The writing was on the wall for the collapsed Capital Bank as far back as at least 2014, according to memo sighted and published by the Insight Newspaper in January 2015, which went under the radar at the time.
The Insight Newspaper obtained information indicating that the Capital Bank, then First Capital Plus Bank, was on the verge of collapse with the bank’s Chief Executive Officer describing the situation as a “time bomb.”
Following the collapse of UT Bank and Capital Bank, and their takeover by GCB Bank, because of the inability of the two banks to turn around their negative capital adequacy position, this memo has resurfaced adding more context to Capital Bank’s collapse.
The August 2014 memorandum, signed by the CEO of the Bank at the time, John Kofi Mensah, warned that Capital Bank had capitalization issues and may not be able to meet its obligations to its clients.
“I regret to mention that unless we act ourselves and so with all the promptitude that it deserves, things may go out of hand, including the possibility that the Bank of Ghana may step in, by which time it will be too late for us to make excuses, with all of us risking sanctions,” the memo stated.
Mr. Mensah also stated that he would regard any non-action on his warnings a vote of no confidence in his vision for the company.
“…the Board’s acceptance or otherwise of my proposals would go a long way to assist my interpretation of the Board’s willingness to share in my vision for the Bank and its customers at large. I will certainly interpret that as a vote of no confidence in my ability to steer the bank to its destination with your respective backing and cooperation.”
The memorandum addressed to the Board of the Bank also outlined cases of mismanagement that had compromised their shareholder’s credibility.
Find the full memo below
FROM: CHIEF EXECUTIVE OFFICER
TO: CHAIRMAN AND MEMBERS, BOARD OF DIRECTORS
DATE: AUGUST 11, 2014
URGENT ACTION TO SALVAGE THE REPUTATION AND FORTUNES OF FIRST CAPITAL PLUS BANK
I write to reiterate my earlier concerns and request for the Board to act with expedition and take drastic and urgent steps to resolve the seemingly intractable problems that have bedevilled and continue to dog the growth and our efforts to stand the bank on its feet till date.
We have discussed these issues at length, but we do not seem to have made any significant progress as exemplified by the fact, among others, that a recent 3 man committee we set up to come up with some solutions appear to have been still born. We also appear to be perfecting the art of crafting long -winding resolutions which are not backed by any serious follow-up action.” I perceive that we are very conversant with and know very well the problems that confront, but lack the critical boldness and courage to tackle the bull by the horns. With respect, we all appear to be guilty of fiddling while Rome burns.
As the CEO, coupled with my interests as a shareholder of the Bank, I wish to set the ball rolling by shaking myself out of the self-imposed slumber that we all find ourselves. I think that I cannot do less than be in the forefront and spearhead the efforts to grow the Bank and move it to the next level to the path of joining the ranks of the foremost financial institutions in the country. The clarion call has assumed some urgency due in part to the attempt by the Government/Bank of Ghana to pass into law the Depositors Protection Bill and the Deposit Taking Institutions Bill which would, among others, oblige every Director of a Bank to report to the Bank of Ghana if he has reason to believe that a Bank of which he is a director cannot meet its future obligations on pain of criminal sanctions.
In short, transparency, candour and diligence in prosecuting a bank’s object of an incorporation is no longer a matter of personal ethics, but have been raised to an obligatory statutory duty with
sanctions to boot. We can therefore not have the luxury of going on with our duties as ‘business-as usual’. On the contrary, we are being compelled to move forward.
From my perspective, the issues that require urgent action appear to be:
1.0 Our inability to establish offshore counterparty relationships due to issues with shareholder’s credibility.
2.0 On top of this issue is our continuing inability to establish offshore counterparty relationships with other banks and financial institutions. As we are all undoubtedly aware, this problem has arisen and persists as a direct consequence of outstanding and unresolved issues hovering around shareholders of the bank. The Deutsche Bank and others have, after conducting due diligence on the bank, rejected our request for business relationship with them. We all know and agree that this type of business relationship constitute one of the essential life lines for the Bank. Als long as this problem persists, we cannot reasonably expect to grow outside the boundaries of this country. This will undoubtedly lead to stunted growth and spell doom for the bank in the long run. Unfortunately as the issue is, I am sorry to state that we have dithered for far too long on this matter and require to act forthwith.
3.0 Unresolved TPF and capitalization issues.
3.1 This is a long standing issue and needs no further clarification.
4.0 Increasing interest expense and general costs of doing business
4.1 This has been the bane of the bank for some time now, that while management is embarking on a desperate and aggressive deposit mobilization to shore up liquidity to cover holes in the balance sheet, it is resulting in increased interest expense and general costs to us. This is detrimental to our profitability drive and the same is unsustainable.
5.0 Potential TPF and Related Costs
Decisions on some emerging liabilities which are potential TPF remain outstanding
6.0 For the above and other reasons, I hereby outline the following as urgent steps that the Board ought to ensure to save the Bank from any further casualties.
- Acceptance of debt liability created through non-conventional practices and a delivery of a re-imbursement plan that will not create any further liquidity strain for the Bank.
- Proper capitalization of the Bank since deposits with other Banks is not backed by actual liquidity.
- On the first issue above, I see the solution as a simple one: The shareholders must accept to have their shares held in trust for them. The only other option, as far as I can see, is that they remain and we get stuck in the tunnel, with the inevitable consequence that this may explode in our faces sooner than later.
- Full disclosure of any and all potential liability created by any shareholder to avoid further surprises as has been the case lately.
- Concrete steps to salvage the reputation of the Bank and prevent any further market and reputational risks.
- Decisions Board must be implemented without further delay.
7.0 I regret to mention that unless we act ourselves and so with all the promptitude that it deserves, things may go out of hand, including the possibility that the Bank of Ghana may step in, by which time it will be too late for us to make excuses, with all of us risking sanctions (though I fervently hope that we act with expedition and seriousness to avoid that possibility).
8.0Accordingly, I think that we are all sitting on a time bomb and cannot afford to spend too much time in drawing a road map based on the proposals outlined here. I would think that we should be able to accomplish this assignment within three weeks from now.
9.0 Of course, the Board’s acceptance or otherwise of my proposals would go a long way to assist my interpretation of the Board’s willingness to share in my vision for the Bank and its customers at large. I will certainly interpret that as a vote of no confidence in my ability to steer the bank to its destination with your respective backing and cooperation.
Submitted for the board’s action.