restructuring options were considered including sale on an “as is” basis, without noncore assets, and after loss-making and/or remote branches were liquidated (Kasekende 2004). Under any sales option, recapitalization was necessary given the extent to which UCB’s balance sheet had deteriorated.<sup>14</sup> In the end, Stanbic Bank of South Africa acquired 80 percent of UCB’s shares in late 2001. The remaining 20 percent were transferred to a trust to be held for sale to Ugandan residents. Stanbic was also required to combine the its existing operations in Uganda with UCB’s operations within six months of closing. In our financial data, Stanbic and UCB were not fully merged until the third quarter of 2002, and thus we use this as the beginning of postprivatization period.

Under the sales agreement, the buyer could alter staffing and restructure branches subject to certain stipulations. On staffing, the government agreed to cover severance costs for up to 500 employees for a period of two years after closing. On branching, Stanbic agreed to maintain the entire network for at least two years. After that point, Stanbic could file written notice with BOU that a branch was not financially viable, along with a proposed schedule for closure. In cases where BOU found Stanbic’s financial analysis reasonable, the government was obliged to negotiate compensation to keep such branches open. In cases where Stanbic and the government could not agree on adequate compensation, BOU would permit closure of that branch.<sup>15</sup> As of September 2004, only one of the thirty-three branches mentioned in the annex to the sales agreement as potentially unprofitable (Mulago) did not appear in our database of branch-level financial statements.<sup>16</sup> Overall, those data cover 74 Stanbic branches, six more than the combined

> 14 The government again undertook management reorganization, staff reductions, sales of some noncore assets, and technology upgrades prior to the second round of privatization. The new purchaser preferred to adopt its own computer system, rendering pointless the government investment in this area. Similarly, staff retrenchment and asset restructuring were likely better done by the purchaser after the privatization than by the government in anticipation of the sale (Kasekende 2004). The UCB experience in this regard is by no means unique. The effectiveness of preprivatization reorganization and technological upgrading of banks by governments in many developing countries could be called into question.

> 15 There were five “special case” branches that were acknowledged in the sales agreement to be losing money. The government gave Stanbic $US57,700 to cover those losses for the first six months after closing the sale. After those six months, Stanbic had the option to provide evidence that the branches could not be profitably maintained. As of September, 2004 all five of the special case branches (Ibanda, Kalangala, Kihihi, Malaba, and Pakwach) remained open. As for non- special case branches, if BOU found evidence of their financial non-viability convincing, the government had the option to provide compensation to cover those losses on an ongoing basis, or it could close the branches.

> 16 We cannot however rule out the possibility that the Mulago branch was re-named rather than closed.

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