Nigerian entrepreneur, Femi Otedola lost over a billion dollars of his fortune a second time.
And this happened due to the devaluation of the naira in June and also a drop in his company’s (Forte Oil) stock price. As Forte Oil’s share price dropped in value from an all-time high of NGN342 ($1.1) per share in February to NGN59.2 ($0.12)* as it stands today.
A Forbes report on Otedola’s drop in fortune echoes this,
“In dollar terms, the devaluation in addition to Forte’s floundering share price has knocked about $1.3 billion off the value of Otedola’s fortune which was pegged at $1.8 billion in March”.
But prior to this, Otedola lost $1.2 billion dollars during the 2008 economic crisis. And in an interview with Forbes Africa (video), the former billionaire says the loss was due to his having “a lot of dollar exposure” at the time.
“I probably had about 93% of the business on my fingertips,” Otedola says. And by that, the debt incurred fell on him.
In March 2007, ten banks granted Zenon Petroleum and Gas Limited (Otedola’s company) a loan of $1.5 billion. With each bank contributing $150 millon into the pool to serve as Zenon’s working capital.
But in 2008, Otedola had over a million tons of diesel over the high seas. Just then, the oil prices dropped- from $146 to $34 dollars.
Two years later, the Federal Government set up Assets Management Corporation of Nigeria (AMCON) to deal with the fall out of underperforming loans in the financial sector.
And in October 2011, AMCON purchased large loans off Nigerian banks. As AMCON says, the loans were too big for the banks and it was a systemic risk to the banking sector. Zenon’s debt was part of those acquired and was worth $1.2 billion.
But the banks also took a haircut. And sold the debt to AMCON for $800 million.
“They [AMCON] took a shave of $400 million, so I was left with a debt of $400 million,” Otedola says.
While AMCON offered a restructuring of his business, Otedola turned down the offer and chose to pay the debt- by relinquishing his properties, investments in the banking sector, telecom and oil as valued by AMCON.
A breakdown of his dip shows he lost $480 million when the oil prices crashed, $258 million through naira devaluation, $320 million due to accrued interests and $160 million in the drop in share prices.
But how come he had no safety measures which would have reduced the impact of these loses?
“I put a blame on the banks for not advising me to have a proper structure when the money was rolling in,” Otedola says. “All they [the banks] were interested in was the profits. They were not interested in the sustainability of the business. So all they were doing was throwing money at me,” he adds.
But what’s the role of Banks besides facilitating financial transactions?
By law, the Banks and other Financial Institutions Decree, 1991. A Commercial bank is “any bank whose business includes the acceptance of deposits withdrawal by cheque”.
And Merchant Banks among other functions are to give advisory services relating to corporate and investment matters.
While the law doesn’t spell out an advisory role for commercial banks- you get a sense that its role is not restricted like the Merchant bank’s.
Let’s see how it works in other climes.
A piece by ING Group, a Dutch financial institution, on the Role of Banks reads,
“Managing and monitoring risks are at the heart of banking, and most banks have strict policies in place at various levels to handle both financial and non-financial risks”. And “above all, banks specialise in estimating possible risks”.
It adds that, banks estimate the possible risks not in its interest but to minimise risks for customers.
Why should banks bother with this?
Let’s put this in perspective. Banks are sitting on valuable data about their clients’ financial behaviour. They have the scale and they understand the regulatory requirements. And in turn customers will attach a high value to banks that prioritise their wellbeing.
The question then should be, why didn’t the banks harness said information and make assessments or projections that will benefit their client- in this case, Otedola?
They didn’t know better? Was it just plain oversight? Or is it as the former billionaire put it, a case of “carelessness and greed”?