$8m Foreign Investment Drives FCMB’s Stock Price: Other Banks Consider Share Buy Back

Though it has not been formally announced, authoritative sources close to First City Monument Bank have informed that despite global economic downturn that have witnessed foreign capital fleeing Nigeria in particular, a foreign investment firm may have injected $8 million dollars into the bank.

The sources explained that as soon as the capital injection was made into the bank, the management deployed part of the investment in the Stock Exchange to burnish the position of the bank in the market. Market experts that have been monitoring the volume and price activities of the FCMB stock in the market observed, a stable range of trading for the FCMB stock over the last two weeks compared to the free fall of many banks’ stocks.

The FCMB stock closed at N4.25kobo at the end of the trading session on Monday, 19 January, 2009, gyrated upward to N4.28 kobo the following Tuesday and despite losing marginally through the sample week to the following week, experts asserted that it must be the strong liquidity position of the bank that helped support the stock price to throttle in the stable region of N4.12kobo.

On the sideline of the stock market, Fortune&Class Weekly has been informed that most banks have started giving serious consideration to one of the market revival solutions that allows listed companies to buy back their shares.

In the face of the desperate decline of stock prices, there are indications that listed commercial banks are giving serious consideration to buy back as an option to drive their individual stock price. The strategy, according to a market operator close to banking sector decision makers, dedicated funds would be channeled to stocks by individual banks that are yet to be named:

“The expectation is that the increased liquidity will drive the prices of the banks’ stocks up and since banking stocks constitute more than 60 per cent of total market capitalization, signs of rebound would clearly show in the market and this will encourage other categories of investors to come to the market to participate,” the operator, who does not want to be identified, said.

Meanwhile, an official of International Finance Corporation (IFC), has said that the emerging markets like Nigeria will likely remain a viable alternative for private-equity investors seeking returns during the deepening global financial crisis.

“Emerging market economies are expected to still expand in 2009,” said David Wilton, manager for private equity and investment funds at the IFC, the World Bank’s private sector arm. “As a result, the private-equity investment model in emerging markets, based mainly on revenue growth and margin expansion, “remains intact,” he said.

“The growth is going to be lower, but it is still going to be there, and enterprises are going to be largely compensated, so you still have a very viable business model” in emerging markets, Wilton told Reuters in a recent interview.

Emerging markets will be the alternative for many private-equity investors who had focused on the now-defunct Leveraged Buyout Sector (LBO), he added. The LBO market collapsed in September, when banks became unable to keep funding such deals, and analysts see no quick comeback.

Fund raising for new private-equity projects in emerging markets is also frozen, and should remain so for at least the first half of the year, according to Wilton.

While profitability has also been hit, private-equity funds backed by the IFC posted average returns of 16 per cent in 2008, below the 22 per cent average seen in July, Wilton said.

“Risk aversion has gone up enormously, partially because nobody has seen this before. Everyone is trying to figure out what is happening and what to do,” he said.

But eventually, Wilton argues, risk aversion will diminish and liquidity problems will be sorted out. And, if emerging markets are not decoupled from developed markets, they are still in better shape to weather the crisis, he said, mentioning opportunities in countries such as India and Vietnam, as well as the African continent as a whole.

“I think some people thought the correlation (between emerging and developed markets) was much closer to zero than it really is. And now they think it’s much closer to one than it really is. But it is somewhere in the middle,” he said.

The IFC has about $1-billion invested in about 100 emerging market funds, more than 80 per cent of which are private equity. The institution supports the private sector with funds and expert consulting, in order to foster growth in developing economies.

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