KCB Group’s impending exit from the management of Chase Bank has opened the door for interested parties to bid for the majority stake in the troubled lender.
KCB Group chief executive Joshua Oigara announced on Thursday that the bank will in two months cede the management of Chase Bank to the Kenya Deposit Insurance Corporation (KDIC) in order to make the selection of the new investor “open, transparent and above board.”
Mr Oigara told The EastAfrican that KCB Group, by virtue of being Chase Bank’s distress manager, would have been open to accusations of conflict of interest when bidding to acquire the bank. The exit will see the bank’s six managers return to the Group business, leaving KDIC and selected executives of Chase Bank in charge.
“We are scaling down our supervisory personnel in the bank, 50 per cent by August 31 and 100 per cent by September 30,” Mr Oigara said.
The exit of KCB management represents a significant change from when it was appointed on April 20, with a clear mandate to stabilise the bank and, upon due diligence, determine whether it would take over the majority holding in the institution.
“We are still interested but our management does not have to be there. Even if we were selected as the strategic investor in an open process, we would only appoint a managing director to work with the current Chase Bank employees,” said Mr Oigara.
The openness of the selection, however, will have to address concerns that KCB Group may have been given a head start through its internal knowledge of Chase Bank.
Mr Oigara, however, said this would not be the case because an independent due diligence is being done by a reputable consultant to inform KDIC’s negotiations with bidders.
“We have no exclusivity on Chase Bank. Central Bank will decide the new investor but we want a process that is open, independent and above board,” said Mr Oigara.
Chase Bank was put under receivership on April 7 after the management under-reported insider loans by a massive $77.51 million, triggering a run on deposits. A week later, KCB struck a deal with Central Bank and the KDIC to take over the management of Chase Bank in order to reorganise the bank, pay depositors up to $10,000 each and carry out a due diligence on the bank with the possibility of acquiring a majority stake.
Mr Oigara said KCB’s responsibilities at Chase Bank which included consultancy, carrying out the business and managing the assets and liabilities of the bank were on a commercial basis that would attract a fee.
“We have done our job and we have returned Chase Bank where it is supposed to be. The bank will be handed over by KDIC to the selected investors by September or October,” he said.
KCB was expected to conduct due diligence on Chase Bank’s books and, if it decided to proceed with the acquisition, provide additional capital to acquire the majority stake in the business.
Conflict of interest
In the past two months, however, Chase Bank shareholders have been raising questions about how the forensic audit and search for a new investor is being done.
Documents seen by The EastAfrican show that way back in April, the shareholders offered KCB a 72-hour exclusivity period to consider its interest in Chase Bank a day before the latter was announced as the “front office manager,” an ultimatum KCB ignored. The shareholders say that when KCB accepted the CBK job as receiver manager while also being a prospective buyer, a conflict of interest arose.
Some shareholders wrote to Mr Oigara last month claiming they have been discriminated against by being denied access to their accounts even as other customers were allowed to withdraw up to $10,000.
Some of the Chase Bank’s foreign shareholders, including German investment firm DEG, French private equity fund Amethis Finance and Swiss venture capital firm Responsibility, who controlled 20.9 per cent of the lender, have asked their respective diplomatic missions in Nairobi to intervene in the matter.
The shareholders wanted KCB to form a separate taskforce made up of them and senior officers of KCB to agree on the mechanics of selling the bank including appointment of an independent auditor, preparing a sale document and placing expression of interest notices.
“We understand that KCB itself may have an interest in participating in such an acquisition — and the shareholders would welcome that, subject to a fair and transparent process. We believe that KCB (or for that matter any credible banking or financial institution) would require such a transparent process to be in place anyway,” the shareholder letter reads.
The EastAfrican has also learnt that KPMG South Africa are already at the Chase Bank premises, to conduct due diligence ahead of the expected sale. The audit firm is expected to look at the legal, financial and credit assessment of the bank which will inform its sale position.
It is understood that the open market tendering process will allow the real value of the bank to be determined.
“There has been concerns on the bidding that has since taken a diplomatic angle with country-to-country negotiations on its takeover ongoing. We are also seeing a scenario where international banks who are interested in getting a banking licence will now have an opportunity to put in their bid, further raising the stakes,” a source with knowledge of the goings on at the bank said.
In April, CBK had received offers from six local and two foreign banks interested in buying Chase Bank before it turned to KCB to steer its recovery.
- April 7: The Central Bank of Kenya (CBK) places Chase Bank under receivership and appoints the Kenya Deposit Insurance Corporation (KDIC) as a receiver manager for 12 months, following revelations that senior officials had lent themselves and their business entities a total of $166 million, and that the bank had a further $87 million in bad debts.
- April 20: KCB is appointed the receiver manager of Chase Bank on behalf of the KDIC, and is expected to conduct due diligence with a view to acquiring a majority stake in the distressed lender.
- April 27: Chase Bank reopens to the public, allows access of up to $10,000 by depositors and accepts new deposits. This withdrawal cap allows 167,290 account holders (or about 97 per cent of customers) to receive their funds in full. Chase Bank receives $35 million in support from CBK.
- May 27: KCB says that it expects to complete a due diligence on Chase Bank by end of June, and will use its findings to make a decision on whether to acquire a controlling stake in the mid-tier lender.
- June 2: KCB and KDIC announce plans to hire forensic auditors to investigate the state of affairs at Chase Bank prior to its collapse and advise on its future.
- July 27: KCB announces that it has entered a crucial phase that will focus on setting up a framework that will allow the bank to deal with maturing deposits, new deposits, opening up new lending and conducting a due diligence on Chase Bank.
- August 4: KCB announces that it will relinquish its management control of Chase Bank and hand it over to a new investor in two months, through a process managed by KDIC. It also says that it is still an interested party in the takeover process.