Former Fidelity Bank Owners Sue CBK for Billions of Shillings

Former Fidelity bank owners accuse CBK and Mauritian bank group SBM Holdings of using threats to intimidate them into selling their bank at a low price.

The owners argued that they were forced to sell Fidelity bank at a negative valuation after being thrown criminal charges, closure, and regulatory sanctions threats.

One of the shareholders, Sultan Khimuji, has petitioned in court to have the 2017 forced buyout declared null and void because CBK bullied them into selling the bank. SBM  inflated operational costs and provisions for bad loans.

The Mauritian bank group acquired Fidelity Bank in a deal facilitated by the CBK after the Kenyan lender experienced financial difficulties under a regulatory framework that intended to rescue rather than shut struggling banks.

Mr. Khimji and his associates have accused SBM of breaching a commitment of an Sh600 million deferred payment and an equal amount of goodwill.

The CBK is accused of coercion and intimidation in the lawsuit, including calling the directors in the middle of the night to force the sale of Fidelity Bank.

“The plaintiff (Mr. Khimuji) prays for judgment against the defendants (CBK and SBM), for a declaration that the share purchase agreement between the plaintiff and first defendant dated March 28, 2017, is invalid, null, and void and of no legal effect and that the shareholders of the former Fidelity Bank are entitled to compensation for the full value of the said bank,” the suit papers say.

The complaint seeks Sh2.5 billion in damages, which is the total market value of Fidelity Bank as of December 2016.

Alternatively, they argue that the court should order SBM to comply with the share purchase agreement, which stipulates a Sh1 initial consideration, a Sh600 million deferred payment, an additional Sh1.3 billion for lender undervaluation, and a Sh600 million goodwill payment.

Mr. Khimji has also requested restoration of sale gains and damages compounded at 12% per year beginning in January 2017.

Fidelity Bank owners claim that the CBK gave SBM Sh4 billion to fund their deal and pay exiting shareholders, but the money was diverted and used to purchase Chase Bank’s good books.

“SBM failed to pay the Bank shareholders and instead leveraged the funds to facilitate the purchase of another bank, namely Chase Bank, which was in liquidation, thus profiting from the purported agreement and the collusion with the second defendant,” the suit papers say.

The CBK has not yet responded to the suit. The Mauritian bank group asked the court to dismiss the litigation, claiming that a condition in the agreement required any disputes arising from the takeover to be resolved through arbitration.