DFCU wins lawsuit against former owners of Crane Bank but its finances are faltering

By BERNARD BUSUULWA

Investors in Ugandan firm DFCU Ltd fear a lawsuit brought by former Crane Bank shareholders in a London court has undermined the company’s financial performance. Although the institution won the case, it did not declare dividends for 2021, suggesting that the legal battle had affected its credibility in the market.

DFCU Ltd is the holding company of DFCU Bank Ltd, one of Uganda’s leading lenders with assets estimated at over Ush 3 trillion ($777 million).

The Ush816 billion ($211 million) case was filed in London in August last year following a disagreement between Crane Bank’s former owners, its directors and Bank of Uganda (BoU ) and DFCU Ltd regarding the acquisition of the assets and liabilities of Crane Bank by DFCU. Bank in January 2017 for 200 billion Ush ($51.8 million).

The takeover deal was preceded by financial difficulties faced by Crane Bank, a scenario that prompted the BoU to place the lender under statutory management in September 2016 to protect customer deposits.

Legal victories

A series of legal victories recorded by the former owners and directors of Crane Bank in Ugandan courts against the BoU since 2017 have generated a credibility crisis for the bank.

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Despite news of the sweet legal victory in London leaking through local media platforms on October 7, no shares were traded at the counter of DFCU Ltd on the Uganda Stock Exchange between October 10 and 12. October, an indicator of investor concerns about the company’s future in the aftermath of the Crane Bank acquisition.

The company’s share price stagnated at 640 Ush ($0.16) during the lockdown period and eventually fell to 540 Ush ($0.14) during the third quarter of 2022 due to weak earnings registered in the first six months of the year, according to observers. Significant bad debt provisions implemented by DFCU Bank last year also forced its parent company to forego dividends for 2021, while other listed banks declared modest dividends.

“I think that court case was long enough on its own. Fierce legal battles by former Crane Bank shareholders against BoU and DFCU Ltd could discourage future acquisitions of failed banks by their industry peers for fear of legal wars.

”DFCU Bank failed to unlock the value of the Crane Bank acquisition and it could take another five years before the bank is able to reorganize and generate strong profits.

”We left the DFCU counter a long time ago because of protracted legal battles. We would need to do a further financial valuation of its shares before considering any investment,” said George Mulindwa, Managing Director of GenAfrica Investments Uganda Ltd.

Doubtful debts

A business analyst from Uganda’s National Social Security Fund says DFCU bank has written off many bad loans since acquiring Crane Bank

”The lack of a clear strategy on how to solve the underlying problems of the loan portfolio worries some of us.

“While some of its industry peers begin to recover from the negative effects of the Covid-19 lockdown measures, DFCU is still grappling with these challenges and has not paid a dividend for 2021,” the statement said. analyst who requested anonymity citing confidentiality rules. .

The new legal options available to injured parties remain unclear following the London court ruling which highlighted fewer litigation choices and significant legal costs incurred by affected entities.

“The petitioners filed this case in London on the basis that some of the directors of DFCU Bank are European and resident in the UK. But the Court ruled that it had no right to interfere in the actions of a sovereign state and its institutions.

”For this reason, this case may no longer be considered by a UK court. There is no need for DFCU Ltd to negotiate with a losing party in court,” said a Kampala-based business lawyer who requested anonymity, citing client sensitivity issues.

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