ANDREW M. MWENDA | August 16, 2017: Rape Of Crane Bank | Yesterday two things happened. First it was revealed that Bank of Uganda (BOU) bought 350 pens at the cost of Shs 125m.
I don’t know what type of pens they are and their special purpose. But Ugandans must ask why our central bank buys pens that cost Shs 357, 000 each.
Then DFCU bank announced that in the first six months of this year they have made a profit of Shs 115 billion compared to Shs 22 billion over the same period last year (an increase of 400%), and Shs 46 billion over the whole of 2016.
In six months of taking over Crane Bank they have made almost three times the profit they made for the whole of last year. They also revealed that of this profit, Shs 60 billion came from their take over Crane Bank.
Let us remember that BOU claimed that Crane Bank was insolvent, riddled with many bad loans and over statement of its actual financial position. So they sold its assets for Shs 175 billion only.
What the news of DFCU profits for the first six months of taking over Crane Bank reveals is that BOU was either extremely incompetent and/or grossly misunderstood Crane Bank’s actual financial position. Or may be there was fraud. What we now know is that BOU sold very good assets at basement bargain prices. Why?
Let us also remember that all the money DFCU used to “buy” the assets of Crane Bank did not even go to BOU. Rather it was put into DFCU allegedly to recapitalize the bank and improve its liquidity position. So we have a bank with Shs 1.8 trillion in assets sold for Shs 175 billion.
DFCU “borrowed” from its parent company in London the entire Shs 175 billion to pay for Crane Bank assets. This means that within the first one and a half years, profits from Crane Bank assets will pay the entire loan. Unbelievable!!
BOU and DFCU also claimed that a lot of the assets of Crane Bank were bad loans, worth Shs 550 billion. They claimed that DFCU inherited Shs 800 billion worth of good loans from Crane Bank. Even a child of six years would see the stupidity of such a position – or the fraud involved in such a deal. If I am wrong let BOU publish the sale agreement.
DFCU had invested nothing to get these loans worth 800 billion. Given the average interest rate in Crane Bank of 25%, DFCU was inheriting an asset with income of Shs 200 billion (in form of interest per year). Yet it would have invested very little to earn this interest. It was obvious this was a deal made in heaven for DFCU.
Meanwhile, the central bank claims that Crane Bank had non performing loans (bad loans) worth Shs 550 billion. These were written off to zero and Sudir has been asked to pay for all of them. So they took Shs 290 billion worth of his shareholder capital in the bank and have asked him to pay another Shs 260 billion to top up the loss.
Now MOST of all these so called “bad loans” had collateral to back them up, in most cases the best pieces of real estate in Uganda. Right now DFCU is collecting money on these bad loans. Where is this money going since Sudhir has paid and is being asked to pay for the total value of all the bad loans?
This deal stinks. It smirks of fraudulent collusion between BOU, its lawyers and DFCU. Many companies lined up to buy crane bank as a going concern but BOU refused. Why? Many companies wanted to buy Crane Bank’s bad loans. Again BOU refused. The silence ends here and now. Tomorrow I am going to reveal what actually happened.
August 17, 2017: Rape of Crane Bank Part 2
Bank of Uganda acted in the most rush way in its resolution of Crane Bank issues which makes it suspicious. First when it claimed Crane Bank was in distress, it should have given Sudir time to find an investor to inject new capital into the bank. Many banks were actually in negotiations with Crane to buy it.
Instead BOU hamstrung Crane by stopping it from doing any new business like issuing new loans, overdrafts, bid bonds, performance guarantees, letters or credit etc. Crane was a bank for the business community.
Stopping it from doing anything for three months was a disaster. It forced its customers who could not get a service to pull their money and business out of Crane to other banks and thereby transformed a capital adequacy problem into a liquidity crisis.
By the time BoU took over, the liquidity crisis created by their initial mistake forced the central bank to pump on Shs 450 billion to keep bank operations running. Was this a mere mistake or deliberate plan to destroy Crane!?
Second, even after BOU took over of Crane in October last year, many investors from around the world wanted to buy Crane Bank as a business. And the reasons were obvious: Crane Bank had a good and wide branch network, a huge customer base, a great brand and $40m (Shs 144 billion) in tax assets. Its deposits had fallen from Shs 1.4 trillion to Shs 1.0 trillion because of BOU restrictions that caused a run on Crane. But these could easily be rebuilt.
Crane also had assets worth Shs 1.8 trillion of which (according to BOU) only Shs 550 billion were bad. But even then, most of these bad loans were backed by good collateral. This was a good business which BOU raped and then began selling its pieces.
In December, BOU gave interested buyers exactly eight days during the Christmas season to put it their bids. How can one bid to buy a large bank worth hundreds of billions in assets within seven days? Selling a bank is not like selling tomatoes. This was totally unreasonable and now one can suspect why: it seems BOU had concluded on how to sell it (as assets and not as a going concern) and to whom to sell it. Could this collusion have been due to fraud or incompetence? This three away the $40m (Shs 144 billion) worth of a tax asset.
Secondly, there are other institutions that were interested in buying the Shs 550 billion worth of bad loans – at a discount of course. BOU refused this suggestion out of hand and therefore lost an opportunity to get a good deal. Instead it sold all the good and bad assets to DFCU at only Shs 175 billion in an agreement it has not disclosed to Sudir (the owner of the bank) or to the public (in whose behalf BOU works).
BOU had injected Shs 450 billion of taxpayer money as liquidity into Crane Bank when it took over management. Under the sale agreement, DFCU is required to pay back this money to BOU over a period of three years without interest. Yet Sudir had asked for a loan of only Shs 165 billion from BOU (as lender of last resort) at an interest rate of 5% to recapitalize the bank.
So BOU would earn Shs 8.25 billion per year. Instead BOU refused to play its legal role as lender of last resort to the fourth largest bank in the country which posed a systemic risk to the industry. BOU instead said it could only lend Sudir at an exorbitant interest of 20%. Unbelievable! But even then it didn’t lend him, suggesting that it deliberately wanted Crane to fail.
If BOU asked DFCU to pay interest of 20% on the Shs 450 billion, Ugandans would earn Shs 90 billion in a year. Even if it accepted an interest of 5%, Ugandans would earn Shs 22.5 billion shillings, enough to train 500 doctors or build 500 classrooms.
Instead BOU indirectly lent DFCU Shs 450 billion free of interest for three years! Essentially BOU gave taxpayer funds for free to DFCU to buy the assets of Crane Bank and then use money collected from those assets to pay BOU!
In fact if BOU had used the Shs 450 billion to buy distressed assets of banks, it would have saved many businesses from companies from collapse and with them jobs for Ugandans, taxes to government and promoted a healthy economy.
And it would have earned interest of above 15% and made a huge profit. In fact this is what the USA government did in 2008 when its banks got into trouble. DFCU took public funds for free.
Why did BOU throw away every good deal and every opportunity on Crane Bank and instead went for the worst deal with DFCU? Well some individuals stood to benefits and we shall return with inside revelations on this tomorrow.