Equity Bank chief executive James Mwangi has earned Sh100 million by offloading part of his shares in the bank as anchor shareholders reduce their investments in the company.
Regulatory filings show that Mr Mwangi’s direct stake dropped to 3.45 per cent at the end of October compared to 3.58 per cent in December last year, meaning the bank’s CEO reduced his holding by five million shares.
The shareholder returns also show other top individual investors in the bank like the late Nelson Muguku and John Kagema reduced their interest in the bank during the period in what analysts viewed as profit-taking on the shares.
“It is a case of profit taking as the business moves to maturity. It makes business sense for investors to reduce their interests gradually rather than wait until the stock matures,” said an analyst at Standard Investment Bank.
Mr Kagema earned Sh600 million after reducing his holding in the bank by 33 million shares while the late Muguku’s family cut back their stock by 12.9 million shares, earning about Sh250 million.
Stockbrokers and sources at the Nairobi Securities Exchange (NSE) said the sales happened in mid-year when the stock traded at nearly Sh20 each.
Last year, Mwangi, Muguku and Kagema earned Sh600 million, Sh1.2 billion and Sh700 million, respectively, after the end of a two-year-lock-in for anchor shareholders that was attached to the bank being listed at the Nairobi Securities Exchange in 2006. The bank did not raise capital through the listing via introduction. Analysts added that Equity Bank’s growth was unlikely to stir the market the way it did over the past five years, driving its share price to a peak of Sh30 in January on increased investor demand.
The bank’s sold at Sh18 on Friday, meaning the bear run at the NSE has cost Equity shareholders Sh45 billion since the year opened.
Since the expiry of the golden handcuffs’ period, Mr Mwangi has reduced his directly-owned stake from 5.37 per cent in 2008 to 3.58 per cent last year and Sh3.45 per cent now, suggesting a deliberate effort to diversify his investments.
His overall holding is now 4.65 per cent because of an indirect stake of 1.2 per cent held through British American Investments and the bank’s Employee Share Ownership Plan (ESOP).
Mr Mwangi sold 38 million shares in 2009 worth about Sh800 million, pushing his proceeds from the sale at about Sh1.6 billion over the past three years. He said that this disposal was dictated to by regulations that bar an executive director of a bank from holding more than 5 per cent of the institution’s capital.
“I am required by law to hold so much stake in the bank by dint of being the chief executive. Equity is still the dream I invested in,” Mr Mwangi told investors in March following revelations by the Business Daily of his significant share sale. Since the bank’s debut at the NSE on August 7, 2006, its stock has appreciated the most over the five-year period, opening the way for investors to skim their holdings at decent capital gains. (READ: Equity Bank CEO defends stock sale)
The share has appreciated by more than 900 per cent since listing when share splits and bonus stocks are taken into account. Investors in Equity with a market value of Sh72 billion - have particularly attracted attention because of the speed at which the bank has created wealth for its owners, including employees, directors and founders.
The value of the late Muguku’s stake in the bank has for instance risen to Sh2.7 billion from Sh522 million in 2006 despite selling millions of shares.
The Sh1.2 billion sale of the late Muguku’s shares last year was informed by the family’s intention to buy the Standard Chartered Bank former headquarters along Moi Avenue. The Business Daily could not confirm whether the deal went through.
Mr Mwangi’s direct stake is now worth Sh2.3 billion with another top shareholder Andrew Mwangi owning shares worth Sh1.62 billion for his 2.44 per cent stake.
Mr Gerald Warui, the director for human resources and customer experience; and Mary Wamae, the bank’s company secretary and director for corporate strategy have shares worth Sh716 million and Sh857 million, respectively. The senior employees of the bank, who bought the stock under the employee retention scheme, and members of its board saw their net worth improve substantially following the appreciation of the bank’s shares at the NSE. All the initial owners of the bank have taken advantage of the bank’s overall price rally at the bourse.
Mr Peter Munga, the bank’s chairman and founder, has reduced his interest from 3.2 per cent in 2007 to less than 0.7 per cent, exiting from among the banks top 10 individual shareholders’ list. British American Investment Company (Britak), where Mr Mwangi holds a eight per cent stake and Munga 23 per cent, has also reduced its holding in Equity Bank by 13.7 million shares—earning the NSE listed investment firm about Sh270 million. It reduced its stake from 11 per cent in December to 10.63 per cent by end of October.
When it was awarded a banking licence in 2004, Equity broke ranks with the big boys of the industry and immediately embarked on a rural expansion binge at a time when most banks were retreating to the cities.
It also broke new ground when it allowed customers to open bank accounts without any deposits, a model that has since being taken up by other banks. Targeting the mid and low end of the market has seen Equity grew its client base at an annual rate of 30 per cent to an extent that it has 6.5 million accounts, nearly half of the 14 million accounts in a market served by 44 banks.
The bank reported a 41 per cent growth in net profits to Sh7.2 billion in the nine months to September—cementing its place as Kenya’s most profitable lender ahead of Barclays Bank and KCB Group. Equity is now Kenya’s second largest bank by assets behind KCB. It’s broadening of the product range to include home loans and corporate banking, which offer big ticket lending at relatively lower cost, to maintain its growth. (READ: Regional subsidiaries boost banks’ third quarter profits)