Analysts weigh in as Access Bank, Zenith eye old-horse, Union Bank

BY PHILLIP ISAKPA & CHARLES ABUEDE

• Quest for further market dominance seen
• May not be transformational tie-up

Access Bank and Zenith Bank, two of Nigeria’s leading Tier-1 banks, the former with recent aggressive foray into the continent with a large acquisitive appetite, are believed to be sitting pretty at the table of talks that majority shareholder in Union Bank, the Bob Diamond controlled Atlas Mara, is intensifying efforts to sell its majority 49.97 per cent stake in the old horse Nigerian lender.

Union Bank was once one of the three or four musketeers of Nigerian banking, popularly referred to as the old generation banks; the others being First Bank of Nigeria; United Bank for Africa and Afribank. They were the golden behemoths of the industry with government controlling stakes and came to truly represent the meaning of “too big to fail” in those days, until government sold controlling shares through a privatisation exercise.

Analysts say, following privatisation, rounds of banking consolidation and the global and local financial crises of 2007-2009, while its peers moved swiftly to reposition themselves in the financial services industry, Union Bank was slow off the block and when its balance sheet got exposed in an avalanche of non-performing loans, it never really recovered to become agile to bounce back to its past glories.

Former Barclays Plc chief executive, Bob Diamond, co-founded Atlas Mara with Ashish Thakkar, head of Mara Group, as an investment vehicle to buy up African banking assets. It raised $325 million in a December 2013 initial public offering (IPO), after which it raised additional $500 million in debt and equity.

It then began to move in on targeted African banking assets closing a $265 million deal for the purchase of sub-Saharan African bank group, ABC and then an acquisition of 77 per cent of the Development Bank of Rwanda’s commercial arm. In 2014, Atlas Mara announced that it had exercised an option to buy 20.9 per cent stake in Union Bank of Nigeria for $270 million after initially owning 9.0 per cent, thus raising its stake to 29.9 per cent in that year.

But the investment firm has been called out for misjudging its entry into Africa as it has been selling down its interests, with Union Bank being about the biggest left yet. In November 2020 it agreed to sell its units in Rwanda and Tanzania and also last December, Access Bank plc was reported to be interest in acquiring its businesses in Botswana, Zimbabwe and Zambia, something that gives strength to its current link with Union Bank’s acquisition.

Atlas Mara had misjudged competition in Africa in an expansion drive and overpaid for acquisitions.

Union Bank is Nigeria’s sixth-biggest bank by market value and appears now to have come under the radar of Access Bank and Zenith Bank, having been listed among financial institutions from the Middle East down to Africa with a keen interest to acquire the Nigerian lender, including other assets of the Atlas Mara Group in Africa.

Bloomberg had recently reported sources close to Atlas Mara Limited, the largest shareholder in the bank with about 49.97 per cent holding, saying it has received several approaches from Zenith and Access, alongside other African rivals, such as Morocco’s Attijariwafa Bank. Other interested parties include some Middle Eastern banks and private equity firms.

However, the sources disclosed that some potential buyers have indicated interest to acquire all of Atlas Mara, the pan-African banking group’s remaining assets in Africa, including its Zimbabwe unit.

Although representatives from the suitors have declined to comment on the matter, it is believed by sources close to the situation that Atlas Mara has been working with Rothschild & Co. to consider options for its Union Bank stake. However, no final decisions have been made and there’s no certainty the deliberations will lead to a transaction for the time being.

But some analysts have weighed in on the development with suggestions that competition and continuous pursuit of scale and size remains a driver for such a move. A few others have suggested, though, that looking at the quality and current clout of Access Bank and Zenith bank, a tie-up by any of them with the old horse, Union Bank, may not necessarily produce transformational value.

Tope Fasua, an economist and an accountant, told Business A.M. that he sees further market dominance and size as key drivers of the move by the two banks.

“There is competition at the top there between these banks. Anyone that acquires Union [Bank] may be able to secure the spot and leverage their balance sheet size across Africa,” Fasua said.

He cautioned that banks like Union Bank come with deep legacy issues and what he described as “complicated balance sheet nightmares that should better be well considered.”

Fasua said he was, however, confident that both Access Bank and Zenith Bank are smart enough, and further advised that “their expansion strategy must necessarily incorporate fintechs, which everyone says is the future.”

In the race to acquire the Atlas Mara shares in Union Bank, it is largely agreed that the Nigerian Tier-1 lenders could gain an edge over other suitors as they have national and international knowledge of banking in Nigeria and Africa. But some experts are insisting that the deal may not be transformational for the top financial institutions owing to their dilutive Return on Equity (RoE) as gaining a minority shareholding in the bank may not speak well for Nigeria’s leading lenders; while placing other potential bidders from the Middle East in front to gain a decent foothold in the Nigerian market.

Adesoji Solanke, frontier and sub-Saharan Africa banks’ analyst at Renaissance Capital said of the deal: “Good for Atlas Mara if they’re able to exit successfully, as they’ve been selling a bunch of assets over the past year, to KCB and Access Bank respectively across different markets. Whether they get a good valuation for Union Bank is another thing. We suspect getting the other private equity investor block to sell will be critical as we wouldn’t expect a strategic bank investor to desire a minority shareholding.”

But Ad Ufomadu, head of research at Nigeria’s foremost rating agency, Agusto & Co, in response to questions, agreed with Fasua’s view that the move by the two much younger banks to get the old horse is aimed at strengthening market share, noting that Union Bank has an asset base of N2 trillion, customer base of 5.8 million and an extensive branch and digital network, something the suitors might be coveting.

“Union Bank is the oldest indigenous bank in Nigeria and has survived a lot of macro cycles in Nigeria and has remained in business. In the last 2 to 3 years, the bank has deliberately cleaned up its loan book of legacy loans that have impaired performance in the past,” Ufomadu told Business A.M.

He went further to say that what also makes Union Bank a very beautiful bride to go after is the fact that it has good brand equity, adding that the bank has successfully raised capital from the debt market in the last few years.

A London based analyst who works for a Nigerian bank but did not wish to be named, said his hunch is that both Access and Zenith are going after old-horse Union Bank for the brand, its client list containing older wealthier Nigerians.

An examination of the trending issue surrounding the possible acquisition, should Atlas Mara relinquish its large shareholding in the Nigerian commercial bank as it has done over the past years where it sold some assets in Africa to the Kenyan Central Bank (KCB) and Access Bank, it could look likely skewed, as sources said it puts Nigeria’s leading deposit money bank in pole position to acquire Union Bank to further solidify its presence across the Nigerian banking landscape, as well as increase its capital base and spread further across Africa.

This would lead to Access Bank further increasing its success quotient after it recently bought a controlling stake in South Africa’s Grobank, becoming the first Nigerian lender to venture into South Africa. This is being interpreted as a measure of expansion across the continent to counter stagflation at home and dollar shortages that have frustrated businesses, bringing the bank’s African presence to nine countries.

Meanwhile, in Access Bank’s continued quest to become a strong financial house across Africa and beyond, it also recently acquired majority shareholding in the African Banking Corporation of Botswana Limited to further strengthen its Southern African presence.

Both Zenith and Access can boast of robust performances across their top lines in their recently released financials with the latter reporting a mixed set of numbers in the first three months of 2021, with gross earnings recording a 5.7 per cent year on year fall while the profit jumped 5.0 per cent year on year to N53 billion. The gross earnings fall was primarily due to a 36.3 per cent and 36.9 per cent decline in trading and other operating income, partially offset by a blockbuster 103.5 per cent growth in net fee & commission income. Though, investor reaction to the moderate top line growth was lukewarm as the stock slipped 1.12 per cent versus a 0.1 per cent fall for the All-Share Index at the start of trading in May.

Meanwhile, the bank’s asset quality ratio was stable at 4.2 per cent, compared with 4.29 per cent as at end-Dec ’20.

However, Access Bank reported strong numbers across boards in the first quarter of 2021 with a positive reaction from the market after posting underwhelming numbers during the last quarter of 2020, with gross earnings declining 12.3 per cent quarter on quarter to N171.9 billion.

On the part of Atlas Mara, there has been no elaborate comment on the receipts of interest in other assets across the continent. But a deal could bring down the curtains on the largest shareholder in the Nigerian financial institution.

Anthony Goldman, a London-based political and economy risk analyst told Business A.M. in response to questions said it was a huge indictment on Atlas Mara, especially in its approach to entering Africa, in Nigeria in particular.

“Atlas paid too much and now appear to be looking to cash out just at the time when local banks are beginning to see the emergence of new opportunities for growth. From first to last it’s a massive indictment of Atlas’ strategy and claim to know the African market in general and Nigeria in particular. They haven’t done their homework,” Goldman told Business A.M.

In the meantime, Atlas Mara has said it has completed a planned restructuring process in the group and has extended until May 17, agreement with its creditors on the completion of the necessary documentation, adding that it is still in court with Norsad and TLG.