Ownership battle hangs over sale of Consolidated Bank

The five-year ownership battle at Consolidated Bank could derail plans by the Government to privatise the lender before June next year Investors who owned the bank before its collapse say that the State must compensate them adequately before the sale.

The Privatisation Commission is already working on either ceding a majority stake to the public through the Nairobi Securities Exchange (NSE) or to a strategic investor or a mix of the two.

But its ownership is already subject to a court battle and Nationwide Finance Company (NFC) Ltd—which initially owned part of the bank—is asking for Sh2 billion as other former investors reckon that they would block the sale.

That the respondents do pay Sh2.054 billion and interest thereon as unjust enrichment from the illegal sale of NFC,” the bank says of claims in court by the finance company in circular guiding its Sh4 billion bond. “A declaration that the sale of NFC and that of the building known as Consolidated Bank House was null and void.”

The case has been in court since 2007 and the finance company has sued Treasury, Central Bank of Kenya and Consolidated Bank.
Consolidated Bank set up on December 7, 1989, by merging nine private distressed financial institutions and its ownership fell in the hands of the government.

Treasury, through the Deposit Protection Fund, holds a 51 per cent stake in the bank while the rest is held by over 25 parastatals and other government controlled organisations.

The ownership of the Deposit Protection Fund is based on the compensation it paid to individuals and private firms who had savings in the nine banks while the parastatals were also supposed to recover their cash in form of shares in the new bank.

The institutions were Jimba Credit Corporation, Union Bank of Kenya, Kenya Savings and Mortgages Ltd, Estate Finance Company of Kenya Ltd, Estate Building Society, Business Finance Company Ltd, Citizen Building Society, Nationwide Finance Company Ltd, Home Savings and Mortgages.

“How does the government sell what does not belong to it? “ says Mr Marubu Munyaka, the director of Estate Finance Company of Kenya—one of the institutions that were merged to form Consolidated Bank.

But the head of finance at Consolidated Bank, Joseph Njuguna, maintains that investors of the nine banks were compensated and records show the State and its affiliates own the lender fully.

“As management, the records available show that these people were fully compensated,” said Mr Njuguna in an interview with the Business Daily on Wednesday.

The government could have sold its stake earlier, but delays in appointment of commissioners at the Privatisation Commission, following a stand-off between the Treasury and House Finance Committee over vetting, derailed the process.

“The government’s intention is to eventually privatise the bank and ideally give Kenyans an opportunity to own and participate in the affairs of the bank,” said Finance PS Joseph Kinyua on Monday.

The government will still have interest in the bank even if the plan to offload all its shares is successful as it has committed to buying Sh500 million worth of notes in the ongoing Sh4 billion medium-term note offer.

The bank is seeking the money in two Sh2 billion tranches. The date for the second one is yet to be decided.