The Business of Trust
Did you know that Nigeria's Bernie Madoff once moved ₦80 billion within the NSE manipulating the share prices of 5 banks in the process?
Congratulations to Dame (Dr.) Adaora Umeoji on her well-earned appointment as the new GMD/CEO of Zenith Bank Plc. Here is hoping that she becomes the first post-Jim Ovia era CEO of Zenith Bank to serve two complete terms of ten years.
Succession planning in big Nigerian companies is not taken seriously sadly, but that's not today’s story.
Interestingly, the 3 biggest financial institutions in Nigeria, by profits, asset size, and market capitalisation, are now led by women. Happy Women’s Month.
In 2016, I was in a room where Banji Adeniyi, the CFO of Guaranty Trust Bank asked young trainees what, in their opinion, was the primary currency a bank sold to customers.
A few answers such as ‘convenience’, ‘loans’, ‘savings’, ‘financial intermediation’, ‘advisory’, ‘ease’, ‘technology’, and ‘innovation’ were mentioned, and he told all of us that we were wrong.
“The primary currency of a bank (in Nigeria) is ‘Trust’” he said, “When you go out into the market, you are all giving customers your word that all these secondary products you have all mentioned, can and will be made available to them, the moment you have said so. Think deeply about this and never lie to a customer. That is a criminal offence, and a misrepresentation of the bank.”
My interest in consuming financial services literature stemmed from the experience my folks had with the previously defunct Savannah bank and the “Wonder banks” of Broad Street in the 90s and 00s which were known for their 10% monthly interest promises. These banks made their way into African literature via books, movies, case studies, and post-mortems.
Reading Ike Oguine’s “A Squater’s tale”, Yemi Ogunbiyi’s “Orange Chronicles”, Jim Ovia’s “Africa Rise and Shine”, and Aigboje Imoukhuede’s “Leaving the Tarmac” one can get a sense that 30 years ago banks committed lots of financial crime. As such, the choice of names like Fidelity Bank, Guaranty Trust Bank, Standard Trust Bank, and many other names with synonyms depicting trust were a given, in an attempt to inspire the confidence of Nigerians in the banking system.
Something we can give kudos to the last two CBN governors is the sanitisation of the banking system, by not only taking extra measures to protect customer deposits via the NDIC and AMCON but also sacking and prosecuting management of banks who breach customer trust in any way shape or form.
On that note, I want to share a few notable cases of the CBN intervening to sack and even prosecute bankers who fail in their primary responsibility.
Cecilia Ibru (Oceanic Bank, 2009)
Mrs. Ibru was sacked and convicted for granting loans of over ₦300 Billion to companies she and her families owned without board approval, converting (or stealing) customer deposits for personal use, and manipulating Oceanic Bank’s books. She voluntarily forfeited cash and assets worth an estimated ₦191.4 Billion.
Oceanic Bank was eventually acquired by Ecobank in 2011.
Erastus Akingbola (Intercontinental Bank, 2009)
Every single bank CEO Lamido Sanusi sacked was brazen, but Erastus may have just been the craziest of them due to the magnitude of his crimes.
Erastus had approved loans to himself for the acquisition of property, transferred depositor funds well over ₦10 Billion (including different $10 Million and £9 Million transfers) to his accounts, and approved countless margin loans to himself and his partners for the sole purpose of purchasing and manipulating Intercontinental Bank’s share price.
Such was the scale and prosecution complexity of Akingbola’s crimes that the cases against him by the CBN, and the government took more than 10 years to prosecute, and the only judgement secured against him so far has been by Access Bank in the UK
Intercontinental Bank was acquired by Access Bank in 2013.
Tunde Ayeni (Skye Bank, 2016)
Mr. Ayeni and his board were sacked and charged for granting unsecured loans of over ₦100 Billion to themselves, and diversion of customer deposits to themselves for the acquisition of assets, and the operation of other business ventures.
This eventually led to the CBN revoking the licence of Skye Bank in 2018, and the formation of the Bridge Bank now known as Polaris Bank.
In an ironic twist, Skye Bank acquired Mainstreet Bank, the bridge bank of Afribank in 2014 (allegedly with depositor funds), and then failed to publish financial statements for 2015, before their directors were sacked.
Tunde Ayeni’s case is still at trial and now makes the news, for more salacious reasons.
The Otudeko-led board (First Bank, 2021)
Official Reason: The previous board decided to fire/change the CEO at a moment’s notice, without alerting regulatory authorities, poor corporate governance and insider dealings.
Otudeko’s case is complex, as he is still the majority shareholder at First Bank. The story here however is that First Bank has approved non-performing and performing loans to Otudeko’s other business interests (Honeywell group, and Airtel) for which the collateral for the loans are Otudeko’s shares in Honeywell and Airtel.
PS: Traditionally, collateral in any form is required to be perfected: (an oversimplified exlanation: if you give me a loan of ₦1 Million, and my collateral is worth ₦2 Million, we get a legal document that shows your ownership of ₦1 million on the collateral for the duration of the loan)
The perfection process is a long-winded legal procedure, so legal workarounds and “gentleman agreements” may be put in place on some occasions.
The CBN wrote to First Bank for 4 years to finalise the perfection of the collateral or divest its holdings from Otudeko’s other companies, which they never did. And the board was eventually sacked when they replaced the CEO without due process.
Otudeko is still the largest shareholder in First Bank, Dr. Sola Adeduntan has become the first First Bank CEO to serve two terms since term limits became law (favour over labour), and the collateral on those loans have yet to be perfected.
Rubies Bank, 2021
The CBN’s high hand in protecting customer trust is not limited to big banks.
Despite their obscureness and digital nature, the CBN also steps in to protect the system when digital microfinance banks breach guidelines on rendering trust.
Microfinance banks are not allowed to settle foreign currency remittance transactions, and Rubies Bank allegedly was doing that. Their punishment was a swift removal and delisting from NIBBS, the central switch of the country.
Customers could not get their money out of Rubies and had to resort to P2P methods, buying and reselling airtime, and other value-added services to get their money out.
Eyowo, 2023
Eyowo had its licence revoked by the CBN for failure to render returns, after being notified by the CBN of other infractions they may have been running afoul of.
Eyowo has since gotten its licence reinstated and facilitated customer withdrawals via a partner. During their downtime, customers also had to resort to crude methods to get money out.
The moment you build a product that has a NUBAN (account number) and collects money from Nigerians, you have built a bank. You can call it anything you want, but that product is a bank, and your primary currency is trust.
Banking, by any name you want to call it, is not easy. And the reality is: your customers do not care about that, neither do the regulators and quite frankly, no one gives a hoot about how much you are “making their lives easy” with your beautifully designed products or convenient technology if they can’t access their money.
Transparency and trust are the foundational concepts of banking. You better remember this and make it your constitution, before you decide that your product will collect deposits from customers in any way, shape, or form.
When you breach that trust, and prevent people with real lives from having access to their money for almost 4 months, no one owes you any consideration. You have become a threat to this sacred and imperfect system, which we all have a responsibility to protect, and you should be penalised.
A single event where trust is breached can lead to multiple bank runs and a systemic collapse, every crypto native can plot a straight line from Do Kwon, to Three Arrows Capital, to the FTX collapse, and the bear market of 2022.
History books say the subprime mortgage crisis caused the 2008 financial crisis, but it took the collapse of Lehman Brothers for the crisis to officially begin.
In 2024, having a prolonged “network and liquidity crisis” is a choice, a very bad choice. Not being transparent to customers, and investors is a choice; keeping quiet and letting rumours of what has happened become a distraction is a choice. Investors bailing you out after you have destroyed brand equity and goodwill is a choice.
Customers do not need their bank to raise money from investors before they can access their deposits freely.
At the end of the day, remember that whatever you choose to build affects real human beings, with real lives.
Your downtime could be the difference between an emergency hospital bill payment, payment for lunch, vendor payments for a wedding, salary payments, and even raw materials processing. You should not leave your customers in the dark.
“Fintech is easy, you just have chosen to do it without a duty of care.”
Interesting Reads:
Other Examples:
Okey Nwosu(Finbank), Charles Ojo (Spring Bank), Sebastine Adigwe(Afribank), Barth Ebong (Union Bank), Francis Atuche (Bank PHB) and Peter Ololo (Falcon Securities):
Any banking school in Nigeria still worth their salt, has Peter Ololo, and his Falcon Securities, as an important case study against margin lending.
Ololo nicknamed “Nigeria’s Bernie Madoff” was Nigeria’s number one market maker before his fall, moving as much as ₦80 Billion on the NSE during his heyday.
Now why is he lumped with these 5 CEOs? Because aside from their criminal dealings to themselves within their banks (which is just a repetition of Erastus and Cecilia’s crimes really), they individually and collectively colluded with Ololo, approving unsecured margin loans to him to manipulate, and prop up the share prices of their respective banks.
It was alleged that Ololo’s debt exposure to these 5 banks was over ₦80 Billion, and he was further exposed to 9 other Nigerian banks to the tune of ₦42Billion.
Finbank was acquired by FCMB in 2012,
Spring Bank had its licence revoked by the CBN, in 2011, and the bridge bank known as Enterprise Bank assumed ownership of all its assets and liabilities till they were acquired by Heritage Bank in 2015
Afribank had its licence revoked in 2011, and the bridge bank known as Mainstreet Bank took its place, before being acquired by Skye Bank in 2014
Bank PHB also had its licence revoked by the CBN in 2011 and was replaced by the bridge bank known as Keystone Bank
Union Bank stayed alive and was acquired by Titan Trust Bank in 2022.
Okey Nwosu and Francis Atuche have been convicted, and all other CEOs and Ololo have stood trial multiple times for their crimes.