By Peter Egwautu
THE stockbrokers inability to meet their margin obligations has been attributed to low patronage by the investing public to invest in the nationâ€™ s capital market.
This was revealed in a paper presented by the Managing Director/CEO, Cordros Capital Limited Mr. Wale Agbeyangi at a seminar organized by Proshare Nigeria Limited at the weekend, in Lagos.
In the paper presented at the seminar tagged â€œ Share/Margin Loans and the Investor : The Broker /Lenderâ€™s Perspective, Agbeyangi stated â€œ Brokers are not generating enough patronage and hence income to meet up their margin loan obligations.Â Also, box load portfolio had been greatly decimated by the stock market meltdown and as such both the principal and interest have been eroded.
He disclosed further that certain proportion of the money borrowed was still tied down in private placements.On the factors responsible for stockbrokersâ€™ clients inability to meet margin obligations, he stated that an average investor who remain in the capital market since the inception of the market meltdown in March 2008 to date must have suffered about 65 per cent decline in the value of his or her equity asset.
According to him, â€œ The general economic recession in the country, influenced by the decline in crude oil prices at the world commodity market has led to lower income per capita for which has led to lower income per capita for the nation. Hence, individuals are finding it very difficult to meet their debt obligations.
â€Agbeyangi revealed that the stockbrokers and their borrowing clients have called on the Central Bank of Nigeria (CBN) to allow banks to restructure all capital market related credits into a five year discountable instrument, as a way of addressing the illiquidity in the nationâ€™s stock market.He agreed with the CBN that banks were reckless in the disbursement of loans to their customers, adding that indiscriminate granting of margin loans to clients without adequate cover was major upset, as loans were given upon considerations purely based on personal recognitionâ€According to him, â€œ Many brokers â€˜lenders were caught up in the margin lending frenzy without adequate contractual agreement and proper documentation. Also, large chunk of collateral stocks were not liquid enough and as such exiting when the bearish trend began was almost impossible.
In his paper, he stated that the margin loans were tied down in private placements and public offers and as such many invertors were caught in the web of meltdown According to him, â€œ Some of the offers have still not been listed till now e.g. ENCON, IGI, GT Assure etc.â€
While explaining some of the stockbrokers experience over the margin facility, he disclosed that some banks had initially wanted all the margin loans paid back while some werre open to discussion with brokerage firms.
According to him, â€œ A few of the banks on the other hand adopted the legal approach to recovery by instituting legal actions and petitioning of the Economic and Financial Crimes Commission, while some adopted the moral suasion.
He noted that those who adopted the moral suasion method of recovery were those banks whose margin exposure was not substantial.