Wednesday, June 07, 2006

Bank Hangman Part 1

Get into an anonymous taxi car and quietly drive towards a company’s office on Mombasa Road. You are all quiet in the car as you contemplate the mission you’ve been assigned this morning. Your weapon is contained in a new brown envelope that occupies the middle back seat of the car. It would be disastrous to loose this weapon - blown away or picked through the open window by a street thief, or to have it damaged by coffee stains or tears.

Finally you get there and sit for a minute to calm down the nerves. No need to go over your game plan again as you have discussed it several times over for days.

Doors open and team A calmly steps out, leaving reserve team B in the car. Team C and Team D are also on standby.

You stroll in to the company just before lunch time and tell the bored secretary you’re her to see Mr. Pape Badeta. And she casually waves us in to his glass office.

Pape rises to greet us; “Hi, it’s been a long time. Normally you call before you come here, you want to see the new product samples?”
“Yes, we’re fine”
On to business
“We'd like you to accept this on behalf of the company”
Pape opens the sealed envelope, and read the letter
"Oh dear"
Silence
“You’re recalling the loan?”
“Yes, can you pay the full 10 million shillings today?”
“I can’t believe it”
“I’m sorry”
“I talked to your MD last week about the company’s problems and he never said anything about this”
“Sorry, management has decided”
Silence
“Can you pay the 10 million today?”
“No! From where? you know my financial situation!”
“Ok thanks, we’ll leave now, sorry again”
Exit Building
Return shortly with team B from the car outside.
“Mr Badeta?”
“Yes” (Still in shock looking at letter on his desk)
“My name is Shilling Sing. The bank has recalled its’ loan and since you are unable to pay, they have also decided to put the company under receivership and appointed me as receiver manager. Here is my instruction letter; you are relieved of your duties. Please hand over the office keys and leave. I am in charge from now.”

21 comments:

Anonymous said...

you did that ama???

Shiroh said...

Waiting for part 2. Interesting Bank Hangman.

Shiroh said...

You did this Banks?

Pape rises to greet us; This tells us a lot.

Mhindi business down

Anonymous said...

So... which bank decided to recall Uchumi's loan?

Anxious shareholder

Guessaurus said...

LOL sounds like an episode from the Sopranos

Dude, get your 'suit' face off, this is funny.

Or not, depending on who is on the receiving end :(

KD said...

Sounds familiar ...

AK said...

...would this be procedural?

I am lost on whether you are telling us a nice joke or a near-true story. give us the rest pliz..

Ig-know-rant said...

Banks, that a good one. When I last checked, the line was and i guess still is, "Are you able to pay us NOW??" And then, the receiver is always the guy accompanying the main guy with the brown envelope, and immediately the loanee says he can't pay, there's no story of ati you step out of the door to call team B. The receiver immediately digs into his pocket and removes another brown envelope with his appointment letter and shows Pape out of the door. i recall seeing a well written manual/ script on how to put a company under. There's a case involving Leisure Lodge-it's public information-that was decided by the Kenya Court of Appeal some years back and from that case, a blockbuster movie can be made. It's like "Barbarians At The Gate" squared.

bankelele said...

Shiroh: I think I should stop at Part 1 - Part 2 is for when it all goes wrong. And Pape was always curteous

Anonymous: They had KCB and PTA - and was probably a joint decision

Guessaurus: Unfortunately true, but you must carry it out with a 'suit' face

KD: You've done this too?

AK: tis procedure

Ig-know-rant: You do know this stuff! Can you link me with the leisure lodge case?

Speculator said...

Banks: It was a loan recall that brought Uchumi down? I wouldn't have suspected. KCB & Stanbic seem to have been benefiting from a relationship with Uchumi. KCB with the card business and the loan interest which as per the article below says Uchumi’s closure will reduce KCB’s profit after tax by by 7.4% from a loan that only comprises 0.4% of its loan portfolio!

http://www.nationmedia.com/dailynation/nmgcontententry.asp?category_id=3&newsid=74570

It actually says the value of KCB shares is going to come down from that decision. What do you think? The loan was being serviced so it seems prudent to have tried to sustain the business especially now that they are not the receiver managers.

Speculator said...

I had missed this article. I get the picture. There's a 3rd bank involved


http://www.nationmedia.com/dailynation/nmgcontententry.asp?category_id=3&newsid=74571

Anonymous said...

Shiroh said: Pape rises to greet us; This tells us a lot.

Mhindi business down


Huh? Your comments don't tell us a lot. Please clarify/expand on the above...

Is this related to Uchumi? How?

Mimmz said...

This suspense is killing us. Exactly what do you mean by recalling a loan? Are you telling me banks in Kenya have the ability to randomly recall loans? Like approve you for one today and decide to change their minds next week?

mashatall said...

good one Banks. Multiskilled i see you are my guy, see your atrsy side can come out when you are stressed !!! Guess Uchumi was not servicing the loan if it was recalled, or were they? If they were then that is very interesting, considering the value of uchumi's assets, a hedge fund specialising in distressed debts would have a field day just selling off the real estate. So the question lingers, was the loan being serviced or not?

Ntwiga said...

Great post Bankelele.

Some questions come to mind:

1. Why does everyone assume that the company being dealt with here is Uchumi? Are you all privy to some insider info that the rest of us are not.

Talk of seeing "product samples" makes me think that this is not Uchumi since they were a retailer and did not really make anything.

2. Why do banks insist on sending receivers in every single time?

I have always found it very amusing that Kenyan banks put companies under receivership and immidiately replace the management rather than try to work out a plan in which the bank works to save the company to mazimize their profits.

To me, this smacks of poor judgement from a purely financial point of view as sending in a receiver pretty much guarantees the bank will NOT get 100% of its loan back.

The absolute function of a receiver is to liquidate as much of an organization as possible so as to maximize recovery rate for loan portfolios. Given this mandate, there is absolutely no way a receiver can do a better job of managing a company than professional management with experience in the sector can since the receiver's role is at cross purposes with the objective of running a business.

I like the the north american model that allows for two scenarios better - Chapter 11 where incumbent management is maintained as far as possible with bank oversight so as to get the company back on the profit making track with the goal of recovering the loan over the long term with interest while Chapter 7 is the equivalent of what we do in Kenya i.e go in and sell all assets for maybe cents on the shilling.

But with the profit margins Kenyan banks have, I guess that they have no incentive to go pick the "build" route rather than the "destroy" route for bad loans.

Cant wait for part II.

sassy said...

Hmmm...
Interesting

bankelele said...

Speculator: I think the transnational bank that reaclled Uchumi was Citibank and it was a few years ago.

Mimmz: Banks hate to put companies under receivership, and only do it as a last resort to secure assets or where the customer has not been co-operative.

mashatall: Not Uchumi. There are plans to start a distressed loans agency, but it may take a few years if ever to become reality

Ntwiga: Not Uchumi. Banks are actually very patient and renogtiate terms to keep companies in operation and to enable them to pay the bank. Companies under receivership rarely go back into operation - unless they are sold to new owners. Also receiverships can drag on for many years and we try and get rid of them as quickly as possible - usualy by disposing of the assets, but only when there are suitable financial offers

sassy: actualy was scary

Prousette said...

interesting and scary... waiting for part 2.

Omani said...

Every businessmans nightmare.From hero to zero.

gathinga said...

very descriptive indeed. a scene straight from the movies. but unfortunately i appears to haunt us!! banks, am sure its no fiction

gishungwa said...

am really late been away from the blog runs. I loove the story/parable/etc...
waiting for part2

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