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The Nigerian capital market and the small investor (1)

Dr Akintola Omigbodun

I have taken an interest in the performance of companies quoted on the Nigerian Stock Exchange, NSE, from the late 1990s onwards. At that time, I had to visit the Registrars of most companies in order to retrieve family share certificates destroyed in a fire incident. Given the amount of paperwork I encountered, I had to ask myself if some of the share certificates were sufficiently valuable for me to complete the recovery process. I discovered that a number of companies had disappeared from the daily lists of the NSE, especially banks and unit trust funds that had failed with shareholders losing all their investments.

It has been stated that if developing countries are to accumulate capital that would lead to adequate funding for projects; these countries must rely on their ability to mobilize domestic savings especially when they have no mineral or hydrocarbon resources. In countries with sufficient housing stock and readily available mortgages, the savings for most people is through home ownership with mortgages.

That situation is not our lot in Nigeria and in the period from 2005 onwards, when the Central Bank of Nigeria, CBN, stipulated N25 billion as minimum capital for commercial banks, hundreds of thousands of Nigerians were encouraged to invest their savings in the capital market, especially in bank shares. Some banks failed at this juncture because they could not conclude arrangements to meet CBN conditions and in one instance investors lost their deposits for shares.

There was a spectacular rise in the share prices of companies quoted on the NSE from early 2006 to mid 2008 when a crash in the share prices commenced such that by the end of 2008, the share prices were less than they were in early 2006. By August 2009, the CBN intervened in some banks with the result that shareholders in these banks essentially lost all their investments, a repeat of the 1990s bank failures.

The CBN and the Nigerian Deposit Insurance Corporation, NDIC, carried out forensic and diagnostic examinations of the banks and both organisations have stated publicly that they are aware that in some of the banks, the directors took actions that were explicitly prohibited by statute and for which actions the affected directors have personal liability.

Moneys can be recovered from directors of some of these banks by civil action and the moneys applied to the benefit of persons who were shareholders before the banks were recapitalised or nationalized. It is not good public policy to allow the illegalities that took place in some banks to remain unchallenged as this reinforces the climate of impunity hanging over the financial system.

The CBN and NDIC should therefore set up independent panels with an independent counsel heading each panel. The panels will look into the available forensic and diagnostic reports on the status of the banks and make recommendations for the recovery by civil action of moneys improperly applied by the directors of the banks.

As a shareholder of Union Bank of Nigeria Plc, UBN, I spoke at the Extraordinary General Meeting, EGM, of 30 September 2011 on allegations that UBN obtained credit facilities of N30.477 billion which were misapplied by the directors in the purchase of 620 million units of UBN shares contrary to statute that forbids a company from purchasing its own shares.

I indicated that on recovery the moneys should be utilized in the allotment of about 6 billion units of UBN shares to persons who were shareholders of UBN at the time of the EGM. Subsequent to the EGM, I have written to the Registrar-General, Corporate Affairs Commission, CAC, the Governor, CBN, and the Director-General, Securities and Exchange Commission, SEC, that action should be taken to get UBN to be in compliance with the law. I have had no response to these letters. My request to the Company Secretary, UBN for a certified true copy of the minutes of the EGM remains outstanding.

There were approximately 492,000 dispossessed shareholders of UBN and about 319,000 of these had investments of between 1 unit and 5000 units of shares at the time of the EGM. After share reconstruction, the value of their investment was 9% of the amount paid for the shares at the time of the 2005/2006 share offer.


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