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.
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
Now’s it’s out in the open. That is the story of the non-executive directors and shareholders at Imperial bank.At a press briefing today they broke free of a media blackout that was requested by the Central Bank (CBK) and the Kenya Deposit Insurance Corporation (KDIC) (the receiver manager of the bank), but which they now feel has been used to leak only one side of the story on the collapse of the bank.
- Discovery: Governance rules exclude non executive directors from running the bank, so they are blindsided by the 13-year long fraud at Imperial.
- CBK & PKF failed in their audit duties; PKF in their tests, and CBK in supervision and not responding to whistleblowers
- (The late Managing Director) Janmohamed was friend & none could imagine the betrayal; that a disturbed man with weak managers destroyed the lives of Imperial Bank depositors
- Reaction: From when they discovered fraud, the non-exec directors & shareholders have tried to protect Imperial bank depositors & bondholders
- CBK & KDIC asked them not to speak, but we should have been more proactive in communicating with depositors and bondholders.
- Recovery Plan: After discovery of the fraud, Imperial Bank directors took CBK a plan that called for recapitalization of the bank, recovery from wrongdoers, a payment of Kshs 1 million to all depositors and attracting a strategic investor within 12-18 months of reopening
- When they presented the recovery to CBK/KDIC, Imperial Bank had good liquidity – ~Kshs 20 billion cash.
- Way Forward: They, as shareholders (& associates) are ready to capitalize Imperial Bank, but only after a due diligence is done.
- While directors have joined the bank suit against Janmohamed’s estate, they say KDIC is not pursuing all people involved in the fraud at the bank.
- The CBK Governor is a principled man but his institution is being let down by dishonest people, a similar situation to what happened to them at Imperial.
- They are unaware of what KDIC / CBK plan for the bank, and are concerned that Imperial Bank customer data has been shared with KCB and Diamond Trust banks.
My take, is still the same as in Part I
The only way for Imperial Bank to survive is if it is bought out by a large, multi-national, or regional bank. That bank will have deep pockets and will have done its due diligence on the true value and exposure that Imperial Bank carries, and received a waiver of obligations above an agreed threshold and from additional liabilities, prior to their agreeing to buy the bank. And if such a deal happened, the new bank will want to take on the Imperial customers and business but erase all traces of the Imperial Bank name, forever.