Nigeria: How Citizens Lost N3 Trillion at the Stock Market

Atika Balal and Kayode Ekundayo

26 October 2008

Lagos — Though key players in the sector have tried to douse the tension raised by the decline in the stock market since it took a sliding due to the global economic downturn, the Nigerian capital market has taken a turn for the worst.

Rep Ahmed Aliyu Wadada, chairman House Committee on Capital Market believes that the challenge of enforcement and compliance is the most daunting. While the managing director of Kapital Kare Trust and Securities Limited predicts that the situation will take a turn for the better.

But the assumptions becloud the fact that an estimated sum of N3 trillion has been lost in the last six months when market capitalisation declined by 23.5 percent. From available records, the market suffered losses from N12.1 trillion at the beginning of the slide in March 2008 to N9.26 trillion by the first week of October 2008.

Thousands of Nigerians had planned to improve their status, marry, construct houses and educate their children among other dreams, but these appear to have been dashed.

These losses suffered by Nigerians at the stick exchange have led to a flurry of measures aimed at stabilising the market whose present state has led to a lamentation by Nigerian investors. From Lagos to Maiduguri; Port Harcourt to Kebbi, Nigerians are expressing great fears over what would become of their investments.

These losses and growing loss of confidence in the stock market has led to a decline in business for stockbrokers. When Sunday Trust visited one of the stock brooking firms located at the Central Business District in Abuja, a disturbing silence enveloped the office. The beehive activity that was seen during the reporter's visit last year was totally absent. The firm was devoid of the usual hustle and bustle of business activities and long queues of investors seeking information on shares.

After staying ten minutes at the reception with no one to talk to, a lady walked to the reception desk and asked if she could be of assistance. When the reporter said he had come to have a chat with her boss, she said: "He is out of town and is presently in a seminar in Ilorin and won't be back till next week," she said. Throughout the 30-minutes stay, not a single investor walked in to inquire on state of stocks. A visit to another stockbroker's office revealed the same picture. Only the chattering of cheerless voices whose faces bemoaned the anguish of the times. Last week, the Nigeria Stock Exchange declared that over N3 trillion had been lost in the last seven months since the down turn on the shares prices commenced.

As investors continue to lament the threatening unpredictability of the stock market, the Central Bank of Nigeria (CBN) is not forthcoming with measures to bail out the market from the crisis it finds itself. Though operators of the market are confident that regulators of the market would soon come up with measures, many Nigerians spoken to expressed disappointments over the declining shares prices.

For some time now, the instability in the stock market has generated so much tension for those who own shares in the Nigerian stock market. While most of them worry that this instability would make them run at a loss in the end, others insist that the rise and fall is nothing to worry about as it is a phase in the stock market which cannot be avoided and would come to pass in a short while.

Adakole Ijogi, a property developer, owns shares in Access Bank and doesn't feel the instability is an issue to be troubled over.

"I bought shares in a public offer sometime last year, for some time it was doing well and now that it is depreciating, I am not in the least way worried or disappointed because I didn't expect an immediate progress. Those who know the stock market well would tell you that it is a long term goal so one shouldn't panic when it depreciates. The Nigerian stock market is still growing and in the next five years I see it stabilising."

He said the major problem the stock market is faced with is the entry and exit of funds.

"Most people buy shares during public offers and once they obtain their certificates, they dump it in the market. People need to understand that it doesn't work that way."

While Ijogi says the instability of the stock market does not disappoint him, Habiba Yusuf says otherwise.

She bought N130,000 worth of shares from IBTC at the rate of N11 per unit in June 2007; just like every other person she says she needed to invest her money wisely. Unlike Ijogi however, she is worried that this flux could make her lose so much at the end.

"I am very unhappy with the situation of things in the stock market particularly IBTC because I have shares there. I bought shares because I needed a place I could invest my money hoping that in the end it would yield good returns but as at October the value was less than 120,000. I have not been able to redeem my money due to the fall in price."

Unlike Habiba, Salisu Umar shares the same view. He bought shares in a public offer from First Bank in 2007 at the rate of N33 per unit and he says that fluctuation is a normal trend in the stock market.

"I am not worried about the fluctuation in the stock market because it is a normal trend. Such instability only worries those who bought shares for short term purposes; I on the other hand did because I want a long term investment. It is a good long term investment if you are not a secondary market player. I have always known that First Bank would have this problem because sometime 2006 they gave their share holders a one to one bonus and a one to four in 2007; a lot of people rushed to the market to make money and as a result the prices crashed. That's not to say I do not believe in the Bank. I bought the shares because I know it is a very strong bank that has been on the stock market for over 100 years; they have money asset base, share capital and good business men. It isn't possible that at the end of the day share holders would run at a loss."

He said that people have no idea how the stock market works so they need to be educated.

"Nigerians are copy cats. They always want to do what they see people doing without knowing if it would work for them. If you are a person who wants immediate profit, then you should go for the primary investment, however if you want a long term investment then you should go for the secondary."

Prince Bulus Audu agrees with Salisu. He owns shares in Skye Bank, Bank PHB, Bagco, UBA and Union Bank. Some of them he bought 3 years ago and others last year. He says the instability does not worry him.

"A few years ago I bought UBA shares at the rate of N3.80k and last year I bought Bank PHB shares at N15.50k. Right now my UBA shares are worth millions of Naira so there is no way I can say I am disappointed. I feel that people are worrying unnecessarily because it is a global crisis. It isn't just limited to Nigeria or the African economy and it is a stage in the stock market that cannot be avoided. Right now, maybe there is a huge flux but in the long run it would appreciate. I bought these shares because I have faith in the Nigerian stock market and the situation of things now wouldn't make me lose the faith I have. Eventually it would be stable."

Even though Audu, Umar and Ijogi maintain this instability, it is only a temporary crisis that shouldn't generate worry in any way, Ahmed Talib disagrees. He, like Audu, owns shares in UBA and he says the instability in the stock market is definitely something to worry about.

In Talib's words, "I ask myself why I bought shares, the answer is simple. I did so to invest my money and in the long run make much more. But with the rise and fall here and there how can I not be disappointed? No one would want to invest in a business that isn't stable and now we are talking about shares. However little you bought, you still hope it would eventually manifest into something great. I must tell you that I really don't see that happening with this instability. It makes me unhappy to think that my investment would go down the drain."

The continuous plummeting of the capital market in the country is translating into wanton fear and uncertainty in the minds of many investors in that financial sector. Malam Bukar Gadanga, an Abuja based businessman and long time investor in the stock market related his experiences to Sunday Trust. His investments are spread across the manufacturing, insurance, banking, among other blue chips companies.

Though he never purchased his shares through the initial public offer (IPO), given the Nigerian experience where it takes about six months for people to get their share certificates. And at the end of these six months, they may not even get the shares and is another trouble getting their money returned. These among other things made Gadanga purchase his shares in the secondary market.

The value of his stocks have since actually plummeted. "In my own case, there are shares that I bought whose value has fallen in relation to the value I purchased them. I can give you an example, I know that there was a share I bought at may be N4.00 and it is now N1.80. There was also another one I bought at about N28 and it is now only above N10.00. Generally, there is a general decline in the value of virtually all the stocks I bought."

He added that "every body that bought a share at the beginning of the year up to March, April or so, you will find out that the prices have gone down, there has been almost a free fall in the value of the stocks. Even though there are others that are a bit static, but the rest have not recovered yet. I think the experience of most stockholders is that the value of stock they were having in around March up to June, July, August compared to now, is that they have lost something.

"If you read in the papers just yesterday, they said that the share prices in the stock market was valued at over N12 trillion at around March and it is now about N9 trillion. That means almost N3 trillion has been wiped off the value of those shares. And these shares are for people like me and you, if you are also an investor into stocks. So, they are ordinary small holders and also big companies who have all being affected by the financial meltdown," the disturbed investor declared.

Gadanga, who has been investing in the stocks in the past 15 years, said that many people have recently gone into stock market because of the unhealthy business environment, bank interests, among other factors. "Apart from me, who has been there for a long time, other people, who have just started newly got interested into the stock market because of the huge publicity that has been given to the issue. As well as the IPOs we are talking about, and they have heard stories of people who literally become millionaires.

"You hear people who bought Dangote sugar and whatever, and within a short period, it sort of more than tripled. So, they really made a lot of money. But like I said, I have never done an IPO, so I never benefited from it, but many people have done so. If you stroll to any stock brooking firm in the past months, you will be amazed with the kind of people you meet there. You will see house wives, you will see people who are earning may be N15,000 a month; and all sorts of people who have become converted into the stocks. So, these are actually the people who are really hard hit because it is their life savings that they have put there, and is now wiping away."

Gadanga is not perturbed by the ongoing financial meltdown as he insisted that "I will still buy stocks even before the market stabilizes. I was just reading the big people in stock yesterday and the Oracle of Omaha, that is Warren Buffet, who is one of biggest American investors in stocks, was saying that now is the time to buy the stocks in America even. He said it is when people are panicking and everybody is selling, so that is the time to buy. And if you ask any stockbroker he would tell you that."

The investor added that "if I have the money, I will carefully study the situation and buy more shares. I can give you an example of stocks that many people said is very solid that is that of GT Bank. It used to be over N30.00. But it is now N18.00. I can tell you that if I have the money I will buy it. Because from all I hear it is a matter of time before it picks up again. If you can keep your shirt on when people are panicking and looking for the door, now is the time to do it."

Barrister Raymond Nyagba, an Abuja based lawyer is one of those who have also been hard hit by the crisis in the stock market. According to him, he bought about 5000 units of Oceanic Bank Initial Public Offer (IPO) at N16.00 per a unit in the first quarter of 2007. He also bought First Inland Bank shares at N9 per share of 10 000 units and First Bank at N33.00 per share of 2000 shares.

According to the investor, "But some six months ago, I began to notice a steady decline in the prices. Before then, the prices had gone up twice the amount I had bought them. The Oceanic Bank shares went up to N33 per share, the First Bank stocks had upped by N42.00 but all that have fallen down now".

The bitter sense of loss was evident in the voice of the lawyer when he regretfully said, "If I had sold them that time I would have made a 100% gain". The Oceanic shares have dropped to N17.00 per share as at Thursday and the First Bank ones have spiralled to N23.00 per a share, he lamented.

He said though stocks could be a long term investment, it could also come in handy when one is hard pressed for a need. "As an investor, I invest to make profit, I invest to make gain and it has given one cause to worry, though it's a long term investment, you could rush there and grab some units and sell. I can't do that now because I can't gain anything. My plan was let me invest in stocks, maybe at the end of a year, hopefully, I should be able to get 100% returns on my investment and take the interest to build a house. Certainly I can not do that again. All my hopes and aspirations are dashed! It may not be physically telling on me but emotionally I am affected because the purpose for which I was investing in the capital market is defeated, at least for now".

He is very apprehensive that the capital market has failed him woefully. Although stock brokers are assuring him that there is no cause to worry, and that now is even the best time to invest in the market, he said, "I am yet to be convinced".

Another lawyer, Musa Yamta, happens to be a few of those who have invested in the stock market that have fewer worries. Though worried in a different way, he thought that share prices were only jerked up forcefully to promote the value of the company in the eyes of the customers. "Appropriate share pricing ought to be there. I feel that certain share prices are jerked up out of false promotion of a company".

He told Sunday Trust that he didn't buy shares to speculate but he bought to invest in the long term. "I bought 20,000 units of shares with Skye Bank at N3 per unit of shares in the late 1980s. I was buying just to pile my stock when I had excess money. I didn't buy to speculate with it. I was only buying it as an investment, so I never planned to speculate on what I have bought. Just to invest, pile them and whenever there is need, sell them".

And because he didn't buy to speculate, he doesn't even know the value of the stocks at present. "I have never gone there to assess actually", he said. For him, it was a cause for concern when the stocks were going up. "Even when the shares were going up I really wanted to know, what were the indices, why the shares should go up the way they have gone. Is it that the bank has now expanded, or the value of the bank has increased so much that it has to cost this much? But as for me, a layman, I don't have to look into it seriously. But if they say that is the price, well it is good".

However, the pain of losing some money cannot be done away with completely. "When I was imagining that I have shares of 20,000 units costing me about N400,000, and now the price is gone down, invariably I might have lost. But in the actual sense, the lost is not much and I'm not so scared and dumbfounded as if the end of the world has come. In every thing there is risk, there is always the ups and the downs of the business. It is one misfortune that has happened but it will be over", he assured.

The only regret he has for losing whatever money he might have lost in the stock market is seeing his hope of comfortable retirement torn to shreds. "You always think as a human being when you get much older, you always hope to get something to rely on. If therefore the prices have gone down, you will feel bitter about it of course. But under the circumstances, what do you do? As a human being you just have to accept that failure for the time being and sit down and pray that things will improve".

Yamta advised that the stock market should be legalised. "To assess a share to its appropriate price, the indices should definitely be observed. Prices should always be looked into before they are jerked up. Because when you look at certain prices you continue to smile as if you have a lot of money with you but in actual sense, those of us who have spent up to 20 years in the market, we always feel that at times it is not the true price".

For Israel Wave, he has lost over 50% of his investments in the crisis. He had bought the stocks in February while in Lagos, hoping that by the time he got to Abuja, the prices would go up and he would sell them and rent a house. He said, "I bought Mutual Benefit shares for N5.50k, then the Law Union, for N7.50k. My intention was that when I move over to Abuja, I would trade, may be then it might have increased. But when I came, I had no option than to sell what I bought for N7.50k for N4.00. So I have lost almost half of what I have invested within some few months. They are now getting even lower than what I sold".

He is very sceptical about buying stocks again and also seemed to be at a loss on what to do with the one he has. "With what is happening now, I am not buying any shares again. I even wanted to sell but if I sell again the loss will be too much. I don't even look at stock reports again. I don't want to sell and I don't want to buy. I used to buy a lot of stocks but that is useless now. I think the best investment now is property and that's what one should be doing now and not stocks", he said.

In spite of his huge loss, he feels deep sympathy for those who have borrowed money to invest in stocks. "There are some people I know that took loans to buy shares and they are paying interest on the loans today, the shares are not rising, and instead they are coming down". He only hoped that the market would improve soon, at least by next year.

Rep Ahmed Aliyu Wadada, Chairman House Committee on Capital Market believes that the challenge of enforcement and compliance is most daunting.

"The key activities about regulations are enforcement and compliance. Our regulators do not ensure full enforcement and where they ensure enforcement; full compliance is not adhered to. So, what we really need to do is to find ways on how to rejuvenate this market. And rejuvenation of this market cannot be achieved without our regulators standing up to the challenges they have," the lawmaker said.

But in spite of the lamentations of stocks investors, key player in the sector still believes that the future is bright. Michael Daniel Katsit, Managing Director of Kapital Kare Trust and Securities Limited believes that the present crisis would soon usher in a period of prosperity. He advises Nigerians to patronise the market. He is quick to add that money interested in stocks should not be borrowed because of the cost of borrowings.

Dele Odusina, Managing Director Quantum Securities Limited believes that Nigerian stock market would not depreciate further. He says the market is still fundamentally strong and that the initial problem with the market was that of lack of confidence.

He maintains that the market got boosted by inflow of foreign investors and the present global meltdown has affected the capital market. He says that the market would soon bounce back to reckoning. Odusina explains that the market started finding its level as major companies gained on their shares price, other companies such as financial institutions, manufacturing confectionaries would follow.

"The market will come back and we have started seeing that in the appreciation of First Bank and Union Bank shares on Friday and since this has started other companies would follow", he said

Frank Ogiamien of Platform Investment opines that the market would not collapse, adding that Nigerian investors have seen the worse of the market in the last three months. He says a couple of things are being done to bring the market to appreciable level and that by this week; investors would begin to see the reversal of the trend in the market.

Ogiamien said the Chairman of NSE council Oba Otudeko met with Nigeria Economic council in Abuja last week as part of efforts to bring back the market on its feet. He said what further aggravated the problem was the refusal by the federal government to bail out the market. He added that since government had promised it would not intervene, it now rests on the regulators such as the Nigerian Securities Exchange Commission (SEC), CBN to come out with laudable ideas to bail the market.

According to Martin Oluba, President of ValueFronteria Limited, there are series of domestic financial policy faux passes which caused a reversal of inflow of rise in shares prices. The first was the Central Bank of Nigeria's decision to stop the then massive credit expansions which took place through bank lending for equities. The implication of this, according to him, was the endless upward price movement of Nigerian stocks, particularly the equities of the banks which were driven by the bank-credit-backed demand pressure, halted

Banks, according to Oluba, had sustained the equities market boom by using a combination of tactics-direct interventions through lending to stock broking firms primarily to buy their shares to sustain demand pressure on their stocks such that its prices continued to rise without corresponding appreciation on the underlying values.

The camel's back was however broken when JP Morgan, on its 12th May 2008 report, pointed out that more than 56 per cent of the banks are overvalued, while pointing out clearly that bank shares prices have run well ahead of fundamentals and do not incorporate the numerous risks facing the sector from both the operational and macro-perspective. This, Oluba said, triggered an increased drop in the holding of bank shares particularly by the foreign investors who have reckoned that the Nigerian market was indeed headed to experience exactly what other global market were facing. True to that perception, the price slide which started since then has not stopped

Meanwhile as Nigerians continue to lament the present crisis ravaging the stock market, both the Nigerian Stick Exchange and the regulatory agency, Stock Exchange Commission (SEC) have allayed the anxieties of investors, claiming that all measures would be put in place to arrest the problem

SEC, in a statement signed by its head of media, Lanre Oloyi, the board of the Securities and Exchange Commission (SEC) led by its Chairman, Senator Udoma Udo Udoma accompanied by the Director-General, Musa Al-Faki and other Executive and Non-Executive Commissioners met with the Council of the Nigerian Stock Exchange (NSE) to review the situation of the Nigerian capital market.

The meeting, the statement said, was held at the SEC corporate headquarters in Abuja and members of the Council of the Exchange present included its President, Chief Oba Otudeko, the Vice President, Alhaji Aliko Dangote, the Director-General, Professor Ndi Okereke-Onyiuke and other members of the Council.

"At the end of the meeting, the SEC and the NSE expressed satisfaction with the performance of the companies listed on the Exchange as shown by their various results up to the last quarter", it said.

As Nigerians continue to lament their N3 trillion losses and to expect a quick resolution of the problems confronting the stick market, not a few Nigerians are of the view that it would take a little longer for the stock market to get back on the path of recovery.Though key players in the

sector have tried to douse the

tension raised by the decline in the stock market since it took a sliding due to the global economic downturn, the Nigerian capital market has taken a turn for the worst. Rep Ahmed Aliyu Wadada, chairman House Committee on Capital Market believes that the challenge of enforcement and compliance is the most daunting. While the managing director of Kapital Kare Trust and Securities Limited predicts that the situation will take a turn for the better.