On February 1st 2019, as the dfcu Bank officials prepared to give Juma Kisaame, a stage-managed dignified farewell; dfcu shares that opened at UGX695, closed UGX5 lower, at UGX690.
Stage-managed because the man who grew dfcu from a UGX222 billion asset bank in 2007 when he joined to UGX1.745 trillion in 2016 (a year before the controversial Crane Bank acquisition) – a growth of 686%, was literally shown the exit.
The farewell dinner, was held at Kampala Serena Hotel and was graced by the Speaker of Parliament, Rt. Hon. Rebecca Kadaga and Bank of Uganda, Deputy Governor and Dr Louis Kasekende.
Dfcu Bank Board Chairman Jimmy D. Mugerwa and dfcu Limited Chairman Dr Elly Karuhanga as well as Dr Kasekende, praised Juma Kisaame for his many years at the bank (1992-2018) and work at the bank that saw it grow to the No.3 bank (in assets) in the country.
Rt. Hon. Kadaga, also spoke in general terms about Juma Kisaame, being “a devoted worker” who had “made incredible contribution to the bank, the business sector and the country’s financial sector.
But nobody really spoke about the elephant in the room- the real reason why Juma Kisaame really had to leave dfcu Bank and be replaced by Mathias Katamba.
Everyone clearly avoided speaking about the controversial acquisition of Crane Bank- a deal first celebrated as a game changer, but has now turned out to be a stinker, since the dirty details surrounding the deal were unearthed by an audit conducted by the Office of the Auditor General on orders of Parliament’s COSASE.
For Juma Kisaame, it was a bitter-sweet exit, given that the same success for which he was being celebrated- driving dfcu to the No.3 bank in the country, following Crane Bank’s acquisition, is the very same deal that got him fired.
It is generally for this reason that everyone who spoke, generally avoided speaking about figures, because numbers do not lie.
Dfcu shareholders lose UGX212 billion
In the thick of things, a share-price decline of UGX5 may appear small, but with 760,359,717 issued shares, that is UGX3.8bn (USD1.035million) in investor wealth lost in one day.
But more importantly, dfcu’s share price, did not just falter on that day, alone.
Dfcu shares, enjoyed a healthy growth throughout the entire first half of 2018- rising from UGX681 at the beginning of January 2018, gained 42.4% in value and reached a peak of UGX970 on 17th July 2018- thanks to the Crane Bank deal that made dfcu after-tax profits, literally shoot up ‘overnight’ by 134.4% from Shs45.3 billion to Shs106.2 billion.
As the board declared a 107.7% increase in Earnings per Share, from Shs91.2 to Shs189.3 per share, dfcu shares became a hot buy.
But in July, as the finer details surrounding the dirty Crane Bank acquisition were laid bare, CDC Group, one of the bank’s flagship shareholders, announced plans to quit the troubled dfcu. They however denied their exit was linked to the murky acquisition.
In the next few days, Deepak Malik one of the bank’s long standing board members and CEO to Arise Invest B.V- dfcu’s majority stakeholder, also announced he was stepping aside from the board- but would instead appoint a Fred Pelser as an observer to the board.
That same July, William Sekabembe, the man that was being groomed by the dfcu Bank board to replace Juma Kisaame, also threw in his resignation. It had to take a 47% salary increment from Shs38,035,800 in August 2018 to Shs56,000,000, to stop him from crossing to rival KCB Bank as a Managing Director.
In October 2018, to shore up confidence in the bank, Juma Kisaame was retired and replaced by a younger and cleaner Mathias Katamba, hitherto the Managing Director at Housing Finance Bank. Katamba would assume full control on January 2nd 2019.
The release of Auditor General’s report into BoU’s mismanagement of the closure and sale of 7 banks, which painted in detail how dfcu Bank- read Juma Kisaame was favoured to acquire two banks- Global Trust Bank and Crane Bank, made dfcu’s image problems worse.
By end of December 2018 dfcu share-prices sank 15% from UGX970 in July 2018 to UGX822.97.
By close of January 31st 2019, dfcu shares further fell by 15.5%, closing at UGX695 per share.
So, losing a further UGX5 February 1, 2019 – from the UGX695 opening price, to UGX 690 was something.
Altogether, from 17th July 2018 to February 1st 2019, dfcu’s share price fell by 28.8 %.
With 760,359,717 listed shares, at a peak price of UGX970 on 17th July 2018, dfcu Bank was valued at UGX737.5 billion, but by February 1, 2019, at a price of UGX690, dfcu stock was valued at UGX524.6 billion. Simply put, between 17th July 2018 and February 1, 2019, Juma Kisaame and his board, led by Jimmy Mugerwa caused their shareholders to lose wealth, worth UGX212.9 billion- all gone in 6 months.
Put differently, for an investor who bought/had dfcu shares in January 2018 and still held them in January 2019, they had only made a gain of only UGX9.
Perhaps, the only consolation was the one-time 107.7% increase in Earnings per Share, from Shs91.2 to Shs189.3 per share.
It yet remains to be seen how and what the full 2018 results will be, but according to an advisory note issued by Crested Capital- investment advisers and brokers, other than the one time windfall registered in 2017, dfcu’s acquisition of Crane Bank is yet to yield significant payback for the shareholders- considering the pain that dfcu has suffered and is bound to suffer in the near future.
The analysis based on dfcu’s performance in the first half of 2018 performance, says that, save for the one-time windfall, “twenty-one months after acquiring Crane Bank (CBL), dfcu’s 1H2018 results indicate the bank’s earnings” have normalized to pre-acquisition levels and in some cases even worse.
“Profitability dropped in the first half with a net profit of UGX41.62Bn ($11.09Mn) compared to UGX114.05Bn ($30.41Mn) in 1H2017 in the absence of the “bargain purchase” gain made on the Crane Bank acquisition last year. Net operating income declined 42.73% to Ugx146.03Bn ($38.94Mn) lower than Ugx255Bn ($68Mn) in the same period last year,” observed Crested Capital analysts.
“The bank’s return on average assets (ROaA) closed at 1.37%, far lower than the 4.74% in 1H2017 but in line with the 1.44% in 1H2016. Return on average Equity (ROaE) of 7.68% is also far below 37.19% in 1H2017 and still lower than 10.84% in 1H2016,” furthers adds Crested Capital.
Crested Capital has issued a “hold recommendation” (do not buy or sell) as they expect prices to possibly rebound to at least UGX875.29 over the next 6 months. These are some of the teething issues that the incoming MD, Mathias Katamba has to deal with if he needs to restore investor confidence.
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