This week, depositors at the closed Imperial Bank got some welcome news with the announcement that a third payment was going to be paid to them.
This comes after a first payment last December of up to Kshs 1 million per depositor that was paid through KCB and Diamond Trust banks and another one earlier this year of up to Kshs 1.5 million that was paid out by NIC bank.
This third payment is unique in that it targets the remains depositors many of who are believed to be large depositors. After the first payment, the CBK had expressed concern that some depositors had not bothered to claim the funds offered. But assuming that someone has funds of ~Kshs 50 million to Kshs 100 million at the bank, they were unlikely to be elated to received 1 million in the first or second rounds.
This time depositors can access up to 10% of the deposits, so the people above would get Kshs 5 or 10 million – still small, but much better- and depositors have a month to file claims at any NIC bank branches to receive the payments (deadline 31 Jan 2017).
The news also comes after a few days after newspaper stories that revealed the names and evidence of correspondence of CBK officials who may have benefited inappropriately from the largesse of the management of the bank that they were supposed to have supervises.
$1= Kshs 102
There are two or more sides to every story, and there are several at Imperial Bank. This is just one. The Central Bank (CBK) and the Kenya Deposit Insurance Corporation (KDIC) have accused the shareholders/non-executive directors of the bank of being negligent in allowing the fraud at the bank estimated at Kshs 34 billion (~$34 million), and collecting dividends from what was a shell institution. The shareholders have fired back in replying affidavits saying they were not party to the fraud and that, among other things:
- Documents they saw as directors (at board meetings). had been doctored by management of the bank (led by the late group managing director).
- CBK officials helped doctor the records for many years during their inspection audits.
- CBK officials received personal favours from Imperial Bank managers.
- CBK staff and Imperial managers conspired to prevent one shareholder from becoming an executive director of the bank, which would have created a second centre of power (other than the GMD) and which might have uncovered the fraud.
- The current CBK governor has made unreasonable demands on shareholders and failed to discipline his officers involved with Imperial – even appointing one of them as a receiver manager after Imperial closed.
Meanwhile, a judge issued a ruling that was interpreted differently and a group of depositors went back to court seeking a clarification of what the judge meant. It has been interpreted to mean:
- Shareholders: The receiver managers (CBK/KDIC) must share information with, and consult, them on decisions affecting the bank.
- Receiver Manager: Liquidation of the Bank can proceed liquidated.
- Depositors: Judge said to pay us 40% of our deposits immediately.
Hearings continue next week.
Yesterday the Capital Markets Authority (CMA) meted out punishment, following the Uchumi Supermarkets (USL) rights Issues.
Back in 2014. Uchumi’s rights issue to raise Kshs 895 million ($10 million) by offering shareholders 3 shares for every 8 held at Kshs 9 per share, with the funds to be used for expansion in East Africa and refurbishment of stores.
(Excerpts from) The CMA statement reads:
- The regulatory breaches of the former directors and the two USL officers were identified in respect of the period of 2012 – 2015 and involved making changes to the Information Memorandum (IM) after CMA approval; failing to make proper disclosure of material information to inform investor decision making; misapplication of Rights Issue (RI) proceeds; mis-statement of financial statements in 2014; weaknesses in board oversight of the branch expansion programme; inadequate conflict of interest management; and inadequate disclosure of asset sale and leaseback arrangements. The breaches of the transaction advisor revolve around not ensuring changes made to an approved IM were submitted to CMA for further approval.
- Out of the Ksh895 million right issue proceeds received by USL in January 2015 it was established that a small portion was used to pay the rights issue expenses but the balance was transferred to the trading account from where payments were being made to settle outstanding suppliers’ debts as opposed to funding branch expansion.
- With respect to the financial statements for the period ended June 30, 2014, that were used to support the Right Issue, it was established that a Ksh350 million asset sale and lease back transaction was recognized, while the agreement for the same was signed and funds received in September 2014 . As a result of this recognition, USL’s profits as at June 30, 2014 were enhanced by Ksh19.97 million arising from the gain on sale of the assets. Further, the USL liabilities were understated to the tune of approximately Kshs.1 billion. The Board subsequently reversed this treatment in the audited accounts in 2015, stating that this recognition had been premature.
Other recent actions by the CMA have targeted directors of Imperial Bank and CMC Group.
The Central Bank of Kenya (CBK) announced that today that the closed Imperial Bank (IBL), will not reopen. In fact it will be liquidated by NIC Bank, Kenya’s 9th largest bank.
This all started 9 months ago, on 15 September 2015, when the Imperial Bank group managing director (GMD), Abdul Janmohamed passed away. The bank directors then discovered fraudulent transactions that the GMD has orchestrated at the bank. They presented their findings to the CBK, who then shut the bank.
While the CBK blames the board and shareholders, the, the shareholders/directors say they were innocent of the wrong-doing perpetrated by the GMD; they had a hands-off role (complying with CBK rules for non-executive directors), and that their external auditors and the Central Bank were lax and should have flagged the 13 year fraud. The shareholders of the bank were optimistic that a strategic investor would buy the bank within 12-18 months of reopening. But it’s not clear if NIC has been selected to do that by the Kenya Deposit Insurance Corporation (KDIC). NIC will also assume the majority of IBL staff and branches, and announcements on the way forward will be made in the near future.
- NIC will pay Kshs 1.5 million to all depositors. Thereafter, it is expected that at some point, NIC will pay any remaining depositors about 40% of their proven deposits (there are individuals and institutions who had tens or hundreds of millions of shillings as deposits) (Last year, KDIC used KCB and Diamond Trust banks to refund Kshs 1 million to each depositor at Imperial Bank)
- NIC will get access to operate the 26 branches in Kenya. But the 2015 bond information memorandum noted that Imperial owned no property. The Bank owns no Properties. It leases all the premises used for its business operations. In Uganda, the 5 branches there were disposed of in a sale.
- It’s not clear how many of the 600 employees at Imperial are still around, waiting for jobs
- The CBK statement notes that a forensic audit is almost complete. This is an exercise that the directors of the bank began after the GMD died to determine the extent of the hole in the bank.
- Court cases will continue and KDIC will retain other assets of the bank (..cash, collateral, government securities, loans..)
- If it heads to liquidation, the name Imperial Bank (name) will disappear.
$1 – Kshs 101