By NKIRUKA NNOROM
Asset Management Company of Nigeria (AMCON) will soon announce a bailout package for the over N90 billion non-performing loans of Stockbrokers in the country in a bid to revive the stock market.

Managing Director of AMCON, Mr. Mustafa Chike-Obi, said that arrangement to this effect is being finalised by the Ministry of Finance.  Although he did not disclose the form the bailout will take or how soon it will be, he told Finance Vanguard: “All I can tell you for now is that we are going to give forbearance stimulus to stockbrokers.

“We have not concluded the arrangements. The proposal is still under discussion to ensure that what happened in the capital market with margin loans never happens again. Once it is finalised, it will be made public. The total margin loans of stockbrokers to banks is about N90 billion. Forbearance is less, but I can’t discuss this because it requires input from CBN and Minister of Finance.”

*Nigeria Stock market

Vanguard gathered that the planned forbearance stimulus will be well below the total outstanding non performing margin loan facilities in the market at the moment. The on-going discussion, according to Chike-Obi, has reached an advanced stage and is aimed at addressing the problem of liquidity plaguing the capital market, as well as forestalling reoccurrence of actions that led to high indebtedness of stockbrokers to banks.

Chike-Obi’s disclosure is a confirmation of what the Minister of Finance, Dr. Ngozi Okonjo-Iweala and Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr. Oscar Onyema, earlier said that the capital market authorities are working assiduously to resolve the problem of margin loans once and for all.

The Minister of Finance said that giving forbearance to brokerage firms will not be without a price, adding that those affected will be required to meet certain conditions to enjoy such package. Onyema had while doing appraisal of the capital market activities for 2011, said that efforts are on top gear to get the Ministry of Finance to accentuate the proposals before it seeking for the advancement of bailout to stockbrokers.

According to Onyema, the Central Bank of Nigeria (CBN) and AMCON have been contacted and they in turn have written the Minister of Finance to give approval to the planned forbearance.

“The board of AMCON has written to CBN asking for support to grant forbearance that will lift the debt overhang and CBN has agreed and written to the Ministry of Finance. We in turn have followed the process through by writing to the Ministry of Finance.

Right now, I can tell you that the Minister is reviewing it. The minister was quoted as saying that provision will be made in that regard. So we have been pushing it. We have been tracking it and we have been supporting it,” Onyema said.

Shareholders object to bailout

But reacting to the planned forbearance, some shareholders said that such package is not required as the margin loans were part of risks undertaken by stockbrokers in the course of their business. But others said that the planned bailout will resolve the problem of illiquidity in the capital market.

Speaking to Vanguard, the National Secretary, Independent Shareholders Association of Nigeria (ISAN), Mr. Adebayo Adeleke, said that such stimulus is not necessary since stockbrokers are just agents or custodians of investors’ money who transacted businesses on behalf of their clients.

He suggested that instead of the planned bailout for stockbrokers, a form of palliative should be worked out and given to retail investors who fell victim of the margin loans debacle rather than offering  stockbrokers who are not the market players such a privilege.

“Why should anybody be talking about giving bailout to stockbrokers? Are they the owners of the investments that were wiped out in the market crash? If they are given money as it is being planned, who is going to pay me for all I lost in the market. If that is the case, we will leave the operators to play the market,” he stated.

“Why is it that the government has not called investors who lost their money together for any discussion? How often have they communicated with investors? What arrangement do they have on ground to help investors who lost their money in the market?

They meet monthly with stockbrokers and Managing Directors of companies. What effort have they made to talk with investors? They have set up committees to review some issues, but no platform has been created for investors to share their experiences,” Adeleke lamented.

According to him, more attention should be given to retail investors, instead of pursuing portfolio investors who always flee the market at the slightest sign of problem. “These portfolio investors can move their money anytime but we don’t have anywhere to take our money to. The portfolio investors are not the ones to salvage this market,” he further asserted.

Also speaking to Vanguard, National Coordinator, ISAN, Sir Sunny Nwosu, remarked that even conceiving the idea of giving stockbrokers forbearance is an affront on investors who suffered more from the recklessness exhibited by the stock broking community while the stock market boom lasted.

He regretted that instead of bringing those that sunk the market to book, the Federal Government is rewarding them for their indiscipline. “Stockbrokers that sunk this market through their different illegalities have been promised forbearance. All the people whose indiscipline helped to sink the market are getting national honours, while the shareholders are left to bear the brunt of their indiscipline,” Nwosu stressed.

However, he said that the failure of AMCON in the early stages of the market meltdown to accommodate margin loans worsened market liquidity. According to him, there is need for banks to extend fresh facilities to brokerage firms.

“I’m not advocating that those banks should write off the entire margin loans but at least let the financial institutions in question share the burden with them by restructuring the loan and providing waivers like they do for other customers.

The waiver is necessary because the loans were joint business risk between the banks and the stockbrokers. Indeed, banks gave dealers specification on how to invest the margin loans. Now that the market has taken opposite direction there is need for them to share the loss,” Nwosu enthused.

“ As a stakeholder, I think what the capital market regulators needed more is an inclusive management and not their continued exclusive management and regulation of the market,” he added.

Mr. Boniface Okezie, President, Progressive Shareholders Association of Nigeria (PSAN), said in agreement to the position expressed by his colleagues, that the talk of giving forbearance to stockbrokers is even creating confusion in the system. He explained that since the margin loans have been handed over by banks to AMCON alongside other non-performing loans, the brokerage firms by that action are no longer indebted to the banks.

He noted that if all the stockbrokers are still indebted to banks, the losses should be shared between the two parties. According to him, both the CBN and AMCON have the responsibility of keeping the banks off the stockbrokers if that will stabilise the market.

He however noted that the only problem he sees is the unwillingness of local banks to advance credit to stockbrokers, saying that it is one of the major reasons why the lull is persisting in the market. “On what basis is AMCON planning forbearance for stockbrokers.

The assets in question have been handed over to AMCON as non-performing loans. So what are they forbearing. Well, if the banks still think that the stockbrokers owe them and they are disturbing them, CBN should stop them from doing that. The earlier this issue is resolved the better for the market,” he emphasized.

Stockbrokers bemoan loses

For stockbrokers, present dearth of retail investors and consequent illiquidity in the capital market could be explained by the failure of the regulators to heed the pleas to inject fresh funds into the market. They argued that in all jurisdictions where stockbrokers suffered the same fate, their various governments have given them some sort of palliatives to cushion the effect of the meltdown.

For them, it was an all important decision which Nigerian government needed to take to reposition the NSE for profitability. Since the CBN has taken the pain and injected some funds into the banking sector, it would not hurt to do same for the capital market.

Mr. Tunde Adeyemi, Managing Director, DHTL Limited, told Financial Vanguard that stockbrokers who are the major marketers and promoters of activities in the capital market are presently engulfed by apathy due to lack of fund and the threat from banks they took margin loans from. He explained that he and his colleagues have become afraid of lodging new clients’ money into their corporate bank accounts for fear of forceful seizure by creditor bankers.

Adeyemi maintained that this has been a major problem why brokers have pushed marketing soliciting for new investors for fresh investments in the shares market to the background. According to him, the present problem has been compounded by the lack of understanding of capital market laws, rules and regulations by the judicial practitioners.

He regretted that security agents are being unleashed on stockbrokers, while the judiciary is being misled to believe that the margin loans were executed as ‘traditional’ loans and credit by commercial banks. Margin loans, he noted, were joint venture credits that were contributed by a ratio of 70 and 30 per cent by the stockbrokerage firms and the banks.

He said since the crisis began, most of the banks which are in custody of the pledged assets or collaterals (share certificates) have unilaterally sold the shares, sometimes at ridiculously low prices in order to regain some of their own margin loans contributions.

He added that in cases where such collaterals (share certificates) could not cover the entire margin loans, the Economic and Financial Crimes Commission (EFCC) and the Police were turned loose on stockbrokers for the repayment of the balance sum. He, therefore, challenged the regulators to address the problem of liquidity once and for all through engaging stockbrokers and relieving them of the debt burden.

Speaking in the same vein, immediate past President of Association of Stockbroking Houses of Nigeria (ASHON), Alhaji Olayinka Yussuff, said he regretted that AMCON which they had thought would alleviate their suffering by buying off the shares overhang in the market has left them to bear the pains alone to the detriment of the market.

According to him, “In other climes where the equivalent of AMCON has been introduced, the main objective is to soak up excess shares so as to create stability in the market.”  Lamenting the obvious neglect, he said their insistence that the equity market be bailed out was not borne out of lack but the need to revamp the market.

He insisted that without this particular measure, the private sector participation the Federal Government is harping on and the efforts to bring more companies to list in the market will not bear fruit. He therefore, demanded for a change in policy thrust to this effect.

Lending his voice, Chief Executive Officer, Maxifunds Investment and Securities Ltd, Mazi Okechukwu Unegbu, said the persisting problem of liquidity in the nation’s capital market was a fallout of government’s failure to respond proactively to the issue of margin loans like their counterparts in other jurisdictions.

How it all began

Financial Vanguard recalls that in the wake of the capital market boom that occurred in the stock market between 2004 and early 2008, stockbrokers took huge loans from banks to trade on shares for themselves and on behalf of their clients. When the stock market finally crashed in 2008, many stockbrokers who depended on the multi-billion naira facilities to engage in speculative trading were caught in the middle.

At the conclusion of the first phase of CBN’s audit of the banking sector in 2009, the total debt exposure of banks to the capital market, obtained through margin facility, was found to be within the region of N1.3 trillion. Some measures instituted then by the CBN governor, Mallam Sanusi Lamido, to return sanity to the banking sector did not go down well with the market as most of the measures simply heightened the liquidity challenges.

For instance, the CBN’s directive that the total loan exposure of the banks to the capital market be reduced to 10 per cent sent the managers of banks on mad sell-off to recover their money and meet the target.

Over the past two years, dozens of stockbroking firms and their clients have been guests of EFCC as well as the Special Fraud Unit and the Financial Intelligence Unit of the Nigeria Police. Commercial banks that were once partners in speculative trading have as well used various security agencies to harass and intimidate stockbrokers, seizing their assets including bank accounts.

More than that, the banks have turned over the margin loans facilities of the stockbrokers to AMCON in return for discountable bonds, but their partners – the stockbrokers – are yet to be invited into any discussion or negotiation by AMCON.

Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.