Chase Bank staff risk Sh600m invested in a cash call last year
What you need to know:
Disclosures carried in a credit rating note of the bank by Global Credit Rating company (GCR) last year showed the bank raised Sh600 million through expanding its employee share ownership plan (Esop) around the time it was carrying out a rights issue which raised Sh1.6 billion.
Details are, however, emerging of boardroom intrigues that show the trail of disagreement between the banks management and the auditors over the classification of Islamic banking assets that brought about the jump in insider lending.
Employees of Chase Bank are staring at a potential huge financial losses after they pumped hundreds of millions into the lender last year through a share ownership programme.
Disclosures carried in a credit rating note of the bank by Global Credit Rating company (GCR) last year showed the bank raised Sh600 million through expanding its employee share ownership plan (Esop) around the time it was carrying out a rights issue which raised Sh1.6 billion.
On top, the workers whose jobs could be on the line have to contend with their savings being locked up in the previously fast-growing financier. Any takeover is likely dilute the current shareholders.
In case a company in administration eventually gets liquidated, ordinary shareholders are usually the last to get compensated after statutory bodies, regular creditors, preferential shareholders and in the case of banks, depositors.
“The bank has since raised a further Sh1.6 billion via a rights issue concluded in June 2015, plus Sh0.6 billion from an increase in the Esop,” GCR said in the rating note. The bank needed the rating for its bond and other fund raising.
Chase has been closed since April 7 after Central Bank of Kenya (CBK) moved in and appointed a receiver manager after customers made a run on the bank leaving it facing liquidity problems.
The bank had on April 6 issued restated financial results showing it had under-reported insider loans by a Sh8 billion, and in the process had not received an endorsement of its financials by its auditor Deloitte & Touche.
Disagreements
Details are, however, emerging of boardroom intrigues that show the trail of disagreement between the banks management and the auditors over the classification of Islamic banking assets that brought about the jump in insider lending.
The bank, inclusive of its subsidiaries Rafiki Microfinance Bank and Chase Assurance Agencies Limited, had 1,422 permanent employees at the end of 2014 as per an information memorandum published before its bond issue in April 2015.
The GCR note showed that the Esop held 429.621 shares before the additional investment was made, representing 4.3 per cent of the lender’s total shareholding. This holding ranked the employees eighth in the lender’s shareholding structure.
The bank’s biggest shareholders include Amethis Finance, German fund DEG, European Investment Bank and Zurich-based asset management firm Responsibility Participations AG.
The fact that the bank’s shares do not trade on any over-the-counter platform and it is not listed on the securities exchange makes it difficult to establish the number of shares the employees got for their Sh600 million investment or previous shares.
The fate of the staff is dependents on how soon the bank is reopened, either with a capital injection from the major shareholders or through a sale to a strategic buyer.
On Friday, CBK governor Patrick Njoroge disclosed that there are at least five suitors keen on acquiring the bank but did not disclose their identities.
The job security of the Chase Bank employees would be at the discretion of the potential buyers. If a local financial institution were to take over Chase Bank, a number of jobs may be lost during the consolidation of operations across the two lenders, especially at management level.
