James Sowole
3 November 2008
Akure — The National Chairman of the Democratic Peoples Alliance (DPA) and former Minister of Finance, Chief Olu Falae, at the weekend said the recession currently being experienced in the stock exchange especially as they concern bank stocks was caused by the arbitrary consolidation of financial institutions introduced by former President, Olusegun Obasanjo's regime.
In the same vein, Managing Director of the Lead Capital Limited, Mr Abimbola Olashore, attributed the free fall of share price at the capital market to the upward manipulation of stock prices by institutions ahead of their capital raising exercice as one of the reasons for the collapse of stock prices.
Falae, who was also the former Secretary to the Government of the Federation, blamed the former president for encouraging abitrary consolidation of the banks' capital base.
According to him, the whole consolidation exercise was so unreasonable in terms of the time dimension.
Falae said the deadline given for the completion of the consolidation forced together strange bird fellows that are trying to meet the target by coming together to form one consolidated bank."
"We argued then that it is always reasonable for banks to continuously increase their capital base because the bigger your capital bases the more you can do, and all things being equal, the safer you are. But there was no need to set a deadline of 18 months for the consolidation of banks.
"It was an arbitrary deadline, totally unnecessary and that the capital of N25 billion imposed was again arbitrary. Most of the banks could not meet the target. What they did was to revalue their physical assets which made them to meet the consolidation deadline"
He said the purpose of consolidation which was to get more liquid resources and equity investment fund to the banks so as to lend at lower rate was defeated by arbitrary consolidation introduced by Obasanjo's administration.
Falae added, "When you re-value your asset to technically meet the target, you fulfill the consolidation technically but operationally it did not. So there is incipient illiquidity even after consolidation".
He pointed out that the banks did not have enough of liquid resources as they were supposed to have, stressing that "the operators of the banking system carried out a lot of manipulations to meet the consolidation challenges".
He said some operators of the banking industry manipulated their share sales by cornering the substantial part of the stocks at an arbitrary price and offered same later for sale on the stock exchange at exorbitant prices that are not commensurate with their actual performance.
Speaking on the issue at a stakeholders meeting tagged "Talking Business" organised by Tom Associates at the Tom Associates Education, Center, Ikeja Olashore said the stock market crash was a culmination of "manipulation of of stock upwards by institutions, ahed of their capital raising exercises, abdication of fundamental anlysis and focus on trends and statistical models, predatory lending, indiscriminate extension of credit to investing public mostly to the naive and those who lack income stream to service debts in the guise of product offering as well as seeming laissez faire approach to the bubble building up in the capital market by regulators"
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