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Chinese fund manager pays $2m for lunch with Buffett

Omaha, Nebraska - A Chinese investment fund manager has won the chance to have lunch with US billionaire Warren Buffett, by bidding $2.1 million (R16 million) in the most expensive charity auction held on eBay.

Zhao Danyang of the Hong Kong-based Pureheart China Growth Investment Fund won the auction, which ended on Friday. The auction will provide a significant boost to the Glide Foundation, which receives all the proceeds from event.

The foundation provides social services to the poor and homeless in San Francisco. Denise Lamott, the spokesperson for Glide, said it operated on a $12 million annual budget.

“It almost feels like a miracle,” said the Glide Foundation’s founder, Cecil Williams. “We are amazed and ready to continue our work of breaking the cycles of poverty.”

Last year’s lunch brought in $650 100. Zhao and up to seven friends will dine with Buffett at the Smith & Wollensky steakhouse in New York.

The investment philosophy Zhao’s fund describes on its website is similar to Buffett’s approach of finding companies with an enduring competitive advantage.

Buffett, the chairman and chief executive of Berkshire Hathaway, is primarily known for his investing success. Berkshire owns more than 60 subsidiaries, including insurance, clothing, furniture, jewellery and candy companies, restaurants, natural gas and corporate jet firms.

He has major investments in leading companies such as Coca-Cola, Anheuser-Busch and Wells Fargo.

But Buffett is also known for his philanthropy. In 2006, he announced his plan to give away the bulk of his fortune of nearly $49 billion over time.

Most of his Berkshire stock will go to five charitable foundations, with the largest going to the Bill & Melinda Gates Foundation.

Lamott said eBay officials had confirmed that this year’s lunch with Buffett was the most expensive charity item the site had sold.

Buffett has been auctioning off lunches online for six years, but began auctioning the lunches for Glide off line in 2000. He offers only one lunch a year.

Williams called Buffett’s dedication to the charity lunches amazing. “Thank you, Warren Buffett, for your deep compassion and sensitivity that empower us to transform the lives of so many people in need.” - Busrep
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Cost income ratio of Nigerian banks too high—Yomi Adeola


•Spend too much money buying all sorts of things that are not needed

Recently, Yomi Adeola, Managing Director Sterling Bank PLC had an interactive session with journalists in his office in Lagos and spoke on a wide range of issues in the banking industry in Nigeria.
Excerpts

Is Sterling Bank coming to raise more funds from the capital market, how much are you targeting and when should we expect this to happen?

We are looking at the September/October timing for going to the market. On the issue of how much capital we need, I am not a believer in too much capital, I imagine we would go for between N50 and N75 billion in capital for the kind of bank we want to run, I do not need N250 billion in capital, I do not need N300 billion in capital. Experience has also shown that those people who have raised huge capital have been unable to deliver the return on the capital. I will not mention names but we know banks that have raised N300 billion in capital and all they made today in profit before tax is N30 billion, that’s 10 per cent return, it’s not good, it’s not exciting. So why beat the drum and deceive the whole public to come and invest and at the end of the day, the return on equity is nothing to write home about? I know another one with about N180-200 billion capital, same thing.

If Sterling Bank at N25 billion capital is able to deliver between 30 and 40 per cent return, that’s better for investors than the one that is raising N300 billion and delivering 10 per cent. So you see, there’s this bandwagon effect in Nigeria and I think it’s madness, so if Bank A has raised N200 billion, I must go for N250 billion, Bank B has raised N50 billion, let me go for N300 billion; they are not looking at ratios anymore. This is capital in absolute terms or just air capital, capital is just in the air, it’s not working for you. Of what use is that kind of capital? So, by the time I am raising N50 to N75 billion, I should be able to predict the kind of return I can give on that capital and it will not be far away from the kind of return I am giving on the capital that I have today so that doing 20-25 per cent profit on my N25 billion, by the time I get to N100 billion, let it not be less than the same 20-25 per cent, otherwise I’m not being fair to my investors and I won’t be fair to the people I have taken money from. That’s my attitude to the issue of capital; it won’t be too high, raise what you truly need and also when you have too much capital, the tendency is for you to see waste. Look at the cost income ratio of Nigerian banks today, it’s just too high - they spend too much money buying all sorts of things that are not needed, I won’t name them, you know some of the things they buy. I don’t think I want to run that kind of bank.
Going to the market can’t just be for fun, what would you do with this capital you intend to raise?

First and foremost, we would like to get our technology right or should I say, improve on our technology; that is key. We want to do consumer banking big time. We really want to reach out to the consumers, the masses, the middle income earners. The way to do consumer banking is to deploy technology appropriately so we would be spending a lot on technology. Number two is to expand our branch network. Today, we have 100 branches, the level of sophistication in Nigeria is such that you still need brick and mortar, you still need to put branches all over. You don’t need to build branches that are too elaborate but you must have the branches so we would build the branches.

Don’t forget we have a major shareholder and this happens to be the largest bank in India-, the State Bank of India (SBI), we would partner with them, identify other locations outside Nigeria where we believe between Asia and Nigeria, we would be able to derive some synergy in partnering with SBI and having pockets of locations outside Nigeria so this is also a game plan and above all, our single obligor limit will go up because this is usually the percentage of your shareholders’ fund so these are the key areas we would be focusing on. We have about six subsidiaries that are profitable, doing good business; we would capitalise some of these subsidiaries that can do more. We have the Sterling Asset Management, they need more capital and we’ll give them more capital. We have Sterling Capital, we have a few subsidiaries that require more capital. We would also set up some additional subsidiaries for specialisation and we would also use part of this new capital for some of these initiatives.

With the mutual agreement between Sterling and ECOBANK to discontinue the merger, a lot of investors particularly people that bought your shares as well as your shareholders, would be worried that there were no indications in terms of the direction the bank is headed. Could you throw more light on this?

If a merger does not work or does not go through, it’s not because management does not want it, it’s because shareholders don’t believe they are getting value. At a time a merger is called off, shareholders don’t believe they are getting value. And that is what happened in this case. For the shareholders - what was on the table was not giving them enough value and they called it off, not management. Now, when you are calling off a merger, it means you are looking at the opportunity cost of moving on as Sterling than pursuing a merger. There must be something positive they see in Sterling moving on for them to have called the merger off. And for me, that thing is very clear, they see a bank with great potential; they see a bank that is beginning to put legacy issues behind and is beginning to do well.

They see the numbers, at least the quarterly numbers improving and they are telling themselves, ‘why should we go and play second fiddle? Why should we be bought cheap when the bank is doing well?’ So in terms of direction, there’s no other pointer to a positive direction than the numbers. Immediately the merger was called off, we published our half year results, much better than the half year result of the prior year. Management believes the third quarter result will further confirm and corroborate this. And by the time we get to the year end, we’ll be posting the kind of return on equity that would be among the top three in the banking industry. What other direction could be better than that?

What typically happens in most Nigerian banks is that people make so much noise and that has permeated the system that if you are not a noise-maker, it now appears as if you don’t know what you are doing. Whereas in many economies, it is not noise-making that determines success, it is numbers, it is customer satisfaction, it is employee satisfaction, it is shareholders’ satisfaction and I don’t have a doubt that we are on course in all these three areas.

In what particular area of business do you think Sterling Bank has an edge given the fact that former NAL Bank, of the five legacy institutions used to be an authority in investment banking?

Several things are happening in Sterling Bank at any given time, let’s start with capital market. You know we set out to focus on three areas in addition to several other areas: capital market activities, consumer finance and trade finance, these are the three primary areas. We have several other areas that we would talk about. Let me start with capital market activities. Several peer reviews have been done in the market and it’s been established that Sterling Capital is one of the three leading investment banking outfits in Nigeria today. In the past fifteen months, we’ve taken more than 23 companies to the market including at least six banks out of the 17 banks that have gone to the capital market to raise capital and this hasn’t stopped. We have in the pipeline, another five or six companies we are about to take to the market. So this is one area we set out to be a leading player and we’ve established beyond doubt that we are a leading player as far as capital market activities are concerned in Nigeria.

If I go into the area of consumer finance, we are making waves quietly. We are very dominant in the acquisition and sale of most of the flats in 1004 (Housing Estate). Today, there are many projects on the Lekki-Epe axis and we are giving mortgages to deserving Nigerians thereby changing the face of this economy, allowing the middle class to evolve once more. From mortgage finance, to asset base finance, cars, refrigerator name it. We did a promo on laptops that was a huge success. We are doing one now on generators and you would not believe the number of customers we have acquired through this generator promo. On a daily basis, they troop in because they are interested in financing. You see, developed economies survive on credits and we must introduce that here and that is what we are doing.

We are very active in consumer finance, we are going to do much more but I can tell you we are happy with what we are doing. You mentioned the issue of embassy collection, it’s not just one embassy, we collect for several embassies but in the nature of the contract that we signed, this is not a business we want to make too much noise about. But all the embassies that we collect for are happy with the bank. Now, collection transcends the private sector, we also do a lot of collections for government, including Power Holding Company of Nigeria (PHCN), FIRS, Lagos Water Corporation and many more.

The AutoReg in Lagos and other states are asking us to come and replicate what we did in Lagos for them and right now, we are in about three or four states. We are doing collections. We are very active in this area and if we are to move to the third area of focus, which is trade finance - trade is the main stay of the Nigerian economy; if you look across the water, you’ll see all the goods coming in- these goods are being financed by banks. We’ve financed a lot of imports for our customers and we set out to do this, we are doing it, we are getting more and more lines from international banks on a daily basis. We started with just about two banks- State Bank of India (SBI), they are our partners and the largest shareholders in the bank and I believe CitiBank.

Today, we have trade finance lines from about seven international banks to finance imports, so we are doing very well in this area too. We have moved away from just import finance. We are beginning to carve a niche for ourselves in the area of maritime business. The number of vessels we have financed in this bank in the last 15 months cannot be less than 25. We actually opened a maritime centre in Apapa where everybody who is interested in maritime business from vessel financing, to crude boats, and we have built the expertise in this area. If you are talking about oil and gas, there is a local content support fund. A few banks have been put together to do this and we are very happy to do this in this area. So for us, business is good and we keep on seeing more and more business opportunities in Nigeria as the economy is opening up, as the GDP is growing by the day, we are seeing opportunities.

By the time we add more capital, it can only get better but I must concede we haven’t made enough noise by Nigerian standards. And I think it’s a function of two things: one, banking ordinarily is supposed to be a conservative business. It’s not a business that you do by noise-making but here if you don’t make the noise; people believe you are not doing anything. So, we may not have a choice but to make some noise, but we would make whatever noise we are making within the professional ambit so that we would not go overboard as long as noise-making is concerned. The best selling point for any company is the number.

Just put the numbers on the table and every other thing would fall in place. In terms of products, we are dishing them out everyday; in terms of acceptability by the market, by the regulation, by the competition, we are getting fully on board. In treasury, they have a peer review that they do among themselves (all the treasuries of banks in Nigeria) and they did one recently. They would rate themselves and come up with the results and Sterling came out 4th of the 24 treasuries in Nigerian banks but these are not things you put in newspapers, so the treasurers of banks know themselves; they know where the good people are.

Are you challenged by the increasing need for training and more qualified personnel in the banking industry?

Banks come here first whenever they want to raid, whenever they are looking for good people, they say go to Sterling. We’ve been able to stem the tide because our people and staff are beginning to see a very good future and they are saying why should we go? There’s hope here we would stay. If anything, we are beginning to see the reverse; more and more people from the so-called big banks wanting to come to Sterling and we’ll hire some of them, we would because we also need to inject some fresh blood into the system and this would happen within the next few months. We would hire people from some other institutions. For now, we are happy with our size and like I told you in the beginning of this interview, banking is not about size, banking is about efficiency, banking is about return on investment, banking is about employee satisfaction, customer satisfaction, shareholders’ satisfaction, which is the ultimate.

Once you have satisfied employees, they would go all out to satisfy their customers. If your customers are satisfied, they would go all out to do the bulk of their business with you and this would translate into revenue and once the revenue is there, shareholders would be satisfied. When you satisfy the shareholders, what else would you be asking for? So we would not at this stage play the size game, we don’t believe that is priority. Priority today is to play the efficiency game, it’s to play the ration game, it’s to play the return game and we are playing that in a very calculating manner.

What is the message to your numerous shareholders who have endured till this moment and what would be the keyword to them at your AGM coming in about a fortnight?

Let me start by saying that it’s been proven in the world of business that you stabilise mergers in three years, it’s usually between three to five years to have relative stability. We’ve done two and a half and we are happy to tell our shareholders that they have a stable bank. They have a bank whose capital is unimpaired by losses anymore. Once your capital is unimpaired, it means whatever profit you make you can declare a dividend. We’ve made enough profit by half year to be able to wipe off the goodwill on our books because we carry a goodwill of about N3 billion but we’ve made enough profit in half year to wipe it off. So all that is left is for the board or their board to decide on the amount on dividend they want to pay and it would be paid. There’s no reason whatsoever, why Sterling Bank would not be able to pay dividend by end of year three, which is December this year, absolutely no reason and once the dividend starts rolling in, it can’t stop, it would become a regular feature of the institution. And that is the message for shareholders. They have a stable bank, they have a stable management, they have a stable board, they have a bank whose profitability is increasing quarter by quarter and things can only get better for them. They have sacrificed enough and I believe that the returns on investment will start coming from the end of this year.

Given the fact that about 70 per cent of Nigerian households now spend more than 50 per cent of their income on food and given the high food prices and inflation, how do you operate in this kind of environment and how has this impacted on your business?

The cost of doing business in Nigeria is huge and I must tell you that it is very tough, you must be able to provide your own security, if you are in the banking industry, not only security for your branches, but as you move your cash from location to location, you must have heard what is happening in the East today, the bullion vans are being shot down using all sorts of gadgets and grenade to blow up bullion vans. You must generate your own electricity. You have ATMs and they operate on electricity so you can’t even say when you close you would shut down because customers want to use your ATM, so you generate your electricity, you know how much you pay for diesel these days.

Infrastructure remains the major problem in Nigeria and if you are talking about the cost of doing business, it is usually the cost of infrastructure. Any business for that matter would immediately transfer these costs to the consumer. So when people talk about interest rates in Nigeria, service charges, they can actually go down if the cost of doing business goes down but I don’t know when the cost of business would go down in Nigeria. So what we try to do here is to manage cost to the best of our ability. There are some that you can’t do anything about but the ones we can manage, we manage them and we also try as much as possible electronically, telephone and what have you, instead of wasting useful man-hour in traffic; diesel, there isn’t much we can do, security, there isn’t much we can do.

So when you look at top line of many banks in Nigeria, earnings are huge but by the time you look at the expense line, it’s so huge. But that is the point we are making that it affects the bottom-line and all you can do is to build efficiency into the system in every area where you can be more efficient. We have introduced electronic statements so our customers get their statements online. That reduces the cost of postage, paper and so on. We also have the SMS notification, whenever anybody does anything to your account; you are immediately advised by SMS whether it’s a debit or a credit, you’ll get that. We also have a situation where customers can access their accounts online, access their balances, do internal transfers, of course these would help in reducing the cost of telephone and making enquiries. But I think the government has a lot to do as far as infrastructure development is concerned in Nigeria and if they play their role, it’ll probably reduce the cost of doing business in Nigeria.

What is your assessment of the economy in the past one year, especially under the new administration, has anything changed at all?

Well, the economy has been doing very well at the macro level. GDP is on the increase, the amount in reserve is huge, the CBN has been able to play its role well in the area of fiscal policies; the price of crude has helped a lot even without anything. What is left is strategic direction. Strategic direction is the function of the government. Only a stable mind can give strategic direction; when you have presidency or gubernatorial elections with cases all over the place at the tribunals, when is the Supreme Court going to rule on this, there can’t be stability in terms of direction.

But I think we are getting to that tail end when we would be able to say okay, no more litigations so the president is there for four years, what next? I think the president needs to independently appoint competent people to his cabinet. A political cabinet will not augur well for any country. I think the president has the discipline, the focus, the education and what it takes to take serious decisions but I think his cabinet is questionable and this is a function of how the cabinet emanated, it’s a political cabinet. You could live with that for a year, maybe maximun18 months, then you start taking decisions that it’s enough of this political game. Let’s move this nation forward because history will not forgive me with all the resources at my disposal, with all the strong economic fundamentals. If you don’t have the right people to manage the economy as well as to take charge of governance, then we’ll be drifting. I think we’ve drifted a bit but I also believe they’ve done a few good things: they’ve reversed some of the questionable policies of the previous administration but you don’t keep on reversing for ever, you must apply the grace.

How about the performance of the banking industry?

The banking industry in terms of hype, we’ve seen a lot. In terms of real contribution, we’ve also seen a lot. People are able to work with Nigerian banks now and get mortgage facilities and buy houses…three years ago, middle income earners would not dream of owning their own houses because the Nigerian banking industry has been able to build capacity and they have capital. Also, some of the loans given out to oil and gas industry, the telecoms industry three, four years ago - those loans would be coming from international banks abroad. You have a situation where three, four banks today would syndicate multi-billion dollar transactions without going out. And foreign banks that didn’t want to look at Nigeria, foreign banks that would not come near the shores of this country four years ago, are now looking for banking license. Look at the growth in the stock market, look at the growth in the telecoms market, look at the oil and gas market, look at the price of crude:

Nigeria is an economy to be reckoned with in Africa. Every telecoms company is now interested in license here. Every serious bank wants a piece of the action even as far as Russia - the Renaissance are here and they are interested in doing more. Banks are lobbying to influence the Central Bank to relax the rule on foreign ownership - it means something positive has happened and I think the Nigerian banking industry has contributed a lot to the growth of the Nigerian economy in the last two years. The bulk of the growth to the Nigerian economy in the past two years has not been from oil, it’s been from non-oil sector; it’s because of the funding and financing and the role of banks in Nigeria and it’s not about to stop as I hinted you earlier…banks are looking for opportunities and this is how economies grow all over the world.

Deposit Money Banks are showing interest in micro finance…is Sterling thinking along this line or maybe acquiring any of the existing micro finance institutions?

Let me put it differently: We used to have SMIES whereby every bank must put 10 per cent of its PBT in SMIES. Whether truly this worked or not, we leave it to the judgment of history for we no longer have SMIES for several reasons. I personally believe it didn’t work because the banks did not have the expertise to do this equity investment. Two, most of the owners of these small scale enterprises are so afraid thinking that the banks would come and hijack their projects, so it didn’t work. So we resolved at the Bankers’ Committee level that instead of doing SMIES, let us put 5 per cent of our PBT into micro finance by partnering with state governments who would also put some equity. So whether you like it or not, for as long as you are making money, you must play a role in micro finance. Now, some banks would go into this heavily, some would do it at moderate level; it’s all about your strategy. I believe that banks should focus on the top side of the economy and leave that side to others so you create more employment, you diverse ownership and you make it easy for others to function. If as a bank you want to play a top role, you also want to be the one doing micro finance, you want to be jack of all trades, at the end of the day, you may end up being master of none. But play your role, whatever the percentage of your profitability you have put in to help them grow but in terms of running it or owning it 100 per cent, I’m not sure we want to do that now. I think we should leave that to others, the more, the merrier, let more people be able to play a role in the economic development of Nigeria. That is my view on that.

What kind of management structure do you run in Sterling Bank?

We are professionals first and foremost and professionals go by ideas and it’s the superior idea more often than not that is taken. We have three executive directors and a managing director. We have an executive management team of four; we meet on a monthly basis as executive management but we also have several other meetings like the ALCO, where treasury decisions are taken, like MPR, where profitability issues are discussed, Management Credit Committee (MCC), where credits are approved, we listen to ourselves as colleagues with experience in various places, with expertise in various areas, with diverse background, international favour; we have a representative of the SBI as part of the executive management - they bring best practices from other parts of the world, we bring best practices from here; we deliberate, we discuss but we yield to superior arguments, superior ideas, something that is in the best interest of the organisation.

What would you want to be remembered for at Sterling Bank?

Very simple! Someone who inherited a mountain of problems and within the shortest possible time, was able to level all these problems, turn challenges into opportunities, create an enabling environment for employees, somebody who was able to build an institution that has become the attraction of all stakeholders in the industry - employees, shareholders, regulators, staff and customers. I want to build an institution that everybody will be proud of and then I’ll have paid my dues. I’m passionate about doing that, it’s not easy but we are determined to do it.—Vanguard
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Stability returns to stock market

There are indications that stability is returning to the stock market after a protracted domination of bears in the past few weeks as more stocks experienced price appreciation.

Although, analysts are of the view that the market remained weak in momentum, the market outlook at the end of last week portends the gradual return of stability as evidenced by the increase in the basis points of All Share Index as well as the continual reduction in the number of losers.

Reasons for the return of the bulls have also been mixed because of the coincidence in market recovery with the suspension of recapitalisation of capital market operators by the Securities and Exchange Commission (SEC).

Indeed, the bulls had staged a comeback on Thursday, a day after the decision by the SEC to suspend the recapitalisation exercise, prompting some market watchers to affirm that majority of the stockbrokers were actually overwhelmed by the need to source the N1 billion hitherto stipulated as minimum capital base for stockbrokers before December 31, 2008.

It was gathered that SEC’s reluctance to shift ground and the withdrawal of margin loans by the banks took a toll on the position of some stock broking firms who had to sell shares in their portfolios in order to meet the deadline.

One of the operators volunteered that, “stockbrokers do not have other assets apart from the shares they buy into their box, they contributed to the market downturn when they began to sell off these shares in order to meet the N1 billion capital base, but now that the decision has been suspended, things are beginning to look up because there is hope that they would remain in business”

At the close of trading on Friday, the Nigerian Stock Exchange (NSE) all share index increased by 205 basis points to close at 53,910.37 and market capitalisation inched up N234 billion from the previous day’s N10.482 trillion to N10.716 trillion.

Although, there is also an increase in the number of stocks closing flat, analysts noted that “it is too early to predict when the market will bottom out or reverse.”

The downward trend of the market had persisted in the past three months with the market capitalisation dropping further to N10.416 trillion and all share index of 53,366.53 points on Wednesday, June 25. On Thursday, June 26, 2008, the market was sort of re-jigged by new developments. Therefore, capitalisation moved to N10.4 trillion and all share index of 53,705.30 basis points.

This also had tremendous impact on the number of gainers on the price movement table as at Thursday, June 26 when 40 listed stocks made it to the gainer’s chart as against the 23 that gained on June 24. The tempo continued on Friday, June 27 with 66 listed stocks comprising mostly the blue chips appearing on the gainer’s table.

Akamobi ECM, managing director, Star Insurance Brokers Limited, said that the recapitalisation in the stock-broking firms forced the traders to chase every kobo that comes their way with the intention of adding to their funds for capitalisation.

He said that most of the stockbrokers have started buying stocks on the exchange resulting in the increase in the volume of transaction on daily basis.

For the first time in the week, banking sector stocks lifted the activities in the market, as Intercontinental Bank plc traded over 193 million units (representing over 30 percent of volume traded in the banking sector); though a huge proportion of the total volume traded was cross deals. Similarly, Investment and Allied Insurance plc (IAA) lifted the activities in the insurance sector, as it traded over 103 million units representing over 40 percent of volume traded in the insurance sector for the day.

C&I Leasing plc Friday released its audited full year result for the period ended January 31, 2008. Gross Earning grew by 64.78 percent to N2.658 billion, from N1.613 billion; PBT grew by 165.7 percent to N437.645 million, from N164.737 million, Profit Ater Tax also grew by 9.79 percent to N375.363 million, from N341.887 million, in the corresponding period of 2007. The company also proposed final dividend of six kobo. This result did not have positive impact on investors as the stock closed strongly on offer of over five million units.

Index was up by 64 basis points on 17,112 trades. Average size of trade was $8,664.67 with total value of $148.27 million. Market capitalisation closed at $89.87 billion.

Overall, there were 40 gainers and 58 losers and 55 unchanged. The banking sector led the volume chart followed by the insurance sector and both accounted for 89.97 percent of total volume traded.

Intercontinental Bank plc traded 193.70 million shares to top the overall volume chart. Other stocks that closed in the top echelon were Bank PHB, Investment and Allied Insurance, FCMB and Fidelity Bank plc.- BusineesDay.
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MARKET UPDATE FOR JUNE 26TH, 2008.

The market price indicator only edged up for the first time this week to close at 53,705.30 base points as against yesterdays 53,365.53 base points, indicating a gradual recovery of the market. The Market Capitalisation also went up a bit to N10,482,381,849,556.62 better than yesterday’s N10,416,065,547,467.16 also marking a recovery. There was a total of 17,112 deals involving a share volume of 983,536,948 unit shares valued at N17,294,192,905.58 as against yesterdays 15,973 deals involving a volume of 1,274,507,737 units valued at N16,107,193,177.78.

The market movers in terms of share volume in a descending order includes: (1) INTERCONT which traded a volume of 193,704,201 units valued at N6,217,730,939.52; (2) PLATINUM traded with 120,948,336 unit shares, valued at N3,325,305,901.95; (3) IANSURE traded with 103,889,273 unit shares, valued at N118,433,771.22; (4) FCMB traded with 90,844,400 unit shares, valued at N1,496,545,930.49; (5) FIDELITYBK traded a volume of 40,145,764 unit shares, valued at N404,304,911.73.
The price gainers in a descending order includes: (1) 7UP gained N2.59 to close at N54.46; (2) ASHAKACEM gained N1.84 to close at N38.74; (3) ETI gained N1.71 to close at N40.00; (4) CADBURY gained N1.57 to close at N33.07. While the price losers list includes: (1) OANDO which lost N10.50 to close at N199.01; (2) CONOIL lost N5.20 to close at N99.80; (3) CAP lost N2.85 to close at N54.15; (4) NBC lost N2.44 to close at N49.01.
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Shareholders laud Juli’s expansion plans

PLANS by Juli Plc, a healthcare company quoted on the Nigerian Stock Exchange to expand its business into food processing and scan services was yesterday applauded by the company’s shareholders.

Speaking at the pre-yearly general meeting held in Lagos yesterday, the company’s Chairman, Prince Julius Adelusi-Adeluyi told shareholders that the company is adding two new lines to its business, which was commended by shareholders.

Besides, he told shareholders that two products, which would be branded Juli, have been designed and would be manufactured under contract manufacturing arrangements and manufacturers identified for each of the products.

He explained that samples of the cream is undergoing relevant laboratory test at NAFDAC and approval is expected within the month of July, adding that the names of the products have been cleared and registered with the Federal Ministry of Commerce and Industry.

His words: “There is good market for antibiotics and the tropical cream. The general populace irrespective of class/status or gender buys these products. The success would be based on strong marketing efforts, which we have continued to map out.

He continued: “We are also creating a medical supermart by adding to our lines of activities scan services. The relevant equipment has been purchased and the space to house it being made up. This should become operational in the month of July.

“We are also examining going into food processing and a decision would be based on a feasibility that would justify this. The facility at the head office would accommodate the nature if considered visible.

Commenting on the development, Mr. Anthony Omojola, a shareholder said the growth plans of the company is commendable considering the fact that the board has disappointed shareholders in the past by not giving them good returns on investment.

“Lately, the management has been trying to realign, re-arrange and reposition the company. The company is more focused now. We believe with these plans, they will be able to make profit and give returns to shareholders.

Another shareholder, Mr. Godwin Anonoh said the company has a strategic location, but there is need for the board to consider expansion into other strategic areas in Lagos to boost profitability.—Guardian
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Dangote Cement signs $1.85bn expansion financing arrangements with banks


Dangote Cement Plc, on Tuesday signed a $1. 85bn seven-years syndicated credit facility for the expansion project of its Obajana cement factory in Kogi state and another plant in Senegal.

At the well attended programme by gurus of industries from Nigeria and abroad, the company said the credit facility would be utilized for the acquisition of four new cement plants from Sinoma, a Chinese company. The finance for the project was raised by some local banks.over the years.

Speaking at the occasion, the company president and chief executive officer, Alhaji Aliko Dangote said the signing agreements with some local banks was significant for the company and the country, because by the time the company concluded the installations of its facilities, it would enhance the production of cement in excess in Nigeria and eventual reduction of its price.

According to the company, the new plants to be installed will compliment its existing Obajana and Benue facilities which are being upgraded. Also, it was said that apart from the plant to be installed in Obajana and Benue, two new ‘Greenfield plants’ will be built at Sagamu and Ibese all in Ogun State, while the fourth plant will be built close to Dakar in Senegal.

Obajana cement, according to Alhaji Dangote has two production lines with the capacity to produce five millions tons of cement per annum presently and with the proposed extension, the factory would expand its capacity to six million tons by 2009 and by 2010 would almost be doubled.

He added that with the additional capacity the company would provide the country with 26 million tons of manufactured cement and 2.5million tons in Senegal by 2010.

He said “Dangote Cement already operates Sub-Saharan Africa’s largest cement plant at Obajana and these new plants and lines will make us the largest producer on the continent. Africa is going through a construction boom as it seeks to address housing and infrastructure deficits that have been pervasive for too long. Dangote Cement is acting to address the shortfall in African production and provide the building blocks for Africa’s renaissance.

“For the new seven cement lines, we have raised US $1.28 bn from the local capital markets and the group has provided equity of about $600 million. Many of the financiers of the deal are here today, I thank them for their support.”

He said each of the new plant will be operational within next 28 months and this will make the country a self sufficient in cement production and also becomes a net exporter. Representatives of the banks that raised the finance at the occasion in Lagos commended the efforts of the company, especially its CEO, Alhaji Dangote for contributing its quota to the economic development of the nation.–Vanguard
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Market downturn: Experts seek government intervention, laud NSE’s action

Following the lifting of the regulatory measures to stem the free fall of prices of listed equities by the Nigerian Stock Exchange (NSE), the bearish trend that has been the order of the day in the capital market in the last couple of months returned last week, as the All-share index and market capitalisation both dropped by 9.65 per cent and 9.53 per cent respectively.

Evident in the decline was the fact that investors lost N1.12 trillion from their investments in the NSE, as the value of equities, represented by the market capitalisation dropped from N11.72 trillion at which it opened the week, to close the week at N10.6 trillion. The All-share index, another index for measuring performance of listed securities on the NSE, was not spared either, as it lost 5,809.21 basis points to close at 54,382.21 points from 60,191.83 points at which it opened the week.

To this end, experts in the Nigerian capital market have called for the intervention of the federal government in arresting the current downturn that has been witnessed in the market in the last couple of months.
Speaking in Lagos last week, the General Manager, Lambeth Trust and Investment Company Limited, Mr. David Adonri disclosed that the factors that are responsible for the continuous decline in the market indices and in the prices of shares can only be addressed by federal government, as the major factors are brought about by its activities.

He identified the monetary policies activities of the Central Bank of Nigeria (CBN), the delay in the implementation of the budget and the Niger-Delta crisis among other factors, as being responsible for the persistent decline in the prices of shares.

He said, “The CBN’s operation of the Monetary Policy Rate (MPR), which determines the interest rate to be charged by banks for lending and for deposit is a factor that determines the patronage of investors to the capital market. If the interest rate on deposits is high as a result of the MPR, investors will transfer their funds to the money market.

This has been the case in the past couple of months, as the interest rates have suddenly become attractive. Also, the delay in the implementation of the budget has created uncertainty in the mind of investors, especially institutional investors, who may have decided to withhold their funds from the capital market, while the Niger-Delta crisis, on its own part, have made foreign investors who had wanted to put their money in the country to desist from doing so, making them to take their other investments out of the country, some of which are in the capital market. All these have contributed in one way or the other to the decline that has recorded in the last couple of months.”

He called on the federal government to address the issues so as to restore confidence in the market and to improve the fortunes of the market, stemming the free fall. He also commended the NSE for its role in addressing the situation, stating that such actions are expected of the NSE in such critical situations that are capable of inhibiting the growth of the market.

However, the regulatory authorities have indicated their willingness to address the free fall of the prices of shares and prevent a collapse of the market. The CBN last week announced its determination to help in its own ways in addressing the decline in the market. It stated that it will not hesitate to churn out policies or introduce measures that will return the market on the path of growth and improved returns on investment.

Corroborating his views, Mr. Olufemi Awoyemi, Managing Director, Proshare Nigeria Limited disclosed that the action of the NSE in stemming the free fall in the prices of equities is in order with what is obtainable in other international capital market and does not amount to share price manipulation.

The NSE penultimate week, placed a ban on the downward movement of share prices, stating that any stockbroker who wants to trade a stock at a price lower than its current market price will have to present explanations to the NSE on why it wants to the stock to be sold at a lower price.

According to Awoyemi, “The NSE actions are in line with practices in stock exchanges worldwide. It is right for it to introduce measures that will prevent investors’ confidence from eroded and other factors that are likely to lead to the collapse of the capital market. For example, authorities in the New York Stock Exchange (NYSE) shut down the market for five days after the September 11, terrorists attack. This, according to the authorities was to avoid the collapse of the market which may have been caused by panic arising from the shock and uncertainties that followed.”

He noted that the action of the NSE cannot be called manipulation, but a process of putting check and balances to protect investors from losing their investment.

Meanwhile, Proshare has disclosed that its forthcoming investment and analyst seminar is designed to provide some clarity to burning issues in the capital market and provide investors with a roadmap to engage the market.

To this end, it stated that it has invited a renowned capital market analyst, Chukwuma Biosah, who is also the Chief Executive Officer of InvestIQ, to present its findings via a case study approach and demonstrate the validity of the approach and strategy used to play the market in these trying times.

The seminar which is scheduled to hold in Lagos and Port Harcourt, on June 26 and 21 respectively, is targeted at members of the analysts community and discerning investors who are committed to the capital market as a vehicle for wealth creation and other members of the public.

Meanwhile, Equity trading on the NSE in the week under review appreciated by 41.62 per cent as a turnover of 5.24 billion shares valued at 42.5 billion was recorded in 82,791 deals, in contrast to penultimate week’s turnover of 3.7 billion shares valued at N53.21 billion in 75,133 deals.

Analysis of trading in the week under review shows that on Monday, June 16, 2008, Dangote Sugar Refinery Plc recorded the highest share price gain, rising by N1.31 to close at N27.69 per share from N26.38 per share at which it opened, it recorded a turnover of 9.0 million shares valued at N246.67 million, its Earnings Per Share (EPS) stood at N0.14 while its Price Earnings (PE) ratio stood at 197.79, Costain (West Africa) Plc followed with a gain of N1.29 to close at N27.28 per share, it exchanged 4.31 million shares valued at N117.67 million, it notched a PE of 25.50 and an EPS of N1.07, Nigerian Aviation Handling Company Plc garnered N1.19 to close at N25.09 per share, it exchanged 180,961 shares valued at N4.4 million, it posted a PE ratio of 35.84 and an EPS of N0.70.

BankPHB Plc recorded a PE ratio of 23.40, an EPS of N1.19, a turnover of 63.07 million shares valued at N1.71 billion, a gain of N0.66 to close at N27.85 per share, Berger Paints gained N0.63 to close at N13.41 per share, it posted a turnover of 118,849 shares valued at N1.6 million, an EPS of N0.44 and a PE ratio of 30.48.

On Tuesday, Mobil Oil Nigeria Plc recorded the highest share price gain, rising by N9.37 to close at N196.87, investors traded 115,143 of its shares valued at N22.10 million, its EPS stood at N8.39 while its PE ratio stood at 35.04, Guinness Nigeria Plc followed with a gain of N1.80 to close at N130.00 per share, it recorded a turnover of 178,774 shares valued at N23.63 million, its EPS stood at N7.73 and its PE ratio stood at 16.82, Eterna Oil and Gas Plc garnered N1.66 to close at N34.92 per share, it exchanged 954,851 shares valued at N30.56 million.

Presco Plc notched an EPS of N0.33, a PE ratio of 89.06, a turnover of 2.87 million shares valued at N82.20, a share price gain of N1.39 to close at N29.39 per share, Dangote Flour Mills Plc gained N1.36 to close atN29.05 per share, it traded 1.87 million shares valued at N52.57 million, its EPS stood at N0.14 while its PE ratio stood at 207.50.

On Wednesday, June 18, 2007, Oando Plc recorded the highest share price gain, rising by N8.60 to close at N210.00 per share from N201.40 per share at which it opened, it exchanged 334,899 shares valued at N69.16 million, its EPS stood at N5.62 and its PE ratio stood at 37.37, Presco Plc followed with a gain of N1.11 to close at N30.50 per share, it traded 783,347 shares valued at N23.74 million, its posted an EPS of N0.33 and a PE ratio

STOCKS TO WATCH OUT FOR THIS WEEK

GTBank Plc, First City Monument Bank Plc, International Breweries Plc, Cement Company of Northern Nigeria Plc, Berger Paints, Red Star Express Plc, Omatek Ventures Plc, Transnational Corporation of Nigeria Plc, Unilever Nigeria Plc, Costain (West Africa) Plc, Big Treat Plc, National Salt Company Plc, Fidson Healthcare Plc, Japaul Oil and Maritime Services Plc, Union Homes Savings and Loans Plc, Deap Capital Management Trust Plc among others.

Companies Financial Results at a Glance

Four equity prices were adjusted for dividend as recommended by the Board of Directors. The price of Guinness Nigeria Plc was adjusted for Special Dividend of N6.80 per share. Intercontinental Bank Plc was adjusted for final dividend of N0.40 per share. Mutual Benefits Assurance Plc was adjusted for dividend of N0.06 per share. Equity Assurance Plc was adjusted for dividend of N0.035 per share

New Listing

The 2,941,789,472 shares in favour of Omatek Ventures Plc were admitted to the Daily Official List at a price of N4.90 per share on Wednesday, June 18, 2008 by way of Introduction. The shares were listed in the Computer and Office Equipment sub-sector. By this action, the number of listed companies and securities increased to 222 and 317,respectively.

COMPANY NEWS / LISTING

IKE JA HOTEL PLC; Audited result for the year ended 31 st December 2007 shows Turnover of N5.3 billion as against N4.64 billion in 2006. Profit after tax stood at N697.75 million compared with N525.94 million in 2006. The Directors are recommending a dividend of N0.10 per share. The date of closure of register of members is June 23,2008 while payment date is July 28,2008.

CRUSADER INSURANCE (NIG) PLC; Audited result for the year ended 31st December 2007 shows Gross Premium of N2.2 billion as against N1.21 billion in 2006. Profit after tax stood at N1.45 billion compared with N267.12 million in 2006. The Directors are recommending a dividend of NO. 15 per share. The date of closure of register of members is June 30,2008 while payment date would advised later.

SMART PRODUCTS NIGERIA PLC: Audited result for the year ended 31 st December 2007 shows Turnover ofN 12.54 million as against N 10.6 million in 2006. Profit after tax stood atN3.9 million compared with N2.4 million in 2006. The Directors are recommending a dividend of N0.075 per share. The date of closure of register of members is June 25,2008 while payment date would be announced later.

DN MEYER PLC: Audited result for the year ended 31st December 2007 shows Turnover of N2.1 billion as against N2.01 billion in 2006. Profit after tax stood atN63.8 million compared withN60.75 million in 2006. The Directors are recommending a dividend of NO. 10 per share. The date of closure of register of members is June 30, 2008 while payment date would be announced later.

DN MEYER PLC: Unaudited result for the first quarter ended 31st March 2008 shows Turnover of N491.55 million, as against N483.22 million in the comparable period of 2007. Profit after tax stood at N13.2 million compared with N10.4 million in 2007.

SCOA NIGERIA PLC; Unaudited result for the half year ended 30th June 2007 shows Turnover of N1.32 billion, as against N 1.25 billion in the comparable period of 2006. Profit after tax and exceptional items stood at N777.24 million compared with N20.2 million in 2006.

NAMPAK NIGERIA PLC: Audited result for the year ended 30th September 2007 shows Turnover of N2.85 billion as against N2.7 billion in 2006. Loss after tax and exceptional items stood at N145.92 million compared with profit after tax of N129.52 million in 2006.

NAMPAK NIGERIA PLC; Unaudited result for the half year ended 31st March 2008 shows Turnover of N1.436 billion, as against N1.439 billion in the comparable period of 2007. Loss after tax stood at N183 million compared with profit after tax of N61.74 million in 2007.

NCR (NIG) PLC; Audited result for the year ended 31 st December 2007 shows Turnover of N4.21 billion as against N1.6 billion in 2006. Loss after tax stood at N31.82 million compared with N623.1 million in 2006.

INCAR (NIG) PLC; Unaudited result for the first quarter ended 31st March 2008 shows Turnover of N22.52 million, as against N26.5 million in the comparable period of 2007. Loss after tax stood at M2.2 million compared with N2.3 million in 2007.–Vanguard
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Market indices continue on a free fall journey

As against the trend experienced previous week, market indicators decline freely through this week by 9.65per cent as the NSE ASI index closed on the down side at 54,382.21 points. On the contrary, the total market capitalisation of the 222 listed equities slumped by 9.53per cent to stand at N10.60trn. The divergence in returns from index and capitalisation is attributable to the shares of Omatek Venture Plc admitted into the Daily Official List on June 18, 2008.

However, compared with previous week trading statistics, total volume of shares traded increased by 41per cent representing 5.24 billion shares exchanged by investors in 82,798 valued at N42.52bn.

Advances/Declines

CHEVRON (+14.62k), MOBILE (+9.37k) and 7UP (+2.60k) emerged leaders on the week’s gainers’ chart, while TOTAL (-N12.54k), GUINNESS (-N10.80k) and NESTLE (-N9.25k) led on the losers’ camp. It should be noted that GUINNESS was adjusted for final dividend of N6.80k on Friday June 20, 2008, which is responsible for the huge decline in its share price.

At close of activities, 14 stocks advanced in price lower than 92 recorded last week. 98 equities declined in value far higher than 2 noticed previous week while 12 closed flat.

Sectoral performance

For the fourth week running, Insurance sector sustained its dominance, emerging as the most active sector in the stock market by volume. The sector accounted for 3.43 per cent of total turnover of shares in 14,521 deals worth N6.45bn. Activity in the sector was driven trading in the shares of IAINSURE, UNIVINSURE and GOLDINSURE. Trading in the shares of the 3 companies captured 86per cent of the sector’s turnover. The banking sector trailed closely behind on the week’s activity chart with 1.3 billion shares exchanged in 38,977 deals valued at N28.99bn. Activities in the shares of companies in the Conglomerate sector claimed the third position on the table with 119 million shares traded in 2,225 deals.

CORPORATE NEWS: Corporate Results

CRUSADER INSURANCE PLC and NAMPAK NIGERIA PLC posted their audited accounts for the year ended December 31, 2007 and September 30, 2007 respectively. Similarly, SMART PLC and SCOA PLC both released their audited accounts for the year ended December 31, 2007 and un-audited Q2 results for the period ended June 30, 2007 respectively. Others in the group are:

- Ikeja Hotel Plc declared its audited accounts for the year ended December 31, 2007. The directors recommended cash dividend of N0.10k.

- DN Meyer Plc released its un-audited Q1 results for the period ended March 31, 2008 alongside with its audited accounts for the year ended December 31, 2007.

- INCAR (Nigeria) Plc posted its un-audited Q1 results for the period ended March 31, 2008.

- NCR (Nigeria) Plc made public its audited account for the year ended December 31, 2007 which shows turnover increase to N4.21bn from N1.6bn recorded previous year. Meanwhile, SMART PLC proposed a cash dividend of 7.5kobo per share with June 25 to July 08, 2008 as closure date. Payment date is to be announced later. Crusader Insurance Plc also declared a dividend of 15kobo per share. Closure date of register is between June 30 and July 04, 2008.

Longman Nigeria Plc goes on suspension

The share price of Longman Nigeria Plc froze on receipt of an official notice in respect of proposed placement of shares by the company.

New Listing by Introduction

- A total of 2,941,789,472 ordinary shares of 50kobo each were admitted into the Daily Official List of the NSE by introduction in the name of OMATEK VENTURES PLC at N4.18k.

- TANTALIZERS PLC: The NSE would be admitting 2,950,000,000 ordinary shares of 50k each at N3.50k by way of introduction on Monday June 23, 2008 in the name of Tantalizers Plc
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Bear market: How to deal with capital losses

The question of why stocks fluctuate has been a nagging one, especially for beginners in the art of investment. Falling stock prices are sometimes a hard pill to swallow. But experts have cautioned that long-term investors should not be concerned. A leading investment expert and the proprietor of About.com, a major investment network, Mr. Joshua Kenon, says the answer to this lies in the nature of the stock market, which is based on volatility. According to him, “The stock market is essentially a giant auction - only instead of antiques and heirlooms, it is ownership in businesses that’s up for grabs. Stocks are traded at places called exchanges. At these exchanges, traders buy and sell shares of companies. He says, generally, the price of a stock is determined by supply and demand. For example, if there are more people wanting to buy a stock than to sell it, the price will be driven up because those shares are rarer and people will pay a higher price for them. On the other hand, if there are a lot of shares for sale and no one is interested in buying them, the price will quickly fall.

On the trend in the market, he says, “Because of this, the market can appear to fluctuate widely. Even if there is nothing wrong with a company, a large shareholder who is trying to sell millions of shares at a time can drive the price of the stock down, simply because there are not enough people interested in buying the stock he is trying to sell. Because there is no real demand for the company he is selling, he is forced to accept a lower price.”

Knowing how the stock market works will help investors understand the individual factors that cause wild fluctuations in stock prices. This understanding will help investors to take advantage of the manic-depressive behaviour that sometimes seems to affect their portfolio, as it is being currently experienced on the Nigerian scene.

How a bear market affects your investments

Generally, a bear market will cause the securities you already own to drop in price. The decline in their value may be sudden, or it may be prolonged over the course of time, but the end result is the same: the quoted value of your holdings is lower. In this trend, two fundamental principles must be noted. One, that a bear market is only bad if you plan to sell your stock or need your money immediately. Two, falling stock prices and depressed markets are friends of long-term, value investors.

In other words, if you invest with the intent to hold your investments for decades, a bear market is a great opportunity to buy. It is always amazing that some “experts” advocate selling after the market has fallen. The time to sell was before your stocks lost value. If they know everything about your money, why didn’t they warn you the crash was coming in the first place?

What to do in a bear market

The biggest question that normally agitates the minds of investors in times of capital losses is: What do I do with my money in a bear market?

Kenon says the first thing you need to do is to look for companies and funds that are going to be fine ten or 20 years down the road. “If the market crashes tomorrow and causes Gillette’s stock price to fall by 30 per cent, people are still going to buy razors. The basics of the business haven’t changed. This brings us to the third principle of a bear market: ‘Learn to separate the stock price from the underlying business.’ They have very little to do with each other over the short-term. When an investor understands this, you will see falling stock markets like a clearance sale at your favorite furniture store; load up on it while you can, because history has shown that prices will eventually return to more reasonable levels.–Punch
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Intercontinental Bank Plc post 125 percent profit.

Smart Products Nigeria Plc, One of the second-Tier securities traded on the Nigerian Stock Exchange in the group categorised as ‘emerging market sector’ of the market, recently proposed a 7.50 Kobo dividend, with closure date of its register for this purpose scheduled for between 25th June to July 8th 2008. This information is contained in her fully audited result for the year ended December 31st 2007. The company, who’s major business is the processing of palm oil is likely going to progress into the Agro-allied sector of the market as a first-Tier security if it continues to grow in capital and further meets the stringent listing requirements.

Other features in the positive result includes: A Profit After Taxation of N3.865 million as against a year 2006 comparable periods figure of N2.359 million, indicating a 63.46 percent increase in distributable profit; a Profit Before Taxation of N4.759 million as against a year 2006 comparable periods N3.489 million; while the company also recorded a Turnover figure of N12.545 million as against a previous year comparable periods N10.555 million figure.

Another result that reached the market this week was that of Scoa Nigeria plc. Scoa submitted her unaudited second quarter result for the year ended 30th June 2007. The Profit After Tax was N777.245 million as against a previous year 2006 figure of N20.200 million, making a woping 3747 percent increase in distributable profit money, was recorded within the accounting period. The extra-ordinary increase was largely due to an Exceptional item which the company disclosed to be due to the disposal of an idle property. Other features in the result includes a Profit Before Tax of N827.245 million as against a previous comparable year’s figure of N20.200 million; also a Turnover figure of N1.321 billion was recorded as against a previous comparable periods N1.255 billion.
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Nigeria Says Stock Market Swings Will Be Contained (Update1)

The Central Bank of Nigeria said gains in stock prices over the past year were justified by corporate earnings and the outlook for economic growth and that the government is concerned by volatility in the market after shares tumbled in May.

The government and regulatory authorities will take “whatever steps are necessary to preserve the recent gains in the Nigerian Stock Exchange,” the central bank said in a statement on the Web site of the Abuja-based Nigerian presidency today. It didn’t give details on what they may do.

The Stock Exchange’s benchmark All-Share Index fell 11 percent between May 19 and June 6 on speculation that the central bank planned to act to halt margin trading, the practice of borrowing money to buy shares. The central bank denied it had any such plans, Lagos-based Thisday newspaper said on June 10.

Recent declines have pared the rally in the stock index over the past year to 10.5 percent from 34 percent on March 5
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Stocks: Senate moves to regulate capital market

The Senate on Wednesday threw its weight behind moves to regulate the practice of share registration in Nigeria.

This followed its decision to refer a bill titled; “A Bill for an Act to establish the Chartered Institute of Capital Market Registrars to regulate and control the practice of share registration and for related matters, 2008,” to its committee on Capital Markets for further legislative action.

Chief sponsor of the bill, Senator Ganiyu Solomon, in his lead debate said “The role of registrars in capital market and indeed the economy is crucial.

“It is, therefore, the thinking of the committee that records of investors and their investments must be handled by qualified and tested professionals so as to ensure adequate protection, transparency, guard against fraud and enhance the standard of service delivery in the market in line with international best practices.”

According to him, the registrar is expected to be a manager of resources, an accountant, a computer specialist, stockbroker and industrial relations expert.

This, he said, meant that the practice of share registration was demanding and needed specialised skills and tools that cut across so many other professions.

Senator Abubakar Sodangi said, “It is important in the sense that in a developing economy like ours, and even in the developed economies of the western world, our capital market is the harbinger of economic growth and I believe we need this thing. Apart from that, I believe this is a good bill.”

He, however, complained about problems associated with the distribution of share certificates and receipt of dividends for shares bought by investors.

Senator Mohammed Mohammed said, “This regulation is welcomed. When companies started being quoted on the stock exchange there were very few registrars at that time and the registrars were the banks, which started to take up the jobs of registrars.”—Punch
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Ex-EADS executive charged with insider trading

Former European Aeronautic, Defence & Space Company, Chief Operating Officer, Jean-Paul Gut, was charged with insider trading for selling shares before disclosing production delays on Airbus SAS’s A380 superjumbo airliner.

Gut, 46, was arraigned on a preliminary count of insider trading by investigating judges and released on bail of 400,000 euros, said Isabelle Montagne, a spokeswoman for Paris prosecutors. Gut is the second former EADS executive charged in the case, according to the Bloomberg News on Wednesday.

Paris prosecutors investigating whether company executives and stockholders Lagardere SCA and Daimler AG sold EADS shares based on internal information about production problems for the A380, the world’s largest passenger plane, Former EADS co-Chief Executive Officer, Noel Forgeard, was charged last month after being held for 35 hours.--Punch
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Rapid growth, major challenge for capital market –SEC


The rapid growth being witnessed in the Nigerian capital market was a major challenge that regulators of the market are grappling with, the Director-General, Securities and Exchange Commission, Alhaji Musa Al-Faki, has said.

A statement obtained by our correspondent on Wednesday, said the SEC boss made the observation at the inauguration of the commission’s board on Tuesday.

The significant growth recorded by the capital market, analysts said, had overwhelmed both operators and regulators of the market.

This, they alleged, had resulted in deficiencies in the system.

According to Al-faki, the capacity of the capital market to provide the funding needs for investors, as demonstrated by the various public offers that had taken place in the market, strengthens their argument.

He added, “Its international profile as a good destination for foreign investments and a credible platform for global players has been on the increase.

“The commission in this regard is pursuing, as a matter of urgency, the implementation of policies that will enhance market efficiency, transparency as well as the capacity of operators and regulators.

“Ultimately, the target is to sufficiently mobilise funds for infrastructure and financing in the economy.”

The director-general assured that the new board would expedite the process of addressing these challenges.

He reiterated that there were plans underway to further reduce the cost of doing business in the capital market.

“This, among others, will encourage greater flow of both local and foreign investments. As in the previous exercise in 2007, all stakeholders will be carried along, as only an across board review will bring the desired positive impact,” he explained.—Punch
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‘Cut in transaction costs’ll boost market activities’

Operators in the Nigerian capital market have said that the move by the Securities and Exchange Commission to further reduce transaction costs in the capital market will enhance participation.

The Managing Director, Quantum Securities Limited, Mr. Oladele Odunsanya, said in an interview with our correspondent on Tuesday, that most investors had been discouraged by the high transactions costs.

He said reducing the costs might help correct the current bearish trend in the stock market.

Similarly, a stockbroker who pleaded anonymity, for fear of being sanctioned by the capital market regulator, said with an increase in the turnover of the capital market, the reduction in transaction costs would be appreciated.

He added, “For us as stockbrokers, our transaction charges should be increased. The multiple taxes we are saddled with eat deeply into our charges, which has been reduced.”

Major indicators on the NSE have been declining in recent times and this has made stakeholders apprehensive.

The capital market’s apex regulatory body had, last Thursday, disclosed plans to further reduce transactions costs.

According to the spokesman of SEC, Mr. Lanre Oloyi, a committee has been set up by the commission to initiate modalities for the exercise, following which the details will be released to the Federal Government and market operators.

Oloyi said, “The purpose is basically to attract more local and foreign investors into the market. There is a committee set up by the commission on this, and as soon as it concludes it work, the recommendations will be forwarded to the Federal Government. We seek FG’s approval for its implementation.”

He said that since the capital market had been fingered as a pivot for the nation’s vision 2020, the commission was willing to work towards achieving that goal.

SEC had in April 2007, reduced transaction costs in the capital market by 40 per cent and hinged the reason for its action on the need to encourage investors.–Punch
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Transactions Tumble Further

Despite the efforts of the management of the Nigerian Stock Exchange (NSE) to ensure that activities in the capital market improves after some months of continuous bearish run, transactions in the market have remained down.

The market capitalisation of all listed equities which opened the day at N11.416 trillion lost N297 billion to close at N11.1190 trillion. Similarly, the all-share index closed lower at 57,101.72 points compared to 58,625.66 points it opened with.

Market operators explained that investors are not eager to rush back into the market, saying that they are still watching developments in the market. They further explained that so many investors incurred losses in the past two months due to the suspension on financier account, popularly known as margin account, as their banks were calling on them to clear their accounts which warranted offloading their holdings within the period.

They opined however, that the market will soon bounce back. Further breakdown showed that 67 stocks lost weight compared to 62 the pervious day with Oando Plc leading the whole lot with N10.609 to close at N201.40. BCC followed with price loss of N2.47 to close at N46.93.

Flourmill, Ashakacem and Zenith Bank followed losing N2.36, N2.22 and N2.20 to close at N87.49, N42.37 and N42.30 respectively.

Conversely, 19 companies added weight led by Mobil oil which gained N9.37 to close at N196.87, followed by Guinness with appreciation of N1.80 toclose at N130.00. Eterna oil, Presco and Danflour followed adding N1.66, N1.39 and N1.36 to close at N34.92, N29.39 and N29.05 in that order.

As in the pervious day, insurance sub-sector led activity on the sectoral chart, accounting for 724.2 million shares worth N1.5 billion done in 3,357 deals, followed by the banking sub-sector with traded volume of 142.112 million shares valued at N3.2 billion exchanged in 6,865 deals. It would be recalled that the NSE had last week in a spirited effort to restore confidence in investors and arrest the persistence tumbling of stocks, called off the suspension on financier account, thereby giving stock brokers leave to continue to take loans from banks to trade on behalf of their clients.

Besides, it has also taken some definite steps to ensure that arbitrary sale of private placements by some unquoted companies is brought to a stop; a situation the regulatory authority attributed the free fall in the market to, but the situation is yet to be abated
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NSE vows to check abnormalities in private placement


Following the upsurge in the number of private placement across the various sectors of the Nigerian economy and the attendant abnormalities trailing it, the Nigerian Stock Exchange (NSE) has vowed to expose promoters who negate the rules for the floatation of the foreign placement.
Speaking during a joint interactive session with stockbrokers and journalists on development in the capital market in Lagos, the Director-General of the NSE, Professor (Mrs.) Ndi-Okereke Onyiuke disclose the unconstitutional manner in which the private placement exercises have been carried out, saying “It has become alarming and calls for immediate action in order to protect investors from fraudulent and dubious promoters and to also protect the Nigerian capital market from collapse and lost of public confidence”, she said.

“The rate and number of private placement has become very alarming. These days every company irrespective of their status want to raise funds through private placement to the extent that the process is being abused and has recorded numerous abnormalities.

Today, private placements are being conducted like public offers. Many of the complaints we have been receiving from investors are about private placements. Many of the investors were misled to believe that the share of the company would be listed on the NSE immediately after the offer.

It is necessary we take certain step to stem the abuse and the abnormalities that have been recorded in the placement exercise.”

The measures introduced by the NSE to check the proliferation of private placement is it decision to ensure that companies does not list its shares by introduction unless, it presents before the NSE, its placement memorandum, barring such company from raising additional funds until one year after listing, insisting that the company brings to the trading floor five per cent of their total shares on issue, raising it to 10 per cent from September 2008, and listing the shares on the price at which the private placement was undertaken.”

Onyiuke disclosed that the normal process of private placement does not require that prospectus be printed but placement memorandum which are placed before not more than fifty investors identified by the company undertaking the private placement.

According to her, ““The Company and Allied Matter Act (CAMA) gave directions on how private placements are to be undertaken. These days, private placements are conducted like public offers. The law states that the document which carries information about the placement exercise be called a placement memorandum and should be laid before not more than 50 investors identified by the company, allowing for the company to overshoot this limit after it might have registered as a Public Limited Company (PLC).

These days, promoters of private placement print prospectus and distribute to everybody at every place. These is not supposed to be the case.”” She vows that the NSE will, henceforth, drag banks, stockbroking houses, issuing houses and other parties that goes contrary to the provisions of the constitution for the conduct of private placement, to the relevant regulatory authorities for sanctions to be meted out on them, warning that they stand the risk of getting jail terms. File name: NSE. June 16, 2008—Vanguard
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FG expresses concern over situation at stock market - As market value drops by N297bn in one day

AS share prices slide in the capital market, the Federal Government has stated that the negative global condition in the market may affect the Nigerian capital market.

Minister of Finance, Dr. Shamsuddeen Usman, stated this on Tuesday in Abuja while inaugurating the new board of the Securities and Exchange Commission (SEC).

Noting that the negative global situation in the capital market might spread to Nigeria, the minister said with good corporate governance, the global threat might not be a problem to the Nigerian market.

To ward off the threat, he said there was still a lot to do in the areas of entrenching market transparency, efficiency and discipline.

He said no effort should be spared towards ensuring the international competitiveness of the market and its relevance to domestic needs.

‘These can only be done through sustained commitment to zero tolerance for market abuse, improving processes and products and intensive public awareness campaign” the minister said.

With the calibre of people on the SEC board, Dr. Usman expressed confidence in the board’s capacity to provide the guidance required to move SEC in particular and the Nigerian capital market forward.

In his address, the Director General of SEC, Mr. Musa Al-Faki, said that efforts were ongoing to further reduce the cost of doing business in the Nigerian capital market.

He said this, among other measures would encourage greater inflow of both local and foreign investments. Members of the board are Senator Udoma Udo Udoma, Part-time chairman; Musa Al-Faki, Alhaji Lawal Sani Stores, Ms. Daisy Sabunju Ekineh, Mr. Charles Udora, Mrs. A.O. Fatade, Mallam Yahaya Alli, Mr Jubril Zarewa and Mr. Umar Bello Girei.

Meanwhile, despite the efforts of the management of the Nigerian Stock Exchange (NSE) to ensure that activities in the capital market improve after some months of continuous bearish run, transactions in the market have remained down.

The market capitalisation of all listed equities which opened on Tuesday at N11.416 trillion lost N297 billion to close at N11.119 trillion.

Similarly, the all-share index closed lower at 57,101.72 points compared to 58,625.66 points it opened with.

Market operators explained that investors were not eager to rush back into the market, saying that they were still watching developments.

They further explained that many investors incurred losses in the past two months due to the suspension on financier account, popularly known as margin account, as their banks were calling on them to clear their accounts which warranted their offloading their holdings within the period.

They opined, however, that the market would soon bounce back.
Further breakdown showed that 67 stocks lost weight compared to 62 the pervious day with Oando Plc leading the lot with N10.609 to close at N201.40. BCC followed with price loss of N2.47 to close at N46.93. Flour Mill, Ashakacem and Zenith Bank followed, losing N2.36, N2.22 and N2.20 to close at N87.49, N42.37 and N42.30 respectively.

Conversely, 19 companies added weight led by Mobil Oil which gained N9.37 to close at N196.87, followed by Guinness with appreciation of N1.80 to close at N130.00. Eterna oil, Presco and Dangote Flour followed, adding N1.66, N1.39 and N1.36 to close at N34.92, N29.39 and N29.05 in that order.

As in the pervious day, the insurance sub-sector led activity on the sectoral chart, accounting for 724.2 million shares worth N1.5 billion done in 3,357 deals, followed by the banking sub-sector with traded volume of 142.112 million shares valued at N3.2 billion exchanged in 6,865 deals.

The NSE had last week in a spirited effort to restore confidence in investors and arrest the tumbling of stocks, called off the suspension on financier account, thereby giving stockbrokers leave to continue to take loans from banks to trade on behalf of their clients.
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Stock market will crash in the next 15 months - Analysts

- Investors lost N1.5 trillion at stock market in 2 months

FOLLOWING the downward trend in the value of shares on the floor of the Nigerian Stock Exchange (NSE), the stock market may be heading for a big crash in a few months’ time, financial analysts have predicted.

The President of the Association of Professional Bodies of Nigeria (APBN), Mr. Bunmi Ajayi, told the Nigerian Tribune that there were danger signals in the economy, which, if not heeded, would spell doom to many.

He stated that Nigeria was ignoring the lessons of economic history and would not get away with it because what every nation needed to grow its economy was to first develop its agricultural sector and establish it well before going into industry.

Ajayi regretted that Nigeria was not doing either of these but rather it was into buying and selling, a situation that also led to the collapse of the stock sector of the United States of America sometime ago.

“We are doing a lot in developing this economy. This stock brokerage thing will crash. If we don’t learn from the crash of the American economy, we will never learn. Americans thought that they were wise. They were running from environmental pollution.

They sent all their factories to China to go and produce in China. They started playing round with money, with figures, with shareholdings and were not really producing. They were not manufacturing but spending money on money and figures on figures without solid structures,” he said.

The APBN president bemoaned the Nigerian situation, saying that the country had found itself in the same predicament without learning from the experiences of one time strong economies that suffered such a crash.

He observed that the banking industry that should serve as the service sector of the economy was not servicing the main sectors that would sustain the economy, which are agriculture and industry. “Now, where is the agriculture, where is the industry? So, what are they servicing and who are they servicing? They are servicing buying and selling. So, was the America and what happened to it?, it crashed,” he said.

A stockbroker, Mr. Kehinde Ajayi, said the value of most shares on the floor of the NSE was falling because the shares had been overpriced and were being placed where they actually belonged.

He also attributed the share glut to the rising level of inflation in the country, saying that “prices of goods are on the high side, people need money to cushion the effect. Those who could not get money from other sources but have shares have no choice but to dispose of some of their shares.”

In the same vein, Ambassador Olufemi Timothy, President, Shareholders Renaissance Association of Nigerian, said; “As far as we are concerned, the bearish trend in the market is not a good development. We are not being told what actually is happening by the Nigerian Stock Exchange (NSE).

“Another irony is that instead of allowing the forces of demand and supply to operate in the market as they relate to price movement, they are trying to guard against price fall which to investors is bad about the market.

“This singular action of the exchange in trying to prevent price fall is not good enough in the interest of the capital market development.

“Investors will be adversely affected, they may not know it now but later they will feel the negative impact. It is not good they are intervening without recourse to due process; it will affect foreign investment both in the short and long term,” he said.

But Mr. Boniface Okezie president Progressive Shareholders Association of Nigeria, believes there is nothing new about the present trend in the market.”

Okezie said: “What we are experiencing is that the fundamentals of companies quoted on the market are beginning to count. What have the fundamentals you may want to ask? If the fundamentals have being right then off course the prices will be on the up beat but if other wise then the reverse of what we are seeing will be the case.

“The situation in the market is however temporarily as the market would bounce back.” The capital market all over the world has always been said to be the barometer through which a country’s economic growth or otherwise is measured, more especially as it relates to the well being of it citizenry.

The market has always been an avenue where every economic unit which helps in the growth of the Gross Domestic Product (GDP) can easily be monitored on how best they have contributed alongside government policy measures.

Why this seems to be so, recent happenings in the market appear to be a fallout of the delay in the passage of the country’s budget, which market experts have argued is the major cause of depression currently being witnessed.

The lull in the market which has resulted in the bear taking hold of activities as at last Tuesday, June 10, caused a total loss of about N1.5 trillion by investors in the market.

However, the hold of the bear on the market has since caused capitalisation to dip by N1.17 trillion or 9.3 per cent in less than two months.

The capitalisation, which measures the value of all listed equities, fell from a historic value of over N12.6 trillion in the first week of March 2008 to close at N11.093 trillion on Tuesday, June 10.

Prior to the coming of the bears in the first week of March, the NSE capitalisation had appreciated by N2.42 trillion or 23.7 per cent from N10.18 trillion in January to N12.6 trillion.

After a successful 2007 with a growth of 74.5 per cent, the market continued on the positive trend and peaked with a growth of 23.7 per cent on March 5, 2008. About 53 per cent of the gains recorded by the NSE capitalisation have been wiped away by the rampaging bears.

Usually at this time of the year, investors have always believed that profit taking is the cause of depression in the market wherein investors seek to recoup returns on their investment via dividend payment from companies listed on the exchange.

However, events in the market shows that rather than profit taking, delay in the release of the budget and stoppage of the margin account as alleged against the Central Bank of Nigeria (CBN) are what are causing the market to decline on all indices.

Managing Director, Financial Derivatives, Mr. Bismarck Rewane, believes that the market is just undergoing correction since it has been grossly overvalued.

“What is happening is like a mini-correction. This should be expected because the market has been grossly overvalued and this is a big problem for people that have borrowed money to buy shares.

“The bears will continue till June. This is when we can expect to see recovery. The market will continue to look for the fair price and will then begin to climb naturally and slowly. But this does not in anyway depict that the market will crash,” he assured investors.

Managing Director, Economic Associates, Dr. Ayo Teriba, however, explained that investors might have switched from the capital market to the money market because of the rise in interest rate of the government securities.

An example of government securities are Treasury Bills (TBs), which are investment windows through which the Central Bank of Nigeria (CBN) controls the amount of liquidity in the system by selling bills to banks, discount houses and the investing public.

It is through this investment that the Federal Government borrows indirectly from banks, thereby mopping their excess funds.

With the income on TBs stable at about 10 per cent since last February and inflation at six per cent, Teriba said it make more sense to invest in TBs and earn a risk-free return of four per cent than to invest in capital market, which is uncertain.

While investors are still counting their losses the exchange this Monday came out with an attempt to stop the further decline by the market when it allegedly stop the printing of losers table for public consumption.

But this has been denied by the NSE through its principal manager on media matters, Mr. Sola Oni: “Every market has his own circle and during bearish trend, what people should find out is what are the likely causes of this bearish trend. Most of the companies that are under going bearish trend are blue chips, the fundamentals are right, the management have no problem, the company have been giving fantastic results, people have enjoyed bonus,” Oni said.

He noted that if the prices were now going down, it boiled down to the fact that people were realising more profit from the companies, adding that once the fundamentals were strong, that was a big signal “because from the way the market operates when bearish trend begins like this, it will get to a level that strategic investors, institutional investors and high net worth investors would cash in on the market and things will start improving” he added.

Nigerian Tribune gathered that the Nigerian Stock Exchange (NSE) had taken steps considered by market analysts as developmental intervention as the market in the past few weeks had moved southwards and some stocks reached new 52-weeks low.

Remarkably, some institutional and individual investors have shown a thorough understanding of the market, based in part on their deployment of shrewd analytical interpretation of market sentiments, technical analysis and fundamental.

Investment experts in this school of thought reason that all these could have been in combination of luck, access to information and fortunate timing, which are considered to be part of the analysis needed to engage the market.

Meanwhile, in the quest to help provide some clarity to these issues at stake and provide investors with a roadmap to engage the market, Proshare Nigeria Limited, the managers of Nigerians Online Investment Information Community has invited Chukwumah Biosah, Chief Executive Officer, InvestIQ to present his analysis.

According to Proshare, Biosah of InvestIQ (USA), its technical analyst partner would present his findings via a case study approach and demonstrate the validity of the approach and strategy used to play the market.—http://www.tribune.com.ng/17062008/news/news1.html
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Market sentiments for the week ended 130608

Investors heaved a deep sigh of relief as the authorities of The Nigerian Stock Exchange intervened to regulate the unending price free-fall in the market. Apparently bothered by the development that persisted for about 3 weeks, the regulatory authorities effected a market correction through what participants call ‘regulatory intervention’ by freezing prices of equities at their previous days’ close prices except for those that closed higher due to market forces of bid and offer (demand & supply). This intervention has helped to augment the market performance as The NSE ASI closed higher by 704 basis points to 60,191.83 points while total market capitalisation of 222 quoted equities rose by 7.04 percent to stand at N11.72trn against N10.95 trn reported in previous week. Some market commentators argue that the practice is not only peculiar to Nigeria but also obtainable in other developed economies as part of the statutory functions of the authorities of any Exchange.

There are indications that this regulatory intervention may last till when the issue of margin loans from banks to investors/stock brokerage firms is resolved amongst all regulators involved. However, market is rife with the news on suspension of the ban on margin trading accounts pending when the special committee set up comprising representatives of the Central Bank of Nigeria (CBN); Nigeria Deposit Insurance Corporation (NDIC), Securities & Exchange Commission (SEC), and The Nigerian Stock Exchange (NSE) meet to come up with a workable process. Market participants and regulators attribute the prolonged lull largely to the margin calls by banks following the directive from the Central Bank of Nigeria to put a halt to margin loans to capital market operators, an allegation that has been denied by the CBN authority at several fora.

Similarly, the recent publication by The NSE in respect of Private Placement has also spurred reactions from market commentators and participants. The authorities of The NSE have come up with a pronouncement putting a caveat on Private Placements which may somewhat make them unattractive to the investing Public. The NSE maintains that henceforth companies seeking listing on The Exchange by way of Introduction shall have such shares listed at the Private Placement price and will also meet the Listing Requirements, Rules and Regulations governing Initial Public Offerings (IPO) all in an attempt to protect investors’ interest.

We believe this pronouncement will bring some level of sanity to the market and substantially checkmate the flurry of Private Placements and its attendant effects on the secondary market activities.

Notwithstanding the regulatory issues that overshadowed the market during the week ended Friday June 13, 2008, a few stocks still made investors rich. Fidson closed the week at N9.55k to post 27.3 percent in capital appreciation Prestige Assurance also went on bid apparently due to its impressive full year results and lip smacking twin benefits of 20k dividend and 1 for 4 bonus.

No sooner had the authorities of The NSE made the pronouncement than the market re-adjusted with all performance indicators pointing northwards. We anticipate increase in activities in coming weeks following the suspension of ban on margin trading as investors re-position themselves in response to the latest developments. Also in response to these developments, market sources reveal that banks have started to approach their customers for margin facilities. This re-affirms our position of possible resurgence in coming weeks. - Meristem
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Lehman posts $2.8-billion loss

NEW YORK — Investment bank Lehman Brothers Holdings Inc. posted a quarterly loss of $2.8-billion (U.S.) on Monday, matching its forecast, after recording massive trading and hedging losses.

With the results coming in as expected, analysts focused on the potential for future write-downs at the fourth-largest U.S. investment bank, which still has more than $60-billion of mortgages, real estate assets and asset-backed securities on its books. That amount is well in excess of the company’s net worth as measured by shareholders’ equity.

Lehman last week said it expected a quarterly loss, its first as a public company, and said it was raising $6-billion of fresh capital.

That announcement triggered a crisis of confidence in the company’s management that brought Lehman shares down 20 per cent for the week and spurred the demotion of Chief Financial Officer Erin Callan and Chief Operating Officer Joseph Gregory.

Lehman Brothers Holdings

Lehman shares rose Monday morning, climbing as much as 68 cents, or 2.6 per cent, to $26.49 in early trading. The cost of protecting its bonds against default barely budged.

“The market was really focused on what Lehman would deliver. They were spot-on in the estimates and their numbers,” said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

The market is carefully watching how Lehman is recording its hard-to-value assets, to see if more write-downs are coming, Mr. Kenny said.

Lehman said it took $3.7-billion of write-downs during the quarter for assets including mortgage securities. Banks and other financial institutions globally have written down more than $400-billion of assets amid the credit crunch.

Although those write-downs have triggered big quarterly losses at rivals like Merrill Lynch & Co Inc., Lehman had until this quarter managed to avoid posting a net loss. Short sellers including David Einhorn, who profit if Lehman’s shares decline, have said the investment bank has not taken the losses it ought to under accounting rules.

Lehman said its loss amounted to $5.14 a share for the fiscal second quarter ended May 31, compared with net income of $1.27-billion, or $2.21 a share, a year earlier. The loss was Lehman’s first since being spun off from American Express Co in 1994.

The company’s net revenue, affected by the write-downs, was negative $668 million, compared with revenue of $5.5-billion a year earlier.

Through Friday’s close, Lehman shares had fallen 60 per cent this year, compared with a 20 per cent decline for the U.S. brokerage sector as measured by the Amex Securities Broker Dealer index.

Lehman shares trade at less than 80 per cent of their book value, or the net per share accounting value of the company. Investment banks usually trade somewhere above their book value, and trading below that level signals that investors are bracing for more write-downs. - Globemail
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‘18% of depositors’ funds used in margin trading’

Shamsuddeen Usman, minister of finance, has raised the alarm that consolidated banks face new challenges as N2.5 trillion or 18 percent of depositors’ funds are currently being used for margin trading.

This makes the fund a significant factor that is driving prices in the Nigerian Stock Market. “Some analysts reports have estimated that 18 percent or about N2.5 trillion of depositors’ funds are used for margin trading,” Usman said.

The minister recalled that, earlier on, banking consolidation was aimed at strengthening the banking sector to play its developmental roles in the nation’s economy as well as make the Nigerian banking sector an active player in the African and global financial systems.

But with these initial objectives have come new challenges. Some of these challenges include more intense competition, sliding profitability/efficiency ratios due to share capital dilution ramifications, integration costs and the larger asset base, banks raising of more funds, thus further exacerbating these profitability and efficiency ratios, according to Usman.

The pressure, therefore, is on banks to return to investors and depositors from large capital raised.

This temptation, he says, has led to increase volume of risk assets resulting in decline in the quality of risk assets, and the use of depositors’ funds to push share prices to appease their investors.

These challenges have led to their determination to generate increasing returns to shareholders, thus encouraging bigger risk taking, and deposit insurance funds face larger potential losses in the event of failure of a single, large consolidated institution.

The result is that depositors’ funds are being held in banks’ own shares at inflated prices, and asset/liability mis-match as depositors’ funds are locked into equity investment.

The minister says the risks associated with margin trading thus include stability of the capital market being impacted by economic trends, and that any downward trend in the economy will impact the capital markets negatively, causing the price of the stocks to decline, and that panic sellers and customers might spell trouble for banks.

He says as stock prices decline, the value of the stocks pledged as collateral to banks for the margin facilities will also decline, leaving no effective cover.

Also, securities used, usually shares, as well as depositors’ funds will be lost if market crashes.

He says margin trading is believed to be largely responsible for the crash of US stock market in 2000.

The minister also notes that sub-prime lending, another reason to be cautious, started as a credit problem in the US mortgage market with delinquency rate of 5 percent in sub-prime.

The problem, he explains, is that with the financial crisis in the global banking system, total reported write-downs for major financial firms is now totalling $161 billion and estimated to reach $200 billion this quarter.—BusinessDay
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