Investigation Reveals Where Bank Loans Went Bad

A Fortune&Class in-house panel of experts has, after a review of the bad loans accrued to the five banks currently under the Central Bank of Nigeria’s direct supervision, submitted that the Federal Government holds largest liability in repayment to the banks. The committee of experts nonetheless observed that the figures made public by the CBN also affirmed that the affected bank officials must have been heavily involved in unethical manipulation of the stock market even as the panel agreed that the banks, indeed, tried to play their economic role of financial intermediation by providing a big chunk of their facility for real sector activities.

The conclusions of the panel’s review may put the lies on the generalized opinion prevalent in the public place of the bulk of the five banks financing going into loans for stock market trading and the importation of petroleum products.

The panel reports that 51 per cent of the N747,000,000,000 alleged bad loan, approximated at N375,487,000,000 was given out by the banks to the real sector. The classification of the real sector, in the consideration of the panelists includes activities in construction, manufacturing, imports of raw materials for industries, farming and telecommunications.

Interestingly, the panel reports that a mere 22 per cent of the N747billion bad loan aggregated at N163billion can be attributed to the stock market while N218billion, about 27 per cent of the bad loan has been tracked to have been borrowed by players in the oil and gas sector.

The Case For Union Bank

Taken on individual profiling, Fortune&Class panelists submit that the sanctioning of Union Bank managing director should raise questions because of the five banks under the CBN’s thumb, Union Bank’s hope of recovering its bad loan is more assured because the bulk of the bad loans atissue are facilities given to entities in the real sector.

Of the total N73.582billion bad loan attributed to Union bank N66billion summed up to be loans to the real sector. The bank’s only stock market related bad loan is the N1,291,737,218 granted to GMT Securities.
In the same vein, the bank’s only outstanding to the oil gas sector is the N6,251,658,228 taken by Zenon Oil and Gas. Panelists argue that Zenon has a higher likelihood of paying up because of its track record in the oil and gas sector.

It is not, however, a shared optimism, as in the hope of recovery of the bad loan from a company like Femi Otedola’s owned Zenon when compared to the N28.5billion Oceanic Bank is expecting Rahmaniyya Global resources, a company in the petroleum products marketing sector, to repay it.
Rahmaniyya’s operations are reportedly hampered at the moment.

Crosscheck of operations at the Apapa depot of the company shows that not much activities are going on there. A senior staff of the company confides that operations have been hampered because of the company’s huge indebtedness to banks. The official took time to protest that the company’s situation became bad because an appreciable percentage of the loans secured at commercial banks were usually given out as kick backs to officials of the banks where the loans originated from.

Where Oceanic Bank May Lose Out

As a stand alone, Oceanic Bank’s loans are locked into the real sector, that is about N122billion of a total N278.2billion. The worrisome aspect of the bank’s bad loan portfolio, as it were, would be the N56billion exposure to the stock market. This figure aroused much concern because just six companies, as recorded, were found worthy enough to enjoy margin loan from the bank. The panelists reasoned that what the figures suggest is that officials of the bank merely decided to employ the services of this small number of stockbrokers to help it exploit the stock market.

The panelists also submit that the larger percentage of Oceanic Bank’s expected repayment from the bad loans tracked to the oil and gas sector of about N100billion hold no prospect of recovery in consideration of the track records of most of the entities that secured the loans.

Intercontinental Bank shares the same fate that may befall the recovery efforts of Oceanic Bank. With N34billion outstanding from just seven stock-broking houses most of which have continued to dispute the figures in the public domain.

Bad Loan Recovery Challenges For Intercontinental Bank

As in the case with Oceanic Bank, all of the brokerage houses involved have protested that the loan accounts were opened jointly with the banks. Some even complained that they never received any cheque book on the account that was in the joint names of the brokerage house and the bank.

In different letters of protest forwarded to the banks, some of these brokerage houses had hinted at being asked to engage in stock market manipulation by the bank. One of such protest letters written and forwarded to Intercontinental bank which Fortune&Class got a copy, reads:
“…Your bank also included clauses in the contract that gives you the sole right to decide which stock can be purchased and when such can be sold. The records presented to us even show that some of the shares purchased with the margin loan included the stock of your bank.”

The letter from the lawyer tells of more worrying aspects of the margin loan where it notes that:
“Our client mentioned the fact that they never solicited the loan but rather your bank approached them with the offer of the loan…even as their accounts were debited for the processing and management fees for the transaction before they had even had any opportunity to review or sign the offer letter.”
For our panelists, it is issues like these that may stunt efforts to recover the bad loans for Intercontinental Bank. This is besides the crisis of the Federal Government non-payment of petroleum products subsidy differentiation to oil marketers that secured a large part of the N79billion loan that was used in importing petroleum products into the country.

‘Afribank played big in the Stock Market…sure to lose big’

Not even the EFCC Chairman can yet fathom how the five companies that Afribank granted about N60billion to trade the stock market, would pay back their exposure in the current lacklustre stock market.

Whose interest was the bank management advancing by farming out the huge sum of N60billion to just five entities? Again, it is believed that the bank played big in the stock market to forward its interest. “That N60billion cannot be recovered in the short term,” one of our panelists said.

Finbank Liberal Lending Policy

Of the five embattled banks, Finbank Plc profiles a liberal lending culture. Though we can’t say for certain how the loans were collaterised, the fact of farming out its loan to a larger number of borrowing entities compared to other banks in the bad loan quagmire, suggests that recovery of debt may be easier Finbank.

The bank’s total non-performing loans as calculated by the CBN is approximated at N42.4billion. Of this, about N15billion was borrowed out to 83 operators in the real sector. This is just as the total sum of N11.1billion bad loan accruing from stock market activities, was granted to nine entities with the highest calculated to still owe about N3billion.

The same liberal lending policy shows in the figure of the loans repayment of N14billion from 17 entities in the oil and gas sector.

The Sector That Is Sure For Repayment

Our panel of experts are of the opinion that bad loans accrued in the real sector may easily be recovered because of the quality of collaterals that would have been provided before approval to draw down. This, however, excludes any insider related dealings.

Compared to loans to the real sector, recovery of bad debts accrued from stock trading activities may be considered hopeless in consideration of the state of the Nigerian stock market, the macro-economic environment and the harsh realities of the global economic meltdown. The collaterisation of loan assets in margin loan is linked to securities purchased, the lender is, however, supposed to dispose of with the securities in the open market when prices go below an agreed threshold. But it turned out that these banks didn’t effect the power of cashing the securities by selling off when the prices of the securities slid below the agreed threshold. Thus, the lenders are left with collaterised securities that are way below the worth of the loans.

Same is the extant downside of the oil and gas sector. With consistent sliding petroleum product prices and the unwillingness of the Federal Government the only buyer of petroleum products in Nigeria, to pay up the difference between the landing cost of petroleum products in the country and the price at which the marketers are mandated to sell to retailers, the expectation of bad loan recovery from the entities in these sector may be challenging.

Who Is Paying Up

The Economic and Financial Crimes Commission has said that it had so far recovered a sum of N25.5billion out of the N1.143 trillion of total non-performing loans of the five banks.

The break-down of recovered debt and the banks are as follows; Intercontinental bank N7, 736, 571, 744.19; Finbank.N1, 590, 417, 332.05, AfribankN7, 551, 121, 378.69, Oceanic bankN8, 033, 481, 868.65; Union bank N659, 240, 400.78.

Executive Directors Took N5bn Unsecured Loans Each

More troubling revelations have continued to emerge from the banking industry in the wake of the sack of five bank chiefs and members of their senior management cadre. Some top banking industry staff have started talking of the justification of the action of the Central Bank of Nigeria’s Governor, Sanusi Lamido Sanusi to sanction the affected bank chiefs and their senior management cadre because of their connivance to fleece the bank.

Specifically, the entire management board of one of the banks is said to being investigated by the CBN to ascertain how each Executive Director got approval of N5billion loan facility.

IBRU FAMILY RECRUITS SENATE LEADERSHIP, PRESIDENT’S WIFE TO SAVE CECILIA

The Ibru family reportedly threw all its influence and moneyed privileges into the battle to mitigate the public embarrassment of Mrs. Cecilia Ibru, sacked Managing Director of Oceanic Bank and wife of the patriarch of the Ibru’s clan, Olorogun Michael Ibru.

Details emerging in the wake of the sudden appearance of the erstwhile Managing Director of Oceanic Bank at the office of the Economic and Financial Crimes Commission (EFCC) last Wednesday, indicate that the wife of the Chairman of the Ibru organization was advised to beat a tactical retreat to allow the family deploy its massive goodwill in the nation’s political arena to stave off the prospect of an embarrassingly long detention for Mrs. Ibru by the EFCC.

Knowledgeable insiders to the horse trading that led to the eventual emergence of the woman fondly revered as the Nigeria’s first lady of banking, confided in Fortune&Class Weekly that the Ibru family pulled all the plugs through the Senate and the Presidency to get certain assurances from the EFCC before Mrs. Ibru was given the green light to submit herself at the EFCC.

“Seriously, we have only heard about the ingenuity of the Ibru family in making money, but I was a witness to another aspect of their lives these past days when I experienced their ability to move around and lobby office holders to intervene in the roiling crisis that had claimed one of their own, Mrs. Ibru. It’s not as if you saw any of the Ibrus physically, but there were many people lobbying on her behalf especially at the Senate,” the source said.

“You know, the second day after the Governor of the Central Bank of Nigeria, Sanusi Lamido (Sanusi) made those earth shaking pronouncements about sacking five bank chief executives, the President left the country in company with his wife, Turai. The next level of authority, in the real sense of it, at that time, was the Senate. And it was to the Senators that the Ibru lobbyists took their battle to get political pressure to be applied on the EFCC boss to provide lighter treatment and shortened detention for Mrs. Ibru. The fulcrum of the argument of the lobbyists is that the Central Bank of Nigeria was making a mountain out of a mole hill by its decisions to sack the bank managing directors and their arrest by the EFCC.

“The lobbyists pleaded with the leadership of the Senate to prevail on the Chairman of the EFCC, Mrs. Farida Waziri, to make a commitment to making Mrs. Ibru’s detention before taking her to the court as short as possible.

“Of course, they got sympathetic ears in the Senate. The Senate leadership made overtures to the Chairman of the EFCC who insisted that Mrs. Ibru must first surrender herself to the anti-grafts agency before she could determine the next step.

“Hajia Binta Turai, wife of President Umar Yar’Adua also played a peripheral role in the Ibru EFCC saga. Two of the first lady’s friends were drafted to talk to the EFCC Chairman to provide a soft landing for Mrs. Ibru, the source said.

Mrs. Ibru had, as part of her battle to stop her arrest and detention, dragged the Central Bank of Nigeria and its governor, Sanusi Lamido Sanusi before a Federal High Court in Abuja over her compulsory removal from office, demanding the sum of N50 billion for “exemplary, punitive and aggravated and general damages.”

The EFCC, however, declared Mrs. Ibru and Mr. Erastus Akingbola of Intercontinental Bank wanted on Sunday, 23 August, after failing to honour invitations for interrogation, sequel to their sack on August 14 along with three other bank MDs, Mr. Sebastine Adigwe of Afribank, Okey Nwosu of Finbank and Bartholomew Ebong of Union Bank.

A statement issued by EFCC Head of Media and Publicity, Femi Babafemi, explained that Ibru and Akingbola “are wanted in connection with fraudulent abuse of credit process, insider trading, capital market manipulation and money laundering running into billions of Naira.”

Investigation Reveals Where Bank Loans Went Bad
A Fortune&Class in-house panel of experts has, after a review of the bad loans accrued to the five banks currently under the Central Bank of Nigeria’s direct supervision, submitted that the Federal Government holds largest liability in repayment to the banks. The committee of experts nonetheless observed that the figures made public by the CBN also affirmed that the affected bank officials must have been heavily involved in unethical manipulation of the stock market even as the panel agreed that the banks, indeed, tried to play their economic role of financial intermediation by providing a big chunk of their facility for real sector activities. (read more)

Geofluid Private Placement: The Scandal In The Making

MD, Oceanic Bank Plc

A big row is in the making over the private placement of Geofluid, a small-time, highly indebted oil company that was dusted off and burnished for presentation to the public by Oceanic Bank which packaged and acted as one of the issuers to the private placement exercise of the company.

Recall that Fortune&Class Weekly had raised the alarm over the magnitude of indebtedness of the company and had highlighted the apparent fact that the private placement was, in fact, packaged and issued by Oceanic Bank to recover debt owed it by Geofluid.

On the whole, it was a bad buy for many investors that were deceived into buying into the company through the private placement. But now, some more sinister allegation of financial engineering are being raised by concerned industry experts and investors in the placement. They claimed investigation is ongoing.

OFFSHORE FINANCING: NIGERIAN BUSINESSES FUNDED THROUGH US EX-IM BANK

Ex-Im Bank offers a range of financing solutions for Nigerian buyers as part of the US Government programme to expand trade between the United States and sub-Saharan African countries. These programmes offer Nigerian businesses increased access to working capital, while protecting their United States’ suppliers against commercial and political risk, and the ability to offer financing on competitive terms.

Using Ex-Im Bank’s medium-term insurance policy, RZB Finance LLC insured the sale of newspaper printing press equipment worth $2.8 million. This deal allowed Vanguard Media Ltd of Nigeria to purchase the equipment from Webleader International Inc.  Fidelity Bank in Nigeria guaranteed the transaction.

Impex of Doral, Inc. located in Miami, Florida, was able to sell disposable products valued at $100,000 to its customer, Everyday Supermarket Ltd of Nigeria. A multi-buyer, small business insurance policy was approved in April, 2006 by Ex-Im Bank in order to support this transaction.

Via a bank letter of credit policy, Sovereign Bank of Boston, Massachusetts was able to accept a letter of credit from First City Monument Bank Plc of Nigeria on behalf of Balog Technologies, Nigeria for the purchase of computer components and peripherals.  This transaction, approved in April, 2006, supported this sale valued at $250,000 by Max Group Corp. headquartered in Los Angeles, California and ASI Corp of Fremont, California who supplied the equipment.

DWD International Ltd of Houston, Texas through the use of Ex-Im Bank’s multi-buyer, small business insurance product was able to execute a deal with its customer, Intercontinental Bank, Plc of Nigeria.   This transaction, approved in April, 2006, supported the sale of an air conditioning system valued at $250,000.

Through Ex-Im Bank’s letter of credit policy, Sovereign Bank of Boston, Massachusetts was able to accept a letter of credit from Intercontinental Bank of Nigeria.  This allowed the sale of a dredge valued at $593,000, from Baltimore Dredges, located in Baltimore, Maryland to its customer, Dynamic Energy and Marine in Nigeria.  This transaction was approved in May, 2006.

Via an Ex-Im Bank multi-buyer, small business insurance policy, House of Cheatham located in Stone Mountain, Georgia, was able to sell $100,000 of health and beauty aids to CITEX Holdings Ltd of Nigeria.   This transaction was approved in May, 2006.

Ex-Im Bank approved a request from Sovereign Bank, Boston, MA, for a five-year, medium-term guarantee in the amount of $5,000,000 to support the sale of transportation equipment to Sonic Global Resources Ltd, a company located in Nigeria. This shipment of buses will be used to start the first public transportation service in the country’s capital city of Abuja. The primary source of repayment will be Oceanic Bank who has provided a local bank guarantee for this transaction.

Through Ex-Im Bank’s short-term, multi-buyer comprehensive insurance policy, ABRO Industries, Inc. of South Bend, Indiana was able to execute a deal with its customer, Coshcharis Motors Limited of Nigeria.  This transaction, approved in June 2006, supported the sale of new ABRO branded automotive/industrial supply products valued at $10,000,000.

Via an Ex-Im Bank multi-buyer, small business insurance policy, House of Cheatham located in Stone Mountain, Georgia, was able to sell $100,000 of health and beauty aids to Kuddy Cosmetic International of Nigeria. This transaction was approved in July 2006.

Through Ex-Im Bank’s letter of credit policy, Sovereign Bank of Boston, Massachusetts was able to confirm a letter of credit from Intercontinental Bank Plc of Nigeria.   This transaction, approved in May 2006, supported the sale of wheat and other grains valued at $10,000,000 to Intercontinental Bank’s clients, Flour Mills of Nigeria; Honey Wells Flour Mills Ltd and Unikem Industries Ltd by of Wayzata, Minnesota and Wilton, Connecticut, respectively. Cargill and Louis Dreyfus.

Through Ex-Im Bank’s small business multi-buyer insurance policy, Bluefield Associates of Ontario, CA was able to execute a deal with its customer, Diplomat Investment Products of Nigeria.  This transaction, approved in October 2006, will support the sale of cosmetics and toiletries valued at $100,000.

Through Ex-Im Bank’s short-term single sale policy, Robert & Pat Engineering of Newtown, PA was able to execute a deal with its customer, Coastal Equipment Sales Ltd of Nigeria.  This transaction, approved in November 2006, supported the sale of used trucks and heavy construction equipment valued at $45,000.

Through Ex-Im Bank’s letter of credit policy, Sovereign Bank of Boston, Massachusetts was able to confirm a letter of credit from Intercontinental Bank Plc of Nigeria. This transaction, approved in November 2006, supported the sale of a hydraulic crawler crane valued at $275,000 to Onne Port in Nigeria, by Pioneer Equipment Company.

Through Ex-Im Bank’s short-term multi-buyer comprehensive policy, Bondo Corporation of Atlanta, GA was able to execute a deal with its customer, Tagbo Technologies Ltd of Nigeria.  This transaction, approved in November 2006, supported the sale of automotive paint and after market products valued at $200,000.

Under the recently established $300 million Nigerian bank facility, Ex-Im Bank approved a request from M&T Bank, Baltimore, Maryland for a five-year, medium-term guarantee in the amount of $3,954,132 to support the sale of a thermal oil recovery system to Specialty Drilling Fluids Ltd., a company located in Nigeria. The primary source of repayment will be Access Bank Plc. The exporter is Brandt, of Houston, Texas.

Ex-Im Bank approved a request from Diebold Global Finance Corporation, Canton, Ohio for a five-year, medium-term guarantee in the amount of $5,000,000 to support the sale of Automatic Teller Machines to The ATM Consortium Ltd – a consortium of Nigerian banks. Under the recently established $300 million Nigerian bank facility, Diamond Bank Plc guaranteed this transaction.

Ex-Im Bank renewed a $10,000,000 short term single buyer policy for Abro Industries of South Bend, Indiana to sell automotive/industrial supply products to its customer, Coscharis Motors Ltd. of Lagos, Nigeria.  This comprehensive policy is used to support sales to Coscharis for its Nigeria, Ghana and Ivory Coast subsidiaries and was approved in November 2006.

Under the $300 million Nigerian bank facility, established in 2007, Ex-Im Bank approved a request from HSBC Bank of London for a five-year, Medium-Term Comprehensive Guarantee in the amount of $9,337,522 to support the sale of oil drilling equipment to Drillog Petro Dynamics Ltd., a company located in Nigeria. Diamond Bank Plc guaranteed this transaction and would be the primary source of repayment. The U.S. exporter is Halliburton Energy Services of Houston, Texas.

Through Ex-Im Bank’s Multi-buyer Small Business Policy, House Of Cheatham of Stone Mountain, Georgia was able to execute a deal with its customer, Kuddy Cosmetic International of Nigeria This transaction, approved in November 2006, supported the sale of health and beauty aids valued at $150,000.

Through Ex-Im Bank’s Letter of Credit Policy, Citigroup Global Projects of New York, New York was able to establish a $2,500,000 short-term credit limit with Intercontinental Bank Plc of Nigeria. This credit line enabled Citibank to confirm letters of credit issued by Intercontinental Bank, which will go to support the sale of various U.S. goods and services to multiple Nigerian buyers.

In April, 2007 Ex-Im Bank provided short-term insurance policy to Impex of Doral, Inc. of Miami, in support of their sale of disposable products valued at $100,000 to Everyday Supermarket Limited of Lagos, Nigeria.

In April, 2007, Ex-Im Bank approved a request from Sovereign Bank of Boston, MA for a five-year, medium-term comprehensive guarantee in the amount of $1,630,028 to support the sale of two Dragon Series Dredges to H S Petroleum, a company located in Lagos. There were several corporate guarantors on this transaction. The U.S. exporter is Baltimore Dredges, LLC of Baltimore MD.

Xechem Pharmaceutical Nigeria Limited of Abuja, Nigeria received pharmaceutical manufacturing and laboratory equipment from several U.S. suppliers including American Plastics Technologies, Inc. of Shiller Park, IL, Fisher Scientific Company of Suwanee, GA, and the Nitra Group of Aventura, LF. This $9,389,000 loan was supported by a guarantee from the Bank PHB of Lagos, Nigeria, and the loan was provided by UPS Capital Business Credit of Hartford, CT. Ex-Im Bank provided a five-year comprehensive guarantee to the lender.

Through the use of an Ex-Im Bank medium-term loan guarantee, HSBC Bank Plc of New York, was able to provide financing to its client, A. O. IYERE Motors & Co, Ltd of Nigeria. This transaction, approved in June 2007, supported the sale of used Mack trucks and spare parts valued at $1,500,000. Capital Trailer & Equipment Co, Inc, located in Montgomery, Alabama was the supplier. This transaction was supported by a guarantee issued by Union Bank of Nigeria, under the recently established Ex-Im Bank Nigerian banking facility.

Ex-Im Bank approved a request from UPS Capital of Windsor, Connecticut, for a five-year, medium-term guarantee in the amount of $11,000,000 to support the sale of petroleum refining equipment to Amakpe International Refineries Nigeria.  The primary source of repayment will be Sterling Bank of Nigeria.  The U.S. exporter was Ventech Engineers Inc., of Pasadena, Texas.

Ex-Im Bank approved a request from HSBC Bank Plc of New York, New York, for a five-year, medium-term comprehensive guarantee in the amount of $13,117,330 to support the sale of advanced Logging While Drilling (LWD) technology and equipment to Drillog Petro Dynamics Ltd., a company located in Nigeria. Diamond Bank PLC of Nigeria issued a local bank guarantee to support this transaction.  The U.S. exporter was Halliburton Energy Services of Houston, Texas.

Through Ex-Im Bank’s Multi-buyer Small Business policy, Olson Inspection Services Inc of New Orleans, Louisiana executed a deal with its customer, Chevron Nigeria Ltd. This transaction supported the cost of inspection and consulting services valued at $1,000,000.

Via an Ex-Im Bank Multi-buyer Small Business policy, Strength of Nature LLC of Savannah, Georgia was able to sell $20,000 of cosmetics and hair care products to Kuddy Cosmetics International, Ltd in Nigeria.

Through the use of an Ex-Im Bank Medium-term Loan Guarantee, M&T Bank of Buffalo, New York was able to provide financing to its client, Karlflex Fisheries of Nigeria. This transaction supported the sale of three used fishing trawlers valued at $2.6 million, Mr. Vic, Incorporated located in Bayou, Alabama was the supplier. This transaction was supported by a guarantee issued by AfriBank, Nigeria under the Ex-Im Bank Nigerian Banking Facility.

Under the established Nigerian Bank Facility, Ex-Im Bank expedited the approval of a request for a Medium-term Loan Guarantee to First National Bank of Omaha.  The financing from First National Bank of Omaha supported the purchase of 45 used Mack trucks in the amount of $3.4 million by Roadmarks, a company located in Nigeria. Zenith Bank provided a local bank guarantee on this transaction and is the primary source of repayment. The U.S. exporter was Global Truck and Equipment Information of North Miami, Florida.

The Pioneer Equipment Company of Jacksonville, Florida exported $3,030,762 worth of new and refurbished rock crushing equipment to Japaul Oil & Maritime Services, Plc in Nigeria.  Assured through Ex-Im Bank’s Medium-Term Loan Guarantee policy, Sovereign Bank lent the money to Japaul Oil & Maritime Services’ bank, Intercontinental Bank PLC of Nigeria, was the guarantor.

Ex-Im Bank guaranteed a medium-term loan for $321,499 to purchase communication broadcasting equipment.  Electronics Research, Inc of Chandler, Indiana and BSW of Washington, DC exported the equipment to Megalectrics, LTD of Nigeria.  M&T Bank lent the money to Megalectrics with Diamond Bank, PLC of Nigeria as the guarantor.

Ex-Im Bank guaranteed a long-term loan that involved over 16 suppliers.  The $19,634,327 transaction allowed the suppliers to export an aluminum can manufacturing facility to GZ Industries of Nigeria.  Fidelity Bank, Nigeria, provided a local bank guarantee to support HSBC’s loan.

Shock Treatment At Oceanic Bank ATM

It was not a palatable experience for customers of Oceanic Bank, Toyin Street, Ikeja branch, in December when the bank’s automated teller machine (ATM) decided to give customers the ‘shock treatment’ as yuletide gift.

Of course, many customers had to stylishly and sensibly retrieve their cards to avoid possible electrocution.

However, we are glad to inform all concerned that the technical fault that led to that shocking experience has since been rectified.

But really, what could cause such? It then advisable to wait for the green light from the security-person before attempting using one.

OCEANIC BANK, BANK PHB AND STERLING BANK GET CBN LIFELINE

L-R: Cecilia Ibru, Oceanic; Francis Atuche, BankPHB; Yemi Adeola, Sterling

Nigeria’s version of the global credit crunch might have crystalised into a reality that may not be easily wished away. Reports from sources inside the Central Bank of Nigeria asserted that three banks in Nigeria have been given lifelines to shore up their liquidity standing. These banks according to the source are; Oceanic Bank Plc, Bank PHB and Sterling Bank. With the exception of Sterling Bank that secured a N90billion lifeline, the other two got N100billion funding in what banking industry analysts said is akin to a financial bailout for the banks.

This is coming on the heels of a meeting of chief executives of banks held on Tuesday, 15 October 2008. The high point of that meeting was the decision by the banks’ chief executives to formally request the Federal Government to intervene in the nation’s financial sector to forestall the effect of the ongoing global financial crisis on the system.

The committee of banks chief executives also agreed at the meeting to request the Federal Government to intervene in the nation’s financial market through a package of measures similar to those introduced in developed countries and that the Central Bank (CBN) should continue to support the interbank money market.

Reports indicated that the bankers would have preferred the United States of America and Europe’s option where government directly intervened to inject funds into selected crisis ridden banks and, in some cases, nationalizing the financial institutions that were strategic to the main-stream banking public but whose liquidity profile had become moribund.

Sources inside the Central Bank of Nigeria informed that the CBN Governor rather opted for the fiscal management approach. The CBN, had, before the meeting of the banks chiefs, granted the banking industry a concession through a circular directive of October 2, 2008 to restructure some of their capital market exposures to December 31, 2009. Interpreted, this concession allows banks not to make provision for non performing loans and other facilities that had gone into the nation’s capital market that had taken a dive for the deeps since March, 2008.

“Apparently, the concession was not enough to stave off the simmering threat of illiquidity banks were experiencing.” The CBN source said. “In response to the appeal of the banks chiefs, the CBN offered the option of an expanded discount window operation. The key elements of the expanded discount window operation provided the opportunity for banks that need to assuage their liquidity problems to use short term financial instruments, like overnight standing facility, treasury bills, federal government bonds and non-federal government securities as collateral to secure long term funds from the CBN. You know the CBN conducts liquidity mop up of the money market by selling treasury bills and also sell bonds to financial institutions, normally, treasury bills are due in 30 days while bond are due in period ranging from 90 days to 180 days. Now, to help the liquidity problems in the banking sector, the CBN, with the expanded discount window, allows the banks to present these short term instruments which the CBN will use as collateral to provide funds for them for repayment period of 365 days.” The source explained.

This option does not seem to have been effective, the Nigeria Inter Bank Official Rate, the rate at which banks lend themselves money, have continued to increase, spiking to as high as 21 percent last week. This may not be unconnected to the fact that just a few banks are in the position to lend money to needy banks. Fortune&Class Weekly reported last week that many banks chief executives continued to troop to First Bank Plc, to negotiate and secure funding to keep their operations going.

WONDER BANKS DEPOSITORS REFUND…CBN WAITS ON 17 RECEIVING BANKS FOR PAYMENT

The Central Bank of Nigeria has commenced the final processes to refund sums of money deposited by investors in pyramid schemes operating as fund managers that had, since July this year, declared as illegal fund managers by the Investment and Securities Tribunal (IST).

The CBN had in a letter of 15 October, 2008 signed by T.A Ikuyeju on behalf of the CBN’s Director of Banking Supervision, had given 17 commercial banks a maximum seven days, last week, Wednesday 22 being the last day, to forward to it (CBN) the account details of 28 companies now referred to as wonder banks.

The details of the account requested by CBN to assist it determine the status of all the investors’ fund according to the memo include the account numbers, number of accounts held, branches they were opened, names and addresses of the signatories to the accounts, the balances as at 4/12/07; 31/12/07 and 30/9/08.

The 17 Banks which also include a non banking financial institution that were listed as being repositories of funds from the wonder banks are: Access Bank, Diamond Bank, ETB, First Bank, FinBank, Guaranty Trust Bank, Stanbic IBTC, Kakawa Discount House Limited, Oceanic Bank, Sky Bank, Spring Bank, Sterling Bank, Union Bank, United Bank for Africa, Unity Bank, Wema Bank and Intercontinental Bank.

However, the prospect of a speedy verification of investors’ status by the CBN may be limited by the ability of the commercial banks to forward the account details of the wonder banks to the CBN as directed.

A source in the CBN told FORTUNE & CLASS Weekly by Thursday last week that about ten of the commercial banks were yet to properly hand over the details as required.

“Though we have not yet started in-depth analyses of the details the banks have sent to us, our preliminary review shows that most of the details are not updated as we required, which may slow down our job.”

The source informed that the CBN is willing to quickly dispense with the refund to depositors in view of the CBN Governor’s empathy with unfortunate investors that had their money tied down in the wonder banks.

While sounding optimistic of the capacity to conclude the verification within the shortest possible time, the source, nonetheless, explained that many depositors in wonder banks may not be able to get a refund of their deposits.   

 “The officials that sieved through the claims of wonder banks submitted to the inter-agencies committee set up by the government to receive petitions and claims by Depositors earlier in the year found that many of the depositors, in fact, deposited their money through agent investment schemes that were not among the 28 that the IST froze their accounts in December, 2007. For this category of depositors there is little the CBN can do to refund their money because their claims and the details available with the CBN will not match.” The source said.

Besides, the source further warned of the possibilities of confusion arising from the mismatch of details forwarded to the inter-agencies committee by depositors and those available to the CBN through banks and the wonder banks operators.

“I think it is important that depositors track the operators so that they can help them put their documents together properly. This is to enable them (depositors) present reasonable explanations to the officials that would handle the verification if it turned out that there were mix-ups in the details like names, dates deposits were made, bank branches payment were made and the authenticity of the receipts they collected after submitting their tellers to the wonder bank operators. The fact is that we have realized that there are different receipts for same transaction types for some particular wonder banks.” The source confided.

Wonder banks had flourished over a period of three years up till about November last year on the tempting offer of making more than 500 percent returns of deposits to participants in what investment experts describe as pyramid schemes clothed in exotic investment propositions like Forex Trading, Fixed Odd Betting and hedge fund investment.

Most participants in the schemes were persuaded of the legitimacy of the schemes because the operators presented the scheme as a joint venture between them (wonder banks) and commercial. Mostly, a participant was required to pay directly into a designated bank account in the name of the wonder bank domiciled with a reputable commercial bank, usually with a customized teller.

The Securities and Exchange Commission had, in response to public outcry when the wonder banks started failing in their payment dues, usually qualified as profit on deposit in an operational week, clamped down on their operations and instituted a suit against them in November 2007, accusing them of soliciting, advertising and inviting the public to deposit funds with them.

The 28 wonder banks on trial before the IST are: Art Master & Co. Ltd; Cyber International Ltd; Fortune Access Interlinks Network; Gold Power Unique Services Ltd; Gorutrans Nigeria Co. Ltd; Interglobal Investment Ltd; Money Field Ltd; New Freedom Diversified Investment Ltd; Open Gate Multipurpose Investors Ltd; Orion Express Global Services Ltd; Pennywise Investment Ltd; Positive Move International Nigeria Ltd; Precious Golden Profile; Real and Cool Wealth International Ltd; Shola Olanrewaju Ayinke (Sefteg Nigeria Company); Silvertrust Global Investment; Successpoint International Investment Ltd; Torid Investment Ltd; Treasured Fund Assets Ltd; Vikel Petroleum Ltd; Wealth Concepts Global Ltd; Wealthgage Multibiz Int. Ltd; Wealth Interlink Agency Ltd; Wealth Solution Ltd; Wealth Transfer and Logistic Ltd; Wilson O. Wilson (Doing business in the name and style of Wilamas Ventures); Wisdom Investments Nigeria Ltd; and Nospetco Oil and Gas Ltd.

WILL THE STOCK MARKET EVER RECOVER?

Many investors have sat and watched in bewilderment as the value of their stocks plummeted, a reason I have been asked over and over if the stock market will ever recover from the losses that have been accumulated over the past eight months. To be specific, investors have lost nothing less that three trillion naira in terms of paper losses alone. I said paper losses because the losses you see in your portfolio are not real until you give a sell order to your stock-broker, stocks are volatile assets whose value can change within a few trading days.

REASONS FOR THE PERSISITENT DECLINE

 1.   LOW INVESTOR CONFIDENCE: The bearish market which started in March has eroded the confidence of many investors, especially, those who entered into the stock market within the past two years. The peculiar thing about these new investors is the fact that a lot of them see the stock market as quick money making venture, and as you know, some of them have never witnessed such a long bearish period as we have witnessed within the past few months. It is also noteworthy that several investors had just begun to recover from the losses they sustained from wonder banks like Nospetco, Sefteg, etc; in 2007. I remember that such investors were condemned for being too greedy by stock analysts and they were admonished to limit their investment to stock market alone. So, at the beginning of 2008, we experienced a massive exodus of investors from the wonder banks to the stock market, but alas, the stock market has been crashing which have made such investors to resign from the investment world. This is no good news for all stakeholders in the market because all over the world, the confidence that investors have in a market determines how successful that market is since they are the ones who move the imaginary hand of demand and supply at all times.

 2.   POOR IMPLEMENTATION OF POLICIES: Our regulatory agencies should take one or two punches for the current situation of things because they have been slacked in their approach to recent developments in the market. A stakeholders meeting was finally called on the 26^th August to find solutions to the current situation after six months of a bearish market. Since then some of the policies that were identified have either not been implemented or simply relegated to the background. The most important of this is the creation of a stabilization fund to stem the bearish trend whenever necessary, I don’t know how you look at it, but from my point of view, I think this issue should have taken priority over other policies because without funds that are needed to buy stocks, the stock market can simply not move, it’s as simple as that.

Dear friends, gone are those days that fundamentals count and investors are motivated to buy shares because of good quarterly and audited results published by companies. Investors are not moved by results again and if you want to contradict this argument, check what has happened to the likes of Fidelity Bank, Oceanic Bank, etc; since they declared their fantastic results. The truth is, things are not normal and desperate situations require desperate actions. In addition to this, the authorities have not addressed the investing public since August 26. I have reasons to respect the American spirit better within these past few weeks that the Americans have been hit by an unprecedented financial crisis. Within two weeks, the president of the USA, the Senate president, speaker and federal reserve chairman have addressed the American public four good times trying all they can to update Americans on the situations of things and the way forward but it’s not like that here, investors are always left guessing.

Another controversial policy is the introduction of a minimum one per cent drop in prices while allowing stocks to gain a maximum five per cent in a day; this has caused what some investors call a slow motion in the stock market, a situation that has made the sale of stocks even more difficult than in the past, this was supposed to be a temporary measure but I think it’s here to stay. The list of the number of inefficiencies from our regulatory agencies cannot be exhausted in one piece of article, it is better left as it is.

3.   GLOBAL FINANCIAL CRISIS: the Nigerian crisis actually preceded the ongoing global financial crisis which started in the USA with the collapse of big banks like the Lehman Brothers, Merrill lynch and WAMU. Stock markets all over the world are currently taking the beating of their lives. As a matter of fact, the Russians had to shut down their stock exchange for two trading days in September in order to arrest excessive decline in stocks. Last Thursday afternoon, I saw some investors protesting in the legislative house in Hong Kong because of the losses they have made on their portfolio. Don’t mind the CIBN and CBN which recently came out to say that we are immune to the global financial crisis; the truth is that we are not immune and I will state my reasons.

First, recall that we had touted the entry of foreign institutional investors who were planning to come into the Nigerian market as one of the factors that will lead to a bullish market in 2008, but at present, the JP Morgan, Merryl Lynch, or Barclays of these world won’t come into the Nigerian market for now because they have serious problems to contend with back at home. In fact, Charles Soludo, Governor of Central Bank of Nigeria recently shifted the blame for the recent market drop to some of these foreign investors who have pulled their funds out of the Nigerian stock market.

Despite all these challenges, it is not all gloomy for the Nigerian market because there is always light at the end of the tunnel, this market will definitely recover soon and the road to recovery will form the central theme of my article in the next edition. Watch out for it.