In the past month it has been reported that the Co-Operative Bank of Kenya has posted KES 8.91b pre-tax profit. We ask; who is collecting the dividends? We publish for the first time, a report which has been circulating for quite sometime now in Kenyan newsrooms. Oddly, or maybe not so odd – this is Kenya after all, publishing attempts always gets killed; i.e.the public never gets to know about these serious matters. We have decided that there are serious issues of public concern at hand. They must be published to elicit appropriate management response. In the public interest, this is an investigation worth commencing. We present for the first time an analysis of the Cooperative Bank of Kenya's ownership structure which indicates widespread insider dealing, at the expense of the ownership and, to the advantage of senior management and the Bank's Board of Directors. Here is the story:
Insider Trading in Kes.2.6 Billion Co-operative Bank Shares by Bank Directors and Management
The Co-operative Bank of Kenya Limited was registered in 1965, as a Co-operative Society, 100% privately owned by ordinary poor Kenyansthrough their Co-operative Societies. Owing to the Bank’s rapid expansion and the strain in raising additional share capital from the co-operative societies to support the expansion, the Bank’s by-laws were amended in 1996 to allow individual members of registered co-operative societies to buy its shares. As at 31 December 2006, Societies held 84% (i.e. 21,884,020 shares of Kshs.100 each), commonly referred to as Class A
shares while over 51,000 individual members held 16% (i.e. 4,305,750 shares of Kshs.100 each), commonly referred to as Class B shares.
2.Conspiracy between Bank Directors and senior staff to fraudulently acquire Bank shares
In April 2007, the current Directors (who include two senior government representatives) conspired to acquire a huge chunk of the Bank’s shares at the par value, ahead of a planned IPO, in anticipation of making huge profit gains after the listing of Bank shares at the Nairobi Stock Exchange and consolidating their positions in the Board.
In a speech delivered by the Chairman during the Bank’s AGM held in Karen on 28 April 2007 and attended by the Minister for Co-operatives and other senior government officials, the delegates were informed that the Bank intended to sell Class B shares to its senior managers in an effort to enhance staff retention. The Chairman failed to disclose, to the AGM, the following material facts regarding the new shares;
(a) the specific number of Class B shares that would be sold to the staff,
(b) that over 50% of the new Class B shares would be sold to the directors
(c) that the Bank also intended to sell Class A shares to co-operative societies and lastly,
(d) that there was an impending plan to convert the Bank from a society to a companyand to list bank shares at the NSE in 2008. The AGM adopted the chairman’s speech thereby, presumably granting a blanket approval to the Bank to issue and sell an undisclosed number of class B shares to its senior staff.
On diverse dates between 30 April 2007 and 30 June 2008, 2,522,376 new Class A & B shares of Kshs.100 each that would have fetched Kshs.2.4 billion at Kshs.9.50 each after the share split in the ratio of 1:100 in the Bank’s Initial Public Offer in December 2008, were irregularly sold to insiders i.e. Bank directors, senior staff and co-operative societies associated with the directors, all for a paltry Kshs.252 million. Shockingly, not all directors paid for their shares and those who did were granted loans by the Bank on special terms, contrary to Central Bank of Kenya rules and regulations regarding capital.