The Central Bank of Kenya (CBK) last week cleared the acquisition of certain assets and liabilities of Spire Bank by Equity Group effective Tuesday, January 31, offering teachers a way out from a loss-making venture.
The deal will see Mwalimu Sacco pay Equity Group up to Sh510 million for taking over the troubled bank and it will come with the painful consequence of laying off all its workers.
The deal is understood to be modelled as an asset purchase transaction. This means that Equity Group will take over the assets and liabilities of Spire Bank rather than inject money into the acquisition.
Equity will be paid for the difference between the assets and liabilities, meaning that Spire Bank has zero value and teachers have lost billions of shillings after buying a majority stake in the bank from late tycoon Naushad Merali in 2014.
Though it will compound the losses incurred by teachers in the bank, cutting it off now is the best out of a bad situation.
Besides protecting the integrity of the financial market, it also offers lessons on the importance of due diligence in any acquisition.
The deal also stands to cement a trend where instead of letting weak banks die, the CBK is opting to midwife a process of letting big banks acquire smaller and struggling ones, to protect the interest of depositors, customers and investors in the sector.
As the process gets underway, it will be important for all actors to ensure that workers and teachers, who own the bank do not end up getting the short end of the stick one more time.
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