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Five years after stock market crash that ruined colossal wealth of investors, stunning scale of shares manipulations by banks and deep regulatory slumber that combined to bring the market to its knees have seized to be speculations as the Central Bank of Nigeria (CBN) has finally spilled the beans.

Even as the apex bank made bold to carry the can, that is accepted institutional responsibility, for regulatory lapses in the banking sector in the period leading up to stock market crash and the CBN intervention in 2009, it blamed some regulatory institutions in the capital market including Chartered Institute of Stockbrokers (CIS), Association of Stock Broking Houses of Nigeria (ASHON), Association of Issuing Houses of Nigeria (AIHN) and Association of Capital Market Registrars, for failure to monitor activities of those involved in malpractices.

Making presentation at the ongoing House of Representatives capital market committee probe of near collapse of the market, CBN Governor, Mr. Sanusi Lamido Sanusi, represented by Dr. Kingsley Moghalu, painted graphic picture of the sleaze rife among stockbrokers and banks, and how pre-consolidationed efforts of some consolidated banks eventually undermined performance of the capital market and the financial system.

Under cross examination by members of the probe panel, Moghalu who is the CBN Deputy Governor, Financial System Stability, revealed massive insider abuses in some Nigerian banks and this included the concealment of insider loans and unbridled use of investors funds to acquire the banks' own shares in the capital market which he said was part of the reasons the stock market kept going up and eventually went down.

The CBN deputy governor revealed how the managements of the eight rescued banks connived with stockbrokers to manipulate stocks prices adding that CBN findings showed that the rescued banks were discovered to be the ones largely involved in huge manipulation of their shares prices, net takers in the CBN standing lending facilities (SLF) and the expanded discount window (EDW).

While stating that not a majority of the banks were involved in the huge share prices manipulations that preceded share price bubble burst, he linked defunct Afribank, Oceanic Bank, Spring Bank, Bank PHB, and recapitalized Union Bank in the sorry pass witnessed in the capital market prior to the CBN intervention in 2009. He stressed that inaccurate reports submitted to regulators and investors by banks had deprived regulatory authorities of the right information required to take timely and effective decisions on the market. When prodded further on CBN's intervention that sacked managements of the eight banks it rescued in 2009, Moghalu laid bare the rot in the banks that necessitated the apex bank's action.

While disclosing that the percentage of non-performing loans was very high in all the eight banks in which the CBN intervened, Moghalu stated that forensic and diagnostic investigations commissioned by CBN to determine the root cause of the problem in the financial sector, revealed massive rots. Hear him: 'Now let me show how precisely the managements of these banks contributed to the problems of the stock market; how precisely, they manipulated the stock market. That is what the probe committee is here to discuss. A number of manipulations took place in the stock market by the management of some banks during the period under review. A number of individuals as we all know are currently under prosecution in this country for the role or some of their acts that infringed upon the law. And those laws include Investment and Securities Act (ISA).

'Responsibility in law, first of all, there is the responsibility of the individuals who are alleged to have done or failed to do certain act; and that, in this case, are some members of the management of those banks or some operators in the stock market. Then you have institutional responsibility of supervision and if there is a failure in the institutional responsibility of supervision it is a criminal offence; it is a management shortcoming or failure to perform one's duty. That is different from people who proactively manipulated the stock market. They are not CBN staff. They are capital market operators and they are management of some of those banks. And that is what I want to give to you in some details.

'Regarding Afribank, during its public offer that closed on December 2007, the bank manipulated its share price using share buyback arrangement. I want to show how this happen in the capital market and how this contributed to the crash.'Afribank advanced credit facilities to three stockbroking firms. And those credit facilities were utilized in purchasing shares of the bank in the name of 1,258 fictitious subscribers. The shares purchased represented 66 percent of the Afribank offer.

'On the specific instruction of the bank's managing director, the shares held by the 1,258 subscribers were consolidated and ownership transferred to nine companies owned by the bank and its directors. The depositors' funds were being used to buy-back the shares in the stock market.

'This action contravened the provision of the investment and securities act 2007 which prohibit activities that create a false and misleading impression of active trading by engaging in the purchase or sale of a security that does not involve a change in the beneficial ownership of that security. This is the law and that was how it was infringed. And the Economic and Financial Crimes Commission (EFCC) is prosecuting a number of individuals over these charges.

'In Finbank, in August 2006, the management of Finbank conspired to engage in proprietary purchase of its own shares through companies incorporated by the bank. The bank instructed four stockbroking firms to purchase over 2.8 billion units of its own shares between August 2006 and December 2008. Finbank reported that their hybrid public offer was over-subscribed as regards to its ordinary shares but of course they did not disclose that they are the one buying it.

'Intercontinental Bank was found to have violated several provisions of the ISA. The bank acting through three stockbroking firms implemented an elaborate scheme of buyback its own shares between September 2007 and December 2008, the stockbroking firms bought 3.4 billion units of the bank's shares constituting 29 percent of the outstanding shares of the bank on the NSE.

Such was the huge scale of share prices manipulations and insider abuses/infractions which CBN uncovered in the market but too late in the day. But that was not all the rot in the financial system as the CBN disclosed other mounting challenges that threatened to cripple the financial system and the economy at large. Moghalu continues: 'The state of the banks that necessitated the CBN lender of last resort intervention was so grave that without its timely intervention, the banking system and the economy could have collapsed. The percentage of non-performing loans was very high in all the eight banks in which the CBN intervened.

'In Bank PHB, the non-performing loans were 40.86 percent of the total loans of the bank. In Oceanic Bank, it was 44.35 percent non-performing. Afribank had 47.0 percent of its loans as non-performing loans while 47.5 percent of the loans of Finbank were bad loans. Intercontinental Bank had 48 percent of its loans as non-performing. And 57 percent of ETB's loans were non-performing. In Wema Bank, it was 77.6 percent while 85 percent of all loans by Spring Bank had failed.

'This is by any definition, a massive systemic crisis that called for systemic intervention, which necessitated the lender of last resort intervention and if that lender of last resort function had not been exercised, the financial system of this country would have collapsed', Moghalu to the probe panel. He further explained that all the banks mentioned above had serious liquidity challenges, and could not meet minimum liquidity ratio of 25 percent. And in addition, the banks were either net takers in the interbank market or enjoyed liquidity support from the CBN.

'So, these banks were already in life support before the CBN intervention in 2009. ETB had N77billion against it in the standing lending facility at the CBN as of June 30, 2009. Bank PHB which was a net taker of funds in the interbank market to the tune N30.44 billion and also between Oct 2008 and June 2009, borrowed N139 billion through the Expanded Discount Window (EDW), and again Bank PHB borrowed N5 trillion through standing lending facility (SLF) while Oceanic Bank borrowed N561 billion in CBN EDW, and N2.9trillion through the SLF between Oct. 2008 and Oct. 2009.

'Intercontinental was a net taker of funds from the interbank market to the tune of N72.4 billion in addition to an outstanding liquidity support of N81.5 billion from the CBN through the EDW. Afribank accessed a total of N3.9 trillion from the CBN SLF, and the EDW to the tune of N3.9 trillion. Finbank borrowed a total of N194 billion from the CBN SLF and EDW. Union Bank had interbank tank takings of N108 billion and accessed a total of N291 billion and N1.05 trillion respectively through the CBN EDW and SLF between Oct. 2008 and July 2009. If this is not something that calls for the lender of last resort intervention, I do not know what else on earth will call for that', Moghalu concluded.

Stunned by the gargantuan manipulations as revealed by statistics from the CBN, the probe panel sought to find out if there could be established link between the alleged manipulation of shares prices by banks and the CBN policy statement in 2005 requiring the banks to recapitalize from initial N2billion to N25billion capital base.

The question is now that the CBN has revealed major cause of the market crash and honourably accepted responsibility for regulatory failures in the financial system what forbearance option is open as consolation for numerous investors and shareholders who lost massive funds in the market? And what options open to spike sustainable market recovery?

Barrister John Kennedy Onyemere, a legal practitioner and law lecturer at the Abia State University posited that the mind boggling scale of abuse and infractions at the Nigerian capital market as revealed by the CBN deputy governor, Kingsley Moghalu, was unprecedented and calls to question the role and complicity of those saddled with overseeing the market at the time.

He was of the view that in a country that is a lawful society, rules and laws must be obeyed and observed to the letter, stressing that laws should not be subjected under the apron strings of those involved or implicated to have infringed on such lawful provisions. While calling on the capital market probe panel not to cover up existence of sanctions against all those whose position and activities at the market conferred on them some level of responsibilities as regulators or operators, Onyemere insisted they should be summoned to answer questions on their actions or inactions while in office.

'The investment laws already existing should take its full course. If those implicated have breached the law and it is found to be a criminal offence, the normal course of law should be allowed to flow. Let the persons be prosecuted and if found guilty, should go to jail. 'That is the only way to serve as a deterrent. It is high time we moved away from selective approach to justice and equity in this country. It is difficult for the poor to do all the things that are causing the myriads of problems that we have in this country. Let the full wrought of the law come upon those who have inflicted untold hardship to investors on the Exchange, whether big or small', said the university don.

Commenting on the possibility of perpetrators of the manipulations refusing to appear before the panel, the legal practitioner said they should be compelled to appear before the panel to explain what role they played at the time when all the alleged share prices manipulations in the market took place. He insisted that it was important that those who either by acts of dubious omission or willful commission plunged the market into its sorry state are not allowed to go unpunished.

Also commenting, Mr. Omotosho Leke Omotosho, said that all those implicated in the large scale manipulation of share prices should be made to answer questions, for their roles in the alleged manipulation of share prices at the stock market. Omotosho, a legal practitioner as well as a stockbroker trading under Crane Securities Limited, said the probe was good for the market, insisting that without prosecution of those implicated in insider abuses and infractions the objective of the probe was defeated.

He specifically stressed on the prosecution of the chief executives of the banks and stockbroking firms used to perpetrate the financial crimes, pointing out that such would serve as deterrent in the future. On the way forward for the capital market, he suggested a new era of strict regulatory approach at the capital market, adding that the operators should be made to be on their toes at all times if only to ensure strict compliance of all the rules in the market.

Sir Sunny Nwosu, National Co-Ordinator of Independent Shareholders Association of Nigeria (ISAN) said 'Now you can see part of the reason for lost confidence in the market. The federal government moves to give forbearances to stockbrokers is misplaced. Why are you giving forbearances to stockbrokers? Are they the ones that suffered mostly or the shareholders whom they sold shares to?

'Now for every transaction despite the depreciated capital market value, the stockbroker still goes home with transaction fee whereas after selling to us shareholders, you cannot return to them to say please refund my money because the stock value has dropped. The transaction once it is done it is done and the stockbrokers still go home with money.

For the shareholder, you are left with nothing more than the depreciation of whatever you have bought.

'So if the FG thinks it is necessary to give stockbrokers forbearance, what are they going to give shareholders they have sold the shares to? The people that make money from the entire transactions in the capital market are the stockbrokers because they have transaction fee which they go away with. The shareholders are left with whatever remains of the market. And that is all.

'So it is better the way we are all licking our wounds, everybody should lick his or her own wound until confidence is restored to the market. And government should stop encouraging those that killed the market with national awards because that on its own does not encourage shareholders to continue to patronize the secondary market.

However, Professor Pat Utomi, was of the view that the market crash was poorly handled by both the government and its regulatory agencies; and such costly mistake as failure to rescue investors or offer them some lift needs to be corrected to serve as encouragement to return to play in the market.

He said 'Investors who lost their hard-earned wealth during the market crash were abandoned to their fate. And to make matters worse, the Assets Management Corporation of Nigeria (AMCON) acquired some banks with no compensation to the shareholders who invested money in the banks. 'I think, those who lost out in the acquired banks especially deserve some compensation. That needs to be done to serve as an encouragement to investors to return to the market because it was that particular instance that further eroded whatever was left of investor confidence', Utomi stated.

The marketing consultant with Deloy Consulting, Mr Tunde Oyediran, argued that for the market to rebound, stockbrokers that accessed margin facility from banks should be provided with certain percentage of their contributions to the loan as cushion to help them move on with their business. 'The percentage of their margin should be given back to them to help them bounce back. A firm that got a margin of N1.5billion from bank must have, for instance, given them N500million and out of the N500 million, must have given them back a percentage to restore their business', said Oyediran.

According to him, market reforms centred on structural re-organisation of the NSE, extension of trading period and introduction of new rules for stockbrokers are not enough to lift the market, pointing out that those reforms were meant to reposition the Exchange, and had nothing to do with boosting transactions to facilitate market rebound and restore it to profitability. Continuing, he suggested there was need for the regulators to brainstorm with the government on how to improve on electricity supply to quoted companies, adding that such would impact directly on company earnings and dividend yield.

David Adonri of Lambeth Trust and Securities Ltd said 'SEC reform on margin trade with the new margin rule, is a positive one. Secondly, 'If you look at enforcement of compliance with Investment and Securities Act (ISA) and the rules and regulations of SEC itself they have impacted positively on the market because generally they have enhanced investor confidence in the market' the senior dealing member stated.?But as to why stock prices are not picking up fast, he explained that when investors invest in equities, they gain in three main ways: dividends, bonuses and capital appreciation.

'In the past, before the recent boom when the market was stable investors benefited principally from dividends and bonuses. Capital appreciation is one of the three benefits investors are supposed to draw from the Market. But capital appreciation is supposed to be modest.'We should be mindful of the asset bubble which eventually burst resulting to huge losses to a number of investors which now frightens them away from the market. So it is better for capital appreciation to be very slow and steady.'If you look at the American stock market that has been in existence for over 200 years, the Index of New York Stock Exchange which is the Dow Jones, it is about 10,000 whereas the Nigerian Stock Exchange Index, in March 2008, hit an all time high of over 66,000 basis points.

'Therefore the ordinary investor should start thinking of the benefits of stock market in terms of dividends and bonuses and then capital appreciation because excessive capital appreciation is not in their own interest on the long run', Adonri stated. For the Managing Director, Trustyield Securities Limited, Alhaji Rasheed Yussuff, the stock market has been actually stable since 2010 and came to a new position of dynamic equilibrium wherein the index has settled between 20,000 and 26,000 basis points.

'That in itself is an indication of stability in the market; it is an indication that it is no longer volatile as it used to be. And to that extent objective of market reforms designed to increase public confidence and restore stability in the market had been achieved to some extent. 'So, to the extent that market reforms were also welcome and seen as positive development, whether they have worked their way through is a different question. Again having worked themselves through the market, the confidence restored and the degree of that restoration is has been gradual.

'Obviously, to be fair to SEC, investor confidence in terms of whether investors believe in the NSE is now on a sound footing. That has been achieved. But investor confidence in terms of whether they are returning to the market as they were in the past hasn't been fully achieved.

'But the reason for that is attributable to the general economic situation of the country right now, and the global economic challenges as in America, and the Eurozone', Yussuf stated.