We have taken a lot of actions in terms of liquidity and I want to say very specifically that the kind of liquidity that we are allowing the system today is such that I don't really see what else in terms of liquidity requirements that will be needed to move the market forward -Professor Chukwuma Soludo, CBN governor at Thisday Town Hall, Friday, October 3, 2008

I know a bank in this country that lost so much money from its foreign partners recently. Its partners, on seeing what was happening to the financial sectors of US and Europe, quickly withdrew $3.4 billion and left -Alhaji Aliko Dangote, chairman, Dangote Group of Companies, at the Thisday Town Hall.

Foreign investors, who have always been wary about African investments, have problems at home. Many have gone and will not soon return... -Dele Sobowale, written September 29, 2008, published in Sunday Vanguard, October 5, 2008.

THANKS to Thisday for organizing the town hall which should actually be called the Global Hall because the matter it dealt with on October 3, 2008 was global in nature. The primary concern of Nigerians is to find out how it will affect the country in general and the capital market in particular.

Professor Soludo spoke the language of officialdom, which is always more positive than the situation demands. That is understandable; nobody expects the nation's chief monetary policy maker to tell us that the sky is about to fall, even if it is only a few feet above our heads. Alhaji Dangote, represents some of those whose exposure in the market are so large that he cannot afford the over-optimism characterized by the CBN governor.

Although good friends, their divergence of interests now place them at opposite sides of this global as well as national debate. Yours truly, representing the media, as well as all the Area Boys, is in the business of getting as close to the truth as he can. Let me start with my own statement of last week, namely the departure of some foreign investors.

That statement was made for two reasons. The first is to alert all of us to the fact that the portfolio investment that had blown up our bubble capital market is being gradually withdrawn. It is like letting the air out of a balloon.

The other is to point out that the N150 billion that the CBN purportedly pumped into the market, is not going to restore the confidence of investors in the market because it is insufficient and more importantly because the facility is not ending up in loans to individuals because the banks are still reluctant to lend to anyone wanting to invest in shares.

They know what the CBN does not know; that the prices of shares will remain depressed for a long time. And the foreign investors know that too.

Alhaji Dangote had provided some of the evidence that the capital market, especially the Nigerian Stock Exchange, will not soon recover. At that Town Hall, while Professor Soludo was his usual upbeat self, although cautiously optimistic, Dangote was providing the real picture which belied all the optimism of the government spokesman.

First, Alhaji made the disclosure that over $3.2 billion was withdrawn by foreigners in August alone from our capital market. That N368 billion in capital flight in one month alone already made mince-meat of the N150 billion the CBN pumped in.

Even, a primary four pupil knows that. But, that was not the only revelation from Dangote, a man who should know where the shoes pinch. He also informed us that all securities are on offer at the NSE (or NFE if you like). That is a record. A lot of people want to exit the market. Those who have assumed a "wait and see stance" in the past are no longer waiting because they have seen enough.

What Dangote did not say is just as significant.

The preponderant number of shares on offer are bank shares which were bought at a time when bank IPOs littered the financial landscape and banks were applying pressure on customers to borrow in order to participate in the "bonanza" they all promised will surely follow. One only has to read any of the prospectus sent out at the time to understand the extent of disillusionment those suckered into borrowing, at 25 per cent interest rates, feel at the moment. On May 20, 2008, the highest priced bank share sold for N63.94; the second highest N51.15 and the third N45.80.

By October 8, 2008, they went for N24.47, N35.24 and N26.69 respectively. They serve as examples of the calamity that has befallen that sub-sector of the NSE. Having suffered major losses through aggressive lending to customers to buy shares, they have been forced to go cap in hand to ask the CBN for forbearance which can only help a little but cannot wipe away all the losses. Next year their shareholders will feel the lash of their rashness in 2007 and early 2008.

People unaccustomed to long term investment were lured into the capitalization race among banks with the hope that they can sell their shares once certificates were issued and make a killing. Now, they have become the victims of the collective greed and fraud underlying the statements made in the offers. Now, the capital market is flooded with offers and no takers.

Yet all the bank share certificates have not yet been released. When that occurs the captains of the NSE might find themselves exclaiming, like Madam De Pompadour, 1721-1764, "Apres nous le deluge - Here comes the deluge", after the Battle of Rossbach in 1757. In short, there are more shares coming on the market than they are likely to be bought for a while especially as we approach the "sell months" -December and January.

Finally as if he and I had talked privately, Dangote delivered the blow that knocked all the stuffing out of the CBN governor's position when he declared categorically, that "the banks are not lending."

Wow! When Dangote, who controls billions of bank shares and is the largest industrialist in Nigeria today complains that "the banks are not lending", then the CBN should be asking "where is the N150 billion?" Surely if Dangote cannot obtain loans every Emeka, Omoregie, Yinusa, Umaru or Dele asks in vain.

Yet official reassurance is based on this sort of self-delusion which consists of two elements. The first is the illusion that N150 billion will rescue the capital market which has lost over one trillion in a few weeks alone.

We have seen how one investor bolting for the gates took almost two and a half that amount with him. Since August, others have also headed for their home countries. Second is the illusion that once the CBN makes an announcement, the banks comply.

Nothing could be further from the truth; especially when the announcement does not carry any heavy sanctions. The fact is Nigerian banks respond more to punishment than to precepts however elegantly worded and regardless of how patriotic the intention. Even, the punishment must be heavy enough to deter misbehaviour.

If you don't believe me just take a look at the annual reports and accounts of all the banks. All without exception will report violations on which fines have been paid.

The violations will reoccur next year and the fines will be paid. If they were individuals, they will be called habitual criminals or jail birds. And they carry on with impunity because they know the CBN will be complaisant and ensure that their crimes pay handsomely. In summary, the rescue fund about which the CBN makes so much noise is insufficient and it is not even directed at the problem by the banks.

Finally, foreign investors know when to quit; they know that the fraud in the Stock Exchange has become widely known and the age of 400 per cent return are over for a while. Only those who can afford to hold on to shares for a long time will benefit from now on. If you cannot; then start counting your losses.

Next Week: Global Financial Crisis: Disregard The Technocrats

Banks: Advice to depositors

PENULTIMATE week, this column explained the tricks behind all the bank promotions. If you deposit your money based on promise of winning a car or even N10 million, all you are doing is gambling or being bloody greedy. Not everyone wins and the losers, who form the majority, pay for the car or ten million or whatever. You risk as much as seven thousand naira depending on the bank.

The first lesson we learn in economics is: there is no such thing as a free lunch or car or N10 million. Now we turn to those "wonderful" machines called ATM machines. If I have to be given N100 for every one who has had a bad experience with ATM machines and the way banks have handled their problems, I should retire today as a multi-billionaire.

Like all other things that work well in other countries - traffic lights, entrance exams, schools, the Police, power authorities, elections, water supply - ATM, in Nigeria, has become a nightmare for users. First, most users don't know that they are charged when they use the card of Bank A in the machine of Bank B.

Worse still, they don't realise that it might take months to resolve the dispute if the machine fails to dispense money and their accounts are debited. Bank A will not refund until it is satisfied that no cash was dispensed and Bank B will not want to admit that its machine failed to dispense. Add to that the problem of fraudsters who collect money and deny it. What a country!!!

Second, banks have devised various means of driving customers to the ATM machines because they want to reduce the crowd in the banking hall. For this reason, some have stipulated minimum amounts that might be cashed over-the-counter ranging from N5,000 to N50,000. Price, as any economist will tell you, is a means of crowd control. That is why high gate fees attract few spectators at football matches.

If you don't cash up to N50,000 each time you go to bank, then move your account to a bank that allows a smaller take off the counter.

If your monthly income does not amount to N50,000 then you have no business with a bank that has a N50,000 minimum because you are perpetually going to be charged either for ATM which you are bound to use or for cashing your own money over the counter. Third, as much as possible, avoid using your ATM card in another bank's machine other than the one that issued it to you.

If UBA, then stick with UBA. Your banking problems will be minimized.

When opening an account for the first time, ask for the operating terms and the minimum deposit you must maintain without incurring a charge and what you will forfeit if you choose to close the account.

Those gambling with their deposits because of promotions invariably find out, after the promotion, that they cannot withdraw all the money they deposited. The banks won't tell you unless you ask.

Next week: Advice to banks