EDEGBE ODEMWINGIE in this report, details the highpoints of the ongoing House of Representatives inquest into the near collapse of Nigeria’s capital market. Federal lawmakers hope the public hearing will restore back confidence in the ailing market.
Confronted with the possibility of financial ruin, a husband and breadwinner had a fatal heart attack in December 2008 upon discovering that seventy-five percent of his retirement benefits which he had invested in Union Bank where now worth 10 percent of its initial value. The husband had invested N3 million out of the N4 million gratuity that he received for 20 years of service in the hope that his family will either enjoy capital appreciation or live on the dividend. His wife, now widow, is not educated, yet, she must find a way to feed her children. A family member comes around often to help her read her mails and explain things to her.
One day, the family member was helping her read her bank statements and according to a bank statement, there was only N300,000 in the savings account left from the N1 million that was bequeathed to her. The innocent family member said “Oh my God! You mean you have been keeping this money inside your account? I know what you should do, I think you should use it and buy a bank share”. She panicked and later broke down in tears saying, “Isn’t it these stocks that killed my husband that you want me to go back and invest in?”.
The Director General of the Security and Exchange Commission (SEC), Arunma Oteh told this story to the Ibrahim El-Sudi led House of Representatives panel investigating the near collapse of Nigeria’s Capital Market.
With family savings lost and many in huge debt, in great part, the preceding story captures the conditions of the families affected by the capital market. Revelations from a Lower House panel have been startling, nauseating to say the least. Disclosures detail widespread shenanigans and infractions by banks, stockbrokers, and regulators leading to the withdrawal of $15 billion by foreign investors in the market.
Of course, the spending binge undertaken by the Nigeria Stock Exchange (NSE) while the market nearly collapsed was well reported as N186million was spent on 165 Rolex wrist watches, a yacht, foreign trips for top officials among other luxury spending under the watch of former Director General Nigerian Stock Exchange (NSE), Ndi Okereke-Onyiuke.
Brandishing four court injunctions at the investigative hearing, Okereke-Onyiuke warned the DG SEC against publishing a highly indicting 42-page report of a SEC sanctioned forensic investigation into alleged infractions and funds misuse at the NSE.
“Four Federal High Courts have gone through the 42 page report and declared it null and void and of no effect. It must never be used against anybody or published anywhere or spoken about anywhere,” she warned.
Insider abuse, reckless margin loans
The Central Bank of Nigeria (CBN), Deputy Governor in charge of Financial System Stability, Dr. Kingsley Moghalu said in a presentation to the Lower House panel that regulators including the Security Exchange Commission (SEC), the Nigerian Stock Exchange (NSE) were culpable in the near collapse of the capital market.
Moghalu yielded that some of the policies introduced by the CBN equally contributed to the crises in the banking sector and capital market.
He said diagnostic and forensic investigation conducted by the CBN revealed “insider-abuse”, including concealing of insider loans, and use of depositors’ fund to acquire bank’s owned shares among other governance abuses.
Okereke-Onyuike blamed the Capital Market near crash on reckless margin loans issued by banks to investors in the market and regulatory actions.
“The indiscriminate granting of margin loans by the banks to all manners of investors and market operators caused the market bubble.” Okereke-Onyuike told the panel.
She said that banks in many cases insisted that such margin loans were used to purchase their own shares. According to her, the margin loans that were not properly structured and monitored by regulators (CBN and SEC) created excess cash in the market, and the share prices got bloated.
Demutualisation fever
Federal lawmakers in exchanges with the DG SEC marked with cautious rhetoric questioned the present composition of the NSE council which presently constitutes eight members “recommended” by SEC out of a nineteen member board. Against the backdrop of plans to demutualise the NSE, Lawmakers fear that the move may be a deliberate plan by SEC to control appropriating rights in order to skew the sale process in favour of some Nigerians, a position consistently argued in select quarters.
Former DG NSE said her removal was a hatchet plan to exclude her participation in the demutualisation process; the former DG NSE would have been up for automatic membership of the NSE council if allowed to complete her tenure. Under stock exchanges, demutualisation relates to a process whereby a member-owned stock exchange is transformed into a shareholder-owned exchange.
In Nigeria, NSE is owned by its members as opposed to shareholder ownership as is the practice in many foreign markets such as the New York and London Stock Exchanges.
Regulatory comatose
The Lower House panel exposed bitter internal wrangling between staffers of SEC and the DG SEC, a situation SEC senior officials say has led to the “regulatory comatose” of the commission. SEC Commissioners summoned to the Public Hearing took turns to lampoon the SEC DG for the recruitments she made upon resumption of office without consulting them. The senior officials said their sideline had far reaching ripple effects on the morale of the commission’s staff, and by implication, its operations.
“A young man graduated in 1998 and was made a Director in SEC” commissioner in charge of SEC’s legal department, Charles Udora told the El-Sudi led panel of one of Oteh’s recruitments.
“The contract staff problem is affecting moral of staff… The contract system that we have has created friction amongst the staff.
“We seem to be in a situation of regulatory comatose. Our staff are no longer giving us what we need to regulate the market”, he told the committee.
In separate submissions, commissioner (operations), Ms Daisy Ekineh said “I will agree there is a dysfunction because we have not been working as a team. I would suggest that we communicate more face to face instead of text messages”. The SEC DG insisted that the said recruitments were carried out in conformity with due process.
Beyond the buck passing, blame trade and tough talk that have typified the ongoing investigative hearing, Nigeria still waits to see implementable recommendations from the Lower House panel on how to turn around the fortunes of the country’s capital market presently in the gutters.