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2 years after Crane Bank closure; 6 things we now know that we didn’t know then

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Former Crane Bank branches like this former Ntinda Branch, have all been assimilated into dfcu

On this day, 2 years ago on October 20, 2018, Bank of Uganda took over the management of Crane Bank- pursuant to “Section 87(3), 88(1)(a) & (b) of the Financial Institutions Act 2004.”

In a series of actions announced by BoU governor, Prof Emmanuel Mutebile, BoU also suspended the Board of Directors of Crane Bank and appointed a statutory manager, because, according the governor, BoU had determined by “Bank of Uganda that Crane Bank Limited is a significantly undercapitalised institution as defined by law, poses a systemic risk to the stability of the financial system and that the continuation of Crane Bank’s activities in its current form is detrimental to the interests of its depositors.”

3 months later, on 25th January 2017, Bank of Uganda sold Crane Bank’s assets and liabilities to dfcu Bank at a consideration of Shs200 billion- a price many believed was a “sweetheart deal”, given that at the time of takeover, Crane Bank’s assets stood at Shs1.3 trillion.

Today, 2 years after and several court suits and counter-suits later, a lot of things and chains of events have taken place, entirely altering the terrain of the case, bringing to light several things that make and or made the Crane Bank take over, much more than just any other bank takeovers before.

Here below are the top 6 things we know about the Crane Bank takeover that we didn’t know back then.

Kasekende and Bagyenda conspired to sell off Crane Bank long before BoU took it over: Days before BoU took over Crane Bank, city ‘vultures’ with assistance from top insiders at BoU were already brokering deals to sell-off Crane Bank. These details were uncovered in a separate FBI bribery investigation on Foreign Affairs Minister, Sam Kuteesa and other accomplices. According to a sworn complaint by FBI Special Agent Thomas P. McNUlty, Kuteesa’s wife- Edith Gasana Kuteesa is named as working together with Deputy BoU Governor, Dr. Louis Kasekende and another unnamed BoU senior official, believed to be the sacked former Executive Director of Supervision, Mrs. Justine Bagyenda, to sell Crane Bank to CEFC China Energy Company, a major Chinese energy conglomerate.

This contrary to the Financial Institutions Act 2004.

That the Crane Bank takeover and summary sale to dfcu has since become controversial, with Bagyenda being fingered out for the mess is therefore not surprising.

BoU did not value the assets of Crane Bank but instead relied on valuation by dfcu Bank, the eventual buyer: A special audit carried by the Auditor General into BoU’s conduct in the seizures and sale of 7 failed banks, including Crane Bank, found that BoU did not have any set down procedures for disposing off failed banks.

It also found out that because BoU either deliberately or negligently failed to value the assets of Crane Bank, dfcu, the eventual buyer, literally set its own price for buying the bank- Shs200bn. In the absence of a proper valuation, it is difficult to tell whether or not, BoU secured a fair value, as required by section 95 of the Financial Institutions Act.

But that was not all; not only did dfcu get a “sweetheart’ price of Shs200bn, BoU offered very friendly payment terms- 30 months; but also iced it by conveniently and or negligently forgetting to charge interest on the credit extended to dfcu, thus causing a Shs38bn loss to taxpayers.

Bank of Uganda Officials who oversaw the sale have billions of unexplainable riches: The incredibly sweet terms offered to dfcu paired to later claims that Mrs. Justine Bagyenda, the BoU official who oversaw the Crane Bank has unexplainable riches, has fueled speculation that perhaps specific Bank of Uganda officials directly benefitted from this sale.

The reluctance by the Inspectorate of Government and the Financial Intelligence Authority to reveal the results of an investigation into Bagyenda’s wealth has also gotten people speculating into whoelse was involved in the grand scandal.

The battle for Crane Bank is bound to be one of the biggest commercial fights in the history of Commercial banking in Uganda

Excessive costs and commission deals were given to a set of ‘conflicted’ law-firms: There is a theory, that to gratify and or wet the beaks of the powerful forces at BoU, lucrative deals were ring-fenced for specific law firms who would possibly act as a conduit. The same law firms severally represented BoU and or dfcu Bank at different stages of the transaction- either to investigate Crane Bank, sell it off, recover bad loans as well as represent BoU in cases against Crane Bank Shareholders.

The three law firms whose “too close for comfort” involvement with BoU and dfcu are: MMAKS Advocates, AF Mpanga (Bowmans) and Sebalu & Lule Advocates.

To date, these law firms have earned more than Shs10 billion in the Crane Bank sale process and several other billions are in pending invoices- costs that Governor Mutebile has described as exorbitant, but were incessantly defended by Bagyenda, to the point of being sacked.

It is therefore not surprising that in an August 1, 2017 interview with Daily Monitor, BoU Governor, Prof Mutebile insinuated that said that Bagyenda was “criminally culpable” over the issues of Crane Bank.

Bank of Uganda, illegally and secretly ‘bequeathed’ Shs570bn of Crane Bank bad loan book to dfcu: Perhaps one of the biggest contentious issues in this case, is who owns the Shs570.3 billion Crane Bank bad loan book which the Central Bank secretly gave away to dfcu? Crane Bank shareholders have laid claims to this bad book, since they had been made pay for these bad loans by forfeiting their shareholder capital worth Shs350 billion as well as an additional $23.5 (Shs85 billion) paid in cash to the Central Bank.

The shareholders of Crane Bank contend that BoU illegally transferred the bad loan book to dfcu and that dfcu is wrongly correcting on it since it was never part of the Purchase & Assumption (P&A) agreement of Crane Bank’s assets and liabilities.

This was also singled out in the Auditor General’s report. He observed that: “I also noted that the P & A did not have complete details of assets and liabilities transferred to dfcu with their corresponding values and that there was no schedule of loans and the corresponding collateral transferred to dfcu. Therefore, I was not able to establish the values and categories of loans- performing loans, non-performing loans and fully provisioned/written off loans (bad book),” said Mr. John F.S Muwanga.  

Hero turns villain; BoU on trial: At the time BoU closed Crane Bank, they trod the moral high-ground and for a moment, it was business as usual. But as scandal after scandal broke at BoU as well as the nitty gritty of the wheeler dealing by BoU senior executives; made worse by the unexplained riches, BoU quickly moved from hero to villain- at least in the court of public opinion.

The Auditor General’s report sealed BoU’s fate- the Central Bank is equally rotten and is in bad need of a forensic audit and subsequently- a shake-up, especially of its unchecked powers that they have used so indiscriminately in the past.

That key economics like Dr Fredrick Muhumuza are calling for a review of BoU’s independence- is a tell-tale sign that at the end of the day, BoU is in the dock too.

But as night follows day, we are now sure that this is just the tip of the iceberg- as we await the full parliamentary inquiry and the court proceedings to start. By all standards, the closure of Crane Bank is going to go down in the history of commercial banking in Uganda- not because of the sheer amounts involved, but because by the time the case comes to a conclusive closure, not only will several stones be unturned but some rocks- big rocks will roll as well.

 

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