Friday, March 29, 2024

Teachers’ Sacco making billions of losses after buying collapsing Merali Bank

Expectations were high when Mwalimu National Sacco acquired a majority stake in Equatorial Commercial Bank in 2015. But the acquisition of the bank that was owned by billionaire Naushad Merali has turned into a source of mega losses.

In fact over the last years following the acquisition of this bank, teachers have taken in over Sh. 2 billion losses. The teachers acquired the bank after buying a 75 percent stake that was worth Sh. 2.4 billion. After the acquisition, it rebranded the bank to Spire Bank.

“The bank, though, has remained in losses that have whittled down its book value to Sh. 551.6 million as of September, placing the worth of Mwalimu’s stake at a mere Sh. 413.7 million. This represents a loss of Sh. 2 billion or 83 percent on the investment made four years ago,” says a report in the Business Daily. The report further says that the rebranded Spire Bank has inadequate capital and needs to raise more funds from shareholders to comply with the regulatory requirement of Sh. 1 billion minimum core capital.

“The losses have over the years eaten up the bank’s core capital, which currently stands at negative Sh. 1.3 billion. The lender has never paid a dividend since Mwalimu became a shareholder, adding to the weight of losses that teachers have had to bear from the transaction,” reports the Business Daily.

“Mwalimu Sacco purchase of Equatorial Commercial Bank particularly comes to mind, with concern around the level of due diligence undertaken by the teachers’ union,” Standard Investment Bank (SIB) said in a research note this week.

The Business Daily further says that the teachers’ Sacco bought Merali’s bank without conducting due diligence on the bank.

“Former officials of Mwalimu were also accused of having conflict of interest, with ex-CEO Robert Shibutse having worked for then Equatorial Commercial Bank and other companies associated with Mr Merali. Ahead of the transaction, the lender transferred its office building, Equatorial Fidelity Centre in Nairobi’s Westlands area, to its associate company Fidelity Shield Insurance in which it held a minority stake at the time. Despite the lender’s historical losses, former officials of Mwalimu remained upbeat about the deal. Mr Shibutse, for instance, argued that the transaction would save Mwalimu banking fees and stop its members from fleeing the Sacco to mainstream lenders,” reports the Business Daily.

Shockingly, it has also been revealed that as at the third-quarter ended September, Spire Bank was spending Sh. 2.62 for every Sh. 1 of income. “The bank has racked up nearly Sh. 3 billion in net losses from January 2015 through to September last year, eating into shareholder funds that are inadequate to meet the various minimum regulatory capital requirements,” says the Business Daily.

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