MB Plan

Business Development Plan
[Deap Merchant Bank]
42,OlowuStreet,OffToyin,IkejaLagos
Website:www.valuefronteira.com Email:fronteira@valuefronteira.com
Tel:+234(1)9504781,9504782,2348033148722
Table of Contents Abbreviations & Meanings List of Tables & Figures Charts 1.0 Executive Summary 1.1 1.2 Introduction Overview of the Nigerian Economy and Structure of the Banking Industry 1.3 Scan of Business Environment 1.4 Risk Analysis and Mitigation Strategies 1.5 Merchant Banking Operational Requirements 1.6 Marketing and Competitive Strategy 1.7 General Merchant Banking Requirements 1.8 Recapitalization Plan of DEAP 1.9 The Viability of DEAP Merchant Bank About Sponsor: DEAP Capital Management & Trust Plc 2.1 Corporate Strategic Profile 2.2 Corporate Profile 2.3 The Board Profile 2.4 The Management Team 2.5 Company History 2.6 Capital Base and Financial Performance 2.7 Head Office and Branches 2.8 Subsidiaries & Associates 2.9 Organizational Structure of DEAP Capital 2.10 Key Competitors 2.11 Clients and Customers Overview Project Concepts 3.1 Background 3.2 The Proposed DEAP Merchant Bank 3.3 The Operational Focus of DEAP Merchant Bank Plc
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3.4 Business Locations and Branch Network Development Strategy Recent Developments in the Nigerian Economy. 4.1 The Nigerian Economy 4.2 Developments in the Nigerian Economy 4.3 Macroeconomic Outlook 4.4 Overview of the Banking Industry in Nigeria 4.5 Structure and the Regulatory Framework 4.6 Recent Developments in the Nigerian Financial System Scan of the Business Environment 5.1 Political Environment 5.2 Social Environment 5.3 Technological Environment 5.4 Market Demand and Supply for Investment Banking Products and Services 5.5 Merchant Banking Opportunities and Services 5.6 Revenue Potentials of the Investment Banking Industry Risk Analysis and Mitigation Strategies 6.1 Economic Risks 6.2 Financial Risks 6.3 Business Risks 6.4 Operational Risks 6.5 Regulatory Risks 6.6 Legal Risks 6.7 Compliance Risks 6.8 Political Risks 6.9 Market Risks 6.10 Credit Risks 6.11 Firm Wide Risk Management Policies and Framework Management and Organizational Structure 7.1 Critical Success Factors 7.2 Proposed Organizational structure 7.3 Job Descriptions and Manning Requirements 7.4 Control Systems Survey of Compensation Structure 7.5 7.6 External Assistance and Outsourcing Marketing and Competitive Strategy 8.1 The Investment Banking Market: A description 8.2 Market Size [Supply Side]
36 38 38 44 49 54 55 56 59 59 64 64 64 65 67 69 69 69 69 70 70 71 71 71 71 72 72 75 75 78 79 88 90 91 92 92 93
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Customer/Client Needs and Demand Analysis 94 Competitor Strengths and Weaknesses 96 Potential Sources of Future Competition 98 Proposed Location in relation to Demand, Supply, Competition and Markets 99 8.7 Marketing and Market Penetration Strategy 100 Statutory and Regulatory Requirements for Selected Financial Services 105 9.1 General Banking Registration Requirements 105 9.2 Primary Mortgage Institutions (PMIs) 105 9.3 Tax Requirements for Banks (Local Councils, States and Federal Government) 106 9.4 General Requirements and Provisions for Merchant Banks 107 9.5 Other Statutory Requirements 108 Technical Orientation 110 10.1 Overview of Technological Profile of DEAP Capital/ DEAP Merchant Bank 110 10.2 Suppliers of Technology 111 10.3 Strategic Relationships with other Firms 111 Revenue Prospects from Strategic Focus 112 11.1 Other Revenue Opportunities 112 a) Real Estate 112 b) Oil and Gas 114 c) Stock Broking and Issuing House Activities 115 Financial History and Projections 118 12.1 Group Profit and Loss Accounts (Historical) 119 12.2 Profit and Loss Projections 120 12.3 Projected Balance Sheet 121 12.4 Projected Cash Flow Statements 122 12.5 Notes to Accounts 124 12.6 Assumptions for Sources and Application of Funds 130 12.7 Staffing Plan for DEAP Merchant Bank 132
Deap Merchant Bank Transformation Business Plan
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Abbreviations and Meanings 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. ABCON: ASCE ACE: ACS: AMCON: AIM/PRIPEX: AMNIM: AML: ARM: ATM: BDC: BOFIA: BOI: BPE: BRICs: CBD: CBN: CEO: ICAN: CSCS: DCIF: DFIs: DMB: ETF: ECB: EFCC: FC: FCA: FCT: FHA: FMB: FMBN: FSSC: GDP: GMD: HoD: ICPC: ICT: IMF: IPO: IT: Association of Bureau De Change of Nigeria Abuja Securities and Commodities Exchange Associate, Chartered Economist Associate, Chartered Stockbroker Asset Management Company of Nigeria Alternative Investment Market And Private Placement Exchange Associate Member Nigerian Institute of Management Anti Money Laundering Asset& Resources Management Automated Teller Machine Bureau De Change Banks and Other Financial Institutions Act Bank of Industry Bureau For Public Enterprises Brazil, Russia, India, And China Central Business District Central Bank of Nigeria Chief Executive Officer Institute of Chartered Accountant of Nigeria Central Security Clearing System DEAP Capital Income Fund Development Financial Institutions Deposit Money Bank Education Trust Funds European Central Bank Economic & Financial Crimes Commission Finance Companies Fellow Chartered Accountant Federal Capital Territory Federal Housing Authority Federal Mortgage Bank Federal Mortgage Bank Of Nigeria Financial Sector Surveillance Committee Gross Domestic Product Group Managing Director Head of Department Independent Crimes and Other Related Practices Commission Information and Communication Technology International Monetary Fund Initial Public Offer Information Technology
42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73.
LAN: LNG: LSDPC: MBG: MDAs: MDGs: MFIs: MPR: NACRDB: NAL: NAMA: NEEDS: NGN: NITEL: NPA: NSE: PFAS: PHCN: PIB: PMI: RECs: RMB: SEC: SME: TRANSCORP: TTA: UDB: USEIA UN: VSAT: WA: WAN:
Local Access Network Liquefied Natural Gas Lagos State Development & Planning Commission Merchant Bank of Ghana Ministries, Departments And Agencies Millennium Development Goals Micro Finance Institutions Monetary Policy Rate Nigeria Agricultural Co-Operative and Rural Development Bank Nigerian Acceptances Limited Nigerian Airspace Management Agency National Economic Empowerment Development Strategy Naira Nigerian Telecommunication Nigeria Ports Authority Nigerian Stock Exchange Pension Fund Administrators Power Holding Company Of Nigeria Petroleum Industry Bill Primary Mortgage Institution Renewable Energy Credits Rand Merchant Bank Securities and Exchange Commission Small And Medium Enterprises Transnational Corporation of Nigeria Transformational Transaction Advisory Urban Development Bank United States Energy Information Administration United Nations Very Small Aperture Terminal West Africa Wireless Access Network or Wide Area Network
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List of Tables& Figures Tables Number Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7 Figures Number Figure 1 Title Share of Activity in Corporate Profitability Head Office/Branches of Deap Capital Management and Trust Plc Major Macroeconomic Indicators 1990-2010 Projections of Key Macroeconomics Variables Firms Operating Within the Financial Services Sector Competitor Comparisons Proposed Compensation Structure Titles Business Organizational Structure and Management of Deap Merchant Bank.
Monetary Policy Rate NIBOR Rate Monthly Average Prime Lending Rates Monthly Average Deposit Rates Currency in circulation & Inflation Rates Inflation Rates Overall Fiscal Deficit (2001-2010) FGN Revenue (Actual vs Budget in 2009) FAAC Allocation Real GDP Growth Rate Real GDP Growth Rate (Oil & Non-Oil GDP) GDP Growth of Selected Sectors (%) Capital Market Trend Analysis (Dec 2008-Dec 2009) Sectoral Contribution to the Stock Market
Chart 1 Chart 2 Chart 3 Chart 4 Chart 5 Chart 6 Chart 7 Chart 8 Chart 9 Chart 10 Chart 11 Chart 12 Chart 13 Chart 14
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Chart 15 Chart 16 Chart 17 Chart 18 Chart 19 Chart 20 Chart 21 Chart 22 Chart 23 Chart 24 Chart 25 Chart 26 Chart 27 Chart 28 Chart 29 Chart 30 Chart 31 Chart 32 Chart 33 Chart 34 Chart 35 Chart 36 Chart 37 Chart 38 Nigerian Banks Market Capitalization Year to Date Depreciation in Banking Stocks (Jan to Dec 2009) Profile of Failed Banks in Nigeria Crude Oil (Bony Light) Price Crude Oil Production Crude Oil Price Vs Exchange Rate Power Plants Contribution to National Grid. Growth of the Manufacturing Sector Ease of Doing Business Global Ranking Growth of the Nigerian Telecommunication Sector (2008-2009) Growth in Agriculture (2008-2009) Composition of Federation Revenue Budget Vs Actual FAAC Revenue Receipts FGN Budgeted Revenue (Actual Vs Budget), June 2009. Composition of Federal Government Retained Revenue Representation of MDAs Utilization Rate Composition of Federal Government Consolidated Debt, June 2009 2010 Aggregate Expenditure Allocations Current Account Balances Current Account Balances (% of GDP) Exchange Rates (N/$) Naira Cross Rates (Selected Currencies) External Reserve Foreign Exchange Flows
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1.0. 1.1.
Executive Summary Introduction The strategic resolution of DEAP Capital Management and Trust Plc to transform from an investment and fund Management Company into a full-fledged merchant bank was strengthened by the recent repeal of the Universal Banking Model by the CBN. DEAP Capital Management and Trust Plc is a principal player in the Nigerian Capital and Financial markets, offering services ranging from Securities Trading, Fund and Asset management, Leasing and Advisory Services. The change in policy by the CBN and the exploitation of same by DEAP Capital would empower the company to transform into a full fledged and profitable merchant bank. When concluded, DEAP Merchant Bank will adopt a unique model. The underlying strategy would be to (a) exploit in full the core competencies of Deap Capital Management and Trust Plc (b) to leverage on the experiences and strategies that enables an organization to withstand a global financial crisis. The bank would offer investment and merchant banking services including making principal investments on its own account and on behalf of clients which would include and not be limited to individuals, corporate entities, governments and other investment advisors.
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Overview of the Nigerian Economy and Structure of the Banking Industry The Nigerian economy possesses enormous potentials for growth. The economy is one of the growing economies in the world. The debt relief from the Paris Club, the many reforms embarked upon by successive democratic governments, an oversubscription of the euro bond floated by the federal government and a favorable ratings/growth projection by the IMF on the Nigerian economy all point to the fact that Nigeria is a favorable investment destination for investors. The implementation of recent reforms have systematically reduced the cost of doing business in Nigeria and the ongoing reforms within the Oil sector, power generation and distribution, the implementation of legislations that stipulate stiff penalties for corruption and other proactive reforms are geared to increase the pace of development in the economy. As a proof of the effectiveness of these reforms the IMF recently indicated in a report that Nigeria has weathered the global economic recession and its own domestic banking crisis reasonably well. According to IMF, Nigerias economic growth in the first half of 2010 remained above 7.5%. The IMF further maintained that the economic outlook remained positive and risks were generally balanced. In its forecast of the performance of the economy for 2011, the body projected an economic growth of 7% and inflation rate of 9% by year end of 2011.
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The Nigerian banking industry is oligopolistic in nature as industry players provide similar but slightly differentiated services. Regulation wise, the CBN stands as the apex regulatory body which provides regulatory and supervisory oversight of the entire industry. Apart from merchant banking which the CBN reintroducing, other financial institutions within the system include Commercial Banks, Micro-Finance banks, Primary Mortgage Institutions, Development Finance Institutions and Bureau De Changes (BDCs). Reforms in the banking industry were initiated to enhance stability in the sector, curb unethical practices and forestall distress in the sector. These reforms include and were not limited to bank recapitalization/consolidation, withdrawal of public funds from commercial banks, pegging of top management tenure, and recently repealing of the universal banking model. These reforms have restored confidence in the banking sector and have significantly improved the status of banking institutions.
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1.3.
Scan of Business Environment Nigeria has a viable business environment. The country possesses huge prospects for merchant banking business. The rapid growth of the Nigerian economy, a huge potential of the countrys oil and gas sector, growth within the telecommunication industry, a rapid expansion in mortgage concerns, huge investments in infrastructural development, the closer integration of the West African economic space and expansion in trade finance in the region all serve to indicate the vast opportunities open for merchant banking in the Nigerian economy. The political terrain in Nigeria is stable. The impact of democratic rule and rule of law are strong points for investments. The introduction of democracy in the last twelve years and the peaceful transition of government in 2007 generally indicates that there will be peaceful transition of power in the general elections slated for April 2011. At the inception of the current political dispensation, there was resistance from militant groups which threatened to disrupt oil exploration in Nigerias oil rich Niger Delta but the Amnesty programme introduced by the government stemmed the tide of militancy in the Niger-Delta. Today Nigeria is not only a developing democracy but one of the highest suppliers of crude oil on the African continent.
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Risk Analysis and Mitigation Strategies The bright prospects presented by the stability of the Nigerian business terrain; inherently also contains risk factors that would be applicable to the proposed DEAP Merchant bank. As is common with most financial institutions, the bank faces operational risks, economic/political risks, financial/credit risks, business risks and liquidity risk. These risks notwithstanding, the bank will put in place strategic measures to tackle all risk elements. First, to tackle Operational risks which are associated with internal fraud, poor corporate governance and failure of the adopted technological platform among others, Deap Merchant bank will adopt a comprehensive internal control system which will prevent and mitigate fraud. The bank will adopt best practices in corporate governance. To further mitigate operational risks, Deap merchant bank will inherit robust software from Deap capital which will be upgraded as required. Economic and political risks will be mitigated by creating a framework to manage these risks accordingly. Essentially, Deap Merchant Bank will adopt a conservative outlook with respect to investments in government related ventures as well as
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investments/collaborations with other financial institutions, which exhibit financial credibility and strength. To tackle business risks, Deap Merchant bank will utilize technology, strong marketing strategies and its knowledge of the industry to cut out a niche for itself in the market thereby minimizing business risk which often impinges directly on the demand of a companys products or services. Liquidity risk will be managed through conservative management of the balance sheet of the company and acceptable standards will be set for the management of liquidity in Deap Merchant Bank Plc. 1.5. Merchant Banking Operational Requirements Deap Merchant Bank will have a board which will be the apex decision making body of the Bank. The board will be composed at all times by the number of individuals statutorily required by law. The board will be chaired by a Chairman. The day-to-day management of the Bank will be overseen by the MD/CEO who will report to the board. The bank will have three (3) executive directors who will report directly to the MD/CEO. Each executive director will be responsible for the core business functions under them. Accordingly, there will be an executive director for Investment banking, Corporate Banking and Corporate Services. Three other executives will manage the Asset and Fund Management department, the Enterprise risk Management department and the Research/Strategy department respectively. Each executive will be responsible for driving the business under his/her jurisdiction and ensure profitability.
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Marketing and Competitive Strategy The fact that Deap Capital has been a player in the capital market is a strength which Deap Merchant bank will leverage on. When established, the merchant bank will consolidate on the present marketing structure of Deap Capital. Deap Merchant Bank will operate with offices in the six geo-political Zones of Nigeriawith offices in specific capital cities. The bank will focus on institutional investors and investments from individuals as its target market. Products which attract returns from high net worth individuals, corporate organizations especially in the oil and gas, mortgage and securities markets will be at the forefront of the companys marketing campaigns. Since the company has a standing in the securities market, efforts will be made to consolidate on the achievements of Deap capital Management and Trust Plc.
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1.7.
General Merchant Banking Registration Requirements A number of requirements were put up by the CBN regarding the merchant banking business. Of primary importance is the capital base required for merchant banks. According to the CBN, all merchant banks are to have a minimum capital base ofN15 billion. Deap Capital Management and Trust Plc is expected to submit its application to the CBN with the following documents: a feasibility report of the proposed bank, a draft copy of the memorandum and article of association of the proposed bank, a list of the shareholders, directors and principal officers of the proposed bank and their particulars, the prescribed application fee and other information, documents and reports as the bank, from time to time specify. The company is capable of fulfilling these requirements.
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Recapitalization Plan of DEAP Deap Capital Management and Trust Plc would raise fresh funds as follows:
2011 2012
750 million Ordinary share of 50k at =N=1.0 per Right Issue Private Placing of 1.5 billion Ordinary Share of 50k Each at =N=1.20 per Share Public Offer of =N= billion Shares 8% Preference Shares =N=10 billion 14% 4,850,000,000 Redeemable /Convertible Income Bond 2015 by Private Placing
=N= M 750
=N= M -
1,800 2,500 2,500 7,550
3,000 7,500 2,350 12,850
1.9.
The Viability of DEAP Merchant Bank Banking business in Nigeria has over the years proven to be profitable particularly for those that are well managed. Deap Merchant Bank will therefore not be different. With requisite funds, good focus on investment/merchant banking as well as tested management, Deap would operate profitably. The evaluation shows that it is viable as the net present value is positive while the financial ratios show a very strong future performance. The size of the net
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present value also substantially covers the initial investment amount several times. Ratio Analysis of Projected Financial Performance Ratio Earnings Per Share Return On Asset (%) Dividend Per Share Price Earnings Ratio 2011 N 0.09 3.34 0.00 5.84 2012 N 0.42 3.34 0.15 1.20 2013 N 0.90 5.42 0.25 0.56 2014 N 1.40 6.47 0.40 0.36 2015 N 1.52 5.28 0.50 0.33
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2.0. 2.1. a.
About the Sponsor: DEAP Capital Management & Trust Plc. Corporate Strategic Profile Vision Statement: To be a world acclaimed Financial Services Company, offering professional solutions that consistently delight our clientele in our chosen markets. Mission Statement: To provide the best financial services using highly skilled and motivated professionals enabled by appropriate technology to create exceptional value for our stakeholders. Corporate Philosophy: Our Core Values are represented with TEAMSPIIP: Team Spirit: Supporting one another to achieve shared company objectives. Professionalism: Demonstrate great skill, expertise and ability in all work situations Initiative: Do what is right promptly in the best interest of the company without waiting to be told Integrity: Our word is our bond Passion: Inspired to serve with excellence Corporate Profile Activities Deap Capital Management and Trust Plc was incorporated in Nigeria on the 5thof June, 2002 and is registered with the Securities& Exchange Commission (SEC) as a Fund & Portfolio Manager and an Investment Banking Company. The principal activities of the company include Funds Management, Issuing House Services, Real Estate Management, Portfolio Management and Financial Advisory Services. The Company has an asset base of over N6 billion with Funds under management in excess of N3.7 billion. DEAP Capital Management & Trust Plc is the first and only Nigerian Fund Manager to be quoted on the Nigerian Stock Exchange and has a very stable Board of Directors with varied global experience in Investment Banking and Capital Markets Operations among other activities. DEAP Capital Management & Trust Plc is a Public Limited Company with an Authorized Share Capital of N1.5 billion divided into 3,000,000,000 Ordinary shares of 50k each and a Paidup Capital of N750 million divided into 1,500,000,000 Ordinary shares of 50k each.
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c. i. ii. iii. iv. v. 2.2. a.
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Fund Management: DEAP Capitals fund management activities are routed through two main products: Deap Classic Fund and Deap Capital Income Fund. DEAP Capital offers a guaranteed yield on funds invested under the DEAP Classic Fund umbrella. The DEAP Classic Fund is specifically pooled together to meet the investment needs of middle and high networth individuals who desire a good yield and the safety of funds invested. DEAP Capital utilizes its own resources together with other investors funds to finance its lease and real estate development activities and equity trading. DEAP Capital Income Fund (DCIF) is a Private Fund out of which units has been created and for which the Directors of the Fund Manager are solely responsible. DCIF is designed as a Private Fixed Income Investment Fund to pool resources from investors and professionally deployed for investment in the Leasing, Mortgage and Capital Market activities. The target investors include: individuals, high networth Individuals, Institutional investors, Groups and Societies that desire regular income. Issuing House/Financial Advisory Services: As an Issuing House Licensed by the Securities & Exchange Commission; DEAP Capital Management& Trust Plc renders service to companies in need of finance to raise Equity or Debt Finance through the Capital Market. Some activities include: Private Placements, Public Offers of Equities or Bonds. DEAP Capital also offers Financial Advisory Services to companies involved in Mergers, Acquisitions and Corporate Restructuring. This is particularly a thriving market considering the emergence of the petroleum industry Bill which has led to the emergence of many local oil companies. It is expected that in the near future many of these indigenous firms will consider mergers and there will be a lot of acquisition activities in the market as firms team up to take advantage of rising oil prices and opportunities of growth. Portfolio Management: DEAP Capital obtains mandates from clients to manage their portfolio of shares for a maximum yield/return at minimum risk. The tenor is minimum of 12 calendar months with minimum amount of N1 million. Lease Finance: DEAP Capital undertakes Lease finance activities involving motor vehicles, generators, office &household equipment, etc. An equity contribution of 25% to 30% of the value of the item is usually expected from the client and repayment plan is between 24 to 36 months.
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2.3.
Board Profiles DEAP Capital Management & Trust Plc has a thirteen (13) member Board of Directors made up of individuals who have attained the echelon of their various careers and have used their various experiences to provide strategic direction for the company. The Board subscribes to the Nigerian Securities and Exchange Commissions Code on Corporate Governance and other codes in jurisdictions where it does and expects to do business with counterparties. The Board operates under best practice model of corporate governance geared towards maximizing the wealth of shareholders and the satisfaction of other stakeholders. Several Board Committees exist to set appropriate policies and directions for key aspects of the companys businesses and ensure the integrity of financial reporting. To DEAP Capital Management & Trust Plc, the greatest source of strength is the quality of Board, Management and Staff. Please find Board Profiles below: Mrs. Victoria Oyinlola Alo (Chairman) She is the Chairman, Board of Directors of DEAP Capital Management & Trust Plc. A professional banker with over 25 years experience in the banking industry. She is a 1984 graduate of Accounting (B.Sc) from the University of Lagos and also possesses a Masters Degree in Finance & Banking from the University of Ibadan (1986 set). She is also a Fellow of the Chartered Institute of Bankers of Nigeria. After many years of working within the banking industry, Mrs.Alo retired as a Deputy General Manager (DGM) of Union Bank of Nigeria having served in various capacities including holding the position of the Treasurer of the bank. Vincent Otiono (Vice Chairman) He holds an LL.B from the University of Nigeria Nsukka, Enugu Campus (1985) and BL from the Nigerian Law School, Lagos (1986). He is an investment attorney and in that capacity has advised offshore investors to take up majority positions in the recapitalizations of major corporations. He is the Managing Partner of Osammor Otiono & Co. The firm is also active in Receivership and Capital Reconstructions. The firm currently serves as the Legal Consultant to Drilling Dynamics Limited, Oil Service Company.
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Emmanuel Ugboh (Managing Director/CEO) He holds a Bachelor of Science (Honours) degree in Economics (First Class Honours) 1981 from University of Ife. He also holds an MBA, Finance (1991) from University of Lagos. Mr.Ugboh became a Fellow of the Institute of Chartered Accountants of Nigeria in 1995 and an Associate of the Chartered Institute of Stockbrokers in 1996.He has over 22 years experience in Investment Banking having served at Rims Merchant Bank as Head of the Capital Market Unit and as the pioneer General Manager/Chief Operating Officer of Summa Guaranty & Trust company Plc. He was the MD/CEO of IMB Securities Plc for over 7 years during which period he spearheaded the turnaround of the company with less than N5 million paid up capital and over N350 million debts to the most capitalized Stockbroking firm with paid up capital of over N130 million, with investors/depositors confidence restored to the Company. Mr. Ugboh has attended several courses in respect of the money and capital markets amongst which are Euro Money Training on Advance Corporate Finance Skills, New York Institute of Finance course on the US Money and Capital Markets, Conferences and Seminars organized by the Securities & Exchange Commission and The Nigerian Stock Exchange. Chief S.C. Ezendu (Director) He is a graduate member, Birmingham Institute of Business Studies and Chartered Institute of Secretaries and Administrators (1967). He worked as Finance Professional in the oil and gas sector and his career has spanned over a period of 25 years in the activities of the oil majors that include Gulf Oil Company Nigeria Ltd; Texaco Nigeria Plc and Chevron Nigeria Ltd where he is currently a Director. Jonathan Idudu (Director) He is a professional Estate Valuer. He holds a Bachelor of Science (Honours) degree in Estate Management from University of London (1969). He obtained an MBA (Management) in 1999 from Delta State University Abraka. He is a Fellow of the Royal Institute of Surveyors, UK and the Nigerian Institute of Estate Surveyors. Mr Joe Idudu was until recently, Managing Partner of Knight Frank and Rutley (Nigeria). He has served as Chairman/Managing Director of several companies, including Bendel Property Development Authority and Delta Development and Planning.
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Treasure SamAfolayan (Director) She is a 1994 graduate of Library Science of the Ahmadu Bello University Zaria. She is into private business with major interest in oil & gas (marketing), real estate and commercial activities. She sits on the Board of other companies. In her private capacity, she had presented papers and represented the Presidency in many fora across the country and overseas. She was the chairperson of the Nigerian Navy Officers Wives Association. Hon. Preye Ogriki (Director) He is a 1981 graduate of the University of Calabar, where he obtained a Bachelor of Science degree in Economics and is a member of many professional bodies. He is an Associate Member, Institute of Chartered Accountants of Nigeria (1988); Associate Member, Chartered Institute of Taxation and Management respectively. In the past 22 years, Hon. Ogriki showed remarkable presence in the public service and in the banking sector where he proved his mettle. He was the Commissioner of Finance & Economic Planning, Bayelsa State. As an Astute banker, he rose to the position of Deputy General Manager with All States Trust Bank Limited before he moved on to Fortune International Bank Limited as Executive Director. Hon Preye Ogriki was until recently the Managing Director/CEO of Resort Savings & Loans Ltd, an Associate Company of DEAP Capital. Capt. Toritseju Godwin Ogisi (Director) Capt Ogisi attended the Nigerian College of Aviation Technology, Zaria (1969) where he obtained a Diploma and Commercial Pilots license with instrument Rating. He worked with the defunct Nigeria Airways where he held various administrative positions including training Captain (1976), Chief Pilot (1983) and he rose to be the Director of Flight Operations (19861988). He was appointed a member of the Advisory Council of the Nigerian College of Aviation Technology, Zaria (19771980) by the Federal Government. He was the pioneer Managing Director of Nigerian Airspace Management Agency (NAMA) in 1999. He is currently the Managing Consultant of Templeton Aviation Services Ltd, an Aviation Consulting firm.
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Clara Rotzler (Director) Clara is a versatile entrepreneur with wideranging experience in Food Processing, Steel and Haulage sector. She attended Pitmans College, England where she completed her Secretarial programme in 1958. She was the founder/pioneer Chairman of Triana Ltd (A major haulage company in the country). Currently, she is the Chairperson of WEG Development ltd and Velsia Ltd. Barrister Gordons Ejikeme (Director) Gordons is a 1986 graduate of Geography from the University of Nigeria Nsukka, where he also obtained his law degree in 1992. He was subsequently called to bar in 1993.Barrister Ejikeme further obtained two Masters Degrees in International Law and Diplomacy and Humanitarian and Refuge Law from the University of Lagos, Akoka in 2000 and 2002 respectively. He is an active member of the Nigerian Bar Association. He is currently the Principal Partner of G.C. Ejikeme & Co. Ogbechie Gabriel Ifeanyi (Director) Gabriel holds a Bachelor of Engineering in Production Engineering (1987) from the University of Benin, Benin City. He possesses over fifteen years experience in Independent Petroleum Products Marketing. He is the Founder and Managing Director of Rainoil Limited, an Independent petroleum marketing company, with turnover in excess of N5 billion. Anthony Eze (Executive Director) Anthony Eze has a wealth of experience in Investment Banking and Funds Management over a period of 19 years. He attended University of Ife (now Obafemi Awolowo University, Ile Ife), where he graduated in 1979 with a degree in Economics. He was a part of the turnaround management team in International Merchant Bank Plc between 1995 and 1997. He coordinated the launching of Energy Master Fund, which had a target sum of N1 billion within 12 months. Before his disengagement from the bank in2002, he was the Divisional Director, Investment Banking and subsequently was deployed as pioneer Divisional Director of Consumer Banking of the Bank which had responsibility for designing, marketing and managing various funds mobilization products of the Bank. He had applied his skills in this area for the Product Development activity of DEAP Capital Management &Trust Plc. Anthony is versatile and he currently serves as the Managing Director of DVCF Oil & Gas Plc, an Associate Company of DEAP Capital Management & Trust Plc.
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2.4.
The Management Team The Management team of the Company comprises highly versatile and deeply experienced professional headed by Mr Emmanuel Ugboh who serves as the Chief Executive Officer. His other colleagues are: Amah, Peter N. (Head, Research& Strategy) Amah Peter obtained his first and second degrees in Finance at the University of Nigeria in 1985 and 1988 respectively. He participated in the Advanced Research Programme in Finance at the University of Lagos, for his PHD. Over the past 14 years, he has acquired experience in the areas of Banking, Research, Consultancy and Manpower Development. At Cooperative & Commerce Bank Plc, where he rose to the position of Manager and Special Assistant to the Managing Director, he handled key responsibilities in Operations, Credit Appraisal, Research and Corporate Planning. He developed the first innovative product for the Bank known as Friendship Bond and was a key member of the Situation team mandated internally to restructure the Bank. Umuze Kenneth (Group Head, Human Resource Management) Mr.Umuze obtained a degree in Political Science from Ahmadu Bello University, Zaria (1981) and possesses a Masters degree in Industrial and Labour Relations from the University of Ibadan. He is a Fellow of both Institute of Administration of Nigeria & Chartered Institute of Personnel Management. He is a Member of the Institute of Management; Institute of Public Relations of Nigeria and Associate Member of Nigerian Institute of Industrial Relations. He has acquired over 20 years experience in Industrial and Human Capital Management in such institutions as PRESCO Nig Ltd, Roche Nig, UAC Foods and Onward Paper Mill. Egbe, James P. (Group Head, Risk Management & Control) Mr.Egbe is a seasoned and versatile professional with over 20 years working experience in Audit, Banking, Stockbroking, Asset Management, Consulting and Financial Advisory Services. He is a Fellow (FCA), of the Institute of Chartered Accountants of Nigeria (ICAN), an Associate Chartered Stockbroker (ACS) and also an Authorised Dealing Clerk of the Nigerian Stock Exchange. He is an Associate Member of Nigerian Institute of Management (AMNIM), 1995. He obtained MBA in Banking & Finance from ESUT Business School Lagos (2001) and is a product of Yaba College of Technology Yaba, Lagos (1989), where he obtained an HND in Accountancy at the Upper Credit level. Some of his numerous awards include UBA GMDs award for best strategic suggestion for
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the newly merged bank. At KPMG, due to his outstanding performance he was seconded to KPMG Paris, France to work before he returned to Nigeria. Mr.Egbe was engaged as Group Head, Risk Management & Control of DEAP Capital Management & Trust Plc in November 2009, with the mandate to establish and implement a Firm Wide Enterprise Risk Management framework. Kunuba, Joseph (Head, Finance & Accounts) Mr.Kunuba obtained his HND in Accountancy from Yaba College of Technology Yaba, Lagos and is an Associate of the Institute of Chartered Accountants of Nigeria (2006). He has acquired over ten years experience which cuts across the energy sector as an Accountant in ABB and Civil and Communication Sector as the Chief Accountant of Fadco Nigeria Ltd. Obogwu, Godfrey (Head, Funds Management) Mr.Obogwu has over ten years experience in both the private and public sectors of the economy. Before DEAP he had assumed several positions ranging from Head, Funds Management, IMB Securities Plc; Manager, Nigerian Ports Authority and Deputy Manager, First Inland Bank Plc. Mr Obogwu became an Associate of the Chartered Institute of Administration (CIA) in 1998, after which he had his MBA from Ladoke Akintola University, Oyo State. Thereafter, he obtained a BSc Degree in Business Administration from Ambrose Ali University Ekpoma, in 2004. Okoduwa Simon-Peters (Head, Abuja/Northern Operations) Okoduwa SimonPeters is a Fellow of the Institute of Chartered Accountants of Nigeria (ICAN). He holds a Higher National Diploma (HND) in Business Administration. He is an Associate of the Chartered Institute of Taxation of Nigeria. Mr.Okoduwa has a wealth of experience garnered over several years in Leventis Motors Ltd, the Nigeria Social Insurance Trust Fund, and Trustfund Pension Plc, where he held a number of Senior Management positions including Assistant General Manager/Head, Marketing. Adigwe, Anthony Iloba (Head, Business Development) Mr.Adigwe is a 1990 graduate of Political Science & Public Administration from the University of Benin, Edo State. He acquired over fifteen years experience in Marketing and Relationship Management in such institutions as Ibeto Cement Company, Rock Cement (Now Dangote Cement Company) and Car Link Ltd. Prior to joining DEAP Capital he was the Investment Manager for Prominent
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Securities Ltd, Port Harcourt. He is currently responsible for Business Development for the company. Obabire, Babatunde Akintayo (Information Technology Manager) Mr.Obabire holds a Bachelors of Science degree in Computer Engineering from Obafemi Awolowo University, IleIfe (2004). He is a Certified Cisco Network Associate Professional (2005). He attended several training courses both within and outside Nigeria. He joined Broadband Technologies in 2002 where he was a Network Engineer and gathered experience in deploying various LAN and WAN Technologies for banks and other corporates. As a System and Network Administrator, he rose to the position of Assistant HOD of IT department with Cisco Nigeria Ltd, where he managed a team of seven engineers focused on implementing solutions in network connectivity, data security, unified communications, applications and end to end support. He was also at Aspin International where he was the IT Lead Engineer. Ojurongbe, Olajumoke (Head, Corporate Finance) Olajumoke holds a Higher National Diploma (HND, Upper Credit) in Banking & Finance from the Polytechnic, Ibadan (2001). She is a member of the Chartered Institute of Bankers of Nigeria (2001) and holds an MBA Finance (2007) from the Obafemi Awolowo University, IleIfe. She has several years working experience some of which have been in corporate finance having joined the Corporate Finance Department of Resort Securities & Trust Ltd in 2004; where she handled various tasks among which are the mergers of Devcom Bank Ltd with Equitorial Trust Bank Ltd, also the merger of six Banks that culminated in Unity Bank Plc, among others. She currently serves as Head, Corporate Finance Department, where she handles Capital Market Issues, Mergers and Corporate Restructuring. Osoko, Olufemi (Head, Asset Management) Mr.Osoko holds a BSc degree in Business Administration from University of Lagos(2004). He joined DEAP Capital with several years of experience obtained in the Stock broking and Banking sectors spanning over six years. He takes charge of our relationship with Stockbrokers, Registrars and Capital Market Authorities. Nduka, Okechukwu (Head, Institutional Clients Unit) Mr. Nduka joined DEAP Capital with several years of experience acquired from Stock broking and Asset Management firms. He was the Chief Investment Officer in Goldfoot Investment Ltd, a portfolio management firm. Prior to that,
he had worked with Eurocomm Securities Ltd, a dealing member of the Nigerian Stock Exchange. He was the pioneer Manager of the Ikeja branch of DEAP Capital before joining the Corporate Institutions Clients Units, which he currently heads. An HND holder in Banking & Finance (1999) from Federal Polytechnic Okoh, PGD in Management (2001), MBA in Business Administration (2004) both from University of Calabar. He is an Associate Chartered Economist (ACE) and Student Member, Chartered Institute of Stockbrokers of Nigeria. 2.5. Company History DEAP Capital Management & Trust Plc was incorporated on 5th June, 2002 and commenced business on June 10, 2002 as a Private Company and was duly registered with the Securities & Exchange Commission (SEC) to undertake the business of Fund/Portfolio Management, Issuing House and Financial Advisory Services. DEAP Capital has a paidup capital of N750, 000,000 divided into 1,500,000,000 ordinary shares of 50 kobo each. The Group has an asset base of over N6 billion with funds under management in excess of 3.4 billion. Following a resolution passed during its 5th Annual General Meeting held on 30th March2006, the Company reregistered as a Public Limited Company and initiated the listing process of the Nigerian Stock Exchange in order to expand the sources of financing for its activities. This was consummated with the listing of 1,000,000,000 ordinary shares of 50 kobo each on the Nigerian Stock Exchange on December 17, 2007. The core business of DEAP is Funds/portfolio Management and Financial Advisory Services for High Net worth Individuals and Institutions. DEAP Capital is owned by over 10,000 Nigerians and an institutional investor. DEAP Capital, since inception, has been committed to being the Fund Management Company of choice in the Nigerian Capital Market. The company adheres strictly to professional standards and best practices in its transactions, with a view to providing outstanding returns to investors in the market. DEAP Capitals dealings are knowledge and research based which gives the competitive advantage in the continuing drive to satisfy its many customers irrespective of market conditions. This is the essence of DEAP Capital brand and reflects its philosophy while diversifying into other business segments. In November 2004, Deap Capital received SEC Certification to commence Issuing House and Financial Advisory Services. The company has been able to make its mark by handling a number of key mandates of which special mention is the advisory role it played during the banking sector consolidation namely, the merger of nine banks which subsequently became the Unity Bank Group.
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2.6.
Capital Base and Financial Performance. DEAP Capital Management & Trust Plc has a paidup capital of N750, 000,000 divided into 1,500,000,000 Ordinary shares of 50 kobo each. The Group has an asset base of over N6 billion with funds under management in excess of 3.4 billion.
2.7.
Head Office/Branches a. Head Office- Lagos b. Ikeja c. Abuja d. Port Harcourt e. Warri f. Enugu Subsidiaries & Associates As part of its strategic expansion plans to establish presence in the financing side of key sectors of the economy, the company has builtup some mutually beneficial alliances.
2.8.
a.
Resort Securities & Trust Ltd DEAP Capital acquired a 60% stake in Resort Securities & Trust Ltd during the 2005 financial year. The firm is one of the leading stockbroking firms in the Nigerian capital market. The company is determined to grow its market share from the current level to be among the first ten major operators by 2011).Resort Securities is already operating with shareholders funds in excess of N389 million as at the end of September, 2010. The core activities of Resort Securities and Trust Ltd are: Stockbroking Portfolio Management Financial Advisory Services The company has no associated or subsidiary companies, however, its operations have impacted positively on our asset management business.
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b.
DVCF Oil & Gas Plc DVCF Oil & Gas Plc started out as an Oil & Gas financing division of DEAP Capital Management& Trust Plc. Its specialty is project management and structuring finance for indigenous contractors in the oil and gas sector. During the 2006 financial year, the division was spunoff to form a new subsidiary in which DEAP Capital currently owns 40%. The company is making plans to enhance its market share in its core area of operations in project management and funding in oil & gas sector. This is being pursued through alliances with established Companies in the industry. Recently, the company took a 68% stake in The Initiates Limited, a company that is involved in waste management services in the oil & gas sector. It has also expanded its scope to look at the mining industry in broad terms beyond oil & gas sector. The Company took a 30% stake in Precious Mines & Minerals Producing Co. Ltd with the aim to diversify income sources. DEAP Capital has enhanced its shareholding in this Company to 40% of the PaidUp Capital of N1 billion as at September 30, 2008. The Company has recently launched a Private Sector Local Content Fund, with total assets of over N500 million. DVCF Oil & Gas Plcs core activities are: Project Management Venture Capital Asset Based Financing
c.
Resort Savings and Loans Plc DEAP Capital Management & Trust Plc has strategic interest in a key Primary Mortgage Banking Institution in Nigeria, Resort Savings and Loans Plc. The Company has been restructured and is currently handling some prime mortgage financing mandates in Taraba, Lagos, Adamawa, Bayelsa and Ogun States. Its focus is to deliver affordable housing to Nigerians in major state capitals and commercial centres. The Company in March 2008 raised its paid up capital from N191.5 million to N6.5 billion. The company has surpassed the required minimum paid up capital for mortgage institutions of N5 billion as announced by Central Bank of Nigeria. Resort Savings & Loans Plc has a fair share of the market with the current level of recapitalization attained under good management. DEAP Capital holds a 19% equity in Resort Savings & Loans Plc. The core activities of the Company are: Mortgage Banking/Finance Property Development & Sales Leasing
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The Company recently listed its shares by introduction on the floor of the Nigerian Stock Exchange. Resort Savings & Loans Plc owns Resort Developers Ltd, which is an arm used for the development of mortgage properties of the bank. 2.9. Organizational Structure of DEAP Capital The Board of Directors is the highest decision making organ of the company. The Group Managing Director/CEO reports to the Board through its Chairman and he is in charge of the daytoday running of the organization. The GMD/CEO has 7 Heads of Departments that report to him directly. Two departments perform Group functions, namely: Risk Management & Control and Human Resources & Administration. The HODs of these two departments have dotted line relationship with the Managing Directors of the Subsidiary and Associate companies in the discharge of their respective functions. In the anticipated merchant bank, six departments will perform these functions. In line with this there will be an Investment Banking, Corporate Banking, Corporate Services, Asset & Fund management, a Research & Strategy department and an Enterprise Risk Management department. 2.10. Key Competitors The major competitors of Deap Capital are as follows: Stanbic IBTC Asset Management Ltd; BGL; Vetiva Capital; Greenwich Trust; Asset& Resources Management (ARM); Cashcraft Asset Management; Chapel Hill Advisory; AfrinvestWA; Lead Capital; Dunn Loren Merrified; Cardinal Stone Partners; UBA Global Markets; Futureview Financial Services; FSDH Asset Management; Sterling Capital etc.
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2.11.
Clients and Customers Overview Deap Capital serves over 407 customers, which includes individuals, associations, high networth clients, corporations and religious groups.
Figure1: Share of Activity in Corporate Profitability as at 2010

Activity Quoted Securities Trading Gain Advisory Fees & Commission Portfolio Mgt & Fees Income Lease Interest Income Other Income Percentage 60% 18% 5% 3% 14%
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3.0. 3.1.
Project Concepts Background Recently, the CBN repealed the universal banking model and accordingly released guidelines for the licensing and operation of Merchant banks. The introduction of the Merchant banking model by the CBN offers a viable opportunity to Deap Capital Management and Trust Plc to transform its status as a non-banking financial institution into a merchant bank. Based on the proposed re-introduction of the merchant banking model, Deap Capital Management and Trust Plc have greater chance of expanding its scope of business and its customer base. It is also an opportunity to fill the gap that will exist in Investment Banking, Corporate Banking and Assets & Funds Management as a result of the new legislation.
3.2.
The Proposed Deap Merchant Bank The transformation of Deap capital into a merchant bank is driven primarily by (a) the gap that exists between the surplus units of the economy and worthy corporate clients desiring funds for their businesses, (b) the desire to establish a more robust business platform for the company and (c) to take advantage of CBNs policy of reintroducing merchant banking into the financial system. A merchant banking license will not only improve the earning fortunes of stakeholders in Deap Capital but also broaden the product offerings of the company and serve as a strategic platform for leveraging on the companys strengths. The proposed Deap Merchant bank will be focused as a full service merchant and investment banking institution providing a comprehensive range of specialized services in the following areas: Investment Banking Services (Issuing House, Mergers& Acquisitions, Private Equity, Venture Capital, Project Management &Underwriting) Corporate Banking (Real Estate Financing, Lease, Syndication, Trade Finance & Treasury) Asset& Funds Management (Mutual Funds, Securities Trading, Portfolio Management & Forex Desk) Financial Advisory Services.
These services shall be offered across Deap Merchant banks branches spread out in the six geopolitical zones of Nigeria. Each zone will have a branch which will cater for its needs. Additionally, the bank shall regularly introduce innovative financial products in response to the perceived needs of clients and the
prevailing business/regulatory environment. The bank will also be involved with activities in the areas of loan syndication, debt and equity issues, lease financing, mergers and acquisitions, Real estate services, money and capital market activities, trade finance, mutual funds administration, underwriting, project management, portfolio management and forex transactions. 3.3. The Operational Focus of Deap Merchant Bank Deap Merchant Bank shall adopt a merchant banking model with a capacity to maintain a diverse and flexible investment strategy that would cater for the various needs of its customers which are individuals and corporate clients. An operational model that has a proven record per excellent by offering specialized services to clients and customers. In line with this, Deap Merchant bank will invest heavily in the following. a. Investment Banking The bank would create differentiated products and services that are crucial in assisting the clients achieve anticipated goals. These would be distributed into arrays of offerings which include mergers and acquisitions, private equity, venture capital, issuing house services, underwriting and project management. Deap merchant bank will serve as a platform for corporate bodies to generate investable Funds/Portfolio through the following; Private Equity, Venture Capital, Issuing House, Project Management and Mergers &Acquisitions. In an effort to fund projects, the bank shall undertake viable long term and medium term investments/project and structure value added services that would drive market place benefits for both the customers and the organization. There is a particularly expanding market for these activities considering the developmental strides recorded in Nigeria and the West African sub region in the past few years. This growth momentum is expected to continue considering the fact that the political landscape is stable. b. Corporate Banking The corporate banking department would provide banking services for corporate institutions. This would present broad investment options which include the following services; lease financing, real estate, treasury, syndication and trade finance. Corporate banking arm would be broken down into different segments to provide different financial solutions to different customers. The aim of this department is to help clients better manage their finances with a wide variety of bank loan and deposit products, payment services to finance investments and other related activities. In providing financing options, the bank will establish conditions which will serve as part of its qualitative value added services that cut
across various customers. This array of specialized financing options would present broad market scale opportunities that would satisfy the specific needs of the customers as well as offer clear financial solutions based on informed market judgments.
c. Asset and Fund Management Deap Merchant Bank will leverage on the expertise of Deap Capital by also significantly playing in the capital market by engaging in Securities Trading, Forex Trading, Mutual Fund Administration and Portfolio Management. These activities have proven to be viable investment options in Nigeria. Apart from the securities trading which suffered a downturn in the past few years, other markets in this category are relatively young and are recording astronomical rates of returns. The lull in the capital market is a major concern but efforts are being made to rekindle the market through reforms and policies. The forex market remains a veritable source of profit as Nigeria is an import dependent economy and is thus engaged in a lot of currency trading. In the area of portfolio management the competencies of Deap capital will be transferred to the merchant bank. d. Research Deap Merchant Bank investment research will address corporate, sectoral and industry specific research and analysis, economic and commodities research, credit and investment study and forecast global market trends. These would be designed according to the expressed needs of the commercial, financial and economic concerns of clients. Research would sustain value added services in specialized areas such as equity trading, fixed income, portfolio strategy, credit and derivatives. As part of its strategy to create a far reaching industry position, Deap would invest heavily on high end information and communication technology facilities that are spread across the various financial instruments which are used for market research and forecasts. e. Proprietary Trading: Deap Merchant Bank will trade on stocks, bonds and other financial instruments, with its own money separate and in addition to its customers' money. With a substantial part of its resources, Deap Merchant bank intends to profit from the market rather than from commissions from processing trades on behalf of clients.
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f. Real Estate Financing: Deap would offer a variety of financing and asset management services to help customers develop effective real estate financing strategies. Commercial real estate financing can take on very different terms, and the way deals are structured is based on a number of factors, including: Anticipated use of the property; Anticipated returns from the property; Geography; Type of real estate; Size of real estate; Perceived risk to lender; Market conditions. Each of these areas must be examined by the business owner prior to seeking commercial real estate financing. Overall, the Deap Merchant Bank would focus on building its core business transactions by developing customized investment products and services that offer large scale benefits. This will have a strong bearing and contribute immensely to the expected success of making the bank a leading financial institution. 3.4. Business Locations and Branch Network Development Strategy In order to effectively reach out to the desired clientele and at the same time minimize expenditure, Deap Merchant bank will maintain a single office each in the six geopolitical regions in the country. These branches will be controlled from the head office in Lagos (See all the existing branches and addresses below). Deaps branches will leverage on technology to drive their processes. They will be interconnected via the Very Small Aperture Terminal (VSAT) to ensure efficient service delivery and effective communication firm wide. This will also enhance uniformity of operation across the bank nationwide. Though there is no immediate plan to further expand in terms of branches, if business conditions warrant an expansion, right steps will be taken to achieve the desired end. All the branches are to be self-liquidating and target driven and the management structure will be flexible to ensure the achievement of this objective.
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Table 2: Head Office and Branches of Deap Capital Management and Trust Limited Office Head Office Location 14th Floor St. Nicholas House 6, Catholic Mission Street Lagos Block E, Flat 1 Resort Court Site, Supreme Court Quarters Road, Karu Abuja. 2nd floor, Bics Malls, Plot 66, OluObansanjo Road. 25 Olowu Street Beside Zenith Bank, Ikeja. Egbo House, 164 Ogui Road, Enugu 37B, Air port Road, Opp. Mosheshe Estate,Effurun Warri. www.deapcapital.com
Abuja Branch
Port-Harcourt Branch
Ikeja Branch
Enugu Branch
Warri Branch
Website
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4.0. 4.1.
Recent Developments in the Nigerian Economy The Nigerian Economy The Nigerian economy is the second largest in Africa. Located on the west coast of Africa, Nigeria is by far the most populated country in Africa with an estimated population of 150 million people as at 2010. Nigeria is one of the most successful young democracies in Africa having seen a successful transition of government from one administration to another in 2007.Since the return to democracy; the country has experienced a wave of multi-sectoral growth. The expected success of the 2011 April elections will further strengthen the standing of Nigeria as a democratic nation. The stable political environment and the economys rapid growth have improved significantly investor perception of the country. On the macro-economic level, the economy has witnessed a period of sustained growth. Over the last five years; growth averaged 5.6%.Growth was recorded in the financial sector, oil and gas industry, information communication technology (ICT), transportation, the mortgage industry, entertainment industry, among others. As at 2009 the IMF in a publication indicated that GDP per capita per person stood at $2,500 (with the inclusion of the informal sector, it is estimated that GDP per capita hovers around $3,500 per person). That Nigeria is a fast developing emerging economy is not in doubt as the growth rates projected by local economic monitors and international agencies indicate an upbeat. The IMF in a recent publication indicated that the economic outlook for Nigeria remains positive and risks are generally balanced. The body further stated that having exceeded projected growth rates in 2010 by 1.5% in the first quarter of 2010; it will grow by 7% in 2011, moderating gradually in subsequent years. Inflation is projected by the IMF to decline to 9% by the end of 2011. It is expected that growth will be sustained given the far reaching reforms of government all geared to enhance the competitiveness of the Nigerian economy.
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Though Nigeria relies largely on oil for her foreign exchange earnings, statistics indicate that there is a steady increase in the contribution of the non-oil sector to the economy. In 2010, the economy experienced a remarkable improvement with an 8.9% growth in real output attributable to growth in the contribution of the non-oil sectors of the economy especially in agricultural outputs. In terms of the management of oil proceeds, the government has upheld its commitment to macroeconomic stability with strong adherence to an oil price-based fiscal rule. Nigeria relies on oil exports for her foreign exchange earnings and oil is the main commodity it exports, it is expected to contribute significantly to growth in 2011 and 2012. This position is strengthened by the outlook of the United States Energy Information Administration (USEIA), which believes that prices will average US$83.50 a barrel in 2011. The financing sector in Nigeria is made up of Deposit receiving institutions, finance houses, BDCs, microfinance banks, primary mortgage institutions etc. The sector has performed impressively on the back of CBNs consolidation of 2003. On the heel of the global financial crisis, issues relating to poor corporate governance impacted negatively on the performance of the banking industry but governments bail out measures saw the injection of over N600billioninto the banking sector. Today there is stability in the system. The policy thrust of the CBN is focused on restoring confidence in the sector the apex bank has left no stone unturned in a bid to achieve this goal. There is high confidence in the Nigeria economy on the international scene. The oversubscription of the $500m Eurobond floated by the government in the first quarter of 2011 underscores this. The Eurobond is estimated to have been oversubscribed to the tune of 2.5%; an indication that there is considerable confidence in the Nigerian economy. The development also indicates that the risk premium placed on the Nigerian economy has reduced significantly over the years.
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On the grey side, the economy has high unemployment, pervading poverty and administrative bottlenecks with the government aspect of business (IMF puts unemployment rate at 4.5 percent in 2010, government gross debt in national currency is equally high ($5064.03bn in 2010).
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4.2.
Developments in the Nigerian Economy In order to address the problems mentioned above, various reforms are being implemented by the government. The main framework adopted by the government is the vision 20:2020; according to this framework, Nigeria is expected to be among the first 20 economies by the year 2020. Various short term plans have been put in place to achieve this goal. The National Economic Empowerment Development Strategy (NEEDS) which was put in place in 2004 is a short term goal aimed at achieving the vision 2020 target of government. The aim of NEEDS is to raise the standard of living through a variety of reforms including macroeconomic stability, deregulation, liberalization, privatization, transparency, and accountability in governance. Apart from NEEDS, Nigeria is involved in the United Nations (UN) sponsored National Millennium Development Goals (MDG). Under the program certain developmental goals are being pursued by government most of which are expected to be achieved by 2015. Similarly, considering the confidence reposed on the economy as indicated by an over subscription of the euro bond floated by the government recently, there are indications in the near future that with rapid infrastructural growth there will well-enhanced investment inflow with attendant elevated levels of economic growth in the economy. In general, the Nigerian economic landscape is making developmental strides, majorly in the non-oil sector of the economy. There is also a growing middle class which is expected to be a major market for mortgages. The oil sector has also had its fair share of rebirth since the petroleum industry bill would open up the industry to both local and foreign investments. Nigeria has just formally entered into the international capital markets with its debut Eurobond which has been more than two and half times oversubscribed. Nigeria sought US$500 million, but at the close of the Offer, investors put on the table US$1.3 billion. Despite initial fears raised about Nigeria's investment climate, the debut Eurobond Offer recorded great success. This indicates that the economy of Nigeria is worth investing in.
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Table 3: Major Macroeconomic indicators 1990-2010 Year GDP growth Exchan Inflati GDP Per Capita, Rate ge on Current Prices (%) Rates (US $ ) 2005 5.4 130.4 17.85 823.82 2006 6.2 128.5 8.24 1038.76 2007 2008 2009 2010 7.0 6.0 7.0 7.4 120.98 121.90 148.20 150.07 5.38 11.60 12.36 11.91 1153.40 1401.24 1111.73 1324.34
Unemploym ent Rate (%) 3.5 4.5 4.9 4.5 4.5 4.5
Govt. Bond Rating N/A N/A N/A N/A N/A B+ forward/Sta ble
Source: CBN Statistical bulletin/IMF data, global finance journal (www.gfmag.com)
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4.3.
Macroeconomic Outlook The macroeconomic outlook for the Nigerian economy is bright. As shown in table 3, there has been a steady increase in the growth rate of the economy as measured by growth in the GDP. As has been cited above, in the first quarter of 2010, the actual growth of the economy outstripped the projected growth. The IMF has also projected that inflation rate will significantly reduce in 2011. The current administration is committed to infrastructural development which is expected to have the capacity of lowering production costs, increase output and enhance business profitability. Apart from these, there is a steady expansion of the middle class in most developing countries in Africa including Nigeria, this expansion is expected to further increase GDP and boost growth. A combination of these factors gives credence to the assertion that the vision 2020 project of government is achievable. The data as presented in table 4 indicates that inflation is expected to reduce significantly between 2010 and 2011. According to IMF data, the decline in inflation rates is expected to be sustained. Though population is expected to maintain a steady climb in the next few years, the rate of unemployment is not expected to change much. Other macroeconomic variables like GDP and
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government expenditure are expected to rise within the next four years. Indeed the Nigerian economy presents a positive outlook for merchant banking. A summary of the high light of projected macroeconomic magnitudes is presented in table 4. Table 4: Key macroeconomics variables Projections Variables GDP, current prices N | Billions GDP, current prices U.S. dollars | Billions GDP, deflator Index GDP per capita, constant prices N GDP per capita, current prices (N) GDP per capita, current prices U.S. dollars Inflation, end of period consumer prices Percent change Unemployment rate Percent of total labour force Population Persons | Millions Govt. revenue( N) | Billions Govt. revenue Percent of GDP Govt. total expenditure N | Billions Govt. total expenditure Percent of GDP Govt. gross debt Percent of GDP Source: CBN, IMF. 2010 2011 2012 2013 2014 2015 30980.84 36123.11 42365.16 49486.48 56875.73 65249.59 206.66 232.97 254.98 278.49 299.58 321.83
281.69 305.70 334.31 364.64 394.92 427.47 70477.20 73696.76 76917.52 80170.53 82798.65 85408.38 198530.3 225287.5 257145.5 292330.9 326989.2 365092.0 0 0 0 0 0 0 1324.34 1452.95 1547.67 1645.15 1722.35 1800.75 11.20 4.500 156.05 8000.78 25.83 8.500 4.500 160.34 8.500 4.500 164.75 8.500 4.500 169.28 8.500 4.500 173.94 8.500 4.500 178.72
9399.72 11071.16 12925.95 14783.73 16793.97 26.02 26.13 26.12 25.99 25.74
10458.19 10942.25 12368.58 13787.66 15554.45 17551.05 33.76 16.35 30.29 16.93 29.20 14.80 27.86 12.99 27.35 11.62 26.90 10.26
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4.4.
Overview of the Banking Industry in Nigeria The banking industry is the back bone of any economy and facilitates national development by providing financial intermediation. The banking sector in Nigeria is made up of the commercial banks, microfinance banks and other financial institutions which may not be directly referred to as banks. These institutions include finance houses and asset management institutions are sometimes referred to as investment banks. Other financial institutions include Micro-Finance Banks (MFBs), Finance Companies (FC), Bureau De Changes (BDCs), Primary Mortgage Institutions (PMIs) and Development Finance Institutions (DFIs) The supervisory process of both departments involves both on-site and off-site arrangements. The importance of the banking sector has made it imperative for regulation in the sector to be stringent. The Central Bank of Nigeria (CBN) and the National Deposit Insurance Corporation (NDIC); act as chief regulatory bodies which ensure compliance with rules and regulations. In particular, the coverage of the CBN spans the entire industry. A summary of the functions of the various financial institutions is set forth below.
a.
The Commercial Banks are saddled with the statutory obligations to provide a wide range of financial services. Commercial banks perform three major functions, namely, acceptance of deposits, granting of loans and the operation of the payment and settlement mechanism. They constitute the hub of the banking system since they are permitted to play in the mortgage market, Capital market, and BDC transactions as well as to provide other financial services. It must be noted that the CBN has proposed to decentralize banking as is carried out by Commercial banks. This has necessitated the Merchant Banks and created an opportunity for Deap Capital to acquire a merchant banking license. Commercial Banks in Nigeria operate under the legal framework of the Banks and other Financial Institutions (BOFIA) Act 25 of 1991 (as amended). Merchant banks take deposit and cater for the needs of corporate and institutional customers by way of providing medium and long-term loan financing and engaging in activities such as equipment leasing, loan syndication, debt factoring and serve as project advisers to clients sourcing funds in the market. The first merchant bank in Nigeria, Nigerian Acceptance Limited (NAL), started operations in 1960. The recent drive by CBN to re-introduce the Merchant Banking Institutions is borne out of the need to close the gaps created by the repeal of the universal banking model hitherto operated by commercial banks.
b.
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c.
Micro-Finance banks were introduced into the industry to replaced community banks. Three features that distinguish microfinance from other formal financial products are: (i) the smallness of loans advanced and or savings collected (ii) the absence of asset-based collateral, and (iii) simplicity of their operations. Originally designed to support the fight against poverty among rural people, micro-finance institutions in Nigeria was established on the regulatory frame work under the supervision of CBN by the provisions of Section 28 subsection (1) (b) of the CBN Act 24 of 1991 [as amended] and in pursuance of the provisions of Sections 56-60A of the Banks and Other Financial Institutions Act [BOFIA] 25 of 1991 [as amended].
d.
Primary Mortgage Institutions (PMIs) operate within the framework of Act No. 53 of 1989. PMIs mobilize savings for the development of the housing sector. Their total assets/liabilities rose to N7248.2 million in 1999. In reaction to distress in the sector, the Federal Mortgage Bank of Nigeria tightened its surveillance of the institutions by issuing clean bill of health to 116 mortgage institutions. The share capital requirement for new primary mortgage institutions has been raised to N5 billion Development Financial Institutions (DFIs) Also known as specialized banks were established to contribute to the development of specific sectors of the economy. In order to enhance their operations and make their efforts felt in the economy, most of the former DFIs in the country have been merged and restructured. The DFIs from the merger and restructuring are the Bank of Industry (BOI) and the Nigerian Agricultural Co-operative and Rural Development Bank (NACRDB). The two banks provide soft loans to industrialists and those engaged in agro-allied ventures. Other existing DFI's are Federal Mortgage Bank (FMB), Urban Development Bank (UDB) and Education Trust Fund (ETF) to cater for the sectors reflected in their names. Structure and the Regulatory Frame Work of the Nigerian Banking Industry At the end of December 2002, there were about 89 licensed/insured banks (otherwise known as universal/commercial banks), 282 licensed community banks, 74 licensed primary mortgage institutions and 6 development financial institutions (DFIs).Apart from the DFIs, all the other institutions take deposit from members of the public in one way or the other. These numbers have however changed. See table 5 below.
e.
4.5.
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Figure 2: Number of Firms Operating in the Financial Services Sector

900 800 700 600 500 400 300 200 100 0
DMBs Stock broking Firms Issuing Houses Insurance Coys BDCs MFBs Discount houses DFIs PMI Financial Coys
Numberasat2010
Numberasat2002
Source: CBN From the structure above it is obvious that there are no institution devoted to merchant banking functions in Nigeria presently. In line with the proposed decentralization of the universal banking model, it became imperative to have financial institutions which provide pure merchant banking function. This gap is what the Deap Merchant bank is poised to fill. The merchant banking model as described by the central bank will accommodate key areas in corporate finance, project finance; provide BDC functions and asset management. A brief description of the regulatory framework of the Nigerian banking industry is presented below. The supervisory function of CBN is structured into three departments Financial Policy and Regulation, Banking Supervision Department and Other Financial Institutions Supervision Department
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Financial Policy and Regulation department develops and implements policies & regulations aimed at ensuring financial system stability and also licenses and grants approvals for banks and other financial institution. Banking Supervision Department carries out the supervision of Deposit Money Banks and Discount Houses while Other Financial Institutions Supervision Department supervises other financial institutions. 4.6. Recent Developments in the Nigerian Financial System A review of the banking system as at June, 2004 revealed that marginal and unsound banks accounted for 19.2% of the total assets with 17.2% of total deposit liabilities, while industry non-performing assets was 19.5% of the total loans and advances. The implication of these unsatisfactory statistics was the threat of a systemic distress judging by the trigger points in the CBN Contingency Planning Framework of December 2002, which stipulated a threshold of 20% of the industry assets, 15% of deposits being held by distressed banks and 35% of industry credits being classified as non-performing. This led the CBN, to develop a strategic agenda for ensuring interest rate stability and development, financial sector diversification and regulatory reforms amongst other reform goals under a compounded document known as the National Economic Empowerment and Development programme (NEEDs), with an emphatic concentration on banking consolidation. The strategic reform programme was tagged the 13 point agenda. Some of the key elements are listed below: Minimum capital base of N25 billion with a deadline of 31st December,2005; Consolidation of banking institutions through mergers and acquisitions; Phased withdrawal of public sector funds from banks, beginning from July, 2004; Adoption of a risk-focused and rule-based regulatory framework; Zero tolerance for weak corporate governance, misconduct and lack of transparency; Accelerated completion of the Electronic Financial Analysis Surveillance System (e-FASS); The establishment of an Asset Management Company; Promotion of the enforcement of dormant laws; Revision and updating of relevant laws; Closer collaboration with the EFCC and the establishment of the Financial Intelligence Unit.
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At the end of the first phase of the regulatory exercise, in 2005, the number of licensed/insured commercial banks was reduced from 89 to 24 by increasing the minimum required capitalization for banks from NGN 2bn to NGN 25bn (a 1,150 percent increase) with full compliance before end December 2005. However, the Nigerian banking industry, experienced a crisis in 2009, triggered by the global events. The stock market collapsed by about 70% in 2008-2009and many Nigerian banks had to be rescued. The CBN took drastic measures in designing a developmental reform plan for the banking industry to ensure that similar crisis does not happen again and for the financial sector in Nigeria to develop in a sustainable manner contributing positively to economic growth. In other to stabilize the system and return confidence to the market, an injection of about NGN 620bn of liquid funds and the replacement of the leadership of 8 Nigerian banking institutions were embarked upon by the CBN. Currently, The Central Bank of Nigeria in a bid to unlock the credit market has approved the investment of the sum of N500bn Debenture Stock to be issued by the Bank of Industry (BOI). In the first instance, the sum of N300bn will be applied to power projects and N200 billion to the refinancing/restructuring of existing loans to Nigerian companies within SME/Manufacturing Sector. These Guidelines relate to the N200 billion re-financing and restructuring of banks loans to the manufacturing sector and those for the power sector will be issued at a later date. (www.cenbank.org) While in the manufacturing sector, a whooping N70billion intervention fund was initially approved by the federal government for Textile industry, about two years ago before the recent N100 billion bond bail-outs, approved on December 18, 2009, for the revival of the distressed textile industry and other related distressed industries in the manufacturing sub-sector. These funds were channelled to various approved industries in the sub-sector through the CBN. Owing to the various reforms and interventions programmes by the financial authorities, the state of the national financial economy is improving significantly. As regards to the current achievement recorded in the power, textile, banking sub-sectors; much is still needed to be done if Nigeria is to be the financial hub of the sub-Saharan Africa.
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5.0. 5.1.
Scan of Business Environment Political Environment The relative political stability in Nigeria since 1999 has had positive impact on the economy. Nigeria has had 12 years of uninterrupted democracy and is at the heel of new elections. At the moment the political terrain is positive. The electoral process has commenced with fair successes recorded in the registration of voters. There is high optimism that the April 2011 elections will be smoothly conducted. Though the country experiences spates of religious unrests in the North, these are being checked by increasing the presence of security operatives; as they are largely the product of a few religious fanatics. Considerable progress has also been recorded in the Niger Delta Region; where there was hostage taking and kidnapping. There is now an improved situation suitable for business as the amnesty programme designed to address the grievances of the militants has been successful. Currently, oil production, which was hampered by the activities of militants, has reached unprecedented heights. Nigeria has also reassumed the position of highest supplier of crude products in Africa. In summary, the political terrain is accommodating to business.
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5.2.
Social Environment Nigeria has a population of about 150 million people. This positions the country as the largest market on the African continent. Demand is however concentrated in Lagos (with a population of about 16 million) and Abuja (1.42 million). Most of the demands for financial services are unsophisticated due to low incomes and high poverty levels. The country is rich in human and natural resources. Demographically, Nigeria is divided into six geo-political zones with more than 350 ethnic/linguistic groups, and a variety of social groups in the country. Nigerias commercial centers spread across the different regions with Lagos, Kano and Port-Harcourt as major markets. A forward looking bank will target these areas as well as the major oil producing states which have high per capita income. Despite religious and ethnic clashes in various states, the government has been able to manage a level of stability in the polity.
5.3.
Technological Environment Though there has been a drastic improvement in the level of technology in the country there is still more to be done in this area. Improvement in the level of technology in the banking system was fast-tracked immediately after the consolidation exercise of the CBN in 2005. Many banks in Nigeria utilize state of the art technology to route their processes. Although there is still a lot to do, there has been considerable progress in this area. The Nigerian economy is however faced with the issue of electricity as there are structural issues that have stood in the way of sufficient power generation and distribution. These problems are being currently tackled.
5.4.
Market Demand and Supply for Investment Banking Products and Services There are a number of firms which make up the supply side for Investment banking in Nigeria. They include Stanbic IBTC Asset Management Ltd, BGL, Vetiva Capital, Greenwich Trust, Assets & Resources Management (ARM), Cashcraft Asset Management, Chapel Hill Advisory, AfrinvestWA, Lead Capital, Dunn Loren Merrified, Cardinal Stone Partners, UBA Global Markets, Futureview Financial Services, FSDH Asset Management and Sterling Capital.Deap Capital Management and Trust Plc is a major player in this industry and will leverage its strength and expertise after its transformation to Deap Merchant Bank. On the demand side, there is a vast array of clientele which consume investment banking products.
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Table 6: Competitor Comparisons S/ Compan Branch Product N y es s
Deap 6 Greenwic 5 h 3 BGL 32 8 4 FSDH 3 8 5 Vetiva 1 10 6 StanbicIB 3 4 TC 7 Sterling Capital Source: Compiled by ValueFronteira
1 2
Numbe r of Board Membe rs 3 13 7 7 7 8 5 10 6
Industry Exposure of Board Members (years) 12 28 23 30 NA 8 30 16 21 NA 11 30
Strategic Alliance (Subsidiaries)
3 4 4 2 2 NA 2
The investment banking universe in Nigeria comprises over 100 companies providing services which comprise asset management, capital market, real estate and economic research/advisory services. Seven companies (including Deap Capital) were selected and analyzed. See Table 6 above. The geographical spread of the selected companies was based on their branch network across the six geopolitical zones of the country (regional presence). BGL has firmer physical presence than any other Investment bank in its category with 32 branches spread across the regions. Other institutions especially those owned by commercial banks leverage on the parent companys spread and use commercial banking officers to route their transactions. In the case of the Deap Merchant bank, the spread will be at the regional level. Six branches will be spread across the six geo-political regions of Nigeria. These will provide wholesale banking services across the country. The activities of the investment banks in Nigeria (based on product offerings) focus operations on investment banking and management, financial advisory and research for both private and public institutions. These products are diversified into number generic options targeted at a variety of customers. The services are a reflection of the customer base and investment banks act in most cases as intermediaries between the companies that seek to raise funds in the capital market and investors. DEAP capital serves over 407 customers, which include individuals, Associations, High networth Individuals, Corporations and Religious groups. The profits in DEAP Capital are largely from quoted securities, which make up about 60% of the companys entire investment activities. The most serviced fraction of the market is high net worth individuals. Corporate
institutions and the government also have a relatively small contribution to the bottom lines. This is due to the regulatory bias against non-bank financial institutions in the placement of Government funds. Advisory services for mergers and acquisitions in Nigeria have occurred more in the financial service sector (banking and insurance) than most other sectors due to the policy reform of the CBN. A handful of the selected market operators have participated in the execution of these activities based on their professional expertise. DEAP Capital has deployed a strategic alliance in related sectors as subsidiaries especially in real estate and capital market operations. 5.5. Merchant Banking Opportunities and Services In order to have a clearer view of the operations of DEAP Capital as a merchant bank, the services rendered by the company have been divided into two areas: Primary domains: These include the diversified product options rendered already by the company. They include and are not limited to portfolio management, lease finance, venture capital, corporate finance, project management, specialized structured fund financing and capital market operations. Secondary domains: These include the market space that the company is yet to fully explore/exploit. Some of the identified areas are mergers and acquisitions, commercial mortgage, floating of bonds and treasury bills for sovereigns and corporate organisations, forex and syndication. The expertise of DEAP Capital with the DVCF Oil & Gas Plc will be entrenched in the oil and gas sector when the petroleum industry bill (PIB) is fully passed into law. This law will liberalise the Nigerian energy sector and engender local and foreign participation. Despite the vagaries in international oil prices, liberalisation as an investment window for competitive participation and market expansion would provide broader investment opportunities for DEAP Merchant bank. Also providing financial facilities for viable potential investors which will be added to the market will increase the profit outlook for the company. The current rate of government spending is expected to facilitate economic activities and ensure improved standard of living. Qualitative life style creates opportunities for investment opportunities in stocks and other securities for the citizenry. Government spending also open investment in real estate and construction with increase in government development projects. This is as a result of the governments commitments to infrastructural development with several road
and building construction projects ongoing. The growing population rate and increase in the number of the middle class is a potential market that will cause the much expected boom in real estate as demand increases. Deregulation has permitted new affiliations among companies across major areas of businesses. Sequel to this policy injunction companies in banking, telecommunications and energy have been undertaking negotiation in mergers and acquisitions. Although mergers and acquisitions does not take place frequently as other business activities, but DEAP Merchant bank stands a chance to provide financial and advisory services for companies especially in banking, telecommunications, transport and aviation and energy which are viable ventures that holds prospects for strategic alliances. With vested inter regional interest shown in some local entities from international companies, more rooms would be open for DEAP Merchant bank as a merger advisor for such investment transactions. Since its commencement in 2004 when the federal government assigned pension fund administrators to assist in managing the accounts of its army of potential retirees, a market for possible investment vehicle was created in the Nigerian economy. DEAP Merchant bank will extend its institutional service platform to serve large scale organisational transactions to manage their potential retirees. The bank would provide debt financing services as a measure for commodity financing for investors. Other economic windows that are open for possible exploration at the commercial scale are vastly in the area of rising real estate market, health care and energy. 5.6. Revenue Potentials of the Investment Banking Industry The revenue potential of merchant banks is driven by the dynamics of demand and supply. Companies use the capital market to raise money for investment in their businesses while merchant banks provide the services for the companies to reach their financial targets. Essentially investment or merchant banks offer these services at negotiated premiums. These services involve the management of private or institutional finance and equities with returns in advisory fees/underwriting commission. Investment researches are also provided at various sectors of the market to assist investors in selecting stocks and offering recommendations based on detailed analysis of quoted companies. Research analysis assist investors in selecting stocks by providing recommendations based on detailed analysis of investment scenarios, strategy and forecasts which guides the investment process. Identifying profitable projections in priority sectors, such as oil and gas, power, solid minerals and real estate financing, which is expected to drive growth will
increase returns for the bank. A broad range of single or mixed investment will be used by DEAP Merchant Bank to ensure positive bottom-lines.
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6.0. 6.1.
Risk Analysis and Mitigation Strategies Economic Risks Proceeds from crude oil sales accounts for more than 80% of total internally generated revenue in the Nigerian economy therefore volatility in oil prices have severe effects on the financial service sector in Nigeria. The most recent was in 2008/2009 when the Nigerian economy was hit by a sharp fall in oil prices and a stock market collapse. This affected the financial sector and made it vulnerable to shocks and external influences. The economic downturn, the stock market crash and the sharp fall in oil prices triggered problems in the previously expanding financial sector as reflected in the near collapse of eight banks. For DEAP merchant bank, economic instability in the form of unstable prices, volatile exchange and interest rates, high inflation are capable of adversely affecting investment management services as well as the performance of investment portfolios. Inflationary pressures can also affect the bank. In order to mitigate this risk, DEAP Merchant Bank will seek to diversify its portfolio in such a way that there will be no overt concentration on any potentially volatile sector of the economy. An effective economic monitoring department will aid the achievement of this goal.
6.2.
Financial Risks Like any financial institution, DEAP would be vulnerable to financial risks. There is the possibility of DEAP merchant bank not meeting its obligations to depositors and creditors. This is one of the major reasons for the collapse of banks in the past. Financial risk could arise because of bad and non-performing loans, poor risk management policies, mismanagement of funds, high cost of operation, poor internal control and embezzlement. If these are not taken care of, it could expose DEAP merchant bank to a high level of financial risk. In addition to these, the Central Bank could increase the minimum capital requirement and achieving the amount could pose a challenge to DEAP. Possibility of another economic crisis could enhance the financial risk of the bank. Financial risk could also emanate from credit and market risks. To mitigate this, DEAP Merchant Bank will be conservative about its credit process, manage risk effectively through adequate provision for bad debts and loans and make sure there are sufficient funds within the system to keep the organization going.
6.3.
Business Risks There is high possibility of strong competition for funds and corporate deposits from other merchant banks. There is also the possibility that the competition in the industry will increase because of the proliferation of, commercial banks and
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foreign banks in the industry. These competitors will compete with DEAP merchant bank for funds, recognition and attention. This can result in fall in the demand for the products and services of DEAP Merchant Bank as well as impair its ability to generate maximum returns. Without clear product differentiation and diversification into other revenue generating outlets, DEAP Merchant Bank is likely to encounter profit stagnation. To mitigate this risk, DEAP Merchant Bank should be prepared to develop new, competitive, similar but differentiated products to suit the market at each point in time. 6.4. Operational Risk DEAP Merchant Bank is likely to experience operational challenges capable of undermining its performance. Operational risks include losses as a result of the behaviour of bank management and staff, breakdown of key equipment resulting to loss of relevant data, armed robbery attacks, loss of key staff and high employee turnover. If there is no proper internal control system, staff could be involved in unethical behaviors such as fraud, this also constitutes operational risk. DEAP Merchant Bank will face operational risks arising from external occurrences such as natural disasters. Also notable among operational risk factors that can adversely affect DEAP Merchant bank is power failure and software malfunction. These can lead to loss of customers data. The probability and consequence of these risks is high therefore operational risks should be taken seriously However, DEAP can insure against damages due to natural disaster and insecurity. Losses arising from business disruptions due to electrical or telecommunications failures can be reduced by making arrangements for backup facilities. Losses due to employee fraud or product failure can be mitigated through strong internal control systems. To reduce employee turnover and its attendant problems, DEAP merchant bank will establish an appropriate compensation system so as to retain the best employees. However, good management information systems and contingency planning will be used to mitigate risk associated with the banks operations. 6.5. Regulatory Risks DEAP merchant bank would be expected to comply with the laws and regulations governing merchant banking activities. Failure to comply may result in regulatory risks. This in most cases may lead to litigations. Cases of breaches of regulatory risk are the near collapse of some commercial banks in 2009 which were alleged to have breached clearly stipulated lending guidelines. DEAP Merchant Bank is determined to avoid these, so that attention is given to staying within the acceptable framework of the stipulation of the CBN.
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6.6.
Legal Risks Legal risks exist in every business. Falling short of legal requirements exposes a bank to legal risks which could lead to court actions and litigations. Poor consideration of legal risks will lead to severe consequences for DEAP merchant bank. In order to prevent the occurrence of legal risk DEAP Merchant Bank will have a legal department which will handle issues relating to the law and the enforcement of all legal issues to mitigate risks associated with legal matters. Compliance Risks DEAP Merchant Bank will work to ensure that it maintains the requirements in terms of compliance. The key areas of regulation and compliance that DEAP merchant bank would focus on include but is not restricted to: data protection; copyright infringement; good environmental management; accounts reporting; tax compliance and money laundering. This will be mitigated with a proactive compliance department and an effective internal control system.
6.7.
6.8.
Political Risks Events related to political instability such as terrorism, riots, coup dtat, civil war, and insurrection are capable of disrupting the business environment in general and the activities of DEAP Merchant Bank. Political uncertainty and the persistent crisis are some of the factors that can pose a threat to business activities. Nigeria has enjoyed a relatively stable political calmness in the past 12 years. However, issues militating against country/political risks in DEAP Merchant Bank will entail caution in investment in government securities and projects. It will also entail a consistent scan of the country/political environment so as to act with caution during the investment process and decision making.
6.9.
Market Risks DEAP merchant bank is most likely to be exposed to this risk. The recent slump in stock prices which rendered many finance companies and banks insolvent is an example of market risk. Risks which affect the market in general should be a source of concern for DEAP Merchant Bank. Unprecedented and unforeseen fluctuations in market conditions could affect DEAP Merchant banks investments if appropriate mechanisms are not put in place. Market fluctuations and volatility may adversely affect the value of DEAP Merchant bank so the company may make extra efforts at building a model that can quickly adjust to changing situations in the market.
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6.10.
Credit Risks Poor risk management is a major cause of the problems of many financial institutions. Credit risk management may pose a challenge to DEAP merchant bank as the bank operates and makes more plans to grant credit to customers. Most Nigerian banks have problems with non-performing loans and this has cost substantial amounts of money in terms of provisioning for debt and expenditure on debt recovery. To mitigate credit risk, DEAP Merchant Bank will adjust the interest of high risk borrowers to suit the appropriate risk premium. The bank will take the following into consideration before granting of credit: the purpose of the loan; credit worthiness of the borrower; collateral, repayment terms and source of cash-flow for repayment. DEAP will limit the level of credit risk by reducing the amount of credit extended, either in total or to certain borrowers or sectors. To reduce the possibility of default and the resulting effects, DEAP merchant bank will ensure proper and adequate credit risk management policies are put in place and implemented.
6.11.
Firm-wide Risk Management Policies and Framework. DEAP Merchant Banks benchmarks for Risk Management practices will be based on the use of best practice standards and good corporate governance. The aim will be to achieve an appropriate balance between risk and return through a risk management framework which comprises of a set of policies, standards, procedures and processes designed to identify, measure, monitor, mitigate and report risk exposures in a consistent and effective manner while ensuring that enterprise risk management consideration will always have priority over business and profit consideration. The companys enterprise risk management is based on the strategy that places emphasis on protecting quality while increasing market share. DEAPs risk management policy will be meant to stabilize earnings and capital under a broad range of market conditions. The Assets & Liabilities Committee (ALCO)will be responsible for the supervision of market risk and would meet frequently to consider liquidity, funding needs, the structure and pricing of DEAPs assets and liabilities. They would articulate the Banks interest rate view and decide on the required maturity profile and mix of incremental assets and liabilities. In addition, the ALCO members would periodically review the market risk factors that affect the value of trading and nontrading portfolios and track liquidity indicators to ensure that the group meets its financial obligations at all times.
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Credit Risk: DEAP will manage credit risk by means of a governance structure with clearly defined responsibilities and credit approval authority. All extension of credit would be usually approved by at least three staff including the Managing Director/CEO. Because of the separation of duties between origination and risk management, at least one of the three credit approving officers must be a member of the Risk Management team. The Board would review and approve all credits in excess of policy limits as defined by the maximum credit exposure to any borrower or group of related borrowers. Operational Risk: DEAPs Operational Risk would be managed through categorization into seven loss events based on their primary cause: internal fraud, external fraud, employment practices and work place safety, business disruptions and systems failure, delivery and process management. We would use best efforts to keep these at zero level or at a minimal level Liquidity Risk: would arise from the general funding needs of the activities of the Bank and in the management of its assets and liabilities. Deap will be exposed to the risk that customers demands for withdrawal will outstrip its ability to realize longerterm assets in cash. Deap therefore, would seek to maximise liquidity access and minimise funding costs by capturing stable, reliable and costeffective sources of funding in all of its markets. Measurement: Deap will utilize variety of methodologies to measure risk. These include calculating probable loss, conducting stress tests and benchmarking. The measurement will graduate risk levels, based on the scale or significance of the activities in relation to the Banks' enterprise risk management goals and objectives. The risk measurement will include a scoring system for all identified risks within the Bank, also taking into account external events and threats. We shall score identified risks in terms of size, duration and probability of adverse consequences. Limits: The Board of Directors would articulate the amount of risk the Bank is willing to accept in the normal course of business (risk appetite) and sets the overall risk profile for the Bank. The Board would also establish the limits (risk tolerance) within which the risk exposure should be maintained in line with the business strategy and objectives of the bank. Management shall implement these Board directives for the Bank. Policies: The Board will consider and approve risk management policies of the bank. The management shall execute the policies and recommend changes on
need basis. Policies will be clearly documented and standardized to ensure that individuals who take or manage risks clearly understand them. Management Credit Committee (MCC) will also look at the policies and ensure regular execution. Procedures and Reporting Processes: The enterprise risk management framework procedures will be documented and the reporting processes shall include daily, weekly and monthly basis reporting to management and committees of the Board and management.
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7.0. 7.1.
Management and Organizational Structure Critical Success Factors Strong management In a survey on the Nigerian economy by the SEC in 2005, it was discovered that about 40% of quoted companies on the Nigerian stock exchange, including banks, have no recognized code of corporate governance. Deap would adopt all appropriate codes of corporate governance based on international best practice and standards. DEAP Merchant Bank would operate in an open and transparent way and the Bank would conduct every aspect of its business transparently. The company will have a strong management system composed of individuals who have gathered experience in the banking industry. There will be clearly demarcated functions and reporting lines both at the board and management levels. The company will comply with the regulations of Central Bank of Nigeria and the Securities and Exchange Commission in nominating board members. In line with this, managers would have to be carefully vetted. Their choice should be informed by depth of industry experience, proven integrity and adequacy of education. The best financial institutions consider the following as paramount in choosing and implementing management systems. Those who constitute the board and management should have a credibility, industry experience and expertise in their various fields of endeavors; The constituents and size should be as stipulated by all appropriate authorities; A fair mix of various industrial experiences and track record covering different fields should characterize management. Management should not be skewed in one direction in terms of training, career and experience; There should be clear roles and pre-set key deliverables for each manager. This will enable performance monitoring; Those who constitute the board should have some form of financial commitment to the company;
DEAP Merchant bank will put these into consideration when constituting its Board Members and its Management Team.
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Strong and Efficient Internal Control Typically, banks operate control systems which have the following departments in place. Internal Control/Audit/ Compliance department Financial Control External Auditors A Legal Department These internal systems serve as check and balance for the firm as a whole. They are concerned with monitoring the external as well as internal environment of the company and stem deviations from the standards of the company. DEAP would institute a strong internal control system as, there will be a strong mechanism in place since the bank will have an extensive branch network. Each branch should have an internal control department responsible for monitoring its local transactions. The internal control departments at branch level should report directly to the group head in charge of internal control and the branch head. Internal controls responsibility would help in ensuring employees act in compliance with all rules and regulations. The legal department will be responsible for all matters regarding the law. The department will also see to it that there is legal compliance on the part of the bank in terms of products, product design, employee relations and taxes. The financial control department would have standards for liquidity, asset base and other relevant bank ratios which guide banks. Apart from these, internal control systems, there should be external auditors which will audit the branches and the headquarters at regular intervals as well as during unscheduled times. This will place the members of staff on the alert. Ownership Structure Ownership or funding mix is significant in sustaining the companys going concerns stability and growth. In the corporate structuring, DEAP shall emphasize core capital comprising of: Equity.80% Tier 2 Capital.20% 100% More of private equity would be encouraged to finance DEAP Merchant bank. Equity finance should exceed borrowing in the overall capital structure. Most
successful financial institutions have lean debt in their capital base with more of equity. Board members would be encouraged to have huge financial involvement in the bank. This would create a greater responsibility for enhanced corporate governance standards.
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7.2.
Proposed Organogram
MD/CEO(1)
COMPANY SECRETARY&LEGAL ADVISER (2)
ED INVESTMENT BANKING(1) MERGERS& ACQUISITION(1)
EDCORPORATE BANKING(1)
ED CORPORATE SERVICES(1) OPERATIONS (3)
HEAD,ASSETS& FUNDS MANAGEMENT SECURITIES TRADING(2)
HEAD, ENTERPRISERISK MANAGEMENT RISKMGT (1)
HEAD, RESEARCH& STRATEGY (1) RESEARCH(1)
LEASEFINANCE (1)
PRIVATE EQUITY(1)
REALESTATE (1)
ACCOUNTS(4)
FXDESK(2)
AUDIT(7)
STRATEGY (1)
VENTURE CAPITAL(1)
TREASURY(2)
HR&ADMIN (5)
MUTUAL FUNDS(5) PORTFOLIO MGT(1)
COMPLIANCE (1) IT(1)
CORPORATE AFFAIRS(1)
ISSUINGHOUSE (1)
SYNDICATION (1)
UNDERWRITING (1)
TRADEFINANCE (1)
CREDITADMIN (1)
PROJECTMGT (1)
7.3
Job Description and Manning Requirements
The Board/ Chairman of the Board The merchant bank shall have a board which will be composed of the number of individuals required by law and the needs of the company. The board shall be headed by a chairman who should hold substantial shares or represent a major investor of the bank and who is not only visible but commands economic and social respect. The chairman shall be elected by majority of members on the board and shall perform all duties and have authority as may be prescribed by the Board and Company governance documents from time to time. The chairman shall have all the powers that pertain to his office as stated in the company governance documents. Among other things it will be the responsibility of the Chairman to preside over board meetings and shareholders meetings. In the event of the incapacitation of the Chairman of the board an officer designated by the board and among board members shall hold fort for the chairman. The designated board member who shall be the Senior Independent Director shall have all the powers of the chairman and will be required to handover authority to the chairman when (s) he is fit to handle the office. The Chief Executive Officer (CEO)/MD The chief executive officer is to serve as the link between the board and management. The CEO shall be an individual with vast experience in the financial services industry and should have proven to be a competent executive in the past. (S)He shall be responsible for supervision, coordination and management of the merchant Banks activities. The CEO shall be responsible for the profitability of the company. (S)He will be responsible for synchronizing the activities of the various departments and business functions which make up the banks total operations. In general the CEO shall coordinate and manage the Banks operating expenses and capital allocation or investment activities. (S)He shall have the necessary power to carry out these functions as stipulated by the companys laws. The MD/CEO should possess basic qualifications in Finance, Economics or accounting. (S) He should also have professional qualifications in Accounting, finance or investments. (S)He should have at least 15 years industry experience and a track record for success.
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Company Secretary The company secretary shall be in charge of documenting the companys relevant decisions made (such as: Legal agreements & minutes of Board meetings & other committees of the Board). Taking minutes at board meetings and engaging in correspondence and notices on behalf of the company. Further responsibilities would include being in charge of the company seal which will only be used with specific authority and conduct all such activities as stipulated by the law of the bank. She/he should have proven herself/him at a similar capacity and should hold up 5-7 years experience on the job. Executive Director (Investment Banking) The Executive Director Investment banking shall be an experienced investment banker who has demonstrated his competence in a similar role. (S)He shall be responsible for overseeing all the banks investments banking activities ranging from corporate finance to private investment. Such activities as Venture Capital, Private Equity, Issuing House, Underwriting, Project Management, and Mergers & Acquisitions shall be under his/her jurisdiction. (S)He shall allocate funds between the various investment ports under his control and be responsible for the judicious use of such funds. (S) He shall also see to it that such funds meet specified targets in terms of returns. The Executive Director should have a good degree in economics, finance or accounting or a related disciple. Relevant professional qualifications and a masters degree will be an advantage. Apart from this, the individual should have a track record of success at a similar role and have at least 10-15 years working experience in a similar position. Executive Director (Corporate Banking) The Executive Director Corporate Banking will be responsible for the development of strategy in the area of corporate banking within the bank. He/she will oversee such activities as lease finance, real estate, treasury, syndication and trade finance within the organization. He will provide effective leadership to employees in the corporate banking group and establish an effective organization for the control and coordination of their operations. He/she will also develop corporate banking strategy, design products and service for the bank.
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A minimum of first degree in Finance, Banking and Finance, Accounting, Economics, or other any related field will suffice. At least 10years experience in related field will suffice. Professional qualification and training in banking and finance, accounting or other related professional qualification will be an added advantage. Executive Director (Corporate Services) The Executive Director, Corporate Service Division shall be responsible for the smooth running of the business services such as operations, accounts, administration and human resources for the Bank. His/ Her official responsibility as well as task description in the organization shall include the following: To design, develop and implement strategic plans for the sub-unit under his jurisdiction in DEAP Merchant Bank in a cost effective and time efficient manner. Be accountable to the MD/CEO of DEAP Merchant Bank and prepare relevant reports for the Board on a regular basis as required by the Board. The directors should know what goes on in the division as well as the organization as a whole. Information available to the ED Corporate services include staff basic information, company budget, and all other company assets, to help make best use of resources. A degree in a relevant field such as Finance, Accounting or Business Administration, with an MBA and at least 10years experience will be required. Head, Asset and Fund Management The Head, Asset and Fund Management would be primarily responsible for the asset management of high net worth clients. Asset managements primary functions will include advisory services and keeping track/optimizing investment components throughout their existence and liaising with account holders on a consistent basis. This department should be composed of experienced asset managers. The asset management arm should be composed of professional and experienced asset managers. This position can be filled with individuals with degrees in finance, accounting or economics professional qualifications and experience will be an added advantage.
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Head, Enterprise Risk Management The Head, Enterprise Risk Management would be in charge of managing the risk profile of the Bank. He also supervises the IT department of the bank. As part of the role the HOD oversees the Internal Audit section and Compliance apparatus of the institution. The HOD ensures that there is compliance with the policies. Generally, (S) He is to make sure that the bank is not in peril both at the branch level and at the head office as a result of fraud. (S)He should be vested with all the powers as defined by the Board of Directors and the policies of the company. The HOD should have banking experience and professional qualification relevant to the job need. An MBA will be an added advantage in addition to Accountancy degree or equivalent. Minimum of 10 years working experience in Audit, Banking and other relevant field will be ideal. Research and Strategy Unit This department will be saddled with the responsibility of strategically positioning the bank for opportunities. It will review companies and writes reports about their prospects. While the research division may or may not generate revenue through its work (publications), its findings will assist traders and marketers in their work. Research also serves outside clients with investment advice (such as institutional investors and high net worth individuals) in the hopes that these clients will execute suggested trade ideas through the sales and trading division of the bank, and thereby generate revenue for the firm. The unit as a strategy arm is also very important; it should monitor trends and the competition and take inputs from the marketing department in designing of products. The head of this department should have masters in Finance, accounting or economics. (S)He should also be a have completed the CIS programme or in the process of doing so (s)he should have been involved in research and strategy of at least 7 years. Other officers in this department should possess bachelors degree in finance or related fields with 2-3 years of experience in financial markets research will suffice for other staff in this department.
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Mergers and Acquisitions This arm of the business will be involved in the provision of advisory services in the area of mergers and acquisition. The responsibility of this department should span scouting for potential clients and actual engagement in the process of mergers and acquisition. The individual should have proven experience in mergers and acquisition and also have experience in accounting or finance. Private Equity Unit The private equity unit shall be responsible for all functions involving instruments of companies not publicly listed on the stock exchange. Transactions in this direction will include private and public offerings and recapitalization of existing companies through private equity. Primarily this department will be manned by individuals who are grounded in corporate finance. This unit will require an individual with requisite experience in private equity issues and the attendant legal issues.
Venture Capital Unit The Venture capital arm has a wide range of responsibilities. As their primary job is to find and invest in start-ups or entrepreneurs who have high-profit potential, venture capitalists must be able to evaluate potential investments. They must be able to perform financial analysis, evaluate a company or idea in terms of its potential effect and acceptance in the marketplace, measure the potential hazards and risks involved, and be able to close a transaction. Venture capitalists specialize in finding new, unproven or untested ideas and companies that they believe can turn in profit in the future. To carry out the function effectively, individuals with excellent sense of business should be in this department. The individuals who make up this department should have a good feel of the marketplace and have experience in company/investment analysis. A masters degree in finance, accounting or investments with 2-5 years of experience will be desired of staff in this unit. The Unit head should possess professional qualifications in Accounting or Investments.
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Issuing House/Underwriting This arm of the merchant bank will be involved in the packaging of companies which are interested in issuing shares/bonds for fresh capital. It will also handle Bond issues by State Governments and Federal Government of Nigeria. The department will be engaged in carrying out due diligence on companies and helping them to package and market their new issues. Experience in the area of business will be highly desired. A first degree and professional qualifications will be advantageous for those who will function in these areas. Project Management The project management unit will be engaged in managing various types of project for the merchant banks clientele, its specialty will range from construction, oil and gas and building. A second degree in project management will be highly desired. Professional qualifications in project management and at least 5 years working experience will be desired. Lease Finance Under this function DEAP Merchant Bank will purchase an asset, and then leases that asset to a client or lessee for a specified amount of time. At that point, the client takes possession of the asset and is free to utilize the asset for the duration of the lease agreement. Once the client has fulfilled the terms of the lease, including paying any applicable interest, the client usually has the option of purchasing the asset from the bank at an extremely low price. The exact duration of the financial lease will vary, based on the nature of the asset and the terms agreed upon by the client and the bank. Some agreements of this type are set up as a long-term agreement, while others require an intermediate-term. For the life of the lease, the lessor retains ownership of the asset. The client has full use of the asset, and thus enjoys most of the benefits of ownership. However, the lessee also assumes many of the responsibilities associated with ownership, even though the lessor retains that status. A degree in finance (or related courses) with 5-7 years of experience will suffice.
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Real Estate Generally, a merchant bank originates a mortgage (loan) and places it on a preestablished warehouse line of credit until the mortgage (loan) can be sold to an investor. The process of selling a loan from the merchant bank to another investor is referred to as selling the loan on the secondary market. Merchant banks frequently use the secondary market to sell loans because the funds received pay down their warehouse lines of credit which enables the merchant bank to continue to lend. It raises some equity which it uses to guarantee the warehouse line and the bulk of the funds are provided by the warehouse lender. Many merchant banks employ specialty servicers for tasks such as repurchase and fraud discovery work on their mortgage business. Their two primary sources of revenue are from loan origination fees, and loan servicing fees (provided they are a loan servicer). Many Merchant bankers are opting not to service the loans they originate. By selling them shortly after they are closed and funded, they are eligible for earning a service released premium. The secondary market investor that buys the loan will earn revenue for the servicing of the loan for each month the loan is kept by the borrower. A merchant bank generally specializes only in making mortgage loans. Their funds come primarily from the secondary wholesale market. The position requires an experienced graduate with a background in finance, economics or other related courses with 5-10 years experience in Mortgage and Investment banking, and also a professional qualification in finance, accounting, banking or other related professional qualification. (S)He shall be responsible for the mortgage arm of the company. (S)He will be responsible for identifying opportunities open to the company and make recommendations. (S)He shall also be responsible for the designing of mortgage products and also drive their marketing. Treasury Unit This unit will be involved in managing the treasury of the organization. Among other things the department will see to it that funds are judiciously used and that the bank meets the basic requirement of liquidity at all times.
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Professional qualifications and a degree in Finance or accounting and at least 10 years experience is required for this position. Syndication Unit This unit will be involved in syndication of loans to projects. Essentially the responsibility of this unit will be to seek opportunities for collaboration with different firms in financing project in the core areas of specialization of the merchant bank. Experience and understanding of the Nigerian financial system is highly desired. A degree in finance or accounting will be highly desired. Professional qualifications in accounting will be an added advantage. Operations Unit This unit is saddled with the responsibility of coordinating the activities of all the branches. One of its major tasks includes direct monitoring, control and executing of policies from the headquarters. This unit will report performance in the organization in terms of input, output, and outcomes from all branches. Those in charge of this unit should possess minimum of a first degree and a good background in a business or finance related discipline professional certification in management is desired. A good degree in business Administration and a good understanding of the operations of the company and its lines of business will be required. Experience in similar role will be highly desired Accounts The head of accounts will primarily be responsible for managing all company accounts, disbursement of necessary funds, prepare management accounts and all other relevant accounts, compute and disburse funds related to employees (in conjunction with the group head Admin Hr) and ensure that DEAPMerchant Banks accounts are always up to date. An experienced chartered accountant would head this position. A good degree in accounting, professional qualifications in accounting and at least 5 years experience in a similar role is desired.
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Administrative/Human Resource Unit This unit is responsible for the administrative management as well as overseeing the general responsibility of the human resources in the organization and industrial relations operations. The job description of this unit includes; Workforce strategist Organizational performance conductor Human service delivery owners compliance and government regulator Executive compensation and succession planning Manning Requirement
Personnel with a background and a first degree on business administration and a good knowledge on human resources management will be required. An additional certificate in management related discipline is highly desired. Securities Trading Unit The securities trading arm will be involved with corporate and individual portfolio management for the company and clients. Apart from this, the arm will take care of Market Making activities and Strategic Portfolio Trading both for individual /and institutions. The individuals constituting the unit should be graduates of finance, accounting or economics. 3-5 years experience is desirable. Professional Stock-brokering certification will be an advantage. FX Desk The Department Forex transactions shall be responsible for managing forex transactions across the organization. He shall liaise with the Head of Accounts to make the best use of the groups allocation for forex transaction investments. A good first degree will be advantageous. Also 5-7 years experience in a similar role will be desired Portfolio Management This unit will be responsible for managing the investment basket of the company and its clients. Essentially it will be responsible for spotting investment opportunities and ensuring that clients make the most of such opportunities. In the area of stocks the unit will spot stocks with high return and advice clients accordingly.
A degree in Accounting, economics or finance and previous working experience in similar role will be desired. Risk Management The Risk management units work involves analyzing the market and credit risk that traders are taking onto the balance sheet in conducting their daily trades, and setting limits on the amount of capital that they are able to trade in order to prevent unprofitable transactions from having a detrimental effect on a desk overall. Another key role of this unit is to ensure that the economic risks are captured accurately (as per agreement of commercial terms with the counterparty), correctly (as per standardized booking models in the most appropriate systems) and on time. In recent years, the risk of errors has become known as "operational risk" and the assurance Middle Offices provide now includes measures to address this risk. When this assurance is not in place, market and credit risk analysis can be unreliable and open to deliberate manipulation. A good Masters degree in insurance, banking, finance, risk management with at least 10 years of experience will suffice for the head of the risk management department; apart from these the individual should possess relevant professional certifications in risk management. Audit/ Compliance This unit will be responsible for the internal audit of the bank. Issues such as the detection of fraud and ensuring that rules and procedures are followed in organizational processes will be the responsibility of this unit. A degree in accounting and previous experience in similar position will be required. 7.4. Control Systems Typically, banks control systems operate through the following departments: Internal control/Audit/compliance department External auditors A legal department Each branch should have an internal control system. The internal control unit should report directly to the group head in charge of internal control at the head
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office and the branch head. The units primary responsibility is to see to it that members of staff comply with stipulated rules and procedures. Information & Communication Technology Every major merchant bank has considerable amounts of in-house software, created by the technology team, who are also responsible for technical support. Technology has changed considerably in the last few years as more sales and trading desks are using electronic trading. Some trades are initiated by complex algorithms for hedging purposes. Therefore, it is the responsibility of the technology department to manage the technological aspect of the banks operations. For the IT department, a good first degree from a recognized institution is desired. Professional IT qualifications will be an added advantage. Credit Administration This unit will be in charge of all credit documentation, files and collateral management process of the Bank. Credit portfolio report and updating of customers files will be handled at this unit. The unit will also relate with branches and other business units on all credit related documentation. First degree or equivalent with minimum of 3 years banking experience in the relevant area is desired. MBA will also be an advantage.
Research/Strategy This department will be saddled with the responsibility of strategically positioning the bank for opportunities. It will review companies and write-up reports about their prospects this will be in line with stock recommendation. While the research division may or may not generate revenue through its work (publications), its findings will assist traders and marketers in their work. Research also serves outside clients with investment advice (such as institutional investors and high net worth individuals) in the hopes that these clients will execute suggested trade ideas through the sales and trading division of the bank, and thereby generate revenue for the firm. The unit as a strategy arm is also very important; it should monitor trends and the competition and take inputs from the marketing department in design of products. The head of this department should have masters in Finance, accounting or economics. (S) He should also have completed the CIS programme or in the
process of doing so. (S) He should have been involved in research and strategy of at least 7 years. Other officers in this department should possess bachelors degree in finance or related fields with 2-3 years of experience in financial market research will suffice for other staff in this department.
7.5.
Survey of Compensation Structure

100 90 80 70 N'Million 60 50 40 30 20 10 0
Bank Average
Zenith
Skye
GTB
StanbicIBTC
FCMB
Industry
Chairman(N,M)
MD/CEO
ExecutiveDirectors
Entrylevel
Source: ValueFronteira Survey Corporate Affairs The Corporate Affairs Unit is part of the internal systems put in place to provide communication internally and externally for the Bank. They will be concerned with monitoring the external as well as internal environment of the company and stem deviations from the standards of the company. For DEAP Merchant Bank, there has to be a strong mechanism because of its many branches and the need to create visibility for the new Bank.
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Legal Department The legal department will be responsible for all matters regarding the law. The department will also see to it that there is legal compliance on the part of the bank in product design, customers grievance settlement and personnel related matters. The Chief Legal Officer shall have responsibility for the legal affairs of the Bank and shall report directly to the Managing Director/CEO. The Chief Legal Officer shall perform such other duties and have such other powers as may be prescribed by the Board of Directors in accordance with basic policies as established by the Bank. 7.6. External Assistance and Outsourcing The company should however have legal personnel in its staff. The person to be involved would be charged with the responsibility of legal issues such as: documentations and helping the company settle legal matters amongst others. Any other service not available in-house may be outsourced for optimal result.
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8.0. 8.1.
Marketing and Competitive Strategy The Investment Banking Market: A Description Before the abolition of merchant banking in the year 2000, merchant banks performed mostly the activities being undertaken today by investment banks. Prior to this period, while quite a number of investment banks were operating in the economy at that time, the number of merchant banks was quite few. The merchant banking industry started to gain prominence in the 1970s shortly after the Nigerian civil war. The development of merchant banking was further boosted by the enormous investment opportunities offered by treasury bills and treasury certificates, the indigenization decree of 1972 and the structural changes of the economy in favour of industrialization. The oil boom of the 1970s ushered in economic prosperity which favoured mobilization of long term funds for economic development. However, the vagaries of the international price of oil affected the ability of the economy to sustain the pace of economic growth. Thus, generally there was relative scarcity of long term funds vis--vis the modus operandi of the Merchant banks. Some of the merchant banks formerly in operation included ABC Merchant bank, Centre-Point Merchant Bank Ltd, FBN (Merchant Bankers), Devcom Merchant Bank, First City Merchant bank and Nigerian Acceptances Limited (NAL). The traditional strongholds of investment banks have been to undertake Initial Public Offerings (IPOs), underwriting securities, massive public and private share offers and asset management services. Among the more prominent investment banking institutions at present are BGL Plc, Vetiva Capital Management, Chapel Hill Denham, Meristem Securities, CSL Stockbrokers and quite surprisingly the equities trading arms of different commercial banks like Stanbic IBTC Asset Management, Union Capital Markets and UBA Global Markets. The range of operations of both merchant and investment banks tend to overlap to a large extent especially in the Nigerian context. However, the ability of these institutions to mobilize long term finance needed for economic development is mostly hampered by the short term nature of financial instruments in the Nigerian financial sector. As a matter of fact, apart from federal government debt instruments, majority of the instruments have maturities of less than 2 years. This means that commercial banks and other institutions operating at the short term end of the market had overbearing advantage over merchant and investment banks. On a general note, equities constitute the bulk of instruments traded in by investment banks. Federal and state government bonds as well as corporate debentures (and debt instruments in general) form a much smaller proportion of instruments of trade for Nigerian investment banks.
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In terms of regulation, investment banks operate under the double authorities of the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE). However, the NSE is subject to the overall regulatory supervision of SEC. The NSE is more involved with the transparency of the capital market but also possesses the power to sanction erring market operators. Merchant banks operate under the authority of the Central bank of Nigeria. Pursuant to the re-introduction of merchant banking, the CBN has released a set of operational guidelines for merchant banking. This is contained in the CBN Scope, Conditions & Minimum Standards for Merchant Banks Regulations 2010. Among the highlights of the functions of merchant banks include accepting a minimum deposit of N100,000,000 per tranche, providing finance and credit facilities to non-retail customers, dealing in foreign exchange and providing foreign exchange services, acting as issuing houses, providing underwriting services with respect to equity issuance of securities, providing treasury management services including the provision of money market, fixed income, and foreign exchange investment on behalf of clients, providing financial consultancy and advisory services relating to corporate and investment matters, for a fee, providing asset management services, including fund and portfolio management services. 8.2. Market Size [Supply Side] The investment banking terrain tilts towards an oligopolistic market structure with few dominant operators with substantially large share of the market. In terms of asset size using issued share capital, the investment banking subsidiaries of commercial banks appear to be larger. NSE data suggests that amongst the dealing members of the exchange, Zenith Securities, has the highest capitalization of N3bn. Union Capital Markets has an issued share capital of N2.8bn while Stanbic IBTC Stockbrokers is capitalized to the tune of N1bn. Despite the fact that these figures are among the largest in the industry and that the individual subsidiaries of the various commercial banks have been performing exceptionally well, this performance should not be used as a proxy for the performance of the general market. An understanding of other key players in the market can be grasped by the volume and values of transactions firms undertaken. The Annual Report and Accounts 2007 of the Securities and Exchange Commission (SEC) states that the lead issuing house for the second largest subscription in that year was Vetiva Capital Management while Chapel Hill Advisory Partners managed the third largest subscription for 2007. In terms of private placements, Vetiva Capital Management and Chapel Hill Advisory Partners were the issuing houses for the largest and second largest private
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placement in terms of value. Vetiva alongside Platinum Capital issued the largest private placement for the year 2008. FBN Securities, another exclusive investment firm was involved in the most valuable new flotation of issues during 2007. Other firms with very strong market presence in the industry are BGL Plc and Greenwich Trust. Compared with the commercial banking subsidiaries, the issued share capital of Vetiva is N100m and Chapel Hill N250m. The few exclusively investment banking organizations that come close to rivaling the capital base of those commercial banking subsidiaries are Cordros Capital (N3bn), Falcon Securities (N3bn), Greenwich Securities (N2bn), Futureview Securities (N1.9 b) while others with N1bn capitalization are too numerous to mention. These huge capital bases and investments have made it inevitable for investment banks to offer a vast array of services to their clients, which range from asset finance to stock broking services. Therefore DEAP Merchant Bank has to brace up to the challenge and come up with equally competitive products that will have the capacity to break into the market. The recent pronouncement of the Central bank of Nigeria (CBN) on the abolition of Universal Banking and subsequent re-introduction of merchant banking is bound to change the face of investment banking in the country as the various commercial banks are statutorily obliged to hive off those investment units. It is more probable that those units would be disposed off to the current top investment firms in the industry or they will be left on their own to contend for market share. Therefore, the future may be much more competitive than what is currently the case. 8.3. Customer / Client Needs and Demand Analysis Members of the Nigerian public have continued to exhibit increasing demand for various customized financial services. Prior to the global meltdown of 2008 and CBN reforms of 2009, the capital market created enormous returns on investment. However, in the wake of CBN audit of commercial banks and the ensuing implication for some prominent issuing houses, prices on the NSE have continued to plummet. Hence, at the moment it is only enterprises and companies with long standing reputation whose share prices have been able to weather the storm. Following the recovery of the global economy, the bail out of insolvent commercial banks by the CBN, the setting up of the Asset Management Corporation of Nigeria (AMCON) to mop up toxic assets in the banking system and the new regulations of both the Securities and Exchange Commission (SEC) and the NSE aimed at sanitizing the financial sector, it is only a matter of time before investors confidence is fully restored. Even at the moment, the streak of bullish runs on the NSE points to the gradual restoration of investor confidence.
Of all the sectors of the Nigerian economy, the banking sector has exhibited the greatest demand for investment banking services. This becomes more apparent with the statistical analysis of newly issued equities. And as a matter of fact, equities have consistently been the most active instrument on the Nigerian capital market. In 2007, new banking equities issued accounted for 66.27% of total new issues. While the figure for 2008 was 48.72%. Sectorally, these figures were the biggest for the various sectors of the economy. This is so because for several years, banks have consistently declared huge profits thereby attracting by far the greatest share of new investments. Of the total volume of equities, the banking subsector has consistently been the toast of investors. In 2007, it led the Federal government (FG) bonds, which was the second highest of newly floated issues by over 100%. However this huge gap was massively narrowed down in 2008.The banking sector accounted for 46.72% of the total newly floated issues sectorally while FG bonds accounted for 31.55%. This is attributable to the global meltdown and the subsequent CBN audit and reforms uncovered the extensive malaise in the Nigerian banking sector. Although the banking sector is still the most active in terms of equities, initially the reforms affected investor confidence in the banks and this manifested in investor flight to FG bonds, which by its fixed income nature carry an almost zero risk profile. Figure 3: Demand for Brokerage Services Measured by Sectoral Summary of Newly Floated Issues
%ofTotalValue
40 30 20 10 0
Healthcare FederalGovernment 2ndTierSecurities Banking Chemical&Paints Commercial/Services Construction Industrial/DomesticProducts Information,Communication& Telecommunication Media Petroleum(marketing) Printing&Publishing Insurance Maritime StateGovernment Others(unquotedsecurities)
10
Source: SEC Annual Report and Accounts 2008

8.4.
Competitor Strengths and Weaknesses Stanbic IBTC Stockbrokers Limited Although an investment unit of Stanbic IBTC bank, it is the merger between the former IBTC Chartered Bank and Stanbic Bank of South Africa that brought in foreign capital and expertise to improve the professional strength unit. The unit was incorporated in 1997 with N1bn and it is one of the very few investment units of a commercial bank in Nigeria that closes mega deals outside its parent firm and even outside of the banking sector. For most of the period under review, the firm handled new floats among the top 10 mega offers. More specifically, in terms of new rights issued in 2007, the firm alone was involved in about 25.32% of the total value of transactions. While it could not replicate the same feat in terms of new subscriptions, it proved its mettle again in terms of supplementary offers, accounting for 14.13% of the total value of transactions. The subsequent year revealed that indeed Stanbic IBTC capital is indeed a major player in the industry. For various segments of the market, it was only in terms of supplementary offers did it fail to make the list of top 3 in terms of ratio of the value of transaction handled to the industry total. For each of new subscriptions, rights and even private placement, the firm accounted for more than 12% of the value of transactions. Furthermore, it acted in advisory capacity for some successful key mergers and acquisition (M&As) that were recorded in recent times including the merger between Mutual Benefits Assurance Plc and Worldwide Insurance Company Ltd in 2007, West Africa Household Utilities Manufacturing Company Ltd and Battery Manufacturing Company Ltd (2009), the acquisition of Consolidated Breweries Plc by Dil/Maltex Nig. Plc (2009) and the merger between Obajana Cement Plc and/Benue Cement Plc. In recognition of its outstanding achievements, the prestigious Euromoney Awards for Excellence 2010 named the unit as Best Investment Bank in Nigeria. It also bagged Best Issuing House in Africa at the 2010 African Banker Awards held at the Willard Intercontinental Hotel in Washington, DC, United States. However, the future of this industry giant really depends on the decision of parent firm as regarding the recent revocation of universal banking licenses of commercial banks.
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VetivaCapital Management Limited The success story of Vetiva is predicated on deep familiarity with the terrain of the capital market by its founders coupled with leveraging on some of the best hands in the industry. Though incorporated as recently as 2005 with an issued share capital of just N100m and also exclusively an investment unit, it is one of the very few in the market that have demystified the capital assets of the banks in the competition against their investment units as a yardstick for success in the industry. In 2007 and 2008, it accounted in the aggregate for 13.03% and 11.14% of the total value of transactions across all different segments in the industry. For a better appreciation of the competence of Vetiva, it solely accounted for 75.29% of the total value of private placements in 2007 and in 2008, it accounted for the largest individual value by any firm in that market segment. It has also handled the greatest numbers of M&As for the period under review including acting as the lead financial adviser in the merger between Obajana Cement Plc and Benue Cement Plc throughout the pre-merger stage until approval was granted. Available records also show that it possesses comparative advantage in Debt to equity conversion. However, while the firm can be excused in terms of bonds issuance given the relative inactivity in the market for several months, available analysis reveal that the firm still has a lot to do concerning new rights issue where it plays second fiddle to the banking units. Also, unlike Stanbic IBTC that appears to leverage on the network of branches of its parent bank, the operations of Vetiva is heavily concentrated in Lagos. Perhaps due to its recent arrival in the market, its intensity of branch operations and market access especially in other parts of the country appears limited. Chapel Hill Denham Management Limited The acquisition of Denham Management Ltd. by Chapel Hill Advisory Partners Ltd. in 2008 produced Chapel Hill Denham Management Limited. The original firm was incorporated in 1994 with an issued share capital of N250m. The synergy brought into the acquisition by both parties has uplifted the status and performance of the firm. For instance, before the acquisition in 2007, the firm managed 13.68% of the total value of transactions in the new subscription segment of the market. However, after the acquisition in 2008, it has demonstrated increased market power- accounting for the largest individual value of all new supplementary offers (25.17%) as well as accounting for the third largest individual value (13.19%) in the new float of private placement.
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However, its long arrival on the scene has yet to impact on the intensity of its branch operations and it is comparatively weak in the issuance of new rights, additional allotment and preference stock.
8.5.Potential Sources of Future Competition There is no gainsaying the fact that year after year, new firms enter the investment banking industry further swelling the level of competition. For instance, pre-trading inspections were conducted on 6 different new firms by the NSE in 2009 alone. Foreign institutions have been in different merger/acquisition talks with local firms consequent upon the increase in minimum capital requirement. The highly capitalized nature of such firms coupled with their technical expertise will increase the level of competition in the industry. The anticipated response of commercial banks to the CBN directive on revocation of universal banking licenses will also affect the dynamics of competition in the industry. Two case scenarios are hypothesized both of which will increase market concentration taking competition to a different dimension. First, commercial banks could liquidate their investment units by selling them to established key players in the industry who can afford the price. The assets, human resources, core competencies, goodwill etc of the acquired unit will increase the market power of the acquiring firm thereby constricting concentration and making competition very difficult against the key players. Second, should those units be reabsorbed by the commercial banks, the left over market share will most likely be easily taken up by the established key players leveraging on goodwill, asset size and a solid financial base coupled with investors pessimism about relatively unknown vendors in the light of recent experiences. The bond market is also expected to generate intense competition in the future. Though the market is currently inactive, the mopping up of toxic assets (i.e. nonperforming loans) by AMCON will free up credit into the system. Investor fright about investment in equities coupled with their equally bitter experiences at deposit money banks (commercial banks) will mobilize inflow of such liquidity into the bond market.
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Lastly, while the new subscriptions issue segment of the market is already saturated with competition, the private placement segment of the market recently renamed by the NSE as the Alternative Investment Market and Private Placement Exchange (AIM/PRIPEX),(NSE, Review of Market performance in 2009) is less competitive. However, the change in the nations financial sector coupled with the strong rally in the international price of oil (currently about $103/barrel compared with about $65 benchmark in the nations budget) will engender economic stability stimulating the level of competition as most firms are not desirous of going public will assess additional funds through this special window. 8.6.Proposed Location in Relation to Demand, Supply, Competition/Markets From an economic point of view, location of a business enterprise is affected by those factors conducive to efficient operations. However, for a proposed merchant/investment bank operating in the service sector, the market/demand for its services/products is of paramount importance. In this regard, Lagos as the financial nerve centre of not only Nigeria but indeed the West African sub region ranks high in priority location sites. The world class trading facility of the NSE, the more or less monopoly trading forum for investment banks is located in Lagos. In recognition of its strategic importance, the apex regulatory authority (SEC) has a strong presence therein to effect operations. Furthermore, Lagos confers benefits of external economies of scale. An overwhelming majority of the top industry players have their headquarters in Lagos. In fact, almost 95% of the stockbroking firms operate from Lagos. Such functions as competitive bidding for offers for sale, IPOs, and award of new subscription deals require proximity to other players to stay competitive. The transaction costs of staying aloof vis--vis monitoring and following up on deals, exchange of vital information are quite enormous. Furthermore, the cream of the industrys experienced professionals needed to kick-start the proposed investment/merchant bank is domiciled in Nigerias commercial capital. For a developing economy like Nigeria, development is very uneven among cities. The presence of the federal authorities in Abuja makes the city another investment hub after Lagos. In order to cover all segments of the market, a strong presence is required at the Federal Capital Territory (FCT), Abuja. The presence of the Securities and Exchange Commission in the FCT and the possible successful establishment of a second stock exchange at Abuja necessitate the consideration of this alternative.
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The volume of funds at the disposal of the oil-rich states of the Niger Delta makes the region equally indispensable in any investment location analysis. In this regard, the garden city of Port Harcourt is also a prime destination already playing hosts to the regional offices of Nigerias foremost foreign multinationals. Lastly, The NSE has opened offices in about 13 cities in the country (NSE, A review of market performance in 2009 and the outlook for 2010). These cities are Abuja, Kaduna, Port Harcourt, Kano, Onitsha, Ibadan, Yola, Benin, Uyo, Ilorin, Abeokuta, Owerri and Bauchi. To cover the retail end of the market, demand from each of these cities will have to be satisfied especially with the increasing demand generated by capital market awareness activities of the NSE in these emerging markets. 8.7. Marketing and Market Penetration Strategy DEAP shall adopt deliberate strategies in the course of marketing and market penetration. One of Deaps advantages is that it possesses a good branch network. Currently, customers in its many branches have had direct access to Deap Capital Services. Others access its services through its subsidiaries and related institutions. Issues on marketing strategy revolve around: a. Some banks have shown the tendency to poach customers b. The quality of service to our clients is outside our control and can therefore not be guaranteed. DEAP Merchant Bank would therefore offer maximum reach to its customers in addition to providing them with multiple access options through effective and efficient use of its existing branch network and correspondent banking arrangement. DEAP Merchant Banks operations will be leveraged on information technology.
Branches Given the critical role of branches in generating investment and mortgage banking business in addition to basic transaction service delivery, DEAP Merchant Bank would put its existing branches to most profitable use and shall seek mutually beneficial and responsible partnerships with other financial services providers, subsidiaries and associated companies in providing alternative channels to complement its branch network effectiveness.
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In establishing branches, Deap will take cognizance of the following special characteristics of the zones where it will set up branches in order to deliver tailor made services to clients in those zones / locations:
The Economy of Lagos 2,000 industrial complexes (65% of Nigerian total) 10,000 commercial ventures 22 industrial estates Home to 200 out of 250 quoted firms at NSE 30% of the GDP of Nigeria 65% of National VAT 6,000 people come into the state daily from other states, with 50% remaining behind With a Population of over 18 million people One of the 19 mega cities world wide Might become the 3rd largest mega city after Tokyo in Japan and Bombay in India by 2015 with a projected population of 24.5 million people (UN Habitat) Houses the busiest Sea and Airports in Nigeria Home to all the major print media in the country Economy of the South Western state in Nigeria The region comprises six states which includes; Lagos, Ogun, Oyo, Osun, Ondo and Ekiti State. The region accounts for about 40% to the national GDP. The region houses virtually the Head office/quarter of most business and non-business organization. The rate of immigration and emigration is put at about 8% and 5% respectively. With a land mass of 76,852 square kilometers and a population of 25.2 million controls 60 per cent of the nations industrial capacity; The region is home to 44 per cent of the banking assets, 67 per cent of insurance assets and is home to the nations three deep Sea ports of Apapa, Tin Can Island and Roro. Abuja This is the capital of Nigeria Host to most of other countries embassies Abuja is the headquarters of economic community of West African states (ECOWAS) and regional headquarters of the Organization of the Petroleum Exporting Countries (OPEC). An area of 3,000-sq mile (7,770-sq km)
Population of about 776,298 people (2006 census) The area has the potential to produce both forest root crops tubers such as yams as well as grains and cereals Home to varieties of mineral resources with high export value and potential for both the domestic and export markets. These include marbles and tin deposits. As the nations seat of government, Abuja is highly security conscious and most relatively secure part of the country.
The Economy of the South Southern Nigeria The mineral deposits in the region account for over 98% of Nigerias export earnings and about 83% of Federal Revenue. It equally generates more than 40% of the national GDP. It generates about 95% of foreign exchange earnings and about 65% of budgetary revenues. The region comprises six States namely Akwa-Ibom, Bayelsa, Cross River, Delta, Edo, Rivers State. Nearly all the countrys oil reserves are concentrated in and around the Delta of the Niger River (the South-southern Nigeria). According to the Ministry of Petroleum Resources, the region is the most productive zone in Nigeria. The region encompasses 78 of the 159 oil fields in Nigeria. The region houses all the six exportation terminals in Nigeria, including; Shell1&2 with Total, Mobil, Chevron, Texaco, and Agip. With a total storage capacity of about 20.2 million barrels (22,235,700m3) The region houses three out of four National Refineries. The major occupations are agriculture and extraction of raw materials such as lime stones, gold, oil etc. It has one of the highest oil deposits in the world. The region accounts for a total population of about 30 million people as at 2005, representing a 23% of Nigerias total population; this with a population growth of 3% annually. The region is blessed with an opportunity of large scale fish farming as well as other live-stock farming, salt production at commercial quantity, and a whole range of cash crops production. This includes; palm oil, yam, cassava and maize. The Economy of the South Eastern Nigeria South-Eastern Nigeria consists of 5 States: Abia, Anambra, Ebonyi, Enugu, and Imo States The region is known for its high industriousness and hosts most of the biggest markets within the West African region. Such as Aba-Ariaria market and Onitsha main market
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Trading activities are very high in the region mostly with traders as indigenes. By territorial size, the South East zone is by far the smallest in Nigeria, accounting for mere 3.2% of the national space. However, the 2006 census data credited it with 11.7% of the population, giving it a population density nearly four times the national average with a population of about 21million as at 2006 census. South East is a zone of strong net emigration, with some 15% of persons born in the zone resident outside the zone and only 5% of the residents of the zone coming from outside the zone. The region accounts for about 27% of Nigerias GDP. Agriculture remains the dominant economic activity in the zone, accounting for some 55% of the working population. There has also been an upsurge in manufacturing activity, with the rise of industrial clusters in several centres in the zone, most notably the OnitshaNnewi complex, Aba, Enugu, Abakaliki, Owerri and Umuahia. A survey of industrial establishments in 1995 credited the zone with 18% of all establishments, ranking second after the South West (45%).
Economy of North Eastern States Nigeria North East States comprise Adamawa, Bauchi, Borno, Gombe, Taraba and Yobe. Maiduguri is the principal trading hub for north-eastern Nigeria. Its economy is largely based on services and trade with a small share of manufacturing. The Sahel savanna occupies about 18, 130 km2 of the extreme north-east corner of Nigeria and is the last vegetation zone of the savanna type between the Sahara and the northern frontier of the Sudan savanna. Bauchi state is an agricultural state. Its vast fertile soil is an added advantage for agricultural products, which include maize, rice, millet, groundnut and guinea corn. Irrigation farming is practiced and supported by the use of dams like Balanga dam. Cattle and other livestock are also reared in the state. Bauchi State also has manufacturing industries in the area of Iron and Steel, Water, Ceramics, Food and Beverages. Bauchi state is blessed with many tourist attractions. Bauchi State is home to the Yankari Games reserve (the biggest game reserve in West Africa), Premier Game Reserve, Rock Paintings at Goji and Shira, the State Museum among others. Gombe State which lies in Guinea Savannah grassland of the North-East region of Nigeria has abundant water resources, huge mineral deposits and fertile agricultural land. As a result of the highly fertile land, vegetables such as tomatoes, onions, pepper, garden egg, carrot and lettuce are grown in large quantities by local farmers.
Borno State has the following mineral resources Diatomite, Potassium/Sodium, Clay, Limestone and Uranium. Also crude oil is currently being explored in the Chad Basin Area.
Economy of North Western States of Nigeria North-Western States comprise of Kaduna, Katsina, Kano, Kebbi, Sokoto, Jigawa and Zamfara The region's lifeline for growing crops is the floodplains of the Sokoto-Rima river system (see Sokoto River), which are covered with rich alluvial soil. For the rest, the general dryness of the region allows for few crops, millet perhaps being the most abundant, complemented by rice, corn, other cereals and beans. Apart from tomatoes few vegetables grow in the region. The low variety of foodstuffs available has resulted in the relatively dull local cuisine. Kebbi States agriculture accounts for a substantial part of the state's economy. Food crops include guinea corn, rice and millet while cash crops include groundnut and cotton. A large percentage of the people are farmers. Economy of North Central States of Nigeria North-Central States comprise Benue, Kogi, Kwara, Nasarawa, Niger and Plateau Agriculture is the mainstay of the regions economy and the principal cash crops. There are many Farm produce from the state notably coffee, cocoa, palm oil, cashews, groundnuts, maize, cassava, yam, rice and melon. Mineral resources include coal, limestone, iron, petroleum and tin. The region is home to the largest iron and steel industry in Nigeria known as Ajaokuta Steel Company Limited. One of the largest cement factories in Africa, the Obajana Cement Factory has recently been constructed there. Two of Nigeria's major hydroelectric power stations, the Kainji Dam and the Shiroro Dam, are located within Niger State; also situated there is Kainji National Park, the largest National Park of Nigeria, which contains Kainji Lake, the Borgu Game Reserve and the Zugurma Game Reserve
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9.0. 9.1.
Statutory and Regulatory Requirements for Selected Financial Services General Banking Registration Requirements: According to BOFIA, any person(s) intending to undertake banking services business in Nigeria shall: a. Apply in writing to the governor of CBN for the grant of a license and shall accompany the application with the following: A feasibility report of the proposed bank. A draft copy of the memorandum and article of association of the proposed bank. A list of the shareholders, directors and principal officers of the proposed bank and their particulars. The prescribed application fee. Such other information, documents and reports as the bank may from time to time specify. b. After the applicant has provided all such information documents and reports as the bank may require under sub-section 1 of this section, the shareholders of the proposed bank shall deposit within the bank a sum equal to the minimum paid up capital of N15 Billion or as may be applicable. c. Upon the payment of the sum referred to in subsection 2 of this section, the Governor may issue a license with or without condition or may refuse to issue a license and the governor need not give any reason for the refusal. d. Where an application for a license is granted, CBN shall give a written notice of that fact to the applicant and the license fee shall be paid.
9.2.
Primary Mortgage Institutions (PMIs) Primary mortgage institutions were introduced in the Nigerian financial system in 1989 when it was observed that the operating housing finance system is severely underdeveloped and ill equipped to mobilize and channel savings to the housing sector (National Housing Policy for Nigeria, 1991). Although the FMBN has been created to essentially serve as a wholesale and apex institution, the other institutional components of the finance market in terms of primary mortgage institutions (such as building societies, housing association, credit union, housing co-operatives etc.) have not developed. Thus, the FMBN concentrated largely on retail functions of lending to individuals which actually is not the primary function.
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a. Objectives and Function of PMIs Primary Mortgage Institutions were established in order to: mobilize savings for housing finance; allocate the supply of funds among households to include self-employed and low income earner; provide incentives for the capital market to invest in property development; Provide policy controls over the allocation of resources between the housing sector and other sectors of the economy. stimulate the adoption of realistic designs for construction of houses; facilitate the flow of domestic and international resources into the priority housing areas
b. Legal Framework The promulgation of the Mortgage Institutions Decree No. 53 of 1989 provided the regulatory framework for the establishment and operation of Primary Mortgage Institutions (PMI) by private entrepreneurs. The FMBN under the decree became the apex institution, which regulates primary mortgage institutions and was empowered to license the PMIs as second tier Housing finance institutions. The PMIs, under the Decree were to mobilize savings from the public and grant housing loans to individuals, while the FMBN mobilizes capital funds for the primary mortgage institutions. The PMIs were expected to enhance private sector participation in housing finance. 9.3. Tax Requirements for Banks (Local Council, State and Federal Government) Peculiar aspects on taxation of banks is that in addition to the company tax payable and the normal rate, banks are required to pay the excess profit levy. The rate of excess profit tax is currently 16%. Excess profit is the difference between the total actual profit of the bank and the normal profit of the bank computed by applying the following percentages; 40% of paid up capital; 20% of capital reserve; 20% of general reserve; 20% of long-term loans; The percentages are applied to the capital employed by the banks as at the end of accounting year;
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The total of the above is regarded as normal profit of the bank. The various components of the capital as shown above should have their ordinary meaning. For instance; paid up capital comprise the paid up ordinary and preference shares where applicable Capital reserve will include the share premium account, surpluses on revaluation of fixed assets and amounts set aside out of profit for the issue of share capital. general reserves are undistributed profits including the statutory reserve as defined by the Bank and other Financial Institutions Decree (BOFID)1991.
The CBN has not officially issued any direct statement on the taxation requirement of merchant banks. No clearly defined policy has also been issued on unions or other groups relating to merchant banking. 9.4. General Requirements and Provisions for Merchant Banks The fundamental guide and regulatory requirement of merchant banking as released by the CBN indicates that: I. A merchant bank shall maintain a minimum paid up capital of N15b or such other amounts as may be prescribed by CBN from time to time and must comply with all prudential guidelines and regulations issued by the CBN on the required level of capital adequacy, liquidity and cash reserve. The bank must observe all applicable corporate governance standards as may be prescribed by the CBN and other financial service sector regulatory authorities in Nigeria and design comply with and implement an internal control frame work in accordance with the standard that the CBN may prescribe from time to time. Through its board of directors, a merchant bank must report on the implementation and effectiveness of its internal control framework to the CBN within 4 months after the end of its financial year and the auditors of the merchant bank shall be required to include a statement in the annual audit report of the merchant bank as to the existence, adequacy and effectiveness or otherwise of such internal control system. The guide provides that merchant banks are to design, comply with and implement a risk management framework which ensures that it has an appropriate reporting structure, quality procedure and technology to effectively and adequately identify, measure, monitor and report risk.
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II.
III.
IV.
V.
Comply with all prudential guidelines and regulations issued by the CBN on the required level of capital adequacy, liquidity and reserve. Other Statutory Requirements
9.5.
I.
Merchant banks are required by law to take deposits from any natural or legal person, in an amount not below the sum of (N100, 000,000) per tranche or such other minimum amount as may be prescribed by the CBN from time to time. Provide finance and credit facilities to non-retail customers Deal in foreign exchange and provide foreign exchange services, subject to the requirement of the foreign exchange (monitoring and miscellaneous provisions, etc) Act Cap. F35 Laws of the Federation of Nigeria 2004,or any other laws and CBN Regulations made pursuant thereto; Act as an issuing house or otherwise manage, arrange or coordinate the issuance of securities for or on behalf of any person, subject to the provisions of BOFIA. Provide under-writing services with respect to equity issuance of securities subject to the provision of BOFIA, and prior notification writing to the CBN. Provide treasury management services including the provision of money market, fixed income and foreign exchange investment on behalf of clients Provide asset management services, including funds and portfolio management services, act as a dealer of securities for its own accounts and for the account of its clients, or otherwise make or manage investments on behalf of clients. Engage in proprietary trading, such as investing in debt instruments of any person and investing in equity or hybrid-equity instruments, subject to the provisions of BOFIA and such rules and regulations, circulars and guidelines that may be prescribed by the CBN from time to time. Engage in trading of fixed income securities, where duly licensed to act as a primary dealer/market maker to trade in securities such as Federal Government Bonds, Treasury Bills and Certificates of Deposits and such other debt certificates as may be prescribed by the CBN from time to time.
II. III.
IV.
V.
VI.
VII.
VIII.
IX.
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X. XI. XII. XIII.
Provide custodial services. Issue, discount and re-discount negotiable instruments. Provide debt factoring services. Such other activities as may be prescribed in writing by the CBN from time to time.
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10.0.
Technical Orientation of Deap Merchant bank The proposed Deap Merchant bank will adopt the technology currently used by Deap Capital. These has just been acquired (The technology was adopted in 2010.) and will be up to the task of running the processes of the merchant bank. Simplex systems provide these technological platforms and also provide technology for Spring Bank, Zenith Capital, Lead Capital, Nestle, Equator Capital, Meristerm Securities and Total CPFA.
10.1.
Overview of Technological Profile of Deap Capital/Deap Merchant Bank Different software is used to drive processes at Deap Capital. This software are all developed by Simplex systems and have been found to be robust and up to date with the technological requirement of the company and the proposed merchant bank. A synopsis of the technologies and their relevance are presented below.
a. Asset Management Software ('Moneytor+') SimplexMoneytor plus is a multi-currency based software package designed to increase the functionality required for Portfolio Management. The software monitors daily Valuation Calculation, Investment Compliance amongst other benefits. It is a many sided solution that entails an in depth module of each of the following areas of investment: Equities, Loan Stocks, Treasuries/Money Market, Leases, Mortgage, & Real Estate. Software Highlights: Coupon monitoring NSE Price Valuation Easy portfolio tracking Prompt/accurate business status knowledge Portfolio valuation Easy dividend allocation Easy equity allocation Share certificate documentation b. Accounting Management Software ('General Ledger [GL] and Moneybook') GL and SimplexMoneyBook-Both software deal with financial management. They handle reports on cash (inflow and outflow). GL and SimplexMoneyBookhelps to prevent fraud and make payment processes simpler. They show at a glance all approved requisition for cheque writing, enables settlement of
Vendors/Supplies through GSM and generates payment instruction letter, fund transfer, and settlement of third party to the bank. c. Fixed Asset Management Software ('Fawin') Capitalize substantial expenses on a given asset and see FaWin adjust the asset value instantly Make Depreciation Rate/ Useful Life changes to asset(s) without affecting old depreciation rate. Capture complete Asset Revaluation Complete monitoring of Assets movements through FaWin's unique Asset Transfer function on an historical basis Automatic instant calculation of Profit/Loss on Asset Disposal
Other software adopted by Deap during the 2010 financial year were: d. Consumer Lease Management Software e. Borrowings Management Software. These have improved the processes of the institution and would serve as robust platforms for the merchant banking business pending the need of upgrade or better platforms. 10.2 Suppliers of Technology All technologies the Merchant bank will use have been supplied by Simplex technologies. Improvement will be a function of need as processes demand. 10.3. Strategic Relationship with other Firms Basically there is a relation between the technology Deap Merchant bank will inherit and that of major industry players. Some of the best players in the industry use simplex systems soft-wares.
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11.0. 11.1. a.
Revenue Prospects from Strategic Focus Other Revenue Opportunities Real Estate The huge capital requirement of ownership of residential and business premises has created a revenue loophole waiting to be plugged. The industry has over the past years experienced a boom as of property have in some cases doubled especially around key commercial areas of Lagos, Port-Harcourt and Abuja. Although a recent CBN report put the industry value at N8.18 billion and contribution to GDP at less than 1%, independent survey by the industry research firm of Agusto & Co. put the industry value at N120 billion and growth rate of 10% per annum. The main aim of mortgage financing is to make the purchase of property affordable. Therefore, the length of mortgage must vary between 5-30 years in order to satisfy the repayment criteria. Furthermore, adequate supply of credit is needed to support facilities at a price of less than 15% per annum. In major Nigerian cities, urbanization growth is estimated at 3.8% annually. As congestion increase in the cities, so does residential, business, recreational and relaxation needs. These needs become even more pronounced around the Central Business Districts (CBDs) in most of these cities. The revenue earning potential derives from either outright acquisition of choice properties in strategic locations or through a variety of agency relationships in leasing out direct or indirect properties. In instances of outright acquisition of properties in most of these cities, apart from the challenge of mobilizing lump sum capital to meet payment obligations, the professional expertise of satisfying complicated property laws and regulations makes real estate management a potential gold mine for real estate firms. Given the prevalence of the old inheritance system of land ownership, the enactment of different laws seeking to formalize land ownership has made it imperative for title holders to acquire formal documents to lay legally valid claims to such properties. The professional expertise of real estate firms in acquiring Certificates of Occupancies (C of Os) and Deeds of Assignment given the large size of the informal inheritance system creates substantial revenue prospects. Following the stock market crash of 2009, Pension Fund Administrators (PFAs) have started to show renewed interest in investment in mortgage finance. To assure employers and employees of the safety of their funds, PFAs have started channeling pension fund contribution to housing finance which by its long term
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nature identifies with the goals of the PENCOM Act. As at December 2008, the pension funds investment in the real estate sector was N125 billion ($833 million) representing 11.39% of the total assets under management (EFinA: Access to financial services in Nigeria 2008 survey). This presents an opportunity in revenue terms considering (i) The severe housing crises in the country, meaning there is high demand (ii) The low risk profile of housing finance as an investment. Currently, the percentage of urban dwellers that own no house of their own or pay rent is put at 39.8% (EFINA :Overview of the Housing Finance Sector in Nigeria). These are mostly low income earners. Given the growth of the economy and the long term nature of housing finance, there is ample evidence to suggest that there will be success in mortgage finance with this group given adequate risk management practices. Market Outlook for mortgage finance is bright based on the following considerations: High rate of urbanization in the country projected at 50% by 2010 60% of an average workers disposable income is expanded on rent as against 20-30% recorded by UN [workers will rather pay mortgage than rent] Based on Occupancy level of 5 or 6 per housing unit, an estimated 7-9 million housing unit are required in Nigeria [based on Urban population size] Growth in demand of 200,000 housing per annum Annual funding requirement of N200 billion needed to sustain the growth Positive emerging developments e.g. mortgage bonds, property securitization, Government monetization policy etc. Federal Ministry of Housing & Urban Development put the housing deficit in Nigeria at 14 million N36 trillion required to offset backlog of housing deficit in Nigeria Less than 5% of GDP is accounted for by mortgage loans against 30% to 50% in leading and developing economies. Available statistics show that less than 1% of the overall lending portfolio of banks accounted for residential mortgage against 50% in lending power. The re-establishment of the middle class with an enhanced purchasing power Moderate interest rate regime Improved financial services oversight regime to restore public confidence in the system Continued attraction of foreign investment and domestic housing demands of Nigerians in the Diaspora
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1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 0 2011
Expected Income from Real Estate Activities [N']
2012
2013
2014
2015
b.
Oil and Gas The recent passing into law of the local content bill that seeks to increase indigenous participation in the Nigerian petroleum industry represents huge opportunities to Nigerian entrepreneurs. By reducing the dominance of foreign multinationals, market share has been created for local investors. While there is considerable active local participation in the downstream sector of the oil and gas industry, the reform has created opportunities in upstream operations. Apart from the increase in the direct participation of indigenous firms in oil exploration, the possibility of financing a large number of indigenous oil related contracts, technical assistance agreements and joint venture agreements represent considerable revenue opportunities. Another segment of the market that has been thrown open to indigenous investors is the oil services sector. Hitherto, very few local firms have taken up the gauntlet of operating in the oil services sector. The capital outlay involved in procuring needed machines and equipment has been a major deterrent. Supplying funds to those local firms with the requisite personnel on a predetermined profit and loss ratio is a substantial revenue earning opportunity. Refining of petroleum products, which was once the preserve of government, has been liberalized. Consequently, approval is being granted for the private ownership of refineries. Considering the huge import bill of government on refined imported petroleum products and a further estimated subsidy of $2b annually, substantial revenue opportunities exist in private petroleum refinery operations.
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There are also immense opportunities in the downstream sector of the oil and gas industry where indigenous firms have been the major players. Further, analysis reveals that turnover by firms operating in the petroleum marketing subsector accounted for 29.14% of total turnover of listed/quoted companies on the Nigerian Stock Exchange (NSE) as at December, 2009. The fledging gas industry is another hope in the horizon for indigenous players in the industry. With the proposed West African Gas Pipeline project intended to supply Liquefied Natural Gas (LNG) to Ghana, Benin and Togo as well as the Trans-Saharan Gas Pipeline Project through Algeria which is set to rival Russia in gas supply to Europe, the gas industry offers numerous opportunities. While unsatisfied local demand is worth several billions of naira, the addition of foreign markets especially industrial Europe, offers unprecedented revenue possibilities for indigenous companies. Going by reported turnover figures for players in the downstream sector, a conservative turnover in the region of N15billion annually is forecasted considering the fact that there are other chains of businesses to be managed within the group. c. Stock Broking and Issuing House Activities (Capital Market Activities) The Nigerian capital market is just starting to recover from the financial sector crises uncovered by the CBN reforms. While prices of equities, the most traded instrument on the NSE, are at low ebb, recent market wide reforms aimed at sanitizing the investment climate in the country have restored investor confidence as evidenced by the recent trends in market indicators. The revenue opportunities in the capital market are further enhanced by the recent directive of the CBN revoking universal banking licenses to commercial banks. For instance, the investment units of some commercial banks, viz-avis: Zenith Capital, UBA Global Markets, Intercontinental Capital, Stanbic IBTC Asset Management and Union Capital jointly accounted for approximately 40% of the total value of market transactions in terms of new floats in 2007. In 2008, Union capital, Ecobank, Stanbic IBTC, Zenith Capital and Fidelity Bank also appropriated about the same percentage of overall value of market transactions. The shares of commercial banking units of market value of transaction certainly exceed these values considering other relatively marginal market shares. These banking units have only leveraged on the huge capital assets of their parent firms especially in the post-soludo consolidation era. For instance, Zenith capital was the lead issuing house for the largest right issue in 2007 which was for Zenith bank (SEC Annual Report and Accounts 2007, Pg. 29). Another example was the First Inland Bank (Now Finbank) offer for subscription in 2008 which made the
list of top ten mega offers of 2008. This was solely handled by the bank. Therefore, in the absence of these units, the banking sector, which incidentally is the most active sector of the capital market, will be compelled to outsource their capital market operations to exclusive issuing houses and stockbroking firms. While the setting up of the Asset Management Corporation of Nigeria (AMCON) represents a glimmer of hope for investors whose funds were trapped in the commercial banks that failed the liquidity audit of the Central Bank of Nigeria (CBN), it also presents revenue opportunities for firms operating in the capital market. AMCON, by its statutory mandate, is set to acquire toxic assets (nonperforming loans/bad debts). Such credit will be freed up for investment in the capital market as a backlash to recent liquidity issues in the banking sector. Furthermore, some share prices, especially of reputable companies operating in the real sector of the economy, on the NSE have weathered the storm of the downturn in stock values. The authorities of the Nigerian Stock Exchange (NSE) and the Securities and Exchange Commission (SEC) have embarked upon serious efforts at ensuring the deepening of the capital market following the crises in the market. The efforts are geared specifically towards the enlistment of securities of telecommunication firms and oil majors (the multinational oil companies). While listing these firms will increase the capitalization of the capital market, immense revenue opportunities abound for the capital market operators whose services are indispensable in registering, marketing and trading the listed securities on the floor of the NSE. With the political climate looking more stable as another peaceful democratic transition is imminent, enterprises like Power Holding Company of Nigeria (PHCN), NITEL, Nigerian Ports Authority (NPA) are just a few of the public corporations that will likely be privatized. The revenue opportunities to capital market operators are reminiscent of the high Capital Market activities of 20062007. Forecasting with data on the more marginal players in the capital market in 2007 and 2008 (SEC Annual report and Accounts), a conservative turnover estimate of N6billion looks like the industry average.
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5,000,000,000 4,000,000,000 3,000,000,000 N 2,000,000,000 1,000,000,000 0
Expected Investment Income from Quoted Securities
2011
2012
2013
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2015
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12.0. Financial History and Projections

12.1. Group Profit and Loss Account (Historical) The Group 2009 Notes Income From Securities Trading Portfolio management fee and other income Total Investment Income Interest Expenses LESS: Administrative Expenses Depreciation Share of Profit of Associated Company Net (Loss)/Profit before Exceptional Charge Exceptional Charge Net (Loss)/Profit before Tax Taxation Net(Loss)/Profit after Taxation Minority Interest (Loss)/Profit after Minority Interest and Tax 477,797 35,834 (567,060) (567,060) (1,532,704) (2,099,764) (14,010) 2,113,774 (203,284) (1,910,490) 597,855 27,284 383,331 12,744 396,075 396,075 (52,229) 343,846 (34,520) 309,326 325,968 28,669 354,637 (522,253) (1,071,356) (1,593,609) (12,093) (1,605,702) (1,605,702) 270,608 (13,063) 257,545 257,545 281,141 20,326 301,467 270,608 N'000 300,702 182,808 483,510 (536,938) (53,428) 2008 N'000 918,675 415,603 1,334,270 (325,808) 1,008,470 The Company 2009 N'000 238,098 126,510 364,608 (532,224) (167,615) 2008 N'000 503,311 377,642 880,953 (308,878) 572,075
Group Profit and Loss Account (Historical)
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Group Profit and Loss Account (Historical) Notes APPROPRIATIONS proposed Dividend Retained (loss)/profit for the year Prior year adjustment profit/(loss) Brought Forward Dividend Paid Retained (loss)/profit Carried Forward Earnings Per Share (kobo) Adjusted Earnings Per Share Net Assets Per Share (kobo) Adjusted Net Assets Per Share
The Group 2009 N'000 (1,910,490) (673,939) 423,442 (225,000) 2,385,987 (127) (27) 2008 N'000 306,326 11,420 232,753 (130,057) 423,442 21 21 199 199
The Company 2009 N'000 (1,605,702) (673,939) 238,094 (225,000) (2,266,547) (107) 49 2008 N'000 257,545 110,606 (130,057) 238,094 17 17 159 159
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12.2.
Profit and Loss Projections

Deap Capital 2010 N'000 2011 N'000 1,174,649 493,144 (681,506) (21,576) 471,567 784,527 472,430 321,252 321,252 0 2012 N'000 (5,858,066) 3,291,044 (41,944) 9,149,110 2013 N'000 (7,500,646) 6,719,298 (14,420) 14,219,944 Deap Merchant Bank Plc 2014 N'000 (9,494,073) 10,452,623 (109,403) (706,561) 831,924 19,946,694 2015 N'000 (11,328,765) 11,933,104 (120,151) (985,995) 995,473 23,261,869
Projected Profit & Loss Accounts
Interest and Investment Income Interest Expenses Interest margin NDIC Premium Other Income Net income
1 2 5
(657,582) (502,642) (21,576) 0
154,940
Bad debts & provisions Net interest margin
(524,218) 146,278 (377,940) (308,685) (686,626) (219,720) (906,346) (906,346)
312,960 (312,097) (151,177)
2,912,576 542,832 3,455,408 2,913,680 1,981,302 1,981,302
(336,524)
6,210,366 679,560 6,889,926 6,266,759 4,261,396
(494,511)
9,636,658 10,468,582
10,826,958 11,822,432 10,629,681
operating expenses Profit before tax Taxation Profit after tax Profit After MI Dividend proposed-Preference Shares Dividend proposed-Ordinary Shares Retained income
(541,728) (932,378)
(623,167)
(709,576)
(1,192,750)
(2,005,363) 4,261,396
(3,122,882) 6,636,124
9,759,006
(3,401,498)
7,228,183 7,228,183 (800,000)
0 0
0 0
(800,000) (712,500) 468,803
(800,000)
6,636,124 (800,000) (1,900,000) 3,936,124
(906,346)
321,252
(1,187,500) 2,273,896
(2.375,000)
4,053,183
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12.3.
Projected Balance Sheet

DEAP CAPITAL PLC 2010 2011 N'000 2,468,406 0 0 707,648 67,756 4,523,674 1,609,300 398,054 1,808,398 2,368,784 114,300 14,127,956 61,636 2012 N'000 12,012,313 20,191,422 21,213,108 15,450,148 2,810,998 8,842,974 1,759,300 819,697 1,341,450 2,368,784 199,300 87,166,553 157,059 2013 N'000 6,620,814 57,561,134 5,756,113 20,650,915 2,943,632 9,092,974 8,842,974 625,472 1,427,580 1,670,057 256,300 115,556,863 108,896 N'000 145,172 0 0 7 3 15 15 12 13 9 8 3 87,648 107,756 2,468,674 157,300 146,932 63,398 2,368,784 17,423 5,651,877 88,790 DEAP MERCHANT BANK PLC 2014 N'000 12,161,410 45,219,307 27,555,872 33,051,415 6,205,589 9,830,974 9,052,974 1,065,606 4,625,280 1,670,057 286,300 150,836,420 111,435 2015 N'000 9,656,114 46,316,465 69,708,091 41,231,415 6,587,578 10,080,974 9,052,974 1,131,200 5,307,390 1,670,057 321,300 201,177,787 114,229
Projected Balance Sheet ASSET Cash & Bank Balances Placement With Other Banks Interbank Deposits Short Term investment Loans & Advances Quoted Securities Investments Investment in Real Estate Other Assets Assets Under Lease Long Term Investments Fixed Assets Total Assets LIABILITIES Deposit Liabilities Managed Funds Bank Loans Other Liabilities Long Term Liabilities TOTAL LIABILITIES NET ASSETS CAPITAL & RESERVES Paid Up Share Capital Preference Share Capital Share Premium Revenue Reserve 14 10 16 17 Debtors & Prepayments
0 2,001,798 2,595,396 1,253,643 0 5,850,838 (198,961)
0 1,701,079 2,299,393 1,698,847 4,850,000 10,549,320 3,578,637
40,382,844 1,701,079 11,798,245 14,850,000 69,881,865 17,284,688 1,149,697
59,341,375 2,470,647 15,641,070 14,850,000 93,187,255 22,369,607 884,163
84,787,297 2,650,647 23,389,062 14,850,000 125,677,006 25,159,414 0
118,319,366 2,840,647 33,529,820 14,850,000 169,539,833 31,637,954 0
750,000 448,484 (2,297,127)
1,875,000 0 1,873,484 (2,297,127)
2,375,000 10,000,000 4,373,484 (1,738,626)
2,375,000 10,000,000 4,373,484 1,541,200
2,375,000 10,000,000 4,373,484 4,474,806
2,375,000 10,000,000 4,373,484 10,836,286
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Un-quoted Stock Revaluation Reserve Current Year Loss/Profit Shareholders' Fund 1,806,027 (906,346) (198,961) 1,806,027 321,252 3,578,637 1,806,027 468,802 17,284,688 1,806,027 2,273,896 22,369,607 0 3,936,124 25,159,414 0 4,053,183 31,637,954
12.4.
Projected Cashflow Statement

Projected Cash flow Statement For Five Years 2011 N'000 PBT Inflows Funds Under Mgt (Local) Expected Rights Issue Proceeds (Local) Expected Placement Proceeds (Local) Expected Public Offer Proceed (Local) Expected Convertible Bond Proceeds (Local) Expected Convertible/Preference Shares Proceeds (Foreign) Expected Proceeds From Sales Of Rsl Shares Receipts From Real Estate Investment Interest Receivable from Loans & Advance Customers Gross Lease Rental Receipts Proceeds From Securities Trading Treasury Income Advisory Fees & Commission Other Incomes Management fees Foreign Exchange Income Sale of Investment in Associate Companies Change in Deposit Liabilities Total Inflow 500,000 750,000 1,800,000 0 2,500,000 2,500,000 175,000 1,062,490 0 781,435 3,070,467 27,113 219,360 94,078 0 0 0 0 8,303,863 2,092,090 0 3,954,247 9,483,103 643,500 263,232 124,735 15,000 0 40,382,844 65,707,913 1,000,000 700,000 3,000,000 2,350,000 7,500,000 698,727 2,615,113 609,750 4,942,809 11,853,879 772,200 329,040 152,412 19,500 1,200,000 698,727 18,958,531 32,160,033 3,268,891 762,188 6,178,511 14,817,349 926,640 411,300 185,315 23,400 0 25,445,922 43,944,499 1,800,000 4,086,113 952,734 7,723,139 18,521,686 1,111,968 514,124 225,124 52,740 0 33,532,069 55,865,558 2,160,000 750,000 800,000 820,000 472,430
DEAP CAPITAL 2012 N'000 2,913,680 2013 N'000 6,266,759
DEAP MERCHANT BANK PLC 2014 N'000 9,759,006 2015 N'000 10,629,681
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Projected Cash flow Statement For Five Years 2011 N'000 Out-Flows Right Issues Expenses Public Offer Expenses Convertible Bond Offer Expenses Capital Exp(Pg) Bank Loan Repayment Investment In Quoted Securities Re-Investment In Quoted Securities Invt. In Real Estate Re-Investment In Real Estate Loans & Advances Booked Interest Expenses Staff Cost(Inclusive Of Pension) Other Operating /Exp(Nt) Withdrawal From-Fum Additional Investment In Finance Lease Re-Investment In Financial Lease Other Payables Invest In Money Market/Fixed Income Instruments Total Out-Flow Monthly Balance Balance B/f Balance C/f 37,500 242,500 265,534 2,230,000 2,374,494 1,452,000 817,300 0 681,506 393,300 164,204 800,720 1,745,000 625,148 12,116 620,000 12,821,197 4,586,553 33,738 (3,866,819) 1,609,300 2,710,000 2,021,696 471,960 218,289 680,432 1,355,000 3,163,398 25,000 4,742,500 27,837,476 27,146,095 22,809 37,491,190 2,011,625 133,974 1,863,216 319,528 261,947 620,000 0 3,954,247 26,000 5,500,000 24,308,429 30,528,963 639,451 8,073,503 2,514,531 3,294,906 1,863,216 351,480 314,336 630,000 0 4,942,809 30,000 6,500,000 28,821,328 38,323,790 929,546 13,439,618 3,143,164 385,846 1,863,216 386,628 377,203 650,000 0 6,178,511 32,000 6,500,000 33,495,832 48,958,859 1,354,603 24,121,066 6,210 150,000 187,500 1,149,696 2,710,000 7,153,203 8,860,843 10,963,148 13,547,525 20,000 1,149,696 25,000 30,000 0 35,000 0 DEAP CAPITAL 2012 N'000 2013 N'000 DEAP MERCHANT BANK PLC 2014 N'000 2015 N'000
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12.5.
Notes to the Account

DEAP CAPITAL DEAP MERCHANT BANK PLC 2012 703,720,000 174,166,899 949,019,323 914,625,000 1,951,200,000 772,200,000 1,000,000,000 0 8,539,360,076 2013 3,537,189,789 2,593,036,066 192,923,334 1,186,274,154 1,143,281,250 2,134,125,000 772,200,000 1,200,000,000 698,727,247 13,457,756,840 2014 3,621,189,789 4,861,942,623 289,385,003 2,471,404,486 1,429,101,563 2,667,656,250 1,853,280,000 1,800,000,000 0 18,993,959,714 2015 3,621,189,789 6,077,428,279 277,809,601 2,842,115,158 1,714,921,875 3,201,187,500 2,223,936,000 2,160,000,000 0 22,118,588,203
Notes 1 INCOME & FEES Investment Income from Quoted Securities Income from Associated companies Lease Interest Income Underwriting Income Interest Income Treasury Income Foreign Exchange Income Sale of Investment in Associate Companies Income from Real Estate Activities
2010 (Mgt. Acc) 6,666,668 0 11,668,945 0 0 818,640 0 0 154,940,218
2011 245,190,000 690,260,000 40,650,000 156,286,936 0 0 42,262,500 0 0 1,174,649,436
135,785,965
2,074,428,853
OTHER INCOME Advisory Fees & Commission Sundry Income (BOND TRADING) Portfolio Mgt Income Management fees 58,224,742 88,137,722 (84,780) 0 146,277,684 Gross Income 301,217,902 219,359,750 90,000,000 3,600,000 0 312,959,750 1,487,609,186 263,231,700 108,000,000 21,600,000 150,000,000 542,831,700 9,082,191,776 329,039,625 129,600,000 25,920,000 195,000,000 679,559,625 14,137,316,465 411,299,531 155,520,000 31,104,000 234,000,000 831,923,531 19,825,883,245 514,124,414 186,624,000 37,324,800 257,400,000 995,473,214 23,114,061,417
INTEREST EXPENSES Deap Standard Deap Classic Deap Platinum Deap Gold
2010 (Mgt. Acc) 72,164,314 56,172,364 108,554,178 19,376,956
2011
2012
2013
2014
2015
273,233,802
384,215,817
384,215,817
384,215,817
384,215,817
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Deap Trust Deap Capital Income Fund Deap Property Income Fund Deap Lease Income Fund Interest Sundry Deposits Interest on Deposit for Portfolio Mgt Interest Expected Convertible Bond Bank Interest Interest on Fixed Deposits 333,485,632 0 657,581,980 3 Debtors and Prepayments Prepayments Other Loans & Advances Other Receivables Dividend Receivable from Associated Companies Loans & Advances Provision for Bad Debts 31,539,223 3,832,569 19,842,537 5,209,439 4,520,513 2,884,255 149,916,667 258,355,415 0 681,505,884 DEAP CAPITAL 3,761,854 5,016,008 40,650,000 76,352,844 (8,597,000) 129,392,067 DEAP CAPITAL Finance Lease Provision for Bad Debts 76,377,030 (12,979,287) 63,397,743 5 6 Total Provision for Bad Debts OPERATING EXPENSES Staff Cost Publicity & Advertisement General & Admin Costs Depreciation 117,850,532 19,917,506 143,681,674 27,235,635 308,685,347 130,189,868 40,034,318 124,170,000 17,703,163 312,097, 349 290,480,000 48,041,182 149,004,000 54,202,954 541,728,136 319,528,000 57,649,418 178,804,800 67,184,954 623,167,172 351,480,800 69,179,302 214,565,760 74,349,954 709,575,816 386,628,880 83,015,162 257,478,912 82,830,954 809,953,908 (21,576,287) 1,821,377,030 (12,979,287) 1,808,397,743 (21,576,287) 1,355,000,000 (13,550,000) 1,341,450,000 (41,943,921) 1,442,000,000 (14,420,000) 1,427,580,000 (44,153,661) 1,479,000,000 158,480,000 3,836,370,245 5,858,066,062 1,479,000,000 0 5,637,430,646 7,500,646,463 1,479,000,000 0 7,630,856,733 9,494,072,550 1,479,000,000 0 9,465,549,317 11,328,765,134
52,334,614 6,587,458 29,868,261 0 116,352,844 (8,597,000) 196,546,177
12,208,361
13,429,197 4,138,039 5,517,609 133,974,538 2,839,392,067 (28,393,921) 2,968,057,530
14,772,117 4,551,843 6,069,370 83,502,827 2,973,366,067 (29,733,661) 3,052,528,564
16,249,328 5,007,028 6,676,307 83,502,827 6,268,272,100 (62,682,721)
DEAP MERCHANT BANK PLC 17,874,261 5,507,730 7,343,937 83,502,827 6,654,118,770 (66,541,188) 6,701,806,339
6,317,024,869
DEAP MERCHANT BANK PLC 4,672,000,000 (46,720,000) 4,625,280,000 (109,402,721) 5,361,000,000 (53,610,000) 5,307,390,000 (120,151,188)
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Profit Before Tax Taxation Profit After Tax (686,626,425) (219,720,000) (906,346,425) 472,430,000 (151,177,000) 321,252,000 2,913,680,000 (932,378,000) 1,981,302,000 6,266,759,000 (2,005,363,000) 4,261,396,000 9,759,006,000 (3,122,882,000) 6,636,124,000 10,629,681,000 (3,401,498,000) 7,228,183,000
DEAP CAPITAL 7 Short term Investments Stock Broking Funds Fixed Income Investments Treasury Bills 86,621,420 1,026,364 87,647,784 0 86,621,420 621,026,364 707,647,784 0 707,647,784 4,742,500,000 15,450,147,784 10,000,000,000 5,650,915,283 4,000,000,000 20,650,915,283 11,000,000,000
DEAP MERCHANT BANK PLC 10,051,415,283 11,000,000,000 33,051,,415,283 12,000,000,000 16,231,415,283 13,000,000,000 41,231,415,283 12,000,000,000
DEAP CAPITAL 8 9 Fixed Assets (Net Book Value) Investments Investments in Resort Securities & Trust Ltd Investments in DVCF Oil & Gas Plc Investment in DVCF Waste Mgt Fund Investment In Tetrazzini Foods Ltd Investment in Delma Pharmaceuticals Investment In Precious Mines & Minerals 1,670,056,547 622,163,586 40,000,000 30,000,000 5,363,661 1,200,000 2,368,783,794 1,670,056,547 622,163,586 40,000,000 30,000,000 5,363,661 1,200,000 2,368,783,794 DEAP CAPITAL 10 Bank loan Zenith Bank Facility Access Bank Facility FCMB Facility RSL (Mortgage Bank) 695,902,559 100,699,788 30,468,229 1,768,325,248 2,595,395,824 463,935,039 67,133,192 0 1,768,325,248 2,299,393,479 231,967,520 33,566,596 0 884,162,624 1,149,696,739 0 0 0 884,162,624 884,162,624 1,670,056,547 622,163,586 40,000,000 30,000,000 5,363,661 1,200,000 2,368,783,794 1,670,056,547 0 0 0 0 0 1,670,056,547. 17,423,052 1,132,791 145,096,894 189,114,894
DEAP MERCHANT BANK PLC 211,949,894 238,468,894
1,670,056,547 0 0 0 0 0 1,670,056,547
1,670,056,547 0 0 0 0 0 1,670,056,547
DEAP MERCHANT BANK PLC 0 0 0 0 0 0 0 0 0 0
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DEAP CAPITAL 11 Bank Loan Repayment Zenith Bank Facility Access Bank Facility FCMB Facility RSL (Mortgage Bank) 695,902,559 100,699,788 30,468,229 1,768,325,248 2,595,395,824 231,967,520 33,566,596 0 0 531,068,231 231,967,520 33,566,596 0 884,162,624 1,149,696,739 231,967,520 33,566,596 0 884,162,624 1,149,696,739
DEAP MERCHANT BANK PLC 0 0 0 0 0 0 0 0 0 0
DEAP CAPITAL 12 Other Assets Inter Company Accounts Public Offer Expenses Convertible Bond/Offer Expenses Share Capital Expenses Provision Interest Receivable 45,551,293 (3,688,000) 0 146,931,513 58,966,504 46,101,716 58,966,504 77,500,000 242,500,000 22,775,646 (3,688,000) 0 398,054,150 482,696,651 819,696,651 505,472,231 625,472,231 0 150,000,000 187,000,000 0 120,000,000
DEAP MERCHANT BANK PLC 0 0 0 0
1,065,606,257 1,065,606,257
1,131,200,190 1,131,200,190
13
Fixed Assets Costs Computer Systems Office Equipment Furniture & Fittings Motor Vehicle Plant & Machinery 38,083,761 11,174,820 6,743,786 56,077,881 569,600 112,649,848
DEAP CAPITAL 38,233,761 12,174,820 7,243,786 56,077,881 569,600 114,299,848 76,233,761 17,174,820 20,243,786 84,077,881 1,569,600 199,299,848 80,233,761 21,674,820 43,743,786 105,077,881 5,569,600 256,299,848
DEAP MERCHANT BANK PLC 85,233,761 27,674,820 48,743,786 115,077,881 9,569,600 286,299,848 92,233,761 35,674,820 55,743,786 126,077,881 11,569,600 321,299,848
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14 FUNDS UNDER MANAGEMENT Deap Capital Income Fund Deap Standard Deap Classic Deap Gold Deap Platinum Deap Trust Deap Lease Income Fund Deap Property Income Fund Deposit for Portfolio Management 256,249,828 295,670,922 124,688,489 702,659,214 414,784,205 44,782,905 162,611,395 351,520 2,001,798,478 15 Assets Under Management Portfolio Under Management Quoted Securities Investment Investment in Real Estate 38,623,765 2,468,674,474 157,300,000 2,664,598,239 16 OTHER LIABILITIES Interest Payable Accounts Payable Audit Fee Payable Income Tax Payable Other Accounts Payable 3,944,672 20,755,315 687,500 11,428,238 1,216,,827,772 1,253,643,497 17 LONG TERM LIABILITIES Redeemable/Convertible Bond Preference shares Obligation Under Finance Lease Deferred Taxation 0 7,350,000,000 14,850,000,000 14,850,000,000 14,850,000,000 14,850,000,000 153,749,897 677,402,553 74,813,093 421,595,528 248,870,523 26,869,743 97,566,837 210,912 1,701,079,086 DEAP CAPITAL 0 4,523,674,474 1,609,300,000 6,132,974,474 DEAP CAPITAL 3,944,672 16,333,819 687,500 69,268,746 1,608,612,706 1,698,847,443 DEAP CAPITAL 4,850,000,000 2,500,000,000 4,850,000,000 10,000,000,000 4,850,000,000 10,000,000,000 4,038,284,468 11,449,381 756,250 866,009,919 6,881,745,282 11,798,245,301 5,934,137,522 11,449,381 756,250 1,278,690,402 8,416,036,493 15,641,070,048 0 8,842,974,474 1,759,300,000 10,602,274,474 0 9,092,974,474 8,842,974,474 17,935,948,948 1,701,079,086 2,470,647,451 2,650,647,451 2,840,647,451 1,701,079,086 2,470,647,451 2,650,647,451 2,840,647,451 DEAP CAPITAL DEAP MERCHANT BANK PLC
DEAP MERCHANT BANK PLC 0 9,830,974,474 9,052,974,474 18,883,948,948 0 10,080,974,474 9,052,974,474 19,133,948,948
DEAP MERCHANT BANK PLC 8,478,729,703 11,449,381 869,688 1,734,512,369 13,163,500,615 23,389,061,756 11,831,936,647 11,449,381 956,656 2,303,571,464 19,381,905,770 33,529,819,918
DEAP MERCHANT BANK PLC 4,850,000,000 10,000,000,000 4,850,000,000 10,000,000,000
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18 CAPITAL & RESERVES Paid Up Share Capital Share Premium Revenue Reserve Un-quoted Stock Revaluation Reserve Current Year Loss/Profit 750,000,000 448,484,000 (2,297,126,552) 1,806,027,024 (892,613,425) (185,228,954) DEAP CAPITAL 1,875,000,000 1,873,484,040 (2,297,126,552) 1,806,027,024 146,523,674 3,403,908,186 2,375,000,000 4,373,484,000 (1,738,625,665) 1,806,027,024 173,281,171 6,989,166,530 2,375,000,000 4,373,484,000 1,541,200,146 1,806,027,024 329,150,746 10,424,861,916 DEAP MERCHANT BANK PLC 2,375,000,000 4,373,484,000 4,474,805,758 0 1,615,984,385 12,839,274,143 2,375,000,000 4,373,484,000 10,836,286,209 0 2,186,190,051 19,770,960,260
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12.6.
Assumptions for Sources and Application of Funds The following are the main assumptions: 1. We assume that there will be no significant changes in the Federal Governments Monetary and Fiscal policies that will adversely affect the performance of the projections in relation to the Capital Market operation. 2. We assume that inflation rate will range at 12% to 13% during the period upon which; we benchmark our deposit taking rates in accordance with the tenor. 3. There will be no major fluctuation in exchange rate which is expected to remain between N148 to N150 to a USD. 4. The cost of funds is expected to average 14% per annum during the period. This is due to expected blend of leverage of fresh funds coming in and the existing funds whose rates are being reviewed downward on maturity and roll over. 5. We also assumed a national GDP growth rate of 7% per annum which is a benchmark. 6. The company is seeking to raise funds from the capital market by way of rights issue of 750,000,000 shares at N1 to its existing shareholders. This is expected to be completed before the end of 2nd quarter of the new financial year and the issue proceeds of N750 million is expected in the 3rd quarter of 2011 financial year. 7. We also assumed that strategic investors will take up 1.5 billion shares in the company at N1.20 by way of placement and the proceeds are expected to come in tranches of N500 million and N1.3 billion by the 2nd and 3rd quarters of the new financial year respectively. 8. It is assumed that the company will further source funds by issuing N2.5 billion 14% Redeemable convertible bond 2015 to the public and the proceeds are expected to come in the 3rd quarter of the financial year. 9. An additional 14% convertible bond of N2.35 billion will be issued to Investors by the 4th quarter of the new financial year and the proceeds is expected before the end of the financial year. 10. We also assumed a sell down of 350,000,000 shares of Resort Savings & Loans Plc to strategic investors and this will provide liquidity of about N175 million which also provides additional working capital to drive the business of the company. 11. It is assumed that fresh funds of about N500 million will be injected into our Funds Management products through deposit mobilization efforts of the management at an average cost of funds of 14% per annum max and all the funds management products will be streamlined to only one product known as DEAP Classic Fund.
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12. There will be no additional loan from the banks during the period, rather emphasis should be placed on substantial pay down on the existing lines to further reduce interest expenses and retain our credibility with the banks. 13. We assume a pay down on existing bank facilities of N100 million and N180 million to Access Bank and Resort Savings & Loans Plc loans respectively in the year 2012, thereafter, the repayment plan will continue according to repayment schedules. 14. We also assumed additional investment in leases of N87million, N894 million and N689 million respectively in Q2, Q3 and Q4 during the year. These investments are expected to grow our leasing business from N63 Million toN1.7 billion and a return of N118 million and a growth in lease interest income of 911%. 15. It is assumed that 40% of our Deposit liabilities from Fund Management products will be paid out on maturity while the remaining 60% will be rolledover during the financial year. We also assumed 100% of interest accruing to such Clients on their investments will be paid out on maturity. 16. Additional amount of N1.45 billion is to be made in the Real Estate investment during the year. The existing investment of N157 million plus additional investment of N150 million in Q2 and N695 million in Q3 respectively are expected to return N69.6 Million during the year and a growth of 945% while the balance of N607 million will return in 2011/2012 financial year. 17. We also assumed that a fresh investment in Quoted Securities of N2.18 billion will be made during the financial year. This is to be used in proprietary trading on the floor of the Stock Exchange at least three trading cycles for each quarterly investment of N250 million, N738 million and N1.19 billion and its expected that a return of N632 million will be generated as securities trading income and growth of 365% from the previous year. 18. The sum of N75.5million will be invested in fixed income and money market instruments from the proceeds of the various offers which will be used to bridge any gap in meeting matured obligations and convertible bond interest obligations. 19. We also assume fee and commission based income of N159 million during the year. It is anticipated that the minimum capital requirement for Primary Mortgage Institutions (PMI) pronounced by CBN will force most PMIs to embrace merger options or recapitalization which will provide the company the opportunity of earning advisory fees, Issuing House fees and commission during the exercise. 20. 25% of the Preference share capital would be issued in 2011 while the remaining 75% would be issued in 2012. 21. The company would earn 6% interest on the outstanding cash balance at the end of financial year.
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12.7.
Recapitalization Plan In order to meet the required Share Capital for a Merchant Banking License, Deap would raise fresh funds as follows: 2011 =N=M 750 1,800 2,500 2,500 7,550 2012 =N=M 3,000 7,500 2,350 12,850
(a) 750 million Ordinary share of 50k at =N=1.0 per Right Issue (b) Private Placing of 1.5 billion Ordinary Share of 50k Each at =N=1.20 per Share (c) Public Offer of =N= 1 billion Shares at N3.00/Share (d) 8% Preference Shares =N=10 billion (e) 14% 4,850,000,000 Redeemable /Convertible Income Bond 2015 by Private Placing
Notes I. The right issue is targeted at current shareholders of the company II. The private placing of 1.5 billion ordinary shares and the 14% 4,850,000,000 Redeemable /Convertible Income Bond 2015 are targeted at:a) Selected members of the investing public. b) Present fund placement clients of Deap Capital. c) Foreign Investors III. The 8% Preference Shares are targeted at Core Investors from Abroad. Two of such are discussing with us at present IV. The Public Offer is open to both local and foreign investors V. The objective of the recapitalization plan is for Deap Capital to have a shareholders Funds of at least =N=15 billion by 2012 VI. The =N=15 billion share capital will enable Deap Capital apply to CBN for a merchant Banking license in 2012
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Procedure for the Recapitalization Activity Right Issue Private Placing of 1.5 billion shares 8% Preference shares (=N=2.5b) 14% Redeemable/ Convertible Bond (=N= 7.5b) 8% Preference Shares (=N= 7.5b) 14% Redeemable /Convertible Bond (=N= 2.35b) Public Offer of 1,000,000,000 Ordinary Shares Time Frame March-April 2011 April-June 2011 April-June 2011 April-June 2011 Jan-March 2012 Jan-March 2012 July-Sept 2012
The project is economically, technically and financially feasible and viable as an investment prospect.
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S/No.
Position/ Number of Officers Head Office
Number of Staff Number of Staff 1 1 1 2 6 5 6
Cost per Unit of Labour N'Millions 40.00 9.24 7.08 6.96 5.52 3.36 2.52 1.92 1.32 1.00 0.87 0.44 112.66 4.56
Total Remuneration N' Millions 40.00 9.24 7.08 13.92 33.12 16.80 27.36
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
ED(3)
MD/CEO(1) AGM(1) Principal Manager (1) Senior Manger (2)
25.00
75.00
Manager (6) Deputy Manager (6) Banking Officer (8) Assistant Banking Off (7) Supervisor (3) Assistant Supervisor (3) Driver (15) Senior Despatch (2) 0ffice Assistant.(2) Total Assistant Manager (5)
8 7 3 3 15 2 2 65
2.88
23.04 17.64 5.76 3.96 15.00 1.73 0.87 290.48
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Business Development Plan

[Deap Merchant Bank]

ValueFronteira Limited 2011

ValueFronteira Limited 2011

8.3 8.4 8.5 8.6

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

1,800 2,500 2,500 7,550

3,000 7,500 2,350 12,850

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

c. i. ii. iii. iv. v. 2.2. a.

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan

Figure1: Share of Activity in Corporate Profitability as at 2010

ValueFronteira Limited 2011

Deap Merchant Bank Transformation Business Plan