First Bank Defrauds Customers Of N5.52 Billion
First Bank Plc, Nigeria's leading commercial bank, in a well publicized media advisory, said, "In a gesture of goodwill to its numerous investors whose applications were not fully met, First Bank will voluntarily pay interest on all returned monies at an annualized rate of 5% from Monday 10 September 2007 to Monday 5 November 2007".
Huhuonline checks reveal a scenario contrary to that portrayed by First Bank. Monies so far refunded by First Bank to all its investors were with out the 5% interest promised. First Bank offered no explanation for this irregularity, thus casting doubts about its intention and willingness to make good on its promise. Irked investors, who spoke to our correspondents, have expressed strong displeasure with this practice; calling it corporate 419.
An anonymous source at an Asset Management/ Stock Brokering company in Lagos, told huhuonline, " All the returned monies does not include the interest, we are yet to be advised on how the interest will be paid". Meanwhile, attempts to obtain the comments from First bank was unsuccessful, as Hafiz Bakare, was said to be unavailable for comment.
Established in 1894, First Bank, has remained at the vanguard of the development of the Nigerian financial markets, but with the recent development, many investors, who have received their refunds, but were unaware of the less 5% interest refund, until huhuonline came calling, contend that their absolute confidence in the bank, may have been broken, and henceforth have resolved to join the doubting Thomas's school of thought, and will scrutinize carefully all future dealings.
Huhuonline gathered that when First Bank announced its intention to raise N100 billion, by offering for subscription 1,624,253,238 ordinary shares of 50k each at N33 per share and rights issue of 1,496,762,682 ordinary shares of 50k each at N31 per share between Monday May 14, 2007 and Thursday July 5, 2007. Nigerians were over the moon, they sold their properties, borrowed from their banks, family and even Osusu (Daily- Contributions).People sold their shares in other companies because every one wanted to cash in on this unprecedented one in a life time opportunity.
Huhuonline learnt, that as a result of this surge by investors, the rights issue, with proceeds of approximately N65 billion, was over subscribed by 140%, while the public offer, with proceeds of approximately N400 billion, was over subscribed by 750%, making it the largest subscription in the Nigerian capital market history. Thus creating a sticky situation for the premier bank.
Colossal Fraud or What?
1. Whereas the public offer was 752.4% oversubscribed, a summary of allotment as published by First Bank reads:
Value of offer = N53, 600,356,854
Total money received = N403, 366,017,285
Invalid application rejected (portion of money to be refunded) N88, 136,004
Net money received = N403, 277,881,281
Less the total value of allotment (initial and supplementary) N203, 600,356,839
Refund due (including rejected) = N199, 765,660,446 (N199, 677,524,442+N88,136,004), which is approximately a sum total of N200billion.
The offer was originally scheduled from May 14 th to June 21 st, but was later extended to end on July 5, 2007. A standard stock brokering practice, allows banks and other agents who sold shares 2 weeks to collate and return monies to the receiving bank.
By implication, the receiving bank (an agent of First Bank) got the monies around July 19, 2007 and in accordance with the offer document, the monies will be kept in an interest yielding account (escrow). Then, the receiving bank holds on to the monies until the allotment proposal is approved by Securities and Exchange Commission SEC.
Thus, the number of days from July 19, 2007 to December 31, 2007, when First Bank released the allotment is 166 days. This is tantamount time the monies stayed with both the receiving bank and First Bank before refunding them to investors.
However, rules governing operation of escrow are that any interest generated on monies placed in an escrow account must be returned to the owner of the money. For example, in U.S. where a tenant pays a landlord a refundable deposit, the landlord keeps it in an escrow. Notwithstanding whether the money is eventually refunded or not (depending on assessed damage to the property) the landlord is mandated to return to the tenant all interest generated on the funds.
Value of refund (based on First Bank's 5% for 60 days) N1.64 billion
To calculate the possible interest that would have been generated by both the receiving bank and First Bank, let's base it on the treasury bill rate, which was between 7.1% in September and 6.67% at 2007's ending. Let's take the lower range of 6.67% to be conservative.
At Treasury bill rate of 6.67% for 166 days, the interest generated is N6.07billion.
This means First Bank and its receiving bank is undercutting investors of a whopping sum of N4.43billion, based on a conservative calculation, being the difference of the what they plan to pay (and has not even paid up till now) and what they should have paid based on rules guiding the operation of escrow accounts.
Mind you, the money is still in the coffers of First Bank up until this moment, which means it will continue to yield interest. This means using 166 days which ended in December 2007 is even too conservative. So the N4.43 billion is the least amount of investor's money being embezzled by First Bank.
2. For the Right Issue (Already existing shareholders), it was 147.16% oversubscribed.
Value of Right Issue (offered by the bank to existing shareholders) N46,399,643,142
Actual money received from shareholders N68,282,575,754
Refund Due to existing shareholders (N68,282,575,754-N46,399,643,142) = N27,079,788,980 which represents the portion of 47.16% over and above value of stocks made available for existing shareholders.
Interest due to investors (based on First Bank 5% for 60 days) N222
Actual Interest generated @ 6.67% for 166days = N822million
Balance to be withheld by First Bank N822m-N222million = N600million
Therefore, Total Interest generated on investors fund by First Bank (Receiving Bank) but now being embezzled by the bank
= (N4.43+N0.82) = N5.25billion i.e. excess interest from public offer plus excess interest from right issue.
Culled From Huhuonline.com
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