Update on AMCON: Mustafa Chike-Obi Clarifies

Someone was kind enough to forward my blog post yesterday to Mustafa Chike-Obi, AMCON CEO and he said he wanted to explain some of the things I was wrong about in my post.

We had a 17 minute telephone conversation this evening (16/12/12) so this is an update to explain what I learnt after speaking to him. I also have the audited AMCON accounts which I got this evening but I havent had the chance to go through them yet. So this is basically me relaying Mr Chike-Obi’s side of the story and not an analysis of the numbers.

1. Firstly, he didn’t quite like my ‘Grand Theft AMCON’ headline. I tried to explain that it wasn’t necessarily malicious but more a play on the ‘Grand Theft Auto’ video game (he said he knows the game). But he seemed quite upset what looked like me trying to malign him and his staff. That certainly wasnt my intention and he stressed, several times, that he wasnt making any money from doing this.

So I’d like to apologise to him and any AMCON staff who felt offended or maligned by that headline. The issues at stake are far more important than calling people names and this is an issue that doesn’t need any kind of distraction.

2. Now to the meat of the matter – AMCON reported a loss of N2.37trn on Friday. Now according to Mr Chike-Obi, this amount in its entirety was what the government put in the banks to replace depositors’ funds that had simply disappeared. According to him, this money belonged to 10 million depositors. So you had N10,000 in Bank XYZ but due to mismanagement and all sorts, that money was actually no longer there.

Interestingly he did mention that N2trn of that amount belonged to various government agencies. This further reveals the almost incestuous relationship going on between government and the banks. This is also reflected in the fact that govt is the biggest borrower from the banks crowding out the private sector. I have seen stats that show something like N7 out of every N10 in circulation is govt related.

It’s also interesting that govt agencies had N2trn sitting as deposits in the banks. Of course I don’t fully know the composition of these deposits but it would be interesting to know which govt ministries/agencies/departments had these funds in the banks.

Note that this N2.37trn is gone from the point of view of AMCON. It cannot be recovered. So of the N300bn which belonged to private depositors, some of it could be yours, Dear Reader.

3. He said that without this bailout, the problem would have spread to the other banks and everyone would have lost confidence in the entire financial system. I am not a fan of bailouts and I concede that my opposition to them is based a lot on ideology. So I don’t expect to win an argument as to why banks should not have been bailed out. In my own case, I would have refunded depositors but then made sure the banks were wound down completely and made sure they disappear from the financial space. But that’s me and I am certainly not Mr Chike-Obi who had to do face the reality of the situation and deal with it.

He also mentioned that Hallmark Bank which went bust a decade ago still has outstanding items till today to resolve. So in his view it was much better to bail out the banks and allow them to continue regardless of them being zombies.

4. Now I mentioned the N1.6trn ‘acquisition costs’ that he mentioned to the public. It appears I misunderstood or misread his quote to Bloomberg. According to him this is what AMCON paid in total to acquire the loans it did. These loans come to a total value of N3.3trn so AMCON paid, according to him, 40kobo for every N1 loan it bought. Now this is a completely different proposition from what I thought.

Looking at the list of loans, it does look like AMCON paid more than 40% for the loans – the Zenon loan was bought at 64% of the face value by a rough calculation of the numbers. I will admit I havent totalled up the numbers as it has to be done manually from a PDF sheet and the document seems to have a lot of typographical errors. So perhaps some of the loans were bought for much less than 40% of their value such that when the whole portfolio is averaged out, you get the 40% he referred to. I will do this sometime this week and see what the numbers look like.

5. He was very adamant that AMCON was going to make money off these loans eventually. If they did pay 40% for the portfolio of loans they bought, then it will be very hard for them to lose money as with a little bit of aggression and diligence they should be able to recover the money from the debtors. I wish them all the best with this. Any AMCON debtor reading this – be nice and repay what you owe.

6. I also asked him about the N100bn sinking fund which the banks are supposed to contribute to as a way of repaying AMCON. He said this was an annual charge to the banks. He mentioned this was calculated as 50 basis points (0.50%) per annum of the banks’ profits (or revenues, I didn’t hear this part properly. Blame MTN). This charge will go on for 10 – 15 years. Based on this, the numbers start to make some sense – if the banks stump up N100bn every year for 15 years, we get to N1.5trn which is close enough to N1.6trn. Given that this charge is based on profits (or revenues), he fully expects to raise more than N100bn per annum in the coming years as the banks fully recover from the crisis.

This sinking fund is what will be used to finance AMCON’s activities in future making it an independent/stand alone body.

Update: Someone has been in touch to tell me that it is actually 50 basis points of the banks’ assets. Apparently the banks that were ‘clean’ during the crisis do not particularly find this funny but if we are to go by Mr Chike-Obi’s logic, then the failure of one or more banks would have pulled down even clean banks. So even if a bank didn’t receive a bailout, it got an implied bailout. I am guessing this is the logic behind a seemingly crude blanket levy on all banks.

7. He also mentioned that the government has only put in N10bn into AMCON so far (which checks out with what was reported). The rest of the money came from zero coupon bonds, of which N1.7trn is due to be repaid by the end of 2013 at interest rates of around 11%.

I asked how AMCON was planning to repay these loans and if the govt was going to have to step in make good its guarantee. He literally cut me short here and said govt was not going to be needed to come in at all. ‘We have enough cash to pay the loans’ he said. Obviously AMCON doesn’t have N1.7trn sitting somewhere so I am guessing he meant they have enough cash to refinance the loans. He also mentioned they are looking to refinance the bonds to 7 year terms. I suspect that at the time the initial bonds were sold, 2 years was the best they could obtain so they had to take it. Perhaps next year investors will be willing to take a longer term view.

So who are the investors who put up the money for these bonds? It is not immediately clear but what is clear is that the CBN is prominent as a source of funding for AMCON. Without beating about the bush, this is straightforward electronic printing of money…not the kind that disappears from NSPMC’s offices. In summary, AMCON needed money to inject into the banks to guarantee depositors funds and buy off non performing loans. The banks in question have accounts with the CBN. CBN wants to ‘invest’ in AMCON to allow it fund the banks. Well, CBN simply ‘prints’ the money and credits the accounts that need to be credited.

You as the innocent reader minding your own business simply bear whatever inflation is caused by increasing the supply of money 🙂 It’s more complicated than this in practice of course.

8. I asked about the seemingly slow pace of recovery of the loans which meant that only N85bn had been recovered so far. According to him, the plan was to recover nothing at all in the first year and then 40% in their second year. So the fact that they managed to recover N85bn means they are slightly ahead of the curve.

9. On a personal note, he was at pains to stress that he wasnt benefitting personally from all this. He went as far as saying he lived a far more comfortable life in America before moving to Nigeria to take this job complete with a smaller residence.

There’s a bigger point to be made about this. There really is no reason to trust anyone who works for the Nigerian govt. I don’t and I will advice anyone that a healthy amount of cynicism is good for you.

BUT are there people who have actually made a sacrifice to serve Nigeria? How do we move away from being cynical and at least listening to what these people have to say? I don’t have the answers to these questions but I do think there are a few good men out there. The only way to find out is to test each person. Mr Chike-Obi was very keen to explain AMCON’s side of the story and stressed there was nothing hidden about what they were doing (I didn’t ask about the rumoured sweetheart deal that Femi Otedola got recently, details of which have not been disclosed). He also extended an invitation to come and look at all their models. I plan to take up this offer when next I’m in Lagos.

I think young people, in order to be taken seriously, need to engage with these things. Some of it is mind numbingly dull and arcane even for finance professionals. But what needs to be done needs to be done. The AMCON numbers almost look as if there is a seperate economy going on somewhere in Nigeria made up of debtors and Central Bankers coming to their rescue. It is difficult to get excited about it but it is compulsory.

The audited AMCON accounts are below. A good place to start. We are all affected one way or the other by these things. Even if you don’t have money in the banks, you will be affected by whatever inflation is caused by the increased money supply.

There’s also the stink that comes from people getting bailed out for bad behaviour. He mentioned that none of the CEOs who were responsible for running their banks into the ground remains in office today. Fair enough. But what do regular people who can be put out of business by a N20 increase in the cost of diesel think about this? We need to at least begin to put in place a mechanism that ensures that this kind of thing does not happen again.

The UK and US authorities are leading the way with the recently announced G-SIFI (Global Systemically Important Financial Institutions…a fancy name for Too Big To Fail) which seeks to put in place a framework for ensuring that any bank that implodes can be safely and quickly wound down and removed from the system without requiring taxpayer bailouts.

Finally, a recent report by The Economist on the future of banking mentioned that banks in the US these days account for just 30% of lending these days. The rest of the gap is made up of all kinds of financial institutions including online peer-to-peer lenders. I think I like the look of that…the move toward a system that is less reliant on banks. In the long run this is good for everybody as the reputational damage to banks when the public see them being bailed out can never really be quantified.


I will be combing through the accounts in the coming week along with a couple of friends. If you find anything interesting, leave a comment below.



13 thoughts on “Update on AMCON: Mustafa Chike-Obi Clarifies

  1. 1. Lipstick on a pig?

    2. AMCON will NOT turn a profit on these. There’s a lot underlying the decisions made to allow for that, given the obvious consequences of those decisions as we are beginning to see.

    2. The US Gun Lobby has got nothing on the Nigerian ‘Public Funds in DMBs’ lobby.

    3. AMCON will be a very big mess when Mr Chike-Obi (and his current team; as well as their friends at the CBN and elsewhere) leaves. Or before then. Sustained negative political interference and succession will aggravate this.

    4. How frustrating is it that given the justifications for the AMCON intervention, the FG continues to squeeze out the Private Sector in the lending space, presenting some lazy bankers with a ready alibi for such rent-seeking, easy positions?

  2. God will bless you and your family.on your request for nigerian youth to read this audited account.please don’t rely on them or u will be disappointed.
    An average nigerian youth is concerned about swag,premiership,wizkid,davido,brazilian hair,oniru,cinema etc.they believe all government workers are thiefsand strive to join them is stealing.we need a serious values re-orientation.God save nigeria.

  3. Lets also remember that this is FY 2011 in between AMCON has sold down on its ~56% stake in Union Bank valued at around ~N385b. Union’s results this year suggest it has turned the corner and I think they seem set to rebound. Plus AMCON can still sell off its three remaining banks and the South Africans are sniffing seriously two have been giving licenses this year although i still think that wont happen over 2013 possibly afterwards.

    Anyway last year the sinking fund deal was around 0.3% of total assets not profits and the word is Chike wants to bump this to 0.5%. total bank assets are ~17trillion and we assume an optimistic growth rate that still wont stump the 1.7tr due next year. My computations in an optimistic case scenario regarding recoveries and bank asset growth still leaves AMCON needing around 800b which is more than what the FG plans to borrow domestically next year.

    This leads to the question that has wracked us all year. How is AMCON going to fund the maturing bonds next year? we heard about a possible bond switch by the DMO but that didnt materialise this year though I think since rates are trending down due to the JPM/Barclays listings they might pull a quick one and refinance early next year. Since the banks they are the ones holding all AMCON bonds im guessing it would be easy to shove it down their throats. however now this is tricky and I believe some have been offloading this on to the CBN no one knows where that money is coming from but hey we leave in a QE world.

    On bailouts I don’t like them too moral hazard ish and all but I’m Keynesian 🙂

    1. Humour me here, maybe I dont know how to read the figures – the net credit to govt seems to be increasing albeit not too dramatically no?

      And generally I was also talking about govt bond sales etc

  4. The fine art of Internet blackmail, first the guy who claimed to have lost his iPad in an airplane (I wonder if he would have made so much noise if it was a keke marwa?) , now this, Chike Obi should remember never to give in to a blackmailer, if he has nothing to hide, he shouldn’t open the doors to someone who started by libeling him to get noticed

    1. Blackmail?
      Calling you an idiot will be an insult to all well meaning idiots out there.
      I can only imagine that you are hopelessly stupid and need to be rescued from yourself.

      P.S I am blackmailing you so be wise not to respond

  5. Hello Feyi:

    What would be implications of AMCON’s planned sale of the 3 Nationalized banks by the end of 2013 or 2014 on their books? It is an open secret that banks like the FirstRand group who have already secured a Merchant Banking License as Rand Merchant Bank [RMB] are very keen on taking up these banks.

    I am also beginning to get worried “about the addiction of the Nigerian investing public in Govt Bonds” – as is always the case within our polity, whenever you “Harvardees” [pardon my pun, you no say na Jakande school I go] “import” one newer thing from abroad, this market is always bound to “do it so much” that they eventually abuse it – now the banks would rather invest in them than lend to the entrepreneurial society just as the State Govts are having their own bonds oversubscribed without anyone paying attention to how these Governors would judiciously use these monies within these states.

    In a few years from now, these same “Oloyinbos” running our markets would begn to blow another version of “their English” about how bla bla bla bla…and as usual their own versions must always be seen to the right one or you’d find yourself being labeled a half-bred scholar if you stand up to challenge them…

  6. Good post. I first read this during Christmas. I typed something smart but lost it. Anyway, all that went with Christmas chicken.

    I always envy people who believe these economic technocrats can actually make any meaningful changes in the fundamental way we do “business” in Nigeria. That kind of optimism is admirable.

    Point 3 of Yusuf’s reply summarizes my Opinion on these. I just don’t see any way we can fix our economy without first fixing our politics.

    Nigeria may be conomically promising, but politically, it’s a fools paradise, these things won’t work.

    Those who will steal the money are more powerful than those who want to keep it safe. The current political system favours the latter. Chike Obi Jr will “wise up” or tire out soon…

      1. If we all resigned ourselves to “fate” that things will never get better then we can as well “pray to God to make the rapture happen today!” Things can only get better not worse – that’s the overall assumptions that we all make when we wake up everyday in our personal lives – that’s the same thing we must apply in dealing the issues that beset our Nation.

        The gentlemen and ladies running our economy today all largely had other things they were doing in more developed and organized climes before they took the sacrifice to come home and try in sorting out these issues – one of them almost lost her mother’s life to kidnappers in the last couple of weeks – that must count for something…that’s the outlook that we younger Nigerins must also adopt towards our dear country…

  7. Yeah, yeah. FBA says to be optimistic. So, we are. In this fool’s paradise called Naija. All the macro-economic theories in the world will not save our economy; will not deliver the ‘good life’ to our people except we fix our morals and our politics. It is just too easy to steal/misappropriate public/common assets in Nigeria. And get away with it. Even though I am optimistic, just give us another fifteen?years, AMCON II will be here sorting out the new ‘peculiar mess’

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