Teachers Learn Sh10bn Loss Lesson in Spire Deal

They came and looked but were unable to win. And Mwalimu Sacco left Spire Bank having learned how not to invest after nearly ten years of money leak.

Following the implementation of an agreement that got the Treasury’s approval last week, all deposits and loans in all 10 branches of Spire Bank were transferred to Equity Bank Kenya at midnight on Tuesday.

Joel Gachari, the chairman of Mwalimu Sacco, claims that although the Sacco feels it received sufficient guidance from the “best” transaction advisors when it purchased a 75% ownership in Spire, it didn’t fully consider what it was entering into.

“We didn’t calculate properly what we were getting into, mostly looking at the future prospects,” said Mr Gachari on Wednesday, shortly before formally signing away the bank that had brought to Mwalimu more pain than gain.

On Wednesday, the main executives who oversaw Spire, which had undergone years of losses and capital and liquidity breaches, discussed the fine line they had to tread to prevent the lender from failing as quickly as Chase, Imperial, and Dubai bank.

Chief Executive Officer of Mwalimu Sacco Kenneth Odhiambo claimed that under pressure from teachers and the accumulation of Spire’s losses, he had to suffer a period of being photographed by the media “so much.”

“We have learnt not to kick the can down the road. When things don’t work, you have to relook at what else you can do to safeguard members’ interest,” he said on the decision to exit Spire.

By the time Equity agreed to the purchase, which Equity Group CEO James Mwangi termed as a “transaction of empathy” to save a fallen brother, the bank had absorbed cumulative losses of nearly Sh10 billion.

William Rahedi, the chairman of Spire, is aware of how near the bank came to closing down, leaving its directors and those of Mwalimu Sacco with a bad taste in their mouths. However, they can credit Equity for what they now refer to as a “dignified exit.”

Mr. Rahedi spoke candidly about the hardships Spire’s directors had to go through in order to keep the bank’s doors open, including their struggles to get access to the few willing banks’ overnight borrowing window.

Even when the Equity option was presented, according to Mr. Rahedi, many of the directors were hesitant since doing so would have “many serious ramifications.”

Then there were those trying times when Spire’s personnel had to get up every day and persuade clients not to withdraw their money out of the bank out of concern that the bank may tank and have to shut down.

“It has not been an easy walk. There were many pressure points. We could have woken up one morning and found padlocks around our bank doors but Equity came along and has allowed us to finish in a dignified way,” said Mr Rahedi.

The acquisition of the former Equatorial Commercial Bank was completed in 2015, just before banks were slammed with interest rate cap rules the following year, according to Mr. Gachari, who also believes that Mwalimu Sacco could have done a better job of scanning what it was getting into.

Because of the rate cap, the Sacco was unable to generate the amount of interest rate income it had anticipated when it bought the controlling interest from the now-deceased businessman Naushad Merali.

Then Mr. Merali, whose withdrawal of Sh1.7 billion in deposits in 2016—a fifth of the bank’s total deposits at the time—was previously acknowledged by the Sacco, put the teachers’ Sacco on shaky ground.

According to Mr. Gachari, it has taken the lender almost four years to come up with an exit strategy, which has been costing the Sacco at least Sh1.1 billion yearly.

He claims that the Sacco will be able to focus on its traditional business and expand the recently announced products, such as home loans, assets, and financing for insurance premiums, by leaving Spire.

The Sacco was unable to continue supporting the loss-making bank, so the spire-Equity transaction was started under the Insolvency Act.

As part of the Sacco’s turnaround strategy, Mwalimu has decided to leave the bank it purchased in October 2014 as well as two acres of land in Juja.

Spire Bank began operations as a finance firm in 1983 and as a full-fledged commercial lender in 1995 under the name Equatorial Commercial Bank. Spire Bank was founded in 1983 as a financing company.

When Equatorial Commercial Bank joined with Southern Credit Banking Corporation in June 2010, it kept using the name Equatorial until Mwalimu Sacco bought a controlling interest in 2015.

After that, Mwalimu Sacco changed the lender’s name to Spire Bank in 2016, bringing his aspirations of owning a bank to fruition.

The bank Spire, which has been doing business with the slogan “Inspiring you to do more,” now leaves the stage, having lost the motivation to cling to a goal that was conceived 40 years ago.