BY MICHAEL EBOH

Claims by the authorities of the Nigerian capital market to investors’ protection and safety of investors’ fund have been brought to question, following the nationalisation of Afribank Nigeria Plc, Spring Bank Plc and BankPHB Plc, by the Central Bank of Nigeria and the Nigerian Deposit Insurance Corporation.

From the circumstances leading to and surrounding the nationalization of the banks and the commencement of delisting processes by the NSE, it has become imperative that investors take their fate in their hands, especially as it concern the safety of their investment.

Shareholders of the three affected banks are already making moves to commence class legal action against the NSE for not protecting their investment. Following the nationalisation of the banks, shareholders had resorted to panic dumping of their shares at the secondary market, leading to a depression in the market.

Shareholders are insisting that the CBN-appointed Chief Executive Officers of the affected banks be probed as they deliberately delayed their acquisition for personal gains.

The shareholders tasked the courts on the need to deliver quick and fair judgment on the actions of the NDIC and the CBN in these banks in order to safeguard minority shareholders in the affected banks.

NSE, SEC’s investors’ protection mandate

The Securities and Exchange Commission, SEC and the Nigerian Stock Exchange, NSE, were set up primarily to regulate the capital market and ensure the protection of investors’ funds, among others.

The mandate of the Securities and Exchange Commission, SEC, as published in its books, is to regulate and develop the Nigerian capital market. In doing this, SEC said it undertakes numerous activities in order to protect investors, market operators and also ensure market integrity.

It further said that the mandate of regulation of investors’ protection is carried out through registration of securities and market intermediaries to ensure that only fit and proper persons / institutions are allowed to operate in the market.

The NSE, on the other hand, according to its mission statement, is to promote increased capital formation in Nigeria by providing issuers and investors with a responsive, fair and efficient stock market through competent and dedicated professions, using the latest technology, thus assuring local and foreign investors access to the Nigerian stock market with confidence both in the regulatory framework and in the reliability of trading and settlement systems.

Regulators’ failure

Juxtaposing the above with the nationalisation of the banks, August 5, 2011 and the commencement of delisting of the banks, it is obvious that both SEC and the NSE have not lived up to their billing in the regulation of the capital market, especially in the area of investors’ protection.

Historically, the CBN and the NDIC have never consulted the SEC and the NSE when making decisions affecting banks quoted on the NSE. The CBN and NDIC acted unilaterally in taking over the management of the seven listed banks in 2009, without consulting the NSE and SEC to know the implications of their action to the capital market.

This has been the major worries of investors, who feel shortchanged in the entire process.

With the nationalisation and eventual delisting of the banks, shareholders investment in the three banks running into over N200 billion, have gone down the drain.

The NSE, in its statement announcing the suspension of trading in the banks said, “This is the first step towards their delisting from the Daily Official List.” The statement signed by its spokesperson, Mr. Wole Tokede said that the delisting becomes necessary since the banks no longer exist, following the revocation of their licenses by the CBN.

In what appears to be an irony of the above statement, the NSE added its usual cliché, “The Exchange wishes to assure the investing public that it will continue its investor protection efforts.”

Also SEC, in its statement on the nationalisation of the banks, threw its weight behind the actions of the CBN and NDIC without recourse to the fate of investors.

The statement signed by its spokesperson, Lanre Oloyi said, “The Securities and Exchange Commission (SEC) wishes to state that the actions of the Nigeria Deposit Insurance Corporation (NDIC), the Central Bank of Nigeria (CBN) and the Asset Management Company of Nigeria (AMCON) are significant steps towards the resolution of the banking crisis.”

He said further, “Indeed, the Commission believes these actions will accelerate the recovery of the Nigerian capital market.” In closing, Oloyi also added the usual cliché, “The Commission remains committed to its mandate of investor protection and market development.”

Analysts condemn SEC, NSE’s role

To this end, capital market operators have criticised SEC and the NSE for their inability to safeguard and protect the interests of investors in the affected banks.

Speaking on the development, Mr. Tunde Adeyemi, Vice President, DHTL Capital Management Limited said, “This is a deliberate act to destabilise the whole financial markets and threaten the whole economy. The proper advice that people will be giving to investors is to stay clear of the Nigeria financial markets and start looking for alternative markets and economy, like Ghana, Cameroon, Sao Tome, Liberia, Gambia among.

“Investors’ protection is not on the agenda of SEC and NSE and as you might know, the actions of the regulators and SRO’s, especially in the last three years have heightened the political and investment risks of the country, which means we have finally lost the confidence of foreign and local investors in our capital markets. No investors will invest where situation like this happens.”

Investors’ protection claims queried

According to a report presented by analysts at Proshare Nigeria, the NSE needs to shed more light on the ‘grey areas’ that appear apparent with regards to how public companies became private companies without delisting processes initiated before such is made public. The analysts said that investors would have benefited from a well-planned exit programme, noting that the full suspension on these banks translates to a total loss of investment for investors.

They said, “How does this sit with the investors’ protection argument made by the SEC and NSE, when it did not take any step to educate investors? The consequence of this action will be reflected in the market and could well plunge the market further into negative territory.

“The sustained cloudy atmosphere coupled with unstable trend in the banking sector would not help the state of affairs in the coming periods as the sector remained the volume driver in the market while the likely trend reversal is built around the thriving outcome of recapitalisation and mergers & acquisitions in the sector.”

Also speaking, Mr. Opeyemi Agbaje, Managing Director, Resource and Trust Company Limited said that the NSE has failed in protecting investors, adding that the NSE may be deemed complicit in the series of events beginning from the consolidation share offers and subsequent abuses that has led to the banks’ problems and nationalisation.

He said further, “Unfortunately the current leadership of NSE/SEC may correctly claim that these issues pre-dated their tenures, and that they are taking corrective action.

“Ordinary investors are the ultimate losers in this crisis. The bankers have become rich; depositors are protected; while CBN/NDIC/AMCON among others flex muscles with the bank owners.

“My major concern however, remains the re-entry of the federal government into the banking sector and the market distorting effect this is likely to have on the growth and development of the sector. I hope the federal government will swiftly sell off the banks to new investors.”

Mr. David Adonri, Managing Director, Lambeth Trust and Investment Limited, also said, “From the periphery, we do not know why the financial authorities acted before expiration of the deadline. Not all risks borne by investors in the market are mitigated by investors’ protection funds or regulatory policies. The risk of corporate failure and attendant loss of equity capital is not covered by any compensation.”

He, however, said, “Based on the provisions of the enabling laws, it appears the financial authorities have acted judiciously until a court overturns the nationalization. Perhaps it was necessitated by purposes of expediencies to forestall immediate collapse of the affected banks amidst shareholders recalcitrance.