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The boards of directors of First City Monument Bank (FCMB) and FinBank yesterday announced the signing of a Memorandum of Understanding (MoU) for the recapitalisation of FinBank and the combination of both banks.

FCMB, in a statement yesterday, said the MoU execution followed a competitive process supervised and approved by the board of directors of FinBank, adding that the proposed transaction also has the full approval of FCMB’s board of directors. Finbank is one of the rescued banks by the Central Bank of Nigeria.

Meanwhile, FCMB, which also notified the management of the Nigerian Stock Exchange of the MoU on Thursday, said the completion of the transaction “is subject to the approval of the Central Bank, other regulatory agencies, the Federal High Court and the shareholders of both banks.” According to the statement, the combined bank would be a significant player in the Nigerian Banking industry with substantial enhancement to share of industry assets and revenues. “The bank will offer a comprehensive suite of banking services, drawing from both FCMB’s capabilities in investment banking, corporate banking and retail finance, and FinBank’s complementary capabilities in commercial and retail banking.” Commenting on the proposed union, Ladi Balogun, FCMB’s group managing director and chief executive officer, said,

“This transaction is consistent with FCMB’s strategic objectives and has a compelling rationale from a risk and financial perspective. Strategically, it allows us strengthen our commercial banking business and develop a more robust platform for retail growth.” “FinBank also enhances our market reach through additional capabilities such as its remarkably effective mobile and electronic banking platforms. Furthermore, given FCMB’s highly capitalised balance sheet, it provides further opportunities to leverage our capital in a highly efficient manner to the benefit of the shareholders of both organizations,” Mr Balogun said.

The bank also said it expect that the merger should enable the realisation of synergies which will further drive the profitability of the bank, adding that the integration process will benefit from FCMB’s experience in successfully and swiftly integrating several banks and delivering improved returns to shareholders of both organisations.

Vine Capital

This lays to rest the earlier attempt by Vine Capital Limited to acquire the bank. The cancellation may not be unconnected to the concerns raised by the Central Bank of Nigeria (CBN) on the memorandum of understanding entered by both institutions. The CBN opposed the move since Vine Capital had also made a similar move to acquire Afribank, another rescued institution.

“The central bank would have difficulties with approving the acquisition of more than one recently distressed bank by a private equity firm with a relatively untested track record in banking business,” stated a letter signed by Kingsley Moghalu, CBN deputy governor to Deutsche Bank, one of the CBN appointed advisers to Finbank.

This effectively opened the way for FCMB to actualize its bid, which was initially rejected on account of low valuation. FinBank is a commercial bank founded in 2006 from the merger of First Atlantic Bank, First Inland Bank, NUB International Bank and IMB International Bank.

Recent merger talks

Recently, Access Bank announced its intention to go into mergers with Intercontinental Bank while Afribank announced that it has gone into an agreement with Vine Capital Partners Limited and Phoenix Acquisition Company Limited. Meanwhile, First Bank and Oceanic Bank aborted their merger talks when the banks could not reach an agreement.

In the meantime, Adesoji Solanke, a bank analyst at Renaissance Capital, an investment bank, said while the recent mergers talks are a welcome development in the banking sector, companies involved in the process should give more clarity on their deals. “While we note that it is a buyer’s market, mergers are never easy and on-balance, mostly earnings dilutive. We (analysts) look to get more clarity on the specifics of any deal announcement in the near term, to further shape our bank-specific views,” Mr Solanke said.

He added that analysts expect 2011 to be mixed in terms of financial performance across the intervened banks, “but with an incremental profitability run-rate through the quarters.”