More than 50,000 depositors with nearly Sh100 billion in Chase Bank and 1,400 employees were financially ruined on Thursday after the bank was brought down by fraudulent transactions of the institution's Ferrari-driving officials.

Workers wept in banking halls and desperate depositors whose Sh95 billion was locked up in the bank crowded the shuttered entrances of the lender's branches across the country hours after they got information that the Central Bank of Kenya (CBK) had taken over its operations.

Thousands of pensioners are also likely to take a hit because pension funds sank billions in the Sh4.8 billion bond floated by the bank in May last year, shining the spotlight on the Capital Markets Authority (CMA), which approved the fundraising plan despite information that all was not well in the bank.

Chase Bank mostly marketed itself to youth, women and investment groups, making its collapse a devastating development for many families across Kenya.

THIRD TO GO UNDER

This is the third bank --after Dubai Bank and Imperial Bank --to fail in nine months, mainly due to fraud and illicit banking practices by top executives, directors and big shareholders.

The closure also sends shock waves through the economy because it points to weak supervision by the Central Bank, the CMA and audit firms, which are supposed to ensure that depositors’ funds are prudently managed.

The CBK said it placed Chase Bank in receivership, which will last 12 months, following a run on deposits stoked by fears over the health of the privately held mid-sized lender’s finances.

The bank, ranked 11th of Kenya's 42 lenders, failed to meet its obligations -- such as clients' instructions for payments ---following the run, prompting the receivership call. Chase Bank came down after the public withdrew Sh8 billion in one day, following reports that auditors had discovered problems with its accounting, according to industry officials.

"No bank can sustain pressure with everybody running out," Central Bank of Kenya Governor Patrick Njoroge told a media briefing yesterday.

Dr Njoroge said the Sh5 billion borrowed from the African Development Bank -- but which had not yet reached the bank --would have saved Chase Bank from the liquidity crunch.

ROGUE ELEMENTS

Interviews with the Treasury and knowledgeable banking officials revealed an industry which, though healthy and basically well-run, has rogue elements previously tolerated by regulators for unclear reasons.

Concerns about Kenya's banking sector resurfaced last week when the chief executive of National Bank, Mr Munir Ahmed, was sent on compulsory leave along with five other executives, pending an internal audit as provision for bad debts pushed the lender into a loss.

But Dr Njoroge has the reputation of taking a more intolerant, if calm, view of fraud, embezzlement and other shenanigans of cowboy bank owners and their suit-clad, MBA-boasting retainers in executive offices.

It may well be that it is Dr Njoroge's reputation for honesty and integrity that is keeping the public’s faith in smaller banks in particular and the banking industry in general. Audit firm Deloitte --which has a record of being investigated over questionable auditing practices at troubled companies such as CMC Motors, Mumias Sugar, KPCU, Tuskys Supermarket, National Bank of Kenya and the collapsed Dubai Bank -- blew the whistle on Chase Bank after discovering a Sh16.6 billion mountain of questionable debt in the bank’s books, the audit report shows.

Deloitte has been auditing Chase Bank and giving it a clean bill of health for 10 years. As late as last year, Chase Bank was ranked as the best place to work and its managers as the best in the country.

'SPECIAL PURPOSE VEHICLES'

On Thursday, Deloitte declined to be drawn into the Chase Bank saga.

"Please note Deloitte is bound by client confidentially and therefore we cannot discuss client details. For all further queries on Chase Bank we refer you to the regulator, the Central Bank of Kenya," said Deloitte in an e-mail response to a query on the malpractices at the troubled lender.

CMA was yet to respond to our queries by the time of going to press, with the spokesperson saying he was yet to get approval for the responses. CMA itself earned Sh10 million from the Chase Bank bond while Deloitte raked in Sh2 million.

Of particular interest, for example, were transactions involving about Sh11 billion between the bank and seven companies -- called special purpose vehicles -- owned by the bank's top officials, a government official briefed on the matter told the Daily Nation.

Those companies invested the bank’s money in various assets, such as a business park in Karen, a three-acre parking lot in Nairobi, some 240 acres of land on Mombasa Road, a three-acre plot next to the German Embassy on Riverside Drive and various properties in Dubai, said the official.

While efforts were under way to return these properties to the bank, questions remain as to why depositors' funds were used to buy assets for bank officials without solid security.

On discovering the extent of the malpractices, the Central Bank last week called the bank's top management and demanded the sacking of officers who had signed the transactions. Mr Makarios Agumbi, the general manager, finance, and Mr James Mwaura, general manager, credit, were suspended to make way for an investigation, according to the official.

The Daily Nation failed to get a comment from the two executives.

However, at a day-long board meeting on Tuesday, bank Chairman Zafrullah Khan's attempt to reverse the suspension was overruled by the rest of the board. But what the CBK had hoped would happen -- the resignation of Mr Khan and Group Managing Director Duncan Kabui -- never took place.

Sources said the regulator then summoned the bank's top management for a 9am meeting on Wednesday and ominously indicated it would address a press conference at 10am. At the meeting, the CBK ordered the chairman and the GMD to resign and a forensic audit of the bank’s books to be conducted immediately.

At that point, the CBK insider said, the regulator thought the bank could be saved because, although there had been thuggery in its management, the assets bought with the bank’s money could be recovered.

But they had not counted on the power of Twitter, where the panic started. By the end of the day the bank had lost Sh8 billion and was desperate for overnight funds from the other banks. Having seen what had happened, however, no bank would lend a cent to Chase.

After an overnight struggle to save the bank, CBK gave up at 4am yesterday: At 6am, it raided the bank's headquarters and closed it, said the insider.