subsequently adjourned to May 14, 2019, for “commencement of trial.”

Ayeni is being held responsible for presiding over the death of Skye Bank, which last year, joined the    long list of failed banks in the country’s “Banking Hall of Infamy.” And details of infractions that brought down one of Nigeria’s signature new generation banks are quite chilling.

Skye bank was a product of two mergers and six legacy banks. National bank, Prudent bank had first merged during the first banking reform in 1998, when banks’ share capital was raised from N200 million to N500 million.

In 2005, following the consolidation exercise which raised the capital base to N25 billion, National bank merged with four other banks: Bond Bank Limited, EIB International Bank Plc and Eko International bank owned by the Lagos state government, Reliance Bank Limited and Co-operative Bank Plc., to form Skye Bank Plc.

Ayeni had founded Bond Bank, one of the merging banks in 2000, and by 2010, he had emerged as Chairman of Skye Bank board. With a reputation for entrepreneurship, Ayeni was to drive Skye Bank to great heights. And he did not do a bad job of it initially.

In the third quarter of 2010, ended September 30, the bank recorded a profit before tax of N10.1 billion, an increase of 69 per cent from the N5.9 billion recorded at the end of the second quarter June 30, 2010. Similarly, it grew its profit after tax by 69 per cent to N8.1 billion, from N4.8 billion during the same period. Still, within the period, its total assets grew to N661.6 billion. It has stood at N622.1 billion at the end of 2009 financial year.

A good sign, and perfectly in line with its aspirations for the top, Ayeni was good for business. It was yet more smooth sail before the crash. In the Q3 2011, the bank grossed N73.29 billion in earnings. And by the corresponding quarter in 2012, the earnings had grown by 28 percent to N94.13 billion. That year, it announced N16.55 billion as profit before tax. And the balance sheet grew from N939.1 billion at year-end 2011, to N1.1 trillion.

But things happened so fast and it was not long before cracks began to emerge. Year 2013 when the bank grossed N132.39 billion in earnings, and had profit before tax of N19.6 billion, was to be turning point. It was to be the last good year. Subsequently, everything came crashing.

In 2014, the bank’s profit before tax plunged from to N10.5 billion. And its’ profit after tax dipped to N9.7 billion as against N18.5 billion reported in 2013.

Things went from bad to worse. Year 2014 was to be the last year the bank would release annual report. By June 2015, the bank had made a loss N40 billion and its’ Capital Adequacy had plunged to about 10 percent, far below acceptable standard of 16 percent for Systemically Important Banks (SIB) of which Skye was one.

And by December 2015, it had lost over 55 percent of its share value (from N3.58 in June 2014 to N1.58 in Dec 2015). Its liquidity ratio had gone down to 8 percent as opposed to minimum regulatory requirement of 30 percent. Its’ Loan to Deposit Ratio was at 98 percent, against recommend ratio of 80 percent.

Skye was on a free fall. So bad were the results that it could not file its audited report for 2015. In March 2016, it had sought a 4-week extension to file the report. But it never did. And throughout the year, the market became increasingly distressed. Analyst issued sell recommendations.

The implementation of Treasury Single Account (TSA) delivered another heavy nail on the bank’s coffin. The bank had been heavily dependent on public sector funds. It lost estimated N125 billion to TSA.

Having seen enough, the CBN, in June, 2016, wielded the hammer. It sacked the board and took control of the bank’s management. It subsequently named a new board with Muhammad Ahmad as the new chairman and Adetokunbo Abiru as new GMD, to take over from Oguntayo.

And on September 21, 2018, the CBN finally took the decision to revoke the license of Skye bank. It created a bridge bank to take over its assets and liabilities. That bridge bank became Polarise Bank. The name of Skye Bank had been stamped out of existence. For a bank that nursed great aspirations, it was sunset at noon.

But what really transpired; what where the policy decisions that wrecked the bank? It is a tale of high level corruption and poor regulatory oversight. Ayeni was, it would seem, at the centre of it all.

To start with, a letter written by the bank’s new management board in 2017 – the management that took charge after the CBN intervention in 2016 – to vice president, Yemi Osinbajo, detailed how Ayeni allegedly used his position to take huge loans from the bank.

“Upon the assumption of duty by the new board, one of the immediate concerns that needed to be addressed was to ascertain the true state of the affairs and financial position of the bank and the credibility of the IT and information systems of the bank,” the letter by Abiru and Ahmad read.

“To this end, the following were undertaken: engagement of a PWC to do a half-year audit as of June 30, 2016. This was later extended to cover the full year to December 31, 2016; engagement of KPMG to do a forensic audit of the bank’s IT platform and management information systems. The forensic audit revealed that the bank operated two sets of financial accountability/books and this was responsible for the regulators/auditors inability to detect the massive losses and infractions, particularly the balance of N280bn in suspense accounts.

“The bank’s total exposure to Ayeni as of the date is about N70bn. It is clear that he used his position as the chairman of the bank to obtain inside loans well above the regulatory thresholds for the acquisition of the following government enterprises: Ibadan Electricity Distribution Company, Yola Electricity Distribution Company and Nitel/Mtel. All the facilities are presently seriously challenged.

“As of today, Ayeni’s total industry indebtedness, covering both Nitel and the Electricity Distribution Companies (Discos) is estimated at about N150bn, and little, if any, of these obligations, are being doubtful that he will ever be in a position to service these loans satisfactorily.”

The letter proceeded to detail how another N33 billion was traced to Ayeni, pointing out that there was suspicion that out of this amount, N7 billion was spent on the re-election campaign of former President Goodluck Jonathan.

Also indicted by the letter were Akinsola Akinfemiwa, Kehinde Durosinmi-Etti and Oguntayo, all of who at one point or another, served as GMDs of the bank. Other individuals listed in the petition for various acts of infraction are Femi Otedola, chairman Forte Oil Plc, Festus Fadeyi and Jide Omokore.

On Friday, March 1, 2019, the Economic and Financial Crimes Commission (EFCC), filed a 10-count charge against Ayeni and Oguntayo – who were already in the anti graft agency’s custody – for allegedly laundering N21 billion. But that’s insignificant to take down a bank. Much more happened as you will learn presently.

Perhaps the single most critical factor that brought down Skye Bank was bad loans, or as it is known in banking parlance, Non Performing Loans (NPL). And regarding this, available information shows crass negligence and abuse of office by the Ayeni led board. Of these bad loans, four individuals and corporate bodies allegedly accounted for N446 billion.

Ayeni, it was revealed, took N89.4 billion loan to acquire Nitel, Ibadan and Yola Discos;  $6.8m diverted into his law firm for personal use and N29.5 Billion put in suspense account directly linked to him.

Another humongous sum of N191 billion was said to have been traced to Dr Festus Fadeyi, father of the bank’s non executive director, Dr Jason Fadeyi, on behalf of Pan Oceanic Group.

The sleek Jide Omokere for Jide Omokore Group was allegedly accounted for N110 billion, out of which N56 billion went for AEDC, N22.4 billion for Cedar Oil and Gas, and N31 billion for Real Banc Ltd. While illegal purchase of Forte Oil shares accounted N46.4 million, and debt owed by African Petroleum (AP) – former Forte Oil – to Afribank, accounted for N12.8 billion.

Afribank introduced another dimension to the Skye Bank story. It is also part of what led to Skye Bank’s troubles. In 2011, Afribank failed in its attempt to recapitalise, prompting the CBN to announce its nationalisation in June of that year. The apex bank subsequently handed it over to the Asset Management Corporation of Nigeria (AMCON) to manage through a capital injection programme. Afribank was renamed MainStreet Bank which was to essentially serve as a bridge bank – bank created by a central bank to operate a failed bank until a buyer can be found.

In February 2014, AMCON announced that it was going to sell 10 percent of its’ stake in MainStreet bank by October that same year. Different banks submitted bids. After the biddings, Skye Bank which bid N126 billion emerged the preferred bidder.

The bank was reported to have immediately paid the initial deposit of 20 percent, amounting to N26 billion. And on October 31, it paid the balance of N100 billion ahead of the November 3 deadline, to acquire MainStreet Bank.

The acquisition of MainStreet Bank meant that Skye Bank became one of the country’s eight Systemically Important Banks (SIB). It became, in essence, one of the banks that were too big to fail, and whose possible failure had the potential of causing disruptions in the system. But beneath the surface, the bank was failing rapidly. Indeed, it could never have afforded the amount with which it acquired MainStreet Bank.

Skye Bank’s then management ostensibly claimed that they acquired MainStreet Bank to achieve an exponential growth and address structural concerns affecting the bank in its preferred area of commercial banking business.

They noted specifically, that they were attracted to the offer by the low NPL ratio of 4.3 percent – the regulatory ratio is 5 percent – and the brand loyalty, as well as branch network of the bank in the South East and South South geopolitical zones.

But the numbers simply suggested that something was amiss and Skye Bank was having troubles and didn’t have the resources to acquire MainStreet. By then, of course, the effect of the bad loans had begun to bite. And as it was alleged, a significant chunk of the capital had gone to the People’s Democratic Party (PDP) presidential campaign as donation.

Ayeni, as chairman of the PDP fundraising event in December 2014, had donated N2 billion. He announced that he was donating N1 billion on behalf of himself and his partner and another N1 billion on behalf of his friends. Apparently, he had good relationship with people in strategic positions in government at the time and that perhaps, explains his ability to acquire MainStreet Bank even when he didn’t have the capacity to do so.

Exposure to bad loans had ensured that by 2014, Skye Bank’s Capital Adequacy Ratio (CAR) was on free fall. This was acknowledged by CBN itself, but for some strange reasons, the apex bank didn’t object to its bid for MainStreet. Indeed, at the time Skye acquired MainStreet bank, it’s CAR was 11 percent, down from 20 percent in December 2013.

This meant that its CAR was only 1percent higher than the 10 percent minimum requirement for domestic banks, and certainly lower than the 15 percent, plus 1 percent additional capital surcharge for regional and international banks, of which Skye was one. Worse still, by the time the integration of the two banks was done in June 2015 Skye’s CAR had collapsed to 7.7 percent.

There are yet more anomalies. At the time the bid for MainStreet was made, the net asset of MainStreet was N69 billion, but Skye bank bid N126 billion for it. Thus, Skye was paying N59 billion more than the net worth of MainStreet at a time when it’s market capitalisation was less than N40 billion, which was certainly not sufficient to support the bid.

And judging by the bank’s numbers as at Dec 2013, it only had a maximum headroom of N26 billion of its Tier 1 Capital to fund the acquisition, meaning it needed to raise additional N100 Billion to be able to buy MainStreet.

The above numbers were enough to raise a red flag, but in October 2014, the CBN wrote a letter to Skye Bank communicating its “No Objection” to it being the preferred bidder for MainStreet Bank.

In the said letter, the CBN, however, maintained that fresh funds should not be borrowed from the banking system in line with existing regulation prohibiting borrowing from the banking system to recapitalise banks. And strangely, it acknowledged the poor capital adequacy level of the bank.

What Skye Bank eventually did to fund the transaction, it was said, was to first institute a N30 billion Commercial Paper programme to pay the deposit for the transaction. It reportedly subsequently obtained a bridge financing of N100 billion from four banks, which was backed using Mainstreet Bank’s AMCON Bonds that were due for redemption shortly after the closing of the transaction. This was in breach of the Companies And Allied Matters Act(CAMA) which provides that it is unlawful to use the assets of a company to buy its own shares.

Apparently, that’s what Skye Bank did. It borrowed money from four banks, used the money to pay AMCON for the N100 Billion balance for MainStreet. AMCON then redeems its’ bonds and Skye Bank takes the cash to pay back the four banks.

With the acquisition came even bigger challenges as nature turned to page 2015. Apart from its Capital Adequacy  falling to 7.7 percent, peer comparison showed that it was the only bank that made a loss – up to N40 billion – and had a negative profitability ratio. Indeed, by December 2015, the bank had lost over 55 percent of its share value.

The following year, 2016, the bank sank even deeper. As noted earlier, it lost about N125billion to TSA.  This added to the N127 billion of its own money used to acquire MainStreet, the bank was having a shortfall in excess of N250 billion. It was the combination of these factors that prompted the CBN intervention in July of 2016.

Having taken over the bank, the CBN injected about N690 billion into it and gave it a waiver on Cash Reserve Ratio for two years. But all to no avail. The bank’s deposit fell by more than 23 percent between July 2016 and March 2017 and deposits crashed from N1.08 trillion to N829 billion.

Determined, still, to get it right, the new board engaged the services of two professional accountancy firms – PwC and KPMG to handle routine audit, forensic audit and review of banking operations. The audits revealed the following:

“A negative capital position of N690billion as at December 2016, caused mainly by impairment of loans to the tune of N529 billion and transactions in suspense to the tune of N280 billion.

The audit further showed that the Bank operated two sets of books and this was responsible for the regulators/auditors inability to detect the massive losses and infractions, particularly the balance of N280 billion in suspense accounts. A special board committee was commissioned to unravel the mystery behind this N280 Billion.

The new board aggressively chased after debtors. Ayeni was said to repay $10 million to the bank and was paying $4.5 million quarterly for the facilities he took for the Ibadan and Yola Discos. In June 2017 it announced that it had recovered N60 billion from some debtors. It also embarked on a cost optimization programme it tagged ‘Sustainable Value Improvement Project’ to reduce the high cost to income ratio.

But in spite of all the effort little improved. The bank’s liquidity ratio still fell short of the regulatory standard. The bank increasingly found it difficult to do normal banking business. It was shut out of FX market and had to deal with series of court cases. But even more importantly, it suffered serious image challenges.

On September 21, 2018, CBN finally took the decision to revoke its license and create a bridge bank to take over its assets and liabilities. The apex bank injected another N786 billion into the bank bringing it to a total of N1.476 trillion it has committed to rescuing it.

And on September 24, 2018, Polaris Bank, a bridge bank with total assets valued at N611.5 billion and shareholders’ equity put at N98.4 billion, was born out of Skye Bank, with Ahmad as chairman and Abiru as Chief Executive Officer. And Ayeni is having his day in court.