Company Overview
UBN, one of the first generation banks, started as a branch of Barclays Bank Dominion Colonial Overseas (DCO) in 1917. In 1969, it was incorporated as a private limited company in Nigeria. UBN went public a year later and was subsequently quoted on the Nigerian Stock Exchange. The new UBN is an amalgam of the old Union Bank, Universal Trust Bank Plc, Broad Bank Plc and Union Merchant Bank Limited in line with the consolidation programme of the Central Bank of Nigeria.
Having divested from non-banking subsidiaries of Union Trustees Limited and Union Pensions Limited, the bank’s principal activity is the provision of banking services. It plans to offload UBN Property Company Ltd and Atlantic Nominees Ltd. Union Bank UK Plc is its UK subsidiary which is responsible for about 2% of its revenue and 6% of its total assets (2014: 8% of total assets)
Foreign investors account for 85.9% of its shareholding. Union Global Partners Limited, a consortium of investors, now holds 65% (2014: 61.39%), while Atlas Mara Limited retains 20.9% equity stake in UBN. Thus only 14.1% is available for diverse investors.
Mr. Cyril Odu was appointed to chair a 17-man Board of Directors on November, 2015 while Mr. Emeka Emuwa is the chief executive officer (CEO). The management has embarked on restructuring of its operations to increase its brand preference and image. Its efforts include upgrade of its branch network and information technology in order to create a stronger and reliable bank.
Investment Thesis
The bank has shown improvement since it was recapitalised in 2011 by The Asset Management Corporation of Nigeria (AMCON) and Union Global Partners Limited. But management need not rest on its oars. The bank is divesting from its non-banking subsidiaries to focus on banking. However, the retail banking’s contribution to revenue has been on the decline in recent years. It is lucrative but could expand the creation of risk assets.
But UBN has a remarkable experience and performance in treasury and investment services such as issuance of short term notes, money market investment management and fixed income sales and trading.
UBN operates only in two countries-Nigeria and UK. The subsidiary in the UK only accounts for about 2% of its revenue and about 7% of its assets. Returns to shareholders are low and the bank is trying to rebound after recapitalisation. And such they depend largely on capital appreciation.
UBN is cautiously growing its loan portfolio. Asset quality seems to be improving. And we are of the belief that retail deposit mobilisation will increase its margin going forward. Also, this will improve its internal capital generation and its liquidity.
It should watch its capital level as this is on the decline. It is creating more risky assets than it is growing its capital. The bank is not consistently generating positive free cash flow. Shareholders have been benefitting from non-dilution since 2011. And a decision to raise more capital from the market may erode their wealth.
We would like to keep tabs on the company to see how management’s efforts at restructuring the bank and putting it on the pedestal of profitability pan out. We may still witness another round of consolidation in the industry going forward.
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