We are pursuing steady growth –
Yemi Adeola, MD, Sterling Bank
By EMEKA OKOROANYANWU
Monday, April 14, 2008
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•Adeola
Photo: Sun News Publishing |
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Mr Yemi Adeola is the Group Managing Director of Sterling
Bank Plc. Experienced, suave and a workaholic of sorts, Adeola
emerged the managing director of the bank after the consolidation
exercise of 2006 which saw five banks merged to become today’s
Sterling Bank.
Since then, he has been building a solid structure for the
bank, weaving together human and material capital to set the
bank on a sustained path of growth. In this interview, Adeola
said his bank is pursuing a steady growth path which aims
to place it among the top 10 banks in the country.
According to him, the bank now has 100 branches, 23 more than
it had before the consolidation exercise. He also disclosed
that Sterling Bank has since after the banking consolidation
taken 23 institutions to the capital market to raise funds,
saying that the present management has embarked on the exercise
of tidying up the bank’s books.
On the proposed merger with Ecobank, Adeola said the bank
is in dialogue with Ecobank at both board and management levels
for the possibility of a merger. “We have concluded
due diligence and we are now at the point of valuation. After
valuation, we can now know whether the merger is for real
or not. In another four weeks, we will be able to say whether
the merger is working or not.” Mr Adeola spoke on a
number of other issues.
Sterling Bank and integration
If you had asked that question a year ago, the tendency would
be for me to be describing the legacy banks that formed Sterling
Bank. But today, we’ve put that behind us, we don’t
even want to start mentioning all those any more, because
they’ve stopped being in existence two years and two
months ago. This is Sterling Bank, one of the 25 licensed
banks as at January 1, 2006- a merger of five banks as you
would know. You would also agree with me that banks that have
been through merger or combination have witnessed a bit more
stress than those that stood alone.
If you cast you mind back at that time, five banks (I mean
of the 25 that survived) refused to do any combination, preferring
instead to stand alone. Two banks just went for two-way merger,
then we have another five that went for three-way merger-
it should be relatively simpler to do three-way. About eight
banks went for acquisition, look at First Bank; they just
took MBC- Merchant Bank Corporation and FBN (Merchant) Bank-
that was an acquisition.
I am giving you this background to show you how easy it is
for those who didn’t merge at all, for those who went
for acquisition, for those who went for two or three-way merger
(it was) extremely easy. About three or four of us went for
five-way mergers. Five-way mergers weren’t meant to
be easy because you are doing everything five-five-five. So,
integrating posed a major challenge, but I’m happy to
tell you that we did it so well at Sterling Bank that I almost
didn’t believe it. From day one, we opened as one bank,
within three months we were able to integrate our technology,
able to integrate our people_ to do everything that should
be done in a combination. What we then set out to do thereafter
was to lay a very solid foundation. We deliberately took our
eyes off profitability, the idea was lay the foundation and
let it be solid.
One of the banks that formed Sterling Bank happens to be the
oldest merchant bank in Nigeria- 45 years of history is not
something you want to destroy over night. So, we took a conscious
decision to take out time to put processes in place- processes
that would work- okay! Such as operational manual, credit
manual- name it. Anywhere you are building and you want to
build properly, it takes a while, you don’t rush it.
So, we’ve not been too loud in the market, not because
we were not doing anything, or because we didn’t know
what we were doing, it is because we’ve been laying
a solid foundation. And we are happy to report that we’ve
done that for two years. Now, we can only grow from strength
to strength.
Main areas of operational focus
We chose three main areas to focus on- investment banking
and I’m sure you hear about us as far as taking companies
to the capital market, doing exotic corporate finance transactions
and what have you. The second one is trade finance. Trade
remains pivotal to the survival of the Nigerian economy, we
import virtually everything, so for you to be active in the
FX (foreign exchange) market, you must have a robust trade
finance group or department. The single largest investor in
this bank today is the State Bank of India- this is the largest
bank in India. And if you look at trade flows (in and out
of the economy) this days, it is between Nigeria and Asia,
so we deliberately leveraged on our relationship with the
State Bank of India to enable us make the best of our trade
activities and we are beginning to enjoy that. State Bank
of India was the first international bank to extend a $50
million line to Sterling Bank and we have some of their people
seconded here, they render assistance from time to time. So
we are doing well in trade, we could do a lot more and as
we stabilize, we are going to do a lot more.
The third one is in the area of consumer finance- consumer
lending and if you look at the Nigerian economy today, you
can see the emergence of the middle class once more. During
the (Gen Sanni) Abacha era, this class didn’t exist
at all. What does the average worker want? He wants a home
of his own, call it a flat, call it a duplex; he wants a car
of his own; he wants some assets of his own and in those days
unless your employer gave you a facility, you couldn’t
own any of this things.
But today, Nigerian banks- especially Sterling, are making
it easy for people to acquire assets to acquire properties,
we do mortgages seamlessly. For those of you who would recall
what happened about a year ago, regarding 1,004 (flats in
Victoria Island, Lagos), we financed not less than 30-35 per
cent of the acquisitions and this is the middle class, this
is the only way we can assist towards the development of Nigeria.
So, we are focusing on these three areas. Of course, we are
doing everything a bank can do, our licence is a wholesale
banking licence, but you must have your areas of focus and
not be Jack of all trade and master of none. So, these are
our areas of focus.
Branch network
In terms of branch network, we have about 100 today including
cash centres and in our two years of operation, I think we’ve
put in place 20-23 branches. In other words, when we started,
the combination of all the branches from the five banks, we
had about 77 branches, but we’ve added another 23, so
we now have 100 branches. Our clientele is growing by the
day, we are also talking to a partner, I’m sure you
are aware that we are discussing with Ecobank. The way to
look at that is this, in the first round of merger, Prof.
Chukwuma Soludo gave us a deadline- merge now, and we realized
that that was the very first stage. The second stage is either
you grow organically or grow by combination, but you must
grow because you cannot just be a N25 billion bank, that is
the only way you can reach out to more customers- more Nigerians
and enhance the development of the economy.
Between raising more capital and merger
So, we thought that raising money on its own is not the solution
to the problem. You are all aware that anybody can go to the
market today and raise money, but what do you do with the
money, what are you trying to achieve? It is all about size.
Will it be simpler or easier to combine? Now, unlike in the
previous experience, you don’t have a gun to your head,
no deadlines (so), won’t you (rather) want to do it
properly? One of the lessons of the previous mergers- because
of the time constraints, because of the deadlines, banks rushed
a lot of decisions and till today, some of them are still
managing- still trying to sort out legacy issues.
If you have all the time, then do your due diligence properly,
check everything that should be checked, and after due diligence
go to the next level of valuation. What is the value of this
entity, what is the value of the other entity and then you
determine the exchange ratio and you take this to your shareholders,
(and) if the exchange ratio is found acceptable. If the exchange
ratio is found acceptable, then you have a deal you move on
and have a bigger institution.
Not more than 10 of the 24 banks we have today control about
72 per cent of the market in the banking industry, so if you
are not among the top 10, it means you are only battling with
between 25 and 28 per cent of the market- 14 of you. And those
big ones are not going to stop, they still want to increase
their market share and as they take more, yours will be reducing,
so you must do something.µµµµµµµµµµµµµ
For us, the easier option is to go to the market and raise
money, it’s a very easy option, but when you have the
money, okay you raised N50 billion, what next? Does that give
you size?
Not necessarily, but if you have an institution that has 150
branches and you have 100 and you combine, you immediately
have 250 branches. So, if you are talking branch network,
you’ll be among the top 10, if you are talking asset
size, you’ll be among the top 10, if you are talking
management capability, you’ll be among the top 10. These
are some of the reasons we opted for a merger. We have not
abandoned the option, we have not jettisoned the option, but
were saying we will not do it the way we rushed the first
merger, we’ll do due diligence properly.
Merger with Ecobank
I’m happy to report to you that we’ve concluded
due diligence and we are now at the point of valuation. Valuation
discussion typically will last two, three or four weeks, depending
on how the negotiations go and it is only after valuation
that you will know whether the merger is for real or not.
If one party feels grossly under-valued, he has the choice
to say I’m not doing again, nobody is forcing you, but
if both parties are able to adopt a bit of give-and-take and
agree to disagree and disagree to agree, then you can say
okay, this is looking attractive.
What am I saying? I am saying that in another four weeks,
at the very latest, we’ll be able to say authoritatively
that the merger is for real or not. If the merger is not for
real, it would be purely based on professional reasons- (for
example) we disagree on valuation, not because we don’t
believe in the concept, not because we don’t believe
in the idea that we should merge. We are optimistic that we
should be able to disagree to agree, we are very optimistic.
That is on the discussion with Ecobank.
If, for any reason, the merger does not work, we know immediately
we must raise capital and we go to the market and raise capital.
We also know what to do with the capital at the appropriate
time, but let us not pre-empt the merger, let us give the
merger a chance, we are in dialogue with Ecobank at board
and management levels. We believe that the synergy we see
in the combination today is still there.
The synergies
If you look at many Nigerian banks today, after raising the
money, they will tell you that they are going to open in Ghana,
in Abidjan, in Uganda. Its expansion, Ecobank is already in
23 African countries, so you don’t need to go and open
anything anywhere. And as long as Nigeria remains the mainstay
of the West African economy and one of the three leading countries,
if you are talking about the African economy since Africa
is key as you raise capital, so if you have a bank that is
already in 23 countries, it is exciting.
We have been able to establish ourselves in investment banking.
We are one of the top three today in Nigeria if you are talking
investment banking.
They will like us to replicate it in other African countries.
So, we’ve looked at the dynamics, the synergy, we’ve
looked at the pros and cons of the merger and professionally
we see a lot of sense in it. We just need to agree to what
will be in the interest of our shareholders, as far as valuation
is concerned and those meetings are ongoing, because you’ve
been wondering what’s been happening to this merger.
It is as if the merger has been going on for over a year,
but the truth is that it has been on for just three months
and the first thing you do in a merger is to appoint consultants
to go into the two institutions and look at everything. So,
we appointed Akintola Williams Delloitte to do due diligence
on Ecobank and they appointed Ernst & Young to do due
diligence on us and those consultants were in, digging and
digging and digging just as our own consultants were there,
and then they submitted the reports not too long ago.
Immediately they submitted the reports, they’ve gone
to the financial consultants to start valuing the two institutions.
We are asking Afrinvest (Financial Services Limited) to do
the valuation, (and) they are asking IBTC (Chartered) to do
the valuation and we have the first draft valuation report
we are examining, we are discussing and as I said, within
the next three weeks, we should be able to know the final
position on this merger.
Opening of new branches
You are partly correct. Up until three months ago, we opened
23 branches. It is not common to open 23 branches in 15 months,
we did that. We must admit that we didn’t make too much
noise, we didn’t even celebrate the branches the way
things are typically done in Nigeria and I gave the reason.
I said we should lay the foundation properly; there is no
point making noise each time you open a branch. Lay the foundation,
build an institution, and then celebrate the institution.
Let me use the analogy of a baby. You could have a baby and
you say okay, second birthday, lets have party, third birthday,
lets have a party, or you could say wait till you are 10,
then we’ll showcase you.
We wanted to build an institution that we are proud of and
the numbers speak for themselves, then when we start talking
about our products, people and what we have achieved, then
it becomes really cool. Few months ago, when we decided to
pursue the merger with Ecobank, it didn’t make sense
to keep on doing things the way we were doing things- building
branches. Okay, lets talk, if we are at 100 and they are at
150 and with the purchase and assumption they were also doing-
you are aware that they have taken Hallmark Bank and All States
Trust Bank, there is no point duplicating branches. Let us
see where and where we will be located, we then take a joint
decision as to how do we move forward in terms of branches.
We have been relatively quiet and the reason is because we
wanted to see how far we could go with the merger.
Going solo with support from SBI
Going to the market to raise money is not the problem, we
have (so far), taken 23 institutions to the capital market
in the past two years, including not fewer than five banks
and they’ve all been extremely successful. And if we
could take companies, including SME (Small and Medium scale
Enterprises) and we raised money for them without stress,
then, the fear is not about going to the capital market and
raising money. If you are talking experience, those who run
Sterling today and those who have been part and parcel of
Sterling from inception are some of the brightest minds we
have in Nigeria today.
Some of you would remember Ben Akabueze who used to be the
MD of NAL (Bank), Tunde Dabiri who was MD of, at least, four
banks in Nigeria and he was trained by Chase. Mr. Raul has
been with SBI for the past 26 years or so, a consummate banker;
Alhaji Garba Imam, Chase trained and then he worked with BPE
(Bureau of Public Enterprises) for many years before he came
back to NAL; Mr. Lanre Adesanya, who is away (was) trained
by the Belgolaise (now Fortis Bank); and I spent the bulk
of my life with Citibank- trained all over.
So, in terms of capacity, in terms of capability I haven’t
even mention those running our subsidiaries like Mr. Biodun
Dabiri et cetera and I haven’t gone to the level of
our general managers who are very competent and who have been
around. So, it is not about competencies, it is not about
capacity, it is not about ability or inability, (rather),
it is about building an enduring institution that would be
the pride of the shareholders, that would be the pride of
the employees all stakeholders.
What does it take to adopt a selfish approach and say I am
chief executive, what else am I looking for, I have all the
competences- lets go- 20 more branches this year, another
30 next year, and we continue as a small bank in a world that
is moving at the speed of light. Why would a First Bank want
to combine with an ETI (Ecobank Transnational Incorporated)-
First Bank is large, they’ve been around for long, why
would they want to talk with an ETI; why would an Atedo Peterside,
with all his experience give IBTC (Chartered Bank) up to Stanbic
(Bank) and why would Stanbic still be looking for another
bank to acquire? Why would a Tony Elumelu, after the STB/UBA
merger still be looking for another bank and we can go on
and on asking why? Its all about growth, its all about size,
its all about would I rather own much in a tiny pie, or own
little in a bigger pie. The world has become a global village,
whether we like it or not, in many banks in the world today,
their operations are outsourced to India, to China- banks
in the US, banks in Nigeria You see people, but the real operation
is elsewhere and you either align with globalization, or you
perish.
That is the reality.
Let me correct an impression that the merger has been consummated,
if I ever created it. No, the merger has not been consummated.
To consummate a merger, phase one is due diligence and this
takes typically between three months to 12 months if you want
to do its properly, because, if you are talking due diligence,
you are talking credit due diligence, you are talking credit
due diligence, you are talking technology due diligence, you
are talking human resources due diligence, you are talking
operational due diligence- everything that you do, people
would go in and evaluate the risk. By the time you are done
with due diligence, you move to valuation and there are several
methods of valuing institutions, depending on the one you
want to use- from net assets to earnings method- name it.
You have consultants who would say this is the value of this
institution; this is the value of that institution.
You leave that, go to exchange ratio, you leave that, you
go to negotiation, then to the general meeting. If you don’t
have the vote of those who own 75 per cent equity you cannot
move into a merger scenario, even if you are able to have
74, the merger cannot be consummated. After attaining the
75 per cent equity majority, you need to go to court and that
level, the minority, those who own 25 per cent or less can
still raise an objection and the case would go on and on until
the judge rules and sanctions the merger. So, a merger is
a long process and people embark on it when they see some
synergy. If it’s a one man thing, it’s an acquisition,
that’s different from a merger.
Lead institution among the two
If you are talking about Eco and Sterling, size wise, they
are at par, one is not bigger than the other as such, so the
issue of one institution conceding leadership to the other
does not arise. We don’t know if we would see a merger
and that is why they call it a merger talk- we are talking.
The only sensible thing as business people is don’t
let the discussion go on for ever, know when to draw the line.
And I deliberately put it well that within the next three
or four weeks, we must draw the line- are we doing the merger
or not.
If we are doing the merger, the reasons will be so obvious
and I just gave some. I said when banks raise money in Nigeria,
the first thing you hear is that we want to fix our technology,
we want to build more branches, we want to expand to other
African countries. We already have the African countries,
why go through the headache of raising money to go to other
African countries. One thing you must not do in a merger scenario
is you must not destroy shareholder value. If your total capitalization
today is N100 billion, don’t go into a merger that will
reduce your total capitalization to N50 billion, because you
would have destroyed shareholders value. But if the N100 billion
is going to become N150 billion on day one of the merger,
then you are doing a great service to your shareholders.
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