Teachers learn Sh10bn loss lesson in Spire dealThursday February 02 2023
They came, saw but failed to conquer. And after nearly a decade of cash drain, Mwalimu Sacco has left Spire Bank having been schooled on how not to invest.
All the deposits and loans in all the 10 branches of Spire Bank were on the midnight of Tuesday passed to Equity Bank Kenya following the effecting of a deal that received the blessings of the Treasury last week.
Mwalimu Sacco chairman Joel Gachari says that while the Sacco believes it was properly guided by the “best” transaction advisors when it acquired a 75 percent stake in Spire, it didn’t quite evaluate what it was getting into.
“We didn’t calculate properly what we were getting into, mostly looking at the future prospects,” said Mr Gachari on Wednesday, shortly before formally signing away the bank that had brought to Mwalimu more pain than gain.
The key men who led Spire, which has endured years of losses and capital and liquidity breaches, on Wednesday, shed light on the tightrope they walked on in ensuring the lender didn’t go bust as did Chase, Imperial and Dubai bank in quick succession.
Mwalimu Sacco chief executive Kenneth Odhiambo said he had endured a period of being photographed by the press “so much” amid pressure from teachers and the pile-up of Spire’s losses.
Read: Equity will get up to Sh510m for acquisition of Spire Bank
“We have learnt not to kick the can down the road. When things don’t work, you have to relook at what else you can do to safeguard members’ interest,” he said on the decision to exit Spire.
The bank had soaked in accumulated losses of about Sh10 billion by the time Equity agreed to the deal which Equity Group CEO James Mwangi described as a “transaction of empathy” to rescue a falling brother.
Spire’s chairman William Rahedi knows how close the bank was to being shut and its directors and those of Mwalimu Sacco left with an egg on the face. But they have Equity to thank for what they now call a “dignified exit.”
Mr Rahedi opened up on the pains Spire’s directors have endured to keep the doors of the bank open, including struggling to access the overnight borrowing window from the few banks that were willing to help.
And even when the Equity option came, Mr Rahedi says many of the directors’ hesitated because there were “many threatening consequences” of making a decision to liquidate the bank.
Then there were those difficult moments for Spire’s staff to wake up every day and convince customers not to pull their deposits out of the bank, amid the fear that the bank could nosedive and trigger a shutdown.
“It has not been an easy walk. There were many pressure points. We could have woken up one morning and found padlocks around our bank doors but Equity came along and has allowed us to finish in a dignified way,” said Mr Rahedi.
Mr Gachari believes while Mwalimu Sacco should have done better in scanning what it was getting into, it was also partly unlucky—that it wrapped up the acquisition of the then Equatorial Commercial Bank in 2015 then banks were hit with interest rate cap laws the following year.
The rate cap meant that the level of interest rate income the Sacco had projected when it acquired the controlling stake from tycoon Naushad Merali, now dead, could not hold.
Then Mr Merali, who the Sacco disclosed earlier that he, in 2016, withdrew his deposits worth Sh1.7 billion—then a fifth of the entire bank’s deposits— served to set the teachers’ Sacco on a slippery path.
Mr Gachari said it has taken about four years of chasing an exit strategy from the lender that has been costing the Sacco at least Sh1.1 billion annually.
He says the exit from Spire is an opportunity for the Sacco to “free up its finances or capital” to concentrate on its traditional business as well as grow the newly launched products including mortgage loans and assets and insurance premium financing.
The spire-Equity transaction was initiated under the Insolvency Act due to the Sacco’s inability to keep sustaining the loss-making bank.
The exit of Mwalimu from the bank it acquired in October 2014 is part of the Sacco’s turnaround plan of shedding off loss-making ventures including Kisaju houses and two parcels of land in Juja as well as the asset management unit.
Spire Bank was started in 1983 as a finance company and commenced operations as a fully-fledged commercial lender in 1995 under the name Equatorial Commercial Bank.
Read: Spire’s woes underline need for due diligence
Equatorial Commercial Bank in June 2010 merged with Southern Credit Banking Corporation and continued trading as Equatorial until 2015 when Mwalimu Sacco acquired a controlling stake.
Mwalimu Sacco then rebranded the lender to Spire Bank in 2016 as it brought to life the aspirations of owning a bank.
Now Spire, the bank that has been trading under the tagline ‘Inspiring you to do more,’ exits the stage, having lost the inspiration to hold onto a dream that was birthed 40 years ago.