CENTRAL BANK NEW NAIRA DEFENCE STRATEGY TO FAIL… FOREX ROUND TRIPPING DEEPENS

Governor of Central Bank of Nigeria, Prof Chukwuma Soludo, may be fighting a lost battle in the foreign exchange segment of the money market. Since November 2008 when the value of the Naira, the national currency commenced a tail spin in a downward spiral that has become unrelenting, the CBN Governor had continued to […]

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CENTRAL BANK NEW NAIRA DEFENCE STRATEGY TO FAIL… FOREX ROUND TRIPPING DEEPENS

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Governor of Central Bank of Nigeria, Prof Chukwuma Soludo, may be fighting a lost battle in the foreign exchange segment of the money market. Since November 2008 when the value of the Naira, the national currency commenced a tail spin in a downward spiral that has become unrelenting, the CBN Governor had continued to role out measures aimed at managing the exchange rate of the Naira with other currencies within what is described as reasonable band.

Soludo: his brilliance and delusion

By Jonah Etufunwa

Prof. Chukwuma Soludo

Prof. Chukwuma Soludo

I am an ardent lover of Soludo, but I have so many bottled up reasons to disagree with him for the first time this week. I also have much respect for him, for no one has a better curricula vitae than him for the position he occupies today in Nigeria.

Born brilliant, strode brilliant and appointed Governor of Nigeria’s Central Bank based on his brilliance. I stand to be corrected of this view.

It is interesting to know that Soludo is really mortal and prone to the misdeeds of lesser mortals! Governor of the Central Bank of Nigeria (CBN), for his academic and professorial brilliance, remains an academic colossus on mind. Nothing else! Legends have it that he never for once took second at school. He took first all the time and ended up with Grade One in his School Certificate Examination and First Class in his degree course.

We learnt he also came tops in his master’s. He always topped his class and department at any given time. A genius indeed! There was not better admiration for this enigma than his exceptional academic and professional intelligence. Everyone was dazzled by his brilliance and he started brilliantly as his Governor of Nigeria’s CBN.

From nowhere, at least, not imagined by his contemporary mortals, he conceived a novelty: Consolidation of the banking sector. He was applauded and supported by the President of Nigeria and Nigerians in general. Nothing could stop him from being perceived as a genius. And he strode the landscape as one. He really deserved it. There was no aorta of doubt on the minds of Nigerians, that the CBN Governor was not a mere mortal.

He was perceived as head and shoulder taller than all Nigerians in economic intelligence, especially in money matters. Though, not given to hero worship, I preserved a portion of my heart for honouring him alone as an extra-ordinary human, especially in my thoughts about him. He was actually great in cerebral matters. I joined others in seeing him as a financial saviour. Sometimes we delude ourselves with our thoughts, hidden from our close associates. Nothing would have stopped me from hero-worshipping Soludo, if not for my religious training. I know that nobody is perfect. We all make mistakes and Soludo would not be different from this nature of man. I am not deliberately looking for ways to denigrate the ‘wisest’ man in our midst. I simply took him for what he stands for – extra-ordinary cerebral gift to Nigeria!

My first disappointment with him was when he allowed himself to be deluded by the former president Obasanjo over the printing of coins. Before they printed those coins, I personally knew that the coins would become artifacts immediately. I knew that denominations alone, as legal tenders, would not help us control inflation. Soludo would have thought the way I thought but too much acada intelligence was making him mad. He was living by ‘book,’ that was why he created coins that could help us to have such prices as 10kobo, 50kobo and one naira denominations that could not buy anything. And yet Obasanjo and Soludo went ahead to print and distribute legal tender metals that were utterly useless and only useful for decorating our ‘centre tables.’ I knew the coins would become so even before they were printed. I could not understand why both the President and the CBN Governor could not see what I saw as a lay economist. Obasanjo was busy making life difficult for ordinary Nigerians through multiple taxations and principally by increasing the prices of Federal Government’s products, such as PHCN bills and petrol products. Prices of such things cannot be increased without other products being affected on the upward side. Such prices daily affect cost of production and yet the President and the Governor of Money (Soludo) wanted magically different from what they sowed. You cannot be fuelling inflation and at the same time dousing it. They sowed whirlwind and expected to reap peace. They wanted inflation controlled without any input from their own end. How impossible!

Another laughable policy that Soludo did not succeed implementing was the case of N20 being the highest denomination in our cash economy. With the aforementioned state of inflation, just imagine how that could only have scratched rather than solving or checkmating inflation. I just knew it could never work. May be, we would having been paying more money to transport our currency for buying things than the prices of the products themselves. What the economy needs are just three activities: One, production; two, production; three, production. ‘Africa Must Produce!’ one editor wrote some time ago in one of the dailies. Nigeria Must Produce! Productive activities would solve our economic problems, not economic theories. Economics, no doubt, is a real science, and only scientific measures can solve our problems, no just acada approaches. For example, no rhetoric can solve our bearish capital market, but once the scientific or economic forces involved are right, our woes would be past. Same solution is what our forex market needs.

I do not need to be an economist to know that the U.S.’ financial recklessness of their economy would eventually affect Nigeria. When Soludo insisted that we were insulated, I knew he was lying deliberately or he wickedly ignored the facts on the ground just to delude or soothe us. I knew he was also deluding himself. I began to doubt his professorial wisdom and acada stardom. I became afraid of the unavoidable disgrace that would soon confront him since our economy was almost dollar dependent; not only ours, but the entire world’s.

If you love somebody, you would not want evil to befall him. I did not want shame to come Soludo’s way; I didn’t have to be an economist before knowing that he was not correct. I began to doubt the practical usefulness of his unquestionable brilliance. Knowledge is wisdom in the brain (mental wisdom) but it becomes real knowledge when applied to solving problems successfully. Soludo’s acada knowledge has no benefit for us in small things, but only in one big thing – bank capitalization – that has now left our banks near empty after bloating. As a member of the country’s economic management team, I expected Soludo to be shouting that the banks were not doing the right by not financing the real sector. He did not also warn Nigeria for spending excess crude oil revenue on wasteful things, anything outside the real sector is practically wasteful. Income equals consumption plus savings. We concentrated on consumption instead of savings, which ultimately means investment. I hope Soludo would not end up an all-rounder disappointment on our financial landscape.

Finally, I share the fears of many that saving the naira is not what can bring a lasting solution to our forex problem, but still those three things: Producing, producing and producing and diversifying our earning power of foreign exchange. Think about agriculture. It would help us save money on our international food bill, feed our agro-allied industry and earn us income through exports. Someone even suggested that spending on infrastructure rehabilitation would create employment and since Nigeria does not have money for that now, then public private partnership scheme would be the answer; and it can be a catalyst. We would not depend on crude oil alone. With oil alone, it is like we are unemployed as a nation.

It is just like an unemployed man who has little savings that may ordinarily last for many weeks if spent on his daily needs and he only sees solution of his inadequacies in spending his savings to buy what he needs NOW. I think what this man needs are two: gainful employment or gainful investment and not just meeting up his present needs by blasting off his savings. Soludo’s forex solution is too simplistic and lacking true wisdom. If the 20 billion dollars are spent on forex to shore up the value of the naira, how long would we shore the naira up? Who would eventually benefit? Of course, the exporters of what we are using the forex to pay for. The exporters would produce more and employ more of their citizens and raw material producers for their export (product).

If we want to banish poverty, we must never depend on oil alone. This is not Soludo’s department, though, he should tell his master, Yar’Adua and Nigerians the truth about what should and should not be implemented.

Our only source for financing our national budget is through sale of crude oil. The income is calculated in dollars. The world’s industrial activities are experiencing a depression. The demand for oil has fallen, can we now be expecting our income from oil to remain okay? Brilliance or no brilliance cannot change our fortune unless we think about other things to sell in order to get dollars or pounds or other international currencies for financing our budget. Our budget implementation is import dependent; because we are a consuming nation. We may still be importing toothpick and handkerchiefs. Bicycle spoke is not produced here. Producing spokes would depend of iron and steel technology and availability of energy (electricity) which we do not have. Fundamentally, all we need is production, but we lack the foundation, the platform. We can only start by building from the foundation. Soludo as a brilliant should have been bemoaning all that we lack fundamentally, that are hampering his ability to control inflation and contribute to the growth of the economy.

Soludo is a man I admire so much for his grey matter, can someone help us know why he has not been telling us the truth, because I still believe he knows the truth. If he does not, I think we need to know why.

My thoughts about Soludo are even driving me nuts. Someone, please, help us to find why the genius professor of economics does not know and do simple things that are true of scientific ECONOMICS.

ATUCHE MAY LOSE BANKPHB DEPOSITORS’ NBILLION IN CONTROVERSIAL SPRING BANK ACQUISITION: CBN, SEC, NSE INVOLVED

There is no concise dictionary definition of a bubble share, yet, this rather strange sounding lingo, has become the issue at the heart of the alleged controversial acquisition of Spring Bank Plc by BankPHB Plc. Roughly, bubble share may mean shares held by an individual investor or body corporate that, however, cannot be classified as part of the shares outstanding of a company. In other words, the shares have no credible placement in the books of the company; neither can the shares be accounted for by the owners.

In the present case of the very first hostile take-over of a quoted company in Nigeria as being prosecuted by BankPHB, so much is at stake; the first being the billions of Naira of depositors’ funds being deployed to buy and mop shares of Spring Bank, the target company and the second being the corruption of the well laid out company acquisition process as enshrined in both the Investment and Securities Act 2007 and the Companies and Allied Matters Act. On the far end of the scary spectrum is the risk faced by retail investors that without much crosschecks jump into the Spring Bank shares buying spree propelled by sentiment of high volume activities on the shares of the bank.

The background to the Spring Bank present outrage dates to the eve of the ultimatum for banks in Nigeria to capitalize. Two days before the expiration of the December 31, 2005 date, six banks, among others, were confronted with the possibilities of getting under the slams of the Central Bank sanction of corporate erasure if they could not meet up with the N25billion minimum shareholders’ funds. Fourteen of such banks were dissolved for not making the deadline.

But the six, Citizens International Bank, Guardian Express Bank, ACB International Bank, Fountain Trust Bank, Omega Bank and Trans International Bank, barely made it to the mark. It is, however, no secret that the six banks were strongly edged on into the marriage of mandatory capitalization by the Central Bank of Nigeria. The six banks went into the merger discussion in two different camps; Citizens International Bank, Guardian Express Bank and ACB International Bank had earlier been engaged in merger discussion but the three of them could not mass the needed N25billion collectively. The same was the case with Fountain Trust, Omega Bank and Transnational Bank; the three banks together were not able to raise the required N25billion.

It was rather like a saving grace when CBN invited the six to a meeting and counseled them to pool resources so as to be able to raise the N25billion minimum capitalization requirement. The two camps, now frequently referred to as the Citizens-Guardian Group and Bank One hurriedly signed the merger papers, after signatures and all, Spring Bank was birthed. The Citizen-Guardian Group ownership structure has roots in the Igbo speaking South East Nigeria while Bank One ownership was rooted in the Yoruba speaking southwest Nigeria.

But the provisions of the merger agreement were not without a caveat. A specific requirement in the agreement noted the obvious limitation of the merging banks to conduct due diligence on one another. The due diligence would have allowed each bank to know the true worth of the others in the merger and would have helped to determine the share holdings to be apportioned to each merging bank based on the weight of investment the banks are bringing into the new entity. So, the merger agreement insisted that the six constituent members of the then newly birthed Spring Bank Plc would do a post-merger adjustment. This adjustment would enable the banks review the credibility and truth of the claims of each merging bank and be able to portion the Spring Bank’s shares equitably.

As at the time the merger agreement was signed, Guardian Express Bank claimed it had brought a shareholders’ fund to the tune of N9,580,000,000 while ACB International said it had N420,000,000 shareholders’ fund. Citizens International Bank’s investment in the then new bank was N7,600,000,000 of its shareholders’ fund as claimed. Omega Bank claimed it was investing N9,530,000,000 of its shareholders’ fund with Fountain Trust Bank and Trans International Bank investing N810,000,000 and N2,830,000,000 respectively of their shareholders’ fund. Shares of then new Spring Bank were, in the interim, divided along the individual contribution of each of the merging bank.

Since these were yet unverified figures, the shares allotment were considered interim, only made for administrative convenience. This is what makes the shares in the bank bubble shares.

Naturally, the banks in the Citizens-Guardian Group provided the Managing Director while Bank One provided the Chairman of the board. Mr. Mike Chukwu and Rev. Canon Segun Agbetuyi were appointed Managing Director and Chairman respectively.

But no sooner had the new bank gone into operation than issues relating to the integrity of the figures provided by each of the merging bank started rocking the bank. There were claims and counter claims of insider related loans collected in the legacy banks and had turned liabilities for the bank. But rather than the non performing loans to have been declared as, indeed, non-performing, they were declared as part of the working assets the legacy banks brought into Spring Bank. And more troubling was the allegation that Guardian Express Bank and Citizens International Bank had over-stated their financial positions.

A crisis of confidence ensued on the board of the bank and it thereafter spilled to the public arena with the chairman of the board buying advertisement space in the print media to express as disenchantment with the situation at the bank, especially, as it related to the obvious support the CBN Governor, Prof. Chukwuma Soludo was giving the Citizens Guardian Group.

In a rather pre-emptive move, the CBN Governor sacked the board of the bank, leaving the Managing Director and for the first time, the Governor, tongue in cheek, informed the Nigerian public that the bank did not, in fact, meet the minimum capital requirement when it was approved to operate in the consolidation regime. The sacking of the board with the exception of the MD was protested against; even as new forms of rancour enveloped the proposed board that was to be reconstituted by the CBN with selected representatives of the legacy banks.

Eventually, the CBN had to dissolve the board and constituted a new board with members that had no form of relationship with the legacy banks, Dr. Sulaiman Ndanusa was appointed Managing Director. That was on June 5, 2007.

Since the assumption of office by Ndanusa, the only thing that had changed in the existence of the bank is that it has been saved and taken from the precipice of imminent collapse through what stakeholders have called Ndanusa trust worthy and expert management style. In truth, the bank lost N20billion depositors’ fund in the heat of the crisis of confidence in May/June 2007.

What did not change, however, remains the integrity question that still hangs on the contributory capitalization figures the legacy banks had claimed in the run up to the merger. The post merger adjustment was meant to clean up the figures and it was not until such was done that the bank could be said to have returned to normalcy.

Ndanusa under-scored the much in a cover letter, dated April 20, 2008, he forwarded to the Central Bank in which he noted that: “It is the firm belief of our Board that there can be no effective resolution of the Spring Bank crisis without putting to rest the issue of post-merger adjustments.”

A joint CBN and Nigeria Deposit Insurance Corporation investigating team had earlier in October submitted a report of their investigation in which they asserted there were a lot of discrepancies in the claim of the banks.

Besides, the multiple insider related credits that afflicted the books of the bank, the most contentious issue in arriving at an agreeable post merger adjustment position was the shareholding status of the legacy banks as at the time they individually approached the stock market to raise fund to shore up their capital in the run up to the N25billion capitalization deadline.

The report questioned the holdings of Mr. Cosmas Maduka in the bank. Maduka who owns Coscharis Motors was the single individual largest shareholder in Guardian Express Bank, the legacy bank had been considered to be the highest fund contributor to Spring Bank based on figures presented in the rush of the merger talk. This had also secured a seat for Maduka on the Board of Spring Bank. But the report of the CBN-NDIC investigating team traduced Maduka’s claims.

Alluding to apparent book cooking by legacy bank, Guardian Express, the investigating panel submitted that the bank (Guardian Express Bank) opened its Initial Public Offer on April 18 and closed officially on May 18 2005.

“During that period, the investor (Maduka) who was a major customer of the bank was said to maintain two current accounts, number 01-00004611 and 01-00004612 in the bank. The two accounts were used interchangeably to accommodate the customer’s credit facilities at different times. Before and during the bank’s IPO exercise, transactions posted to account 01-0004611 were mainly credited entries. The account had a credit balance of N2,023,844,922.50 on 11/5/2005 before a cheque of N2,400,000,000 for the purchase of shares was posted into it. The Second account number 01-00004612 which was purportedly opened in September 2004 carried mainly the debit transactions of the customer. The debit balance in the account peaked at N403,211,520.76 on 12/10/2004 before it was brought down to zero balance on 24/12/2004,” the report observed.

The investigating team report further noted that: “However, a review of the customer’s credit files showed that during that period (January to May 2005) he (Maduka) was enjoying credit facilities totaling N2,553,000,000, including two CPs of N1.953 billion and N310million respectively. In other words, the bank did not disclose the account that harboured the customer’s credit facilities during the IPO. We noted further that on June 14, 2005, shortly after the official closure of the IPO, account number 01-00004612 mentioned above which was suspended between January and May 2005, resurfaced and posting of debit transactions into it continued until 20/4/2006 when the debit balance on the account peaked at N2,548,797,899.48.”

The investigating team then averred that: “On that date, the balance was transferred back to account number 01-00004611. Considering the above facts, it is clear that the investor’s facilities during the IPO were merely suspended. As at December 30, 2005, the account balance was N5,961,522.40 (debit)”.

On account of these observations, the investigating team report recommended that the entire investment by Maduka arising from this transaction be rejected because it was financed with facilities from the bank.

This same bank accounting manoeuverings were located in the account of Chief Anthony Ifeyichukwu Ezenna, the proprietor of Orange Drugs.

“Similar to Coscharis Motors Limited, two accounts were maintained fro the investor/customer.” The investigating team report informed. “Account number 02-00022011 and 02-00022013, Account number 02-00022011 through which the customer paid for the shares recorded mainly credit transactions of the customer during the IPO. The balance in the account on 19/5/2005 was N1,031,046,215 (credit) before the cheque of N1,000,800,000 for the share purchase was posted. The second account harboured the debit transaction of the customer. The debit transaction of the customer during the period of the IPO which totalled N1,086,197,382 including interest charge were post valued to August 2005, that was three months after the transaction date. That debit balance increased to N1,170,243,085.22 as at June 30, 2006.”

Based on the revelation arising from the investigation of the books of the bank, the CBN-NDIC investigating team recommended that the entire investment made in the bank be rejected as it was financed from facility from the bank.

The grouse of the CBN-NDIC investigating team had to do with the financing of the purchase of the Guardian Express Bank Initial Public Offer with the bank’s depositors’ fund illegally loaned to the directors.

There were other cases too. The investigating team was particularly enraged with the inappropriateness of the account cooking conduct of Citizens International which it (investigating team) submitted that: “Subsequent to its IPO, Citizens International Bank (CIB) debited its customers’ deposit accounts without their consent as consideration for fully paid up shares of the bank. Following the customers’ protest, the bank created a fictitious loan account in the name of Citizens International Stockbrokers Limited (CISL) in order to make refund to these aggrieved customers. The expectation was that as CISL sell their shares, the loan will be defrayed. It is the on-going investigation that has enabled us to establish a link between the CISL and the IPO exercise of legacy CIB.”

On the basis of this discovery, the investigating team recommended that: “The sum of N5,107,084,950 involved in deposit-equity conversion…should be removed from the share capital of Citizens International Bank.”

Other anomalies too many to be recounted here were discovered by the investigating team; the recommendations of the investigating team were for the purpose of streamlining the share capital of the legacy banks in Spring Bank and to be able to determine which of the directors and investors in the Spring Bank should have what percentage ownership of the consolidated bank.

However, according to FORTUNE&CLASS investigations, it is these contentious share holdings held by Maduka and Ezenna that BankPHB had bought; this, inclusive of the shareholdings in the bank by Ondo State Government.

Sources informed FORTUNE&CLASS that for yet to be ascertained reasons, the CBN encouraged BankPHB to acquire the questionable shares which, a lawyer that we crosschecked with, said that at the minimum, should be warehoused as directed by the CBN until all issues pertaining to the post-merger adjustments are settled.

“The target for BankPHB was to acquire 30 per cent of the total holdings of Spring Bank. I think with the collaboration of the CBN they got Maduka and Ezenna and one other legacy bank director to sell the warehoused shares. At a premium for that matter, I mean, they sold it above going market rate. I am informed that BankPHB bought a unit of these shares from these men at between N8 and N8.50K, and we are talking of about 4billion units here.

“You may need to question the rationale of Francis Atuche, who is the Managing Director of the Bank spending this much of depositors’ funds on shares that are still subject to various court decisions and have been expressly described as not being attributable to the share capital of Spring Bank.”

Another source informed that BankPHB might truly have been encouraged by CBN because as the apex regulatory body of banks, the CBN should have known the controversial status of the shares acquired by BankPHB.

Even more curious is the role of the Securities and Exchange Commission in the controversial acquisition.

“While it is agreed in the company’s law that once a corporate body had acquired 30 per cent holdings in a target company it can apply to the SEC to commence a take-over bid, yet it is the responsibility of the SEC to ensure the status of the shareholding before giving the go ahead for the take-over process,” a lawyer informed.

But it would seem for other reasons the SEC did not give consideration to this requirement, reports indicated that the representatives of SEC were available at the Extraordinary General Meeting which BankPHB called as the first step to commencing the acquisition of the Spring Bank.

“The issue here is about the law, justification and equity,” the lawyer, who is knowledgeable in the matter concerning the controversial acquisition of bubble shares of Spring Bank, said.

“In the first instance, a court of law had ruled that the Extra Ordinary General Meeting should not hold and all the parties involved were served, including the SEC. Beyond the pronouncement of the court, it is also a statutory requirement of the law that if a take-over company was to hold an Extra Ordinary General Meeting where the issue on the agenda will be the resolution to support the acquisition of a company, the shareholders of the company to be taken over must meet at the another venue but at the precise time the take-over company is meeting. The shareholders of the target company must vote to accept the take-over bid.”

As things stand, the court has been active in the matter of the controversial acquisition. Various orders had earlier been made forbidding the sale of shares by any directors or shareholders of Spring Bank. And to put bite to the orders, the court presided over by Justice Hamed Ramat Mohammed, last week, extended the interim order restraining Spring Bank from any planned merger or acquisition with any other bank.

Again, more curious in the apparent under the table manoeuvres of the acquisition of Spring Bank, was the sudden lifting of the full suspension placed on the trading of the shares of the bank. When a share is placed on full suspension it is not permitted to be traded on. But weeks ago, the management of the Nigerian Stock Exchange suddenly upgraded the full suspension to technical suspension. When a stock is placed on technical suspicion it can be traded on, that is, buy and sell orders can be effected on it but the price would not move either upward or downward.

Suddenly, the shares of Spring Bank turned the golden pearl of the Exchange as massive volume activities were recorded on it. Those that continued to follow the unfolding issues of the bank’s acquisition submitted that the volume activities on the bank’s shares should not be surprising because of the obvious intention of BankPHB.

The upgrading of the full suspension on the stock of Spring Bank to technical throws more questions on the role of the NSE in the acquisition of the bank.

But what should worry depositors of BankPHB is the possibility of the court ruling, in the final analysis, against the acquisition of Spring Bank essentially as a result of the doubtful status of the shares so acquired. When that happens, it means that about N40billion of BankPHB’s depositors’ fund would have simply vanished into the pockets of a number of highly positioned business personalities.