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Nigeria: Stock Market - Four More Banks Join Bail-Out Plan

10 October 2008

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Efforts by the Nigerian Stock Exchange (NSE) and some banks to bail out the nation's stock market from its lingering slide received a boost yesterday as more banks signified their interest to be part of the package.

President Umaru Musa Yar'Adua has, however, called for close collaboration between the government and private sector in order to tackle the effects of the current global financial crisis, but the Secur-ities and Exchange Comm-ission (SEC) insisted yesterday that the Nigerian capital market is not suffering from any crisis.

The Council of the NSE had last Tuesday approved plans by six banks - namely First Bank of Nigeria Plc, Union Bank of Nigeria Plc, Zenith Bank Plc, Intercontinental Bank Plc, United Bank for Africa Plc and GTBank Plc - to pump N600 billion into the market. Each bank is expected to bring in N100 billion.

While the modalities for the N600 billion bail-out package are being worked out, THISDAY checks revealed that four more banks have joined the discussions.

THISDAY sighted the chief executives of Oceanic International Bank Plc (Mrs. Cecilia Ibru), First City Monument Bank Plc (Mr. Ladi Balogun), Access Bank Plc (Aigboje Aig-Imoukhuede) and Bank PHB Plc (Mr. Francis Atuche) leaving the NSE Building yesterday afternoon.

It was gathered the CEOs met NSE officials over the proposed bail-out package. The package, it was further gathered, may now be increased to N1 trillion following the addition of the four banks.

When contacted, the Principal Manager, Corporate Affairs, NSE, Mr. Sola Oni, did not confirm the names of the new banks that have joined the efforts to bail out the market.

However, he said: "The Exchange has been discussing with banks on how to collaborate and move the market forward. As at now, no market maker has been appointed but the discussions are going on well."

Some market operators explained that the NSE decided to use the bank option given their financial strength. It was learnt after the conclusion of the discussions, the banks would then apply to be market makers under the new guidelines released by SEC last September.

A source had said the thinking is that given the financial muscle of the banks, they would easily meet the minimum capital requirement of N2 billion stipulated by SEC.

The Head of Media, SEC, Mr. Lanre Oloyi, had on Wednesday asked investors not to panic as the fundamentals of the Nigerian stock market remained strong.

However, some market operators have called on the regulators to work together for the stabilisation of the market.

"Whatever efforts that are being made to rescue the market should be supported by the regulators because if the market crashes, the entire economy will be affected. We see what is happening worldwide. Nigerian should not be a different situation. There should be collaborative efforts," a stockbroker said.

The SEC's rules for market making stipulates that a Market Maker shall be a company duly registered with Corporate Affairs Commission and shall have a minimum paid-up capital of N2 billion. A Market Maker is required to at all times maintain sufficient liquid assets to cover its current indebtedness.

Obligations of the Market Maker include: stabilisation of the market by ensuring continuous liquidity by synchronising buy and sell transactions of a security; operate within the established transaction spread (that is bid/offer spread) which shall be a maximum limit of three per cent and subject to review from time to time.

Also, the Market Maker will have the capacity for continuous two-way quotes in the relevant stocks through the trading session in a minimum quote size of 100,000 units of shares and must have the capacity to deliver and settle transactions within the prescribed settlement cycle of T+3.

The Market Maker must equally have the capacity to lend and borrow the designated securities at any time, with a view to ensuring stability in the market among others.

Yesterday, stock market depressed further as the NSE All-Share Index fell to 44,638.26, while the capitalisation closed at N9.505 trillion. This indicates that the market of the NSE has lost over N3 trillion, falling from a peak of N12.6 trillion since the bears set last March.

However, Yar'Adua is canvassing a "close collaboration" between the government and private sector in order to tackle the effect of the global financial meltdown.

He made the call when he had audience with a delegation of the Board of the Nigerian Economic Summit Group (NESG) in State House yesterday, noting that while the immediate impact of the crisis was yet be felt in the country, the time had come to find solutions to the looming dangers.

"There is no better time than now for the government and private sector drivers to collaborate in view of the current global financial crisis which began in the United States," he said.

He said government and the private sector as equal partners in the national economy "would rise to the challenge and chart a path to growth".

He commended the critical role that NESG had been playing by partnering government to ensure that key economic policies that would lead to the realisation of the Vision 2020 were put in place.

But commenting on developments in the stock market yesterday, SEC confirmed THISDAY's report that it was not yet involved in the bail-out arrangement being packaged by the Nigeria Stock Exchange (NSE) and the banks amongst others, maintaining that the Nigerian capital market was not in crisis.

The bail-out arrangement, the commission confirmed, has nothing to do with the Federal Government as it is a private sector arrangement.

The Acting Director-General and Executive Commissioner, Legal and Enforcement, SEC, Mr. Charles Udora, who spoke to finance correspondents in Abuja, said the Nigerian capital market remained "the best in the world to invest in" - although the NSE had lost over N3 trillion since March 2008 when the meltdown began.

Acknowledging that there might be "ups and downs" in the stock market, which he considered normal, he said "that should not be misconstrued to mean that the market is in turmoil or turbulence as the situation may not be for long before the market will pick up".

Udora argued that the banks that were reported to have been appointed as market makers in the N600 billion bail-out package were yet to apply to SEC to be licensed.

He said the commission, as at yesterday, had not licensed any market maker in the Nigerian capital market, hinting that, of the applications considered, only one was on the verge of being licensed.

He however said SEC would write the NSE, asking to furnish it with details of the proposed bail-out arrangement.

There was nothing wrong for any private sector organ or a group of private sector organs to work out such, he said.

Udora allayed fears over the capital market thus: "There is no need for any panicking. If you take indices of market trend prior to consolidation, immediately after consolidation and now, you will find out most of the stocks are actually still above where they were before consolidation and immediately after consolidation. Some stocks were N2 before consolidation, after consolidation, they were like N3, N4. They got up to N20, N30, N40, some of them and as at today, they are settling down at a particular level, which is normal.

"So there is no problem, so people should stop panicking. And when somebody is selling, somebody is buying. Those people that are buying are not dumping the shares in the lagoon, they are buying because they think it's strategically good for them to buy. Those who are risk takers, think that this is the best time for them to buy and they are buying. And so people who are selling now should not wake up tomorrow when those who are buying now are reaping results, to complain. It's a normal market trend. This market is very fine and there is no problem," he said.

-Goddy Egene, Eromosele Abiodun in Lagos, Juliana Taiwo, Kunle Aderinokun and Favour Atsenokhai in Abuja

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