Mr. Aderinokun, MD-GTBank

Mr. Aderinokun, MD-GTBank

A long standing corporate customer (name withheld) of GTBank was non-plussed when it received a letter from the bank demanding the repayment of a supposed debt to the bank totaling N334,120,241.05.

In a letter dated August 2, 2008 and addressed to the customer, Jumoke Adekola and Sarah Ugamah, both of the legal department of the GTBank, forcefully asserted the failure of the customer to regularize his account: “We note with displeasure that despite our demand, you have failed, refused and neglected to regularize your account as requested,” the two legal department staff that signed the letter noted. “The outstanding debit balance in your account as at today is N334,120,241.05 and interest continues to accrue at the ruling market rate,” Adekola and Ugamah said in the letter.

Giving a demand ultimatum on the repayment of the debt, the two insisted: “Please, take this as our final demand that you fully liquidate your indebtedness to the Bank by paying the outstanding balance on your account within seven days from the date of this letter.”

The duo further threatened: “Please, note that if you do not pay up the amount outstanding at the expiration of this period, we will be compelled under banking regulations to report the state of your account to the Credit Risk Management System Bureau of the Central Bank of Nigeria.

“In addition, we shall explore all legal avenues to recover the debt, including but not limited to instituting winding up proceedings against your company, this we shall do without further recourse to you,” the GTBank’s letter further threatened.

The Bank might have noticed its gaffe when the enraged and apparently embarrassed customer replied the demand letter for liquidation of indebtedness. In the reply dated August 5, 2008, the customer observed: “We confirm that we have an established banking relationship with GTBank Plc for more than three years now and were recently granted a N700million facility for which we are yet to draw down.

“It was therefore with disbelief and shock that we received your letter purportedly demanding that we repay the sum of N334,120,241.05 within seven days from the date of this letter.”

The customer then cleared the fact that it owed the bank no money by affirming that: “For the avoidance of any doubt, we hereby state categorically that we did not undertake ANY transaction with the bank that relates to the contents of the aforesaid letter.

“We believe that the letter must have been wrongly addressed or an error/fraud committed in/with your bank and hope that you will urgently look into the matter and ensure that our good name and relationship is restored.”

Banking experts their expressed their views on the near recklessness of GTBank’s letter to its customer argued that the Bank was unprofessional in its approach to raising demand for repayment.

“Let’s even assume that the customer was indebted to the Bank, is it not proper that such an obviously high net worth customer be approached informally in person to person discussion to resolve the issue?” the banking expert argued.

“I think that is a better procedure than the official threats contained in the letter. I suspect that something must have gone seriously wrong in the Bank’s operations for such a mistake of identity to have occurred,” the expert observed.

Another expert counseled that this provides another reason for banks’ customers to constantly review their statements of account if need be with accountants and forensic accounting expert.

“This shows clearly that a customer can be wrongly debited through the error or deliberate machination of an insider,” the expert observed.

Jim Ovia, Zenith Bank MD, desperate

Ovia, MD Zenith Bank

Ovia, MD Zenith Bank

Zenith Bank Plc’s Managing Director, Mr. Jim Ovia has reasons to be worried. He is the largest single shareholder of his bank, numbered at 407,232,000 units as at the bank’s year end June 30, 2007. Besides, Zenith Bank profiles subsidiary concerns that are mainly stock market focused. Overtime, Nigerian investors have specially developed an avuncular kind of respect for Ovia for his knowledge of the Nigerian stock market. The Ovia’s cult of investment followers would not, normally, bat an eye lid to place a bet on the performance of the Zenith Bank stock in the stock market.

Now, when the stock market suddenly started on a free fall, it is expected that Ovia should be worried and in consequence of the worries, become desperate as to seek ways of salvaging a snarling market that threatens to negatively affect the usually sterling performance template of Ovia’s banking group’s operations.

It was part of his effort to stem the savagery of the bearish market as it impacts his bank’s stock that Ovia, about three weeks ago urgently rallied stockbrokers to a meeting. The meeting, according to a FORTUNE & Class Weekly source, was intended by Ovia to energise confidence in the Zenith Bank stock by outlining the ongoing strategic direction of his bank to firm up the Zenith Bank stock.

“Mr. Ovia was quite unhappy with the direction the market is headed,” a stockbroker, who attended the meeting, said. “He confessed to us that investors took things to the extreme while investing during the bullish session. He spoke of how people approached his bank for loan to execute some other projects without relationship to the stock market but soon after these loans were disbursed, the people rather than go execute the project, simply headed for the stock market to invest. Things, like this, he told us, contributed to the down-turn in the stock market because investors were investing irrationally. The other result of this is that much of the bank’s fund is locked-in in the stock market,” the stockbroker told FORTUNE & Class Weekly.

Part of Ovia’s Zenith Bank’s stock rebound strategy, is, according to the stockbroker, to give impetus to the newly introduced Federal Government intervention measure of allowing publicly quoted companies to buy back their shares. (Shares buy back restriction has been waived on the recommendation of the 16-man Presidential Advisory panel that was put together to evolve policy measures that may help revive the ailing market.)

Another stockbroker present at the meeting also informed FORTUNE & Class Weekly that Ovia sought the cooperation of the stockbrokers to help drive the market’s rebound.

Zenith Bank stock had fallen from a price high of N51.15k this year to a low of N36.89k. Aside, Ovia’s Zenith Bank singularly leads the frequency of fund raising through the stock market with three public offerings, one in 2004, before the public announcement by the Central Bank of Nigeria of the recapitalization regime of Nigerian banks. And the other two following each other in succession in 2006 and January 2008.

Zenith Bank had at different times straddled the market as the most capitalized company on the Nigerian Stock Exchange.

Some stockbrokers on the sideline were, however, said to have been doubtful of Ovia’s commitment to the share buy back approach. They argued that the commercial banks, in the first instance, were responsible for the panic state the stock market had degenerated to.

“The fact is that the banks related to the stock market as a purely money making platform without any thought of developing the market,” a stockbroker said. “They simply took any advantage presented in the market for profit. I am very sure that this share buy back thing that Mr. Ovia is talking about would be done in a way that may not favour the generality of the market. Some of us think that the banks may actually wait until price of their stocks fall to the very possible flat bottom before they start talking of shares buy back. This will benefit them because they will be buying back the shares at rock bottom price. So who will be favoured, the banks or the investors? The stockbroker queried.

Let the market be (Niyi Akinsiju This Week Column)

As published in the Oct 13, Issue 38. ULD by ol’Victor Ojelabi

What dominated my thoughts all through the slur of last week’s scandalous heehaw of denials of appointment of market makers for the Nigerian stock market and a supposed N600 bail-out, was to simply carry my face, literally speaking, away from official confusion brazenly hoisted on Nigerians by people in government.

That many Nigerian investors nurse a heavy heart in contemplation of the likely consequences of the gathering threat of implosion that may throw into the abyss, their hard earned money, invested, in the first instance, through massive urging by stock market operators and regulators, that had assured of the virility of the market, should be enough to make those in authority respond to issues bordering on matters relating to investment with a stronger sense of official responsibility.

When a number of respected daily newspapers published the story of the appointment of market makers and the N600billion bail-out, a buzz had generated in the investment community. Loud arguments on the impact or otherwise of the bail-out plan all that had commenced in earnest. But it was to last a mere 24 hours. Next morning, newspapers banner headlines announced that the Federal Government, the Securities and Exchange Commission plus the Central Bank of Nigeria had not even pondered the thought of a bail-out. It was an anti-climax, a cold water drenching anti-climax at that.

Yet, I reasoned that Nigerians deserve an explanation, an official explanation for the recklessness. Of course, this has nothing to do with the media houses that published the stories, as a journalist, I should know. The papers quoted sources at the Nigerian Stock Exchange, the story in fact, revolved around the conclusions of a marathon meeting of the Council of the Nigerian Stock Exchange.

It was not enough to simply make a rebuttal of the story, the appropriate authorities should have gone farther to inform the public of an intent at investigating the source of the rumour (as the news turned out) and of course, assure the pensive investing public of the seriousness attached to the investigation. At times like these, information has become sacred and the sanctity of it should not be eroded. In the first instance, it was the lack of credible information and perhaps, more troubling, the inclination for close circuiting that heckled the Nigerian stock market into the awkward state that it had degenerated.

Openness rules the market; it is at the heart of investors’ confidence, the deficiency of which has maligned the status of the market. It is sad that we won’t, in the character of institutional arrogance that had defaced relationships with the public, get to hear anything about the shenanigan that led to the breaking of that news. You can imagine what it would do to investors’ confidence to know the motive and goal of the people that held the meeting where resolutions concerning market makers and bail-out plan were made.

And to think that the Council of the Nigerian Stock Exchange was at the centre of these suggestions should be humbling. Though the SEC had announced it had nothing to do with it, yet, as the apex regulatory authority of the market, I guess the SEC should ask Prof. Ndi Okereke-Onyuike what her intentions were and why she did not get the input and approval of the appropriate authorities before sneaking the resolutions of her Council meeting to the public place.

More rubbish imagination of some funny, less thinking officials would still certainly assail us in these trying times. Policies would be made in the heat of anxiety without the corollary aggregation of the implementation procedure, it is the way of Nigerian aficionados, and the stock market is not insulated from this. The frustration of expecting so much from the policy-measures introduced by the egg-heads that gathered in Abuja these past August 26, is hurting enough. If I have my way, I ‘ll suggest that they just let this market be, and for the good Lord’s name sake, will somebody tell those big people that the one per cent limit on the fall of stock price is doing more harm to the market?

Let the market fall of its free will, it’s a reflection of the opinion of investors of the market and clearly attests to the value the market should be, as all things natural respond, when it gets to the nadir, it will generate an upward drive of its own volition.

I personally can’t fathom the reason for the hysteria that seems to consume everyone about the present state of the market. We all saw it coming, but it suited everybody to chorus the great potential of the market when the run was going good. Turning a recalcitrant deaf ear to the admonition of concerned people that kept reminding us of the manipulations and many under-hand, under-table and a whole regime of under-something deals that were killing the market in instalments.

So, we have a burnt pot of porridge, just too bad, but then, even with the gathering storm of continued conjectures of global capital markets impacting on the Nigerian market, I still dare to insist that if the regulators can be more open in dissemination of information to the investing public, the worrisome situation of the market, can still stabilise. Nigeria and many other African countries are not in the range of the seismic undercurrent, that is at present, rocking the global market; but we can only be assured of our revival if those fiddlers and meddlers in the hierarchy of regulators, can be more discerning.

For the retail investors, many of whom, I understand, had taken flight to cash in hand or the bank, you’re doing something called market timing. It’s an implied statement that you’ve figured out the right moment to get out of stocks and will also know the right time to get back in.

The truth of the situation is simple enough; the right time to move out of stocks was a year or so ago, before various stock indices the world over, fell by one-third or more.

If you missed that opportunity, you’re hardly alone. But if you sell now, you’ll be locking in your losses. And once you’re in cash, there isn’t much upside. In fact, with interest rates low, you’re likely to lose money in cash, because inflation will probably eat up the after-tax returns you earn from a savings or money-market account.

A guarantee of a small loss may sound good right now. But if you’re not bailing out of stocks once and for all, how will you know when it’s time to get back in? The fact is, any peace of mind you gain by being on the sidelines now will turn into a migraine once you see how much you can harm your portfolio over time by missing just a bit of any rebound.

H. Nejat Seyhun, a professor of finance at the Ross School of Business at the University of Michigan, put together a study in 2005 for Towneley Capital Management, where he tested the long-term damage that investors could do to their portfolios if they missed out on the small percentage of days when the stock market experienced big gains.

From 1963 to 2004, the index of American stocks he tested gained 10.84 per cent annually in a geometric average, which avoided overstating the true performance. For people who missed the 90 biggest-gaining days in that period, however, the annual return fell to just 3.2 per cent. Less than one per cent of the trading days accounted for 96 per cent of the market gains.

This fall, Javier Estrada, a professor of finance at IESE Business School in Barcelona, published a similar study in The Journal of Investing that looked at equity markets in 15 nations, including the United States. A portfolio belonging to an investor who missed the 10 best days over several decades across all of those markets would end up, on average, with about half the balance of someone who sat tight throughout.

So moving to cash right now is just fine as long as you know precisely when to get back into stocks (even though you didn’t know when to get out of them).

At some point, stocks will indeed fall enough that investors will remove the money from their mattresses and put it to work, causing prices to rise significantly. But, as Bonnie A. Hughes, a certified financial planner with the Enrichment Group in Miami, put it, there won’t be an e-mail message or news release that goes out when this is about to happen. It will be evident only afterward, on the few days when the market surges.

Expert Decries Bank Charges On Returned Cheques As Illegal

As published in the Oct 13, Issue 38. ULD by ol’Victor Ojelabi

Mr. Ori Adeyemo, a forensic accountant and crusader for streamlined bank charges, has decried bank charges on returned cheques and described the fee deducted from accounts in consequence of returned cheques as illegal.

“It is trite that by virtue of Section 10, subsection of the defunct Central Bank of Nigeria (CBN) Bankers’ Tariff, a bank is allowed to charge N1,000 for a returned corporate cheque whilst debiting N300 for a returned individual cheque (to be borne by the drawer),” Adeyemo said.

“It is also true that by the provision of Section 11, subsection 6 of the subsisting CBN Guide To Bank Charges effective January 01, 2004, a returned cheque attracts 0.5 per cent of amount, maximum N5,000 (to be borne by the drawer).

“In both cases,” Adeyemo argued, “the CBN guidelines stipulate that only the drawer of a cheque should be penalised for a returned cheque and not the supposed beneficiary (who never took value for consideration anyway.) Unfortunately, we all know that this situation is not true in Nigeria as banks whimsically charge both the drawer and drawee for a returned cheque, thereby amounting to double-jeopardy especially for the drawee who never took any benefit.”

Affirming the contradiction in the statutes relating to fees sanctions as a result of returned chques, Adeyemo said: “I must emphasise that the CBN is wrong to have inserted returned cheque fee into the defunct Bankers’ Tariff as well as the subsisting CBN Guide To Bank Charges being in crass breach of the Dishonoured Cheque (Offences) Act of May 20, 1977, which makes it a nullity for the following reasons:

a. That a returned cheque is a criminal offence and not a civil offence.

b. That only the injured party (that is, the supposed beneficiary) has a right to complain about a returned cheque to the Nigeria Police or better still, the Economic & Financial Crimes Commission (EFCC) and definitely not a bank.

c. Returned Cheque Fee is a penalty which only a court of competent jurisdiction can impose on a citizen of the country.

d. No party to a contract can impose any form of penalty/fine on other parties to a contract as doing so is repugnant to natural justice.

e. That a bank has no special or pecuniary interest in a returned cheque being just a clearing vehicle for a deposited cheque.

f. That Section 9 of the subsisting CBN Guide to Bank Charges, clearing of cheque or draft in Nigeria is free. Moreover, no bank can charge any fee for collecting any deposit in Nigeria.

g. That according to the Dishonoured Cheque (Offences) Act of May 20, 1977, upon conviction; an individual is liable to two-year jail term without an option of fine while for a body corporate a penalty/fine of not less than N5,000.

h. Only the Attorney-General of a state (without excluding the Attorney-General of the Federation) has a right of criminal prosecution of a defaulter and definitely not a bank.

i. That Section 25 of the Interpretation Act (which provides that a person shall not be punished twice when guilty of an offence under more than one enactment) shall apply in respect of offences under this act.

j. Since this Section 11.6 of the subsisting CBN Guide to Bank Charges as it relates to a bank charging its customer Returned Cheque Fee is in breach of the Dishonoured Cheques (Offences) Act being a legislation of the National Assembly, the Dishonoured Cheques (Offences) Act will prevail.

“In simple language, I am saying that since a bank is not a party to a returned cheque, then such bank cannot lay claim to it. We should cast our mind to the law of privities of contract wherein it is clearly stated that only parties to a contract can sue for the enforcement of a contract and not even those in whose interest the contract was made,” Adeyemo insisted.

“You will agree with me that the initial beneficiary of a clearing cheque is the bank that went to clear the cheque that should have taken custody value for the drawee but that alone does not give room for the bank to lay any claim on the money since the bank is not the real beneficiary of the fund but just a mere custodian.

“Therefore, I cannot but submit that the present CBN Guide to Bank Charges, is fraught with illegalities to the crass detriment of bank customers thereby allowing banks to smile away at all times, leaving the customers short-changed. In fact, this was one of the issues I had wanted to address in May 2008 at the House of Representatives’ probe of the banking industry until it was fraudulently compromised by the banking cabal working in concert with the then leadership of the House Committee on Banking & Currency.”

Adeyemo argued that on account of the subsisting convention of fee sanctioning for returned cheques, he had been demanding a review of the CBN Guide to Bank Charges: “I cannot but request for a thorough review of the CBN Guide to Bank Charges wherein the opinion of every stakeholder in the industry will be accommodated as against the present one which was drafted by Mr. Jim Ovia, the Zenith Bank Plc Managing Director and so wholesomely adopted by the CBN without any input from the bank customers, thereby skewing the graph in favour of the banking industry.

“In simple words, I submit that it is totally illegal for any Nigerian bank to penalize a customer for a returned cheque, as doing so will translate to the fact that the banks have become laws unto themselves, having illegitimately taken over the job of the judiciary,” Adeyemo submitted.