Saving millionaires from hell?s gate
It?s nice to see some of the banks behaving like knights in shining armour. Although the reports are not exactly clear yet, there are suggestions that six major banks are in talks with the Nigerian Stock Exchange to bail out the capital market with about N600bn. The regulator, the Securities and Exchange Commission, has denied any such plans, but the rumours have been defiant. And some investors that I have spoken with are seething, waiting for a confirmation before they cast the first stone.
Anyone on a brief visit from Mars will wonder why there should be any fuss at all over a lifeline ? even from the devil ? for a market where the All Share Index has dropped from a high of 58,579 on January 2 to about 44,380 last Friday ? a loss of about 24 per cent. The problem is not the lifeline; it is the fact that the irresponsibility of some of the banks toying with the idea of a lifeline, compounded by the delinquency of the regulatory authorities, landed us in this mess. Now, the banks are taunting us with so-called lifeline money and they expect us to leap for joy?
Not so fast. At the height of the IPO bonanza in 2007, many banks connived with issuing houses to delay the release of certificates long after their offers had closed. SEC rules state that investors must receive their certificates three months after an offer has been concluded; but the banks flouted this rule and the regulator wasn?t bothered. Oceanic Bank and UBA, for example, concluded their IPOs in April 2007 but as at August, none of them had released the certificates. Intercontinental Bank began issuing certificates nearly 10 months after its IPO had closed. Of course, the banks blamed the regulators for the delays in verification and the regulators blamed the banks for deliberately undermining the rules. While investors were distracted by the blame game, smart, well-connected brokers and other insiders colluded with registrars to corner their own certificates, sold their stocks at a premium and left the larger public with the short end of the stick. And these fellows are now offering to bail out the same stock market which they undermined?
The hanky-panky with share certificates was not the only ploy in the bankers? bag of tricks. They exploited margin trading to the limit. There?s nothing wrong with margin trading as a strategic value creation tool. But what we saw in 2006 and 2007 was a situation where banks lent money recklessly to customers (and stock brokers), who they often insisted must buy their shares through their own subsidiary brokerage firms. The effect of such incestuous transactions was that it created an illusion of rising stock and forced the unsuspecting public to jump on the bandwagon. How can we also forget that these same banks that are now parading themselves as our knights in shining armour were, at various times in 2006 and 2007, recording huge volumes of trading on the floor on single days, without any convincing explanation for such trading?
In an article published in this newspaper on August 21 last year, I noted that, ?between July 30 and August 3, UBA traded 653 million shares valued at N35.6bn; Fidelity traded 2.24 billion shares worth N26.1bn in July; while Wema Bank traded 782 million shares valued at N8.4bn between August 6 and 10. Neither the banks nor the journalists covering the stock market had any convincing explanation for the unusual volume traded.? With the benefit of hindsight, it is now clear that some insiders manipulated the market.
While the regulators were too busy basking in the glory of the new dawn of financial engineering, many investors got so giddy with the fantastic returns that they forgot to ask tough questions. Forecasts by J. P. Morgan and Bismarck Rewane?s Financial Derivatives warned that many banks? stocks were overvalued. However, the more such warnings were issued, the more the banks got creative at cooking the books. And these same banks want us to believe that it is in investors? interest that they should now be appointed Market Makers?
The bearish market is in need of redemption. Debauched banks, delinquent regulators, and greedy investors have also become wiser. Can you imagine that not even the recent rock-solid results of some companies, including the banks, which might have raised investors? testosterone to new highs only one year ago, appear to be moving the market? The watchword now, is, caution, dear, caution.
Yes, the market does need help. But the kind of help that the market needs is certainly not one from banks, a number of which were saved from a crisis when the government intervened in August to help them restructure their portfolio. Who is even to say that the banks have not been materially hurt by the significant loss in value since the beginning of the year? If we know the banks well, they will only warehouse their stakes and quickly sell off at a premium at the earliest signs of a recovery. That?s not what the market needs from the banks. What the market needs is for both the banks and other quoted companies to show greater transparency in the running of their affairs; to publish their reports early; and to also provide sensible forecasts when the reports are published.
The opacity in the market is not helping anyone except the few who are profiting from it. It is ridiculous that no one, for example, could say, for sure, what the interest rates of the banks were until the CBN reluctantly published them about two weeks ago.
But the government has an even greater role in helping to save our new class of ?millionaires,? who emerged in the wake of the stock market boom, from hell?s gate. Apart from the measures taken by the CBN to ease liquidity last August, the government must begin to invest in infrastructure, especially in roads, power, education and security. I don?t get the point in the official mantra that the government saved N400bn from last year?s budget and has $63bn in foreign reserves when basic infrastructure required to stimulate the real sector, create more jobs, and reduce the cost of doing business, are in decay.
Let the banks keep their money. What we need to get the economy moving again and to restore investor confidence is greater openness and value-based choices; not the opacity of the recent past ? or a Greek gift from the banks.