FCMB and Diamond Bank: It is a family affair (Shareholders are not smiling)   

03 December 2018 : Both banks that are the subject of this article, currently have CEOs that are sons of their owners/founders: Subomi Balogun for FCMB and Pascal Dozie for Diamond Bank.  Both CEOs were selected by their fathers and groomed for the top corporate office they now hold.    

Ladi Balogun has been with FCMB for 18 years consecutively (post business school) and Uzoma Dozie has been with Diamond Bank for 20 years consecutively.  The former has been the CEO of FCMB for approximately 12 years and the latter has been the CEO of Diamond Bank for four years.  Now lets get down to the crux of the matter. 

Analysts have always been against the running of companies in Africa by children of the owners and/or founders.  This is not driven by any inherent form of incompetency; but, the bleak expectation for shareholders when family interests are pitted against shareholder interests as they often are on an almost daily basis in companies of this nature and in a region of the world where checks and balances are too few where available and non-existent in may cases.  Both owners are not physically on the board of their respective banks; rest assured, the owners are pulling the strings in 'spirit' through their blood ties to the bank with their sons directing affairs from the apex.  

Did You Know? Aside from fiscal year 2009 (earnings announcement in 2010) when multiple Nigerian banks declared a fiscal year-end loss after the former CBN governor Sanusi forced the banks to adopt stricter provisioning standards, only FCMB, Diamond Bank and the perennially troubled Wema Bank have subsequently declared a fiscal-year end loss among all listed Nigerian banks.  FCMB for fiscal year 2011 and Diamond Bank for fiscal year 2017.   Ladi Balogun and Uzoma Dozie were at the helm of their fathers' banks during the stated period.    

FCMB Bank's employees have recently defrauded some of the bank's customers to the approximate sum of 600m Naira ($1.7m).  This sum is 4% of the twelve-month trailing pre-tax income of the bank as at June 30, 2018.  

FCMB has said and done a lot over the years without the commensurate profit to back it up.  Quick run down here of some major events intended to take earnings to a new level:

1. Acquired a larger bank (Fin Bank) seven years ago in 2011.

2. Took a majority stake in Legacy Pension Fund in 2017.

3. Changed the corporate structure to the Holding Company model in 2012 which allows it to continue to incorporate the earnings from CSL Stockbrokers, Credit Direct, FCMB Capital Markets among others into its quarterly earnings.

4. Acquired Credit Direct (micro-lending institution) in 2007.  

Despite the above major events, the pre-tax income of FCMB was 20.5B Naira as at April 30, 2008 and is only 14.8B Naira as at June 30, 2018 (twelve-month trailing).  Over a ten-year period, pre-tax income has declined by 28% point to point despite the bank now comprising a much larger operation than ten years ago.  You want a bigger bombshell? At the end of fiscal year 2014 - 12/31/14, pre-tax income was 23.9B Naira and as at June 30, 2018 (twelve-month trailing) is 14.8B Naira, a decline of 38%.   Shareholders have nothing of tangible substance to hold on to while the Balogun family does; Ladi Balogun continues to run the bank.  In saner business climes, CEOs have either resigned or been forced out by independent boards who are more concerned about the company's future performance and not family tree extensions.  Delphi Automotive CEO recently resigned; the CEO of General Electric was also recently forced out.   

By CBN law, Ladi Balogun was due to disengage from the bank in 2017 after ten years at the helm.  Given the change of FCMB's corporate structure at the beginning of FY 2013 to the holding company structure, I would have expected Ladi Balogun to head the holding company immediately, if he truly cared for the bank his father owns from a shareholder perspective.  This did not happen until, the CBN 10 year rule was about to force him out from the family affair in 2017.  He has now found a way to continue at the helm of affairs of Subomi Balogun's bank by finally becoming the CEO of the holding company in 2017 and exiting his position as CEO of the commercial bank.  Either the Central Bank of Nigeria is complicit or a loophole has been exploited. The same Central Bank that does not allow executive directors of banks to resign their executive board positions and immediately take up non-executive board positions apparently allows bank CEOs to extend their reign by playing 'musical chairs' with the corporate structure of the bank.  Lets turn to Diamond Bank

Uzoma Dozie waited for sixteen (16) years to take over the reins of his father's bank in 2014 after the prior CEO - Alex Otti completed a $200m Eurobond and equity rights issue in 2014 and exited the bank the same year to go into politics.  Before he was ever formally appointed, concerns have been raised by multiple shareholders and stakeholders at varied times about his ability to successfully lead the bank.  These concerns played a part in his wait being sixteen years.  It is an immutable fact that the worries were not far-fetched.  Diamond Bank is hemorrhaging (I use the word hemorrhaging when a company's woeful financial performance is largely attributable to destructive decision making by the CEO despite having a great platform and strategy for continued success before the CEO in question took over.)  The same word applies to General Electric in the USA.  GE's board has woken up and fired the CEO. 

Diamond Bank is currently embroiled in a battle of wits at the board level as defenseless shareholders hope that COMMON sense will prevail over POWER sense as Pascal Dozie battles to keep the family affair intact despite reality biting hard revealing the obvious: Uzoma Dozie (his son) is not what Diamond Bank needs now at the helm and many will say never ever did.  Let me remind you all that Diamond Bank is one of Nigeria's eight (8) Systemically Important Banks.  Stanbic IBTC Bank (a holding company with subsidiary companies in the double digits - 10) still could not achieve revenue over the past years (gross earnings in Nigerian parlance) that exceeds that of Diamond Bank until the end of FY 2017 by 4% (after Diamond Bank had sold off its banking operations in the UK and Benin).   This should show you the value wasting away at Diamond Bank.  A bank able to generate revenue of 203B Naira ($550m) purely from Nigerian operations is not a bank that should even come close to struggling.  Stanbic IBTC Bank currently trades at approximately 60X the stock price of Diamond Bank.  The bane of Diamond bank is its Oil & Gas non-performing loans exposure.  This is ironically the portfolio headed by Uzoma Dozie when he joined the bank in 1998.       

Analysts hope that Carlyle Group succeeds as the leader of the Common Sense team in forcing the resignation of the Power Sense team led by Pascal Dozie and Uzoma Dozie.  Sometimes we want something in life so badly that when we finally get it, we in actuality have nothing left to offer.  Everything has been exhausted getting the position; unfortunately there is nothing left to give but misery to those under you who were expecting better and got worse e.g. Uzoma Dozie and Diamond Bank and Muhammadu Buhari and Nigeria.  

The family affair for executive management needs to end in African countries so that shareholder interests can be better aligned with that of executive management.  It is rarely ever a perfect marriage; it can definitely be a perfect foundation for a spirited attempt at a perfect marriage.  

Ladi Balogun of FCMB Group and Uzoma Dozie of Diamond Bank kindly resign; not because you want to, but, because you NEED to.  

Reporting for EasyKobo on Monday , 03 December 2018 in Lagos, Nigeria

Source : Jude F

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