And the feather pate of folly/Bears the falling of the sky —A.E Housman, 1859-1936.

OF all the assignments that I have been given this year by our readers, none gave me as much pain as the one on banks; which is just nearing conclusion; at least on paper.

The action continues off the pages of newspapers because the banks need to be cleansed. Just as painful is this assignment given to me by this anonymous reader. The topic is clear enough and the concern is not only national but global.

At least 28 million Nigerians own shares and for every bread winner, one should add three people depending on his financial well-being and all of a sudden, you are talking about 112 million Nigerians whose fortunes are at stake in what should ordinarily be called the Nigerian Stock Exchange.

But before explaining why this otherwise honourable institution had been turned into a gambling casino where the odds are stacked against the small investor, let me take you back some years.

Back in 1995, shortly after Abacha, once again, increased the price of fuel, the quoted companies, especially the oil companies at the end of the year released annual reports and accounts showing profit increases of 120 per cent, 90 per cent. etc., and the gullible fell for it. Share prices went through the roof.

In my Monday column, at the time Market Fact, I predicted that the market was going to crash in 1997. To the stockbrokers at the Nigerian Stock Exchange, the article was so funny they pasted it on the notice board for people to laugh about it. And why should they not laugh? At the time the market was still climbing furiously.

Then, in November of 1996, the market started to slow down; it got slower in December and January. By end of February, someone quietly pulled down the article they were laughing at because it was clear that the downturn predicted was underway and there was nothing anyone could do to stop it.

Again in the same 1995-6 I told a few close friends to take their money out of several banks including Commerce Bank which was headed by two former presidents of the Institute of Bankers. Asked why, I told them a banking distress was coming. Till today, I still drink free beer courtesy of those who listened.

One company chairman did not believe that Commerce Bank would go down. His company had over N80 million trapped when the bank went under.

Current trend

What have all these got to do with the current trend in the capital market? Plenty; as usual. First, we have heard some of the measures that government had proposed. Some are illegal; a few don’t go far enough and none addresses the underlying causes of the current problem which might render the measures useless.

The Central Bank is putting out N150 billion to help banks and investors; the Attorney-General is to send a circular to exempt certain individuals from obligations under the Companies and Allied Matters Act, CAMA; a capital market stabilisation fund is to be established among other means of intervention. The question is: will they work?

The answer is: yes, in the medium term defined as three to four years or long-term meaning after five years; but certainly not immediately. And there are two fundamental reasons: investor confidence and more importantly, malpractice in the capital market.

When good old President Abraham Lincoln, 1809-1865, said, “You can fool some of the people all the time; you can fool all the people some of the time; but you can’t fool all the people all the time” (Vanguard Book of Quotations, p62), he never had the Nigerian Stock Exchange in mind.

But, that observation would serve as well for the NSE. Perhaps, the place to start was the recent announcement by the NSE concerning delisting of twenty-eight shares from the exchange. Nigerian Yeast and Alcohol Manufacturing Company alias NIYAMCO should serve as proxy for the rest because how the Exchange handled the affair of NIYAMCO is similar to the others.

The company had not produced anything for almost ten years, yet it was listed until last month.
Back in 1992, as a senior lecturer/consultant at the Nigerian Institute of Management, NIM, NIYAMCO was one of our clients and it was assigned to me because it was in deep trouble.

I went to Bacita in Kwara State to meet with the management of the company but it soon became clear to me that the company was at death’s door on account of mismanagement. Two or three years after, the company finally closed shop.

Yet, its shares were listed everyday until last month as if it was still in existence. Call it absent-mindedness or what, but the obvious questions are: are companies listed on the exchange not statutorily required to file annual reports and accounts to remain listed? Is there no limit to the number of annual reports that a company must miss before being delisted? 

What are the penalties for missing on the deadline for filing returns? Were the penalties imposed on these companies or not? Finally, at least for now, how many companies not yet delisted have failed to file annual reports and accounts for more than two years and what is being done about them?

If  NIYAMCO and the 27 others represent one of disturbing aspects of the NSE, oversight of share prices and the All-Index total, insider trading, release of share certificates; visits by companies to present “facts behind the figures” constitute avenues for unethical practices which have helped to blow up the bubble that is now bursting in everybody’s face.

Managers of the Nigerian Stock Exchange in a bid to attract more investors sacrificed quality of management for quantity and allowed a lot of questionable transactions.

Take for example the “facts behind the figures” visit as it operates in Nigeria.
Prior to the release of its report to the general public and millions of stakeholders, a company undertakes to give a preview to officials of the NSE and selected stockbrokers on the understanding that secrecy will be maintained.

But, hardly any company goes to those meetings with an empty hand - if you know what I mean.

This is regarded as PR but it is questionable for two reasons. First, every stockbroker has clients, some very favoured.

The secret withheld from others is shared with them. Second, the select stockbrokers will find it difficult to resist pressure to support the company because those who come calling are loaded. Either way, what transpires in those sessions does not promote the canons of a free market but that of robber barons out to swindle other stakeholders by being privy to privileged information offered to a few.
 
Share price manipulation is often a conspiracy involving powerful shareholders and their stockbrokers especially before the rules were changed; and perhaps even now.

For a mere 5,000 shares out of billions, the price of the targeted security is moved up by five per cent in one day for absolutely no economic reason at all.

This continues for several days, and, in a short while, the price had appreciated by 100 per cent.

At that point, the suckers get interested. Assuming the price will continue to climb, they buy at the high point, notwithstanding the dividend payout.

Once the target price is reached, the manipulators sell and pullout taking their loot with them and leaving the suckers with shares that will remain stagnant for months, if not years, and that might even depreciate.

Excessive manipulation of share prices and the consequent bubble burst account for a great deal of the strength of the bear market we are now experiencing and they also explain why most of government’s measures might not work. Most

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