Washington Akumu
14 October 2008
analysis
Nairobi — The coincidence may be blinding and the echoes eerie, but it is simplistic to frame the woes bedevilling Discount Securities and its clients exclusively as part of the wider global financial meltdown.
Ditto Capital Markets Authority's efforts to salvage what was once one of the Nairobi's Stock Exchange's most expansionist brokerage houses.
If any copycats were ever needed to mirror what is going on at Discount Securities, the cast would all be local, and we would not need to look at Wall Street for parallels.
They are resident in the NSE's ballooning graveyard that has as its most recent tenants Francis Thuo & Partners and Nyaga Stockbrokers.
The crisis at the NSE is one of corporate governance. This deficiency is not just limited to brokerage houses but the investment banks as well. The devil is in how these firms are run. It is in how they make decisions. It is in how they perceive, measure and hedge (if at all) against risk.
Over the years, and as the NSE boomed, especially in the first term of the Kibaki presidency, there was a tendency to look the other way as a new wave of investors, most of them virgin punters, entered the stock market.
As we celebrated the landmark and game-changing 2005 KenGen initial public offering (IPO) and the busy pipeline that followed, we forgot the urgency for stricter safeguards to fortify this new money against corporate avarice and individual greed.
Little change
The result is that while brokerage houses got bigger, richer and others graduated to the gilded realm of investment banking, nothing much changed in the way these organisations were run.
They still continued to be one-man shops with no clear distinction between management and ownership. The owner-CEO was the philosopher-king. His counsel was paramount. He was the organisation.
So it was quite natural that Francis Thuo & Partners should run into problems so soon after the demise of its founder, pioneering stockbroker and politician Francis Thuo.
The financial crunch that visited Nyaga Stockbrokers was largely framed as a consequence of the decisions made by its owner - CEO Patrick Gakiavih during his stint there. Disturbingly, outside the graveyard, the organisational structures at other brokers and investment banks is no different.
Though some have tried to cover their tracks by adopting exotic-sounding titles, it is an open secret: the owner-manager still runs the show at most of them.
Override sense
And even where the owner-manager is a professional, the urgency of feathering one's nest always tends to override sense and good corporate governance.
That is why some voyeur stockbrokers, in clear violation of CMA rules which forbid them from trading in their own names, decided in December 2006 to underwrite a then flagging Mumias share issue by mopping up unsold units.
Sadly, the CMA looked the other way and the result was a lot of gnashing of teeth in the City.
To fortify our bourse from the kind of woes currently afflicting international financial markets, we must separate ownership from management of its member firms.
Otherwise even former Finance minister Amos Kimunya's proposal to increase the capital for stockbrokers and investment banks from five to Sh50 million and Sh30 to Sh250 million, respectively, will just be a case of throwing good money after bad.
The Discount jolt could not have come at a worse time. Besides the global financial blues and an identical downturn at the NSE, the bourse has lined up an ambitious (given the timing) Sh10 billion IPO in the name of Co-operative Bank, later this month.
This is the last time you want to stretch already frayed nerves or prise open festering wounds.
The CMA's very reputation is at stake. It must make this latest intervention work. And it must disclose all.
The kind of senseless fencing witnessed at Monday's press conference during which chairman Chege Waruinge refused to take questions from journalists, is not exactly helpful in this pursuit.
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