$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.


The nation’s stock market regulatory authorities and the money market counterparts have said for the umpteenth time that Nigerians need not lose sleep over the crisis wracking the membranes of global financial and stock markets. Of course, those that should know have acquiesced to this persuasion, except with the notification of the caveat of a more resistant strain to market rejuvenation that may likely afflict the Nigerian market for a while.

Ours had commenced a free tumbling in the early days of March, emitting in the initial tentativeness of fall, enough warnings of the Ides of March in the intensity of the momentum it intends to gather on its way down. The nation’s regulators merely talked of an early revival couching the hope of the market come-back on needed correction, the process after which the market will regain its sheen. Seven months after, regulatory authorities’ excuses for a market fall that has become protracted, are still tongue in cheek.

 The market, so far, has lost 35 per cent capitalization year to date, and that’s just by making a review of the All Share Index, fact is that the ASI, rather innocuous basis points, covers the attrition that had blighted some stocks prices.

FirstBank Plc, the doyen of Nigerian banking stock commanded a market price of N50 on 3 March, 2008 but the price as of 23 October was a miserly N23.72. now, that is more than a 50 per cent chunk off the all-time darling of investors. FCMB, FirstBank’s peer in the financial sector, exhibited peak price performance at N20 on 3 March, the stock price was, however, a delinquent N9.66 as of N24 October, showing a 50 per cent plus depreciation.

The rage of the bears is also consuming other once upon a time glamour stocks in other sectors. Food and beverages one-time investors’ delight, Dangote Sugar, is a sniveling picture of its old buoyant self at N19.07 as of 24 October down from N46.60 on 6 March, another 50 per cent wrench to the stock investors. LASACO, a leading light in the insurance sector, has lost all the shine at N1.76 as of 24 October, you can imagine that some investors bought the stock on 6 March at N5.15, I leave the percentage lost to your imagination. Evans Medical was on bid on 6 March when the market committed to it at N14, since then, it has descended the morbid curve to N4.91 as of 24 October, again percentage lost is left for he that knows where the shoe pinches. 

Even as the these stocks cascade in price, Warren Buffet’s primordial logic of buying cheap and selling high is not persuading once excited investors, they would rather look the other way. This, in my consideration, has to do with the confusion in the ranks of regulators. Since March 2008, investors have been assailed with some inconsequential policy measures, said by regulators to inspire market confidence. But no investor seems to dare place his/her faith on the confusing torrents of policies that regulators throw at the market in their condescension of understanding of what ailment afflicts the market but turning the market place into a pariah stage good enough for a nickel melodramatic performance. 

  The truth of present reality is that investors, veterans, old and neophytes, have lost confidence, and, if I dare say, absolutely, in the market and those that are responsible for managing it. Which investor wants to bother with the panacea of regulators that say one thing in the morning only to throw incomprehensible tantrums of the truth of the policy the afternoon of the same morning?

The market lacks a conscience in the mold of an individual regulator that investors believe is willing and ready to mitigate the hell storm that envelops the market. A regulator or collective community of regulators that are respected for their depth and selflessness, these are the individuals we require at this moment in the travails of the market.

My take, however, aligns with veteran Buffet. It cost N5million to acquire 100,000 units of FirstBank in March this year, some seven months after, it is just about N2.3 million to acquire the same stake in the storied stock, on the face of it, this is a great bargain. But only if one is sure of those regulators and their double speak.

The Nigerian macro-economic environment has given a good account of itself, holding steady in the face of the traducing of the global economy, this should be encouraging, but again, all things are not certainly equal here, there is so much suspicion of regulators and to an extent, some influentials in government. I do not think much can be achieved in market revival until investors see that some people who had actively contributed to the racy speed to a yet to be identified southward destination of the market, either by their actions or lack of it, are removed.  

But while we wait, I look forward to when the market bottoms out, hoping that this forsaken one per cent limit to downward movement of stock price is removed by those regulators, and pray fervently that luscious 100,000 units of luscious FirstBank, among other great picks, can be mine for a million naira. That would be the day. I am willing to go in before the band of down time pessimists and make their entries.