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Kenya: Mergers Proposed As Remedy for Struggling Brokerage Firms
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Business Daily (Nairobi)
4 May 2008
Posted to the web 5 May 2008
Washington Gikunju
Mergers and acquisitions could be the only solution for stockbrokerage firms that are currently facing operational difficulties, NIC Capital managing director Kevin Bender has said.
Mr Bender says that most stockbrokers are currently grappling with financial and management deficiencies that have been created by a rapid growth in the Kenyan capital markets over the last five years.
Six stockbrokers and two Capital Markets Authority (CMA) licensed investment advisors are currently operating on conditional licenses after they failed to meet CMA's licensing conditions in an annual inspection audit conducted in January this year. The six stockbrokers were given until May 26 to put their houses in order, or face further disciplinary action from the capital markets regulator.
"Mergers and acquisitions will be the solution for those firms facing financial and management problems," says Mr Bender. NIC Capital, the NIC Bank's investment banking subsidiary, recently bought out one of the then struggling stockbrokerage firms, Solid Investment Securities.
The new shareholder has since raised the stockbroker's capital base by Sh100 million to Sh130 million, besides bringing in new management and investing in a new information technology platform.
Some of the common reasons why CMA failed to renew the stockbrokers' licenses were specific investor complaints touching on certain brokers, inadequate capitalization that fell below the regulatory requirements and overdrawn bank accounts.
Mr Bender says the quick growth of capital markets has exposed some players who did not shore up their capital levels to new risks, since they are now handling much larger businesses than they did five years ago.
The total market turnover for equities at the Nairobi Stock Exchange (NSE) has increased from about Sh22 billion per annum in 2004 to about Sh88 billion last year.
Over the last 10 years the number of licensed stockbrokers has remained almost constant at about 18.
Mr Bender says that growth in capital markets would have called for heavy investment in new capital and management expertise in all stockbrokerage firms, but this only happened in some.
The CMA has proposed an increase of the minimum paid up capital requirement for stockbrokers in a new CMA Act review from Sh5 million to Sh50 million, and from Sh30 million to Sh250 million for investment banks.
Stockbrokers who have been issued with the three month conditional licenses by CMA include Crossfield Securities, Discount Securities, Ngenye Kariuki and Company, Solid Investment Securities, Reliable Securities and Bob Mathews.
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Mr Bender, however, says that though Solid Securities is included in the CMA's watch list, the information relied on by Authority when issuing a conditional license was based on last year's management accounts before NIC Capital took over the firm in January this year.
The firm has since undergone an ownership and management change, and Mr Bender is confident that CMA will renew its license for 2008 after a review of its accounts later this week.
The stockbroker has also changed its name to NIC Capital Securities and intends to officially launch its new brand within the one month.
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