Pamoja Capital in dilemma over Sh1bn client refunds held by Chase Bank

The new owners of Genghis Capital are in a dilemma on how to refund clients Sh1 billion to comply with a regulatory directive that barred investment banks from offering cash management services.

Pamoja Capital, a Nairobi-based business advisory firm that wholly acquired Genghis Capital last month, says the funds are held up at the troubled Chase Bank, which has capped withdrawal of deposits at Sh1 million.

The Capital Markets Authority (CMA), in a circular dated August 22, ordered asset managers to stop offering cash management products — the practice of managing cash for wealthy clients at a fee.

Geoffrey Gangla, the chief executive at both Pamoja Capital and Genghis Capital, said the investment bank was mulling over a proposal to convert the held funds into other products such as unit trusts and money market funds. “We’re discussing with CMA and clients to see the best way to manage this.

We are thinking of how we restructure to products that speak to clients’ needs,” said Mr Gangla in an interview with the Business Daily.

“It’s a real challenge. We still do not have access to the cash,” he said. The dilemma is compounded by the fact that the inaccessible funds at Chase Bank do not earn any interest, yet will need to offer returns when converted to other products.

Distressed bank

Genghis has another Sh400 million stuck at the collapsed Chase Bank comprising of unit trust funds. This brings the total amount frozen at the distressed bank to Sh1.4 billion.

Chase Bank was Genghis Capital’s principal banker owing to common shareholding and directorships.

Pamoja Capital bought out Genghis from Chase Bank directors and senior managers at an undisclosed fee. Top owners of Genghis included ousted Chase Bank chairman Zafrullah Khan, suspended group managing director Duncan Kabui and Ali Cheema (Chase Assurance managing director).

Mr Gangla revealed that the cash management money belongs to about 100 clients, mostly high-net worth individuals, a few institutions and chamas. The capital markets regulator says that provision of the service is excluded from the ambit of the Capital Markets Act and therefore constitutes “an unregulated activity”.

READ: Pamoja Capitals gets approval for Genghis takeover

Wealth managers have been pooling cash from investors to create a formidable financial war chest that they would use to negotiate high returns for term deposits or buy commercial papers or short-term government securities.

Significantly scaled down

CIC Asset Management, a licensed fund manager, said it was previously holding “more than Sh1 billion” under cash management but the amount is now at “about Sh100 million.”

“We significantly scaled down as we expected this. We now only have two clients and will have closed long before the deadline given,” said Tom Gitogo, group chief executive at CIC Insurance Group.

Britam-owned British-American Asset Managers, Sanlam Investment, and Liberty Holdings-backed Stanlib, some of the biggest players in the cash management business, did not respond to our queries.