Wednesday, February 1, 2017

dfcu weds Crane: a forced Marriage and the ‘courtship’ dots!

"I am deeply concerned and apprehensive on our dfcu takeover of the failed Crane bank, our dfcu leadership of late is trigger happy on acquisitions recklessly gunning for scale at all cost; yet our last acquisition of the failed GTB bank dragged under our performance despite lessons of the Barclays Nile banks merger being clear for all to see. The failed Crane bank operated like a gangster bank with low underwriting standards and sector concentration basically with an unknown credit quality of asset book- risky stuff setting up dfcu for a long firefighting episode! I wonder how we shall merge those two cultures and come out better" Andrew Muhimbise dfcu Limited shareholder.

The Bank of Uganda (BoU) released a Public Notice dated 27th January 2017 titled DFCU BANK TAKES OVER CRANE BANK LIMITED; in which the BoU stated that on the 24th day of January 2017 Crane Bank had been progressed from statutory management to receivership and that BoU as receiver had transferred the liabilities and assets to dfcu bank; this immediately raised my hairs as a shareholder of dfcu Limited hence the above statement I issued on my Facebook page; many complained that my statement was unfair and speculative; therefore in that regard am beefing it up in this article below titled

dfcu weds Crane: a forced marriage and the courtship dots

dfcu Limited, dfcu bank, Who is what?
dfcu in full is development finance company of Uganda, these along with hfcu aka housing finance company of Uganda were started by the newly independent state in the early 1960’s under the Uganda Development Corporation (UDC) then led by the visionary Acholi man named Semei Nyanzi.
dfcu Limited is the company listed on the Ugandan Stock Exchange and is the sole owner of a bank called dfcu Bank; therefore the one which bought the failed Crane Bank is a wholly owned subsidiary of dfcu Limited.

dfcu Bank; a build-up of failures Vs innovation ‘Acquiring as much as possible’
In the past three years dfcu bank has been the sole acquirer of all failed banks and by consequence the failed banks they acquired that is; in 2014 dfcu acquired the failed Global Trust Bank (GTB) owned by Nigerians associated with the IGI Insurance company which in Uganda also majority owns the National Insurance Company Holding aka NIC and before that GTB had acquired the vague Credit Microfinance Limited (CMF) from Bitature, Kabonero and associates.
Now the same dfcu acquires the failed Crane bank which had acquired the failed National Bank of Commerce aka the Bakiga Bank.
This build-up of acquisitions of unforced failures sets up dfcu bank for hard times ahead; it important to note that dfcu’s profit in the financial year 2015 dropped to 35 billion from 42 billion earned in the financial year 2014- a 7 billion drop owing mostly to the house cleaning challenges associated with the acquired failed Global Trust Bank- a much smaller and less complex bank than the Crane bank that dfcu is trying to swallow.

Acquiring brick and mortar bank assets and the very fluid customer deposit clientele as a way to scale a bank’s retail business is at best intellectual indolence to engage in innovation and at worst chasing the wind.

When a bank is declared a failure the cream clients move, the most valuable of the estimated 720,000 account holders of Crane bank- the Indian community already moved to the: Baroda and Bank of India Banks; dfcu will have the non- performing clients and highly indebted customers who can’t go anywhere.

The advent of mobile telephony as evidenced by mobile money leapfrogging the combined brick and mortar banking businesses  is the way to scale; in Kenya as one banks fights with a telecom company to allow it have its own sim card; dfcu leadership is acquiring brick and mortar completely ignoring the role of technology in scaling banking, unbelievable!
A leaner not bigger bank is what will seamlessly scale.

dfcu has once again thrown the chance of ingeniously improving her customer offering through technology, whatever happened to making more possible has turned to acquiring as much as possible.

Gangster Bank; gangster culture ‘chap chap’
 Anyone even half-attentive to the banking sector happening in Uganda knew some open secrets on Crane bank’s operations, for now I will stick to my statement;

            Low underwriting standards- in the banking industry Crane was a legendary buyer of distressed loans from other banks and they did things ‘chap chap’ the kind of speed that would give a money lender a run for his money thereby compromising due diligence and throwing out the rule book on which capitalist banking is built; these are the assets and culture that dfcu is acquiring, it is inept to believe what dfcu is saying that they are only taking the good loans.

            Sector concentration, the so called super rich of Uganda under the umbrella group KWAGALANA where Crane Bank’s Vice Chairman Sudhir is an eminent member; basically tell eloquently the story of Crane’s credit concentration: South Sudan and Real Estate a vicious cycle that feed on one another and brought down the pack of cards.
            Remember the post-election 250 billion bailout list, well dfcu just assumed the bulk of it just like that!
dfcu bank has a similar clientele to Crane: Kikuubo importers and the buildings tycoons; now we are going to have a boiling pot of multiple borrowers converge in their new home- dfcu- you cannot rule out the likely possibility of identical collaterals on two separate loans.
Definitely this brings into question whether the credit quality of their asset book is known or even knowable; dfcu will have to struggle or even may be adapted to the gangster kind of banking a sure firefighting period ahead that will test the expertise of Rabo Agriculture bank as the sole banking expert on the shareholders list.

A forced marriage
At the end of 2015 it was alleged that Crane bank was worth $500m and dfcu bank $446m.
It was in the highest interest of Bank of Uganda to make this marriage happen; and so it could cover up her own weak spine; Bank of Uganda knew of the Crane bank woes much earlier but the political wheeler dealing kept the Crane afloat until it was too much; like in the fighter jets purchase saga BoU is saving face by forcing this marriage- Crane should have been left to die a natural death like the others who committed lesser evils; instead of early digging of our dear dfcu bank grave.
dfcu has basically let BoU off the hook and for what… brick and mortar! C’mon.
dfcu Limited the parent company of dfcu bank has credible shareholders in Norfund/Norfinance of the Norwegian Oil fund and Rabo the cooperatives agriculture bank of Holland.
Forced marriages in this era blow up in the face of the ‘parents’ in our case BoU as it is postponing a real estate bubble centered in the banking industry.

Share capital Risk
The East African story ( on the subject says Rabo bank & Norfund/Norfinance put down $40m for the purchase of Crane; could they be preparing to recoup their money by issuing themselves shares? Possibility as they could stealthily do it with the hidden from the Stock Market dfcu bank share capital since they made a commitment to the Bank of Uganda to raise equity.

Courtship dots!

“Great minds discuss ideas; average minds discuss events; small minds discuss people.
Eleanor Roosevelt

Well Mr. President, it is people who make things happen and therefore we gonna have to discuss them; their intentions, motivations and presence or absence.

Ruparelia family (Hindu Capitalism)
The subject matter: Sudhir his wife and three adult children had senior roles in the bank; yes that included the erratic and reckless Rajiv whose contribution to breaking up the father’s empire is well known in this town.

Juma Kisaame (dfcu MD 10 years +)
At the last dfcu AGM I had personally asked our MD Juma to resign because of the handling a tea estate deal gone sour and the hike in non-performing loans, After a dismal performance any MD would need a deal to keep them in the job; this is such of kind as Juma will have to stay around to see through his ‘baby’. Juma acquired GTB and we lost 7 billion, I wonder how much we are going to lose on Crane bank, this talk of increasing the retail base is hogwash- just the perfect cover up for needless empire building and an unnecessary job protection stunt.

Samson Muwanguzi (now deceased)
Less than a year ago around March 2016 Samson Muwanguzi mostly known for his ownership of Lido beach Entebbe, then Chairman of Crane Bank, died of natural causes at the age of 60 years; exactly 7 months later Crane bank is put under statutory management. Crane bank in 2015 had just been placed in the Domestic Systemically Important Banks (DSIBs) bracket by Bank of Uganda hence more capital and closer scrutiny; he was also the Chairman of Kampala Parents School.

AR Kalan (anywhere in exile)
A flamboyant character with an ego to match, was Sudhir’s right hand man, Mr Fix-it and MD Crane bank, I knew him for his tenure as Director at the Ugandan Stock Exchange where he occupied the board seat of Crane Financial Services (by the way its status should be clarified by BoU and USE) a stock brokerage arm under or related to Crane bank. It is alleged he took off with his boss and mentor’s money; watch what you do in the sight of your ‘children’ they will practice unto you.
To-date none has clarified on the why and whereabouts of Kalan, but just before he took off – he and his wife sold their PRISM plaza on Kampala road which once housed the Uganda Stock Market. I believe the Bank of Uganda forensic audit will shade some light on Kalan the banker.

P.K Gupta (no idea)
I first met Gupta as Baroda bank Managing Director for Uganda; to simply put it he was an idiotic fellow, well educated in banking but unschooled human and emotional intelligence- it was of great relief that he was transferred from Baroda Uganda to both the Indian and Ugandan employees even to a shareholder like me-self; Sudhir tapped him from Baroda London to take the reins after Kalan’s US ‘medical leave’ which I presume is still on. He was the perfect sycophant to bring down Crane.

I hope we the 3,800 other shareholders will survive this expensively acquired gangster bank of smoke value!

Andrew Muhimbise
Lumumba House

One of the 3,800 shareholders of dfcu Limited which owns 100% of dfcu Bank.