While the House of Representatives’ ad hoc committee on capital market continues its public hearing, the ripples of the war of words, which characterised the beginning of the problem, have continued to have negative impact on the market
“I have to suspend an investment worth N1 million till the Economic and Financial Crimes Commission, EFCC, concludes its investigations.” These were the words of Seyi Banjo, an Ireland-based Nigerian investor who has invested N750,000 on shares in the last one year. He would not have invested in the emerging market but for the change in leadership at the Securities and Exchange Commission, SEC, and the Nigerian Stock Exchange, NSE, in 2010. He had reasoned that Arunma Oteh and Oscar Onyema, the newly appointed directors-general of SEC and NSE respectively, would bring their wealth of experience in developed markets like New York Stock Exchange and London Stock Exchange to bear on the Nigerian capital market.
But the unsavoury details of the ongoing public hearing, which pitched Oteh against Herman Hembe, erstwhile chairman, House of Representatives’ committee on the capital market, have forced Banjo to sit on the fence. He is disturbed that the public hearing, which is supposed to restore investors’ confidence in the capital market, is rather eroding it. Banjo’s worries are not limited to the allegations and counter allegations between Oteh and Hembe, which have forced the latter to step down with his entire team. He is perturbed that the major indicators of the market may slide, returning the market to the woods if the case is not handled effectively.
Like Banjo, Femi Jegede, another investor, is disappointed at the handling of the public hearing. He described the stock market as a fragile institution driven by information (positive or negative) and that both regulators and lawmakers ought to have controlled their tempers to avoid any negative impact on the market. According to Jegede, the probe came at a time he was considering returning to the market after losing about N2 million when the market crashed in 2008.
He had thought that with the appointment of Oteh, the market would rebound soon but that did not happen, prompting him to divest in favour of the property sector. “First, it was the string of losses I recorded in 2008 and now there are allegations of corruption and bribery. I will rather keep my money in a sector that guarantees about 100 per cent return within few years than investing in the capital market where one’s investments could be mismanaged,” he stated.
Since March 15 when the euphoria of the public hearing, which started with good intentions and presented enormous hope for the market, was suddenly replaced by mass anxiety, investors have had to contend with a frightening reality of a difficult year ahead. Shehu Mikail, national president, Constance Shareholders’ Association of Nigeria, confirmed that shareholders are major losers in the ongoing probe, as it appears their quest for justice and fair hearing might never come to fruition, especially after the loss of their investments in 2008 estimated to be about N6 trillion and N30 billion, following the nationalisation of Afribank Nigeria, Spring Bank and Bank PHB. “The allegations should not be swept under the carpet. Both parties should be well investigated by the EFCC. All the federal agencies should be examined on quarterly basis by the EFCC and ICPC in order to create checks and balances on their accounts,” he said.
Olusegun Meyungbo, another investor, is also feeling the heat generated by the probe. According to him, the face-off is an embarrassment to the investors and the country at large. It came at a time he was trying to woo some of his friends based in London, Ireland and China to invest in the stock market. “I had to suspend my awareness campaign till everything is sorted out. Capital market matters are national security matters, equal to national intelligence matters and should not be taken lightly. Any unethical practice should be reported to the House Ethics Committee and not wait until summoned to a hearing,” he told the magazine.
Joseph Ibikunle, lecturer, department of economics, Ajayi Crowther University, Oyo, Oyo State, also confirmed that the development might further erode investors’ confidence that has started to build up in the last couple of years after the meltdown in the market. “The revelations would scare foreign investors from investing in the sector and would send wrong signals that all is not well with the industry. It is capable of whittling down investors’ confidence in our capital market and even the nation’s economy. It shows the whole world that those at the helm of affairs are not actually doing what is expected of them,” he said.
Meanwhile, some market operators are optimistic that the fundamentals of the market are still very strong for such development to crash it. Atiku Kafaru, managing director, Camry Securities, argues that the handwriting of a gradual rebound is on the wall already. To him, such probe will not have a major impact on the market because he believes what controls demand and supply in the market is liquidity and investors’ confidence, stressing that the investors in the market are different from the ones that took advantage of the boom recorded in 2008 when the market was at its peak. Rather than expecting a slide, Kafaru said that he expects market indicators to rise by the end of the second quarter. He noted that the issues bordering on lack of integrity thrown up at the hearing would not affect activities in the market. His words: “Participants and players will not react negatively because they already know the cause of market collapse. It will not affect confidence at all. The market is insulated from issues like this.”
Kafaru’s projection may not be an illusion as the major market indicators like market capitalisation and all-share index, ASI, defy investors’ fears. Curiously, trading activities responded positively to the probe of the apex regulator as the indicators increased by 0.44 per cent two weeks after the probe commenced. For instance, the ASI, a measure of the aggregate movement of share prices, increased to 20,849.94 points from 20,227.98 points while market capitalisation, the total value of listed equities, rose to N6.61 trillion from N6.51 trillion during the period. Niyi Adoti, a stockbroker, told the magazine that the probe only indicates that the stock market is fast becoming transparent and also open to checks and balances like other developed markets. “If conducted to a logical conclusion, it will attract more foreign investors to the market. The committee needs to critically examine the past and the present so that a better future can be fashioned for the emerging market. Testimonies from various stakeholders can assist the National Assembly in making laws that will enhance effectiveness of the entire finance industry,” he said.
Prior to the SEC probe, Oteh, indeed, met both the capital market and the apex regulatory agency in a shambles when she assumed office in January 2010. The index then had fallen to 20,827.17 points from 66,000 as at March 2008 and the market capitalisation had crashed to N4.989 trillion from N13 trillion within the same period. No wonder she admitted that SEC lacked regulatory responsibility and that there was gross abuse of market rules. She confessed she had quite a job on her sleeves going by the degree of rot she met on ground.
During her maiden press briefing in February 2010, Oteh said her major goal was to build a world-class market that would soar with investors’ confidence, adequate product offering, transparent market disclosures, accountability and good corporate governance. “We are going to re-energise the agency, institute significant internal reforms and refocus on our core mission of protecting investors. To achieve these, there would be a well-articulated functioning capital market that is essential to Nigeria’s economic development. And restoring investor confidence is my immediate priority, just as there will be zero tolerance policy to urgently address all weaknesses concerning governance,” she declared.
To deepen the market, she swung into action listing Exchange Traded Fund, ETF, worth N988 million, a form of investment instrument that provides numerous possibilities, on the floor of the stock exchange. She explained that due to the volatility of the stock prices, the ETF gives investors opportunity to spread investments, thereby lowering the risk of price crash by investing in a basket of stocks or commodities. Oteh did not leave any stone unturned as she also strengthened the agency’s regulatory functions. For instance, she introduced a new code of corporate governance for quoted companies in April 2011. Until then, the market was working with an old code introduced in 2003. The new code is expected to foster healthy competition among business institutions and economic development generally.
To the dismay of some market operators, the commission suspended 61 stock broking firms from trading for their inability to jack up their capital base to the regulatory requirement of N70 million. Oteh’s axe also fell on 106 market operators for various market infractions in 2011: Twenty-eight operators were suspended for violating various SEC rules, 78 were penalised for non-compliance with market requirements while 42 were penalised for non-compliance with Anti-Money Laundering, AML, and Counter-Terrorism Financing, CTF.
These reform exercises yielded results to an extent. The market indicators, though not significant, have managed to restore some investors’ confidence to the market. For instance, as at the end of trading on April 3, the market capitalisation closed at N6.61 trillion while all-share index was 20,849.94 points. This implies that since Oteh took office, the market has recovered about N2 trillion. Experts have commended her efforts. Lamido Sanusi, governor, Central Bank of Nigeria, CBN, applauded the apex regulator for her immense contribution to reviving the stock market. “Do you keep quiet and watch while a good person is being hung and dried for pursuing reform or do you stand up in support? At the CBN, we will support reform-minded people and regulators because an attack on one is an attack on all reform-minded regulators,” he said.
The Oteh/Hembe altercation started when members of the suspended committee launched a probe on the near collapse of the capital market. In the course of the House probe, the committee members, on March 14, questioned the capability of SEC to manage the capital market in view of what it described as evidence that it conducted some of its internal operations in breach of public service regulations. The committee also accused Oteh of spending N30million on hotel accommodation within eight months of her appointment in January 2010. Hembe thus questioned the competence of Oteh to regulate the market. But as it turned out, that was akin to stepping on a cobra’s tail.
Next day, Oteh turned the tables by alleging that the committee had demanded N39 million from SEC to fund the hearing. “In asking the SEC to contribute N39 million for this public hearing, don’t you think that you are undermining your capacity to carry out your duties?” she asked the chairman. She, however, did not stop there. Addressing the committee chairman, Oteh remarked: “You also requested that we should provide at least N5 million, which was a day before this public hearing started. I have raised issues regarding the credibility of the chairman but that has not been addressed. I will like to say to the Nigerian people that I do not think that I am given a fair hearing.”
In what appeared to be the clincher, Oteh went further to allege that in October 2011, Hembe collected N5 million from SEC to finance his trip to the Dominican Republic to attend a conference on capital market but that he never made the trip nor returned the money. “Can you tell Nigerians that you returned the money when you did not travel? Would I now say that because SEC was approached to fund this hearing, that the committee has no competence to do its job, the same way that you questioned my competence as DG?” she asked.
Although the newly appointed committee is making efforts to restore credibility in the public hearing and salvage the capital market, it is very clear that the last has not been heard about the issues.
Additional report by Temitope Adeogun