The Bull in The China Shop

In association with
The Bull in the China Shop
The New Paradigm for Nigerian Financial Markets
A State of the Market Report

Issued on August 22, 2009
ISSN 1597 – 8842 Vol.1 No. 21
The Bull in the China Shop - The New Paradigm in Nigerian Financial Sector
SEC and its Historical Revisionism of Facts
ISSN 1597 – 8842 Vol.1 No. 21
Contents
Executive Summary 03
The Market and Historical Revisionism of Facts 09
The CBN Governor’s Address, Debtors List & Others 23
Identifying the Unintended Consequences 34
Of Whistle blowers, Alarms and Regulatory Response 38
The SEC and its Corporate Governance Imperative 56
NSE and the Challenge of Self Regulation 68
Final Thoughts on the developments so far 83
TheAnalyst
TM
www.proshareng.com 2
“…Manipulate the truth long enough and eventually you’re selling something
that doesn't exist."
EXECUTIVE SUMMARY
The long-awaited intervention in our financial services sector, starting with the
banking industry was unleashed on August 14, 2009 guided by a deliberate
‘shock and awe’ objective by the Sanusi Lamido led CBN.
In sacking the CEO’s and Executive Directors of five banks - a generational

practice and culture was designed to be consigned to history.
When the move came, it took more than a scalpel to remove the malignant
tumour that had become a cancer to our collective conscience – the resolution
of when we would move beyond the self-denial state of a ‘conspiracy of
criminality’ to a state where basic norms and values that defined the practice
of financial intermediation was restored.
There is a growing conviction amongst market analysts that in the interest of

full disclosure, transparency, equity and accountability (the underlying value
base for the CBN and other regulators) demands that the list of debtors, status
of margin loans and its provisioning, status of underperforming & non-
performing loans, and capital be disclosed for those banks ‘cleared’ as well.
Even the critics acknowledge that not doing anything on this development
would not be a wise option. The bull has landed quite all right, but it has found
itself in a china shop where it is not so much of whether he would break the
china, but just how much damage will be left behind.
A critical insight into what the market should look towards has remained
unanswered or is unavailable. The Market must, in a sense, be able to gain
some measure of the following - strategic & tactical objectives, scope/coverage
of the exercise, and clarity of the end game.
We believe this is where undue advantage is created in the market place – i.e.
competitive advantage is ‘unknowingly’ granted to those closer to regulators.
This is an incentive that lies at the heart of the problem we face.
There is a huge incentive to foster or promote the strategic development of

‘cordial’ relationships and back door channels with regulators to feed the
private sectors desire for an edge in business. This often leads to ‘incestuous
relationships’ at all staff levels right to the very top. At this stage, regulatory
oversight capacity and efficiency is compromised and the outcome is the mess
we always come back to.
The Theory of Reflexivity becomes manifest
The principle of reflexivity was perhaps first enunciated by the sociologist

William Thomas (1923, 1928) and known as the Thomas theorem: that 'the
situations that men define as true, become true for them.'
Sociologist Robert K. Merton (1948, 1949) built on the Thomas principle to

define the notion of a self-fulfilling prophecy: that once a prediction or
prophecy is made, actors may accommodate their behaviours and actions so
that a statement that would have been false becomes true or, conversely, a
statement that would have been true becomes false - as a consequence of the
prediction or prophecy being made. The prophecy has a constitutive impact on
the outcome or result, changing the outcome from what would otherwise have
happened.
An example of this is the interaction between beliefs and observations in a

marketplace - if traders believe that prices will fall, they will sell - thus driving
down prices, whereas if they believe prices will rise, they will buy - thereby
driving prices up.
Thus, the trigger for results lies in the belief that guides action/conduct.
If our banking executives have learnt anything at all from the interplay of
incestuous relationships and the crisis of previous banking failures, especially
those of the ‘yuppie banker’ or ‘power-banker’ years; it certainly did not reflect
in their conduct during the post consolidation years. They seemed to have
simply recalibrated the actions taken then and moved it to another level.
In this new enterprise, our stock exchange and securities commission appeared
either clueless or hamstrung by such ‘relationships’ and an overbearing
political climate under the Obasanjo administration that was reportedly
punitive in response to dissent and intolerant to ethical challenges to decisions.
The stage was thus set for what we find today. We wish our financial
professionals had read the book by George Soros on the subject matter - we
would not be where we are today!
It really is time that egos get checked at the door, and we start adopting a
general understanding of what is real, and what are lies. This, according to the
theory of reflexivity holds true for both the CBN (and its new day allied
agencies) and the market.
In the treatise (which we reproduced in the section titled ‘Identifying the

Unintended Consequences’, George Soros reflected the basis of the current
reality:
“..Take, for instance, the banking industry in the United States. After the
breakdown of the banking system in the Great Depression, it became closely
regulated and very rigid; but when the restrictions were relaxed, the industry
swung to the other extreme and entered a period of revolutionary change. I
can locate the transition point with great precision: it was on that
evening in 1973 when the management of First National City Bank held
an unprecedented meeting for securities analysts in order to promote
the stock as a growth stock. The pattern in the rise and fall of the Soviet
system closely parallels the pattern in the fall and rise of the American banking
system.”
The ‘conspiracy of criminality’ that ensued post-consolidation therefore was

not intentionally engineered by Prof. Chukwumah Soludo, the ex-CBN
Governor. He simply presided over an initiative fraught with inherent execution
risks that could only have been mitigated by an equal, if not higher oversight
capacity and capability plan.
He, we believe, must therefore take responsibility for not doing enough in this
regard. History must however be fair to him and recognise that consolidation
was inevitable and it took a lot to carry it through. He, on his own part, must
accept the professional responsibility for the collapse of the system.
The symptoms are what we now focus on – bad loans, excessive credit
expansion, unreliable financials and drop in shareholder value and market
confidence.
The CBN is yet to discuss this root cause in any detail.
The need to avoid overreaching beyond the goal…
Following from the analysis above, it appears obvious that as we sought to

grow our financial systems, we ignored the age-old wisdom that ‘markets left
unregulated would get out of hand’ because people are either incapable of
self regulating themselves or are all too aware and driven by the benefits of
pursuing their own ends.
Much more is the sovereign objectives and its alignment with the pace of
development.
Yesterday, we crowned the week of tumultuous ‘exposes’ in our financial

services sector with the newswire that S&P has cut Nigeria's ratings deeper
into junk; though outlook appears stable at this point. Some may ask the
question why we surrender our economic and financial objectives to the whims
and decisions of the international order but for the purposes of this report, we
recognise the importance of such ‘measures of risk’ as universally acceptable
tools of engagement in our quest for integration and market leverage. Until we
are able to muscle the necessary clout to take on the order, we appear not to
have much of an option. This is the consequence of our un-integrated approach
to managing the state.
During the week just ended, the flurry of market activities on all sides can be
captured thus:
The CBN seized control of five banks close to insolvency with armed
guards in tow (FT),
threw out management (often big shareholders),
demanded payment from debtors three (3) days after this ground shaking
action,
named some of Nigeria’s leading lights in an advertised list the CBN later
admitted to having errors,
had SEC call for the DG of the Nigerian Stock Exchange to provide a
response to a 7 day ultimatum, demand the removal from council of the
Erastus Akingbola,
and learnt that two CBN Deputy Governors (Mrs. Juliet Madubueze and
Prof. Akpan Ekpo) allegedly opposed to the move, its timing and motive
have been dismissed.
This is a whole lot for our fragile market to absorb at a go. We have set
ourselves up for a big battle and it will come from all sides and even from the
blind side.
We cannot embark on a journey - driving with a rear view mirror.
If the truth must be told, we have reversed many of the gains we made so far,
as imperfect as they were; even as we further acknowledge that a few were
built more on perception than reality.
Yet, it is a historical fact of Taiwan and China, that it built its economy on the
back of ‘inferior products’ which defined its brand. This market, we make
bold to say, does not need an ‘ambush’ based mindset to reform.
We do not need surprises or uncertainty fed into the veins of our market,
economy or national psyche… we needed to build upon the gains of the past
and address the real and present dangers in the leadership gaps in our
financial services sector across board, in a manner that does not undermine or
create unintended consequences.
Everyone accepts the need for action was imperative and Lamido Sanusi
appears to be a man capable of enthroning such a culture. On the basis of the
actions taken subsequently, we have to mitigate our enthusiasm for change
with a cautious optimism that the process will not be hijacked, distorted or
cannibalised.
We categorically state that the means, approach, timing and relegation

of the rule of law in achieving this important task remain a concern. It
does not appear as if the CBN is fully comprehended or is ‘managing the
communication’ of the extent of this developments. Its flip flop on issues as we
go on will reveal as much.
This report therefore is our attempt to establish our support for the need for
change, bold action and sustainable implementation of the reversal of norms
for which we expect to last for up to two years (or more depending on the
subsequent actions taken by the Sanusi Lamido led CBN).
Nothing sums up our position better than these words from FT – “The market
remains relatively fragmented. …..More transparency and consolidation are
needed. But dramatic action risks undermining worthy ambitions, such
as attracting foreign capital. Nigerian authorities overhauled banks’
management in the 1990s, but oversight failed to keep pace with market
change. The challenge now is how to finish the job.”
The Future Foretold…
In our NCM 2009 report, we noted that this was not another turn of the
business cycle! We averred as follows:
1. That the problem was not so much of a market meltdown but the
unaddressed leadership meltdown in the management of the economy
and markets;
2. That the Nigerian Capital Market was not immune from global
developments, its impact and politics on its economic and financial
decision-making;
3. That a paradigm shift has occurred and the very way business was
thought of, conducted and regulated in our financial markets must
change;
4. That the customer, investor, fund manager, analyst, journalist, regulator
and quoted companies must now learn a new way to engage the
market;
5. That this process of rediscovery will prove most unsettling and may
determine how well Nigeria, as an investment destination positions
itself;
6. That we should quickly move on from the self-denial stage and embrace
the need to employ rigour in addressing the ‘simplistic and routine’
unaccountability prevalent in our policy making;
7. That each section of the report was devoted to critical success factors
needed to be considered and acted upon by those in charge of the
market;
8. That the subject of margin loans on one side and the quality of assets
carried by the banks required a stress test (this was further affirmed in
our half year and individual bank report issued up to July 2009);
9. That the investor confidence question goes beyond the usual
grandstanding deployed through newspaper commentaries and loud
sound bites at seminars. The regulators, this time, had to own up to
their failure to deliver the enabling level playing field and enforcement
needed to engender trust in the market; and
10.The choice of action needed to be taken must be one that recognises the
intrinsic impact of our financial markets on the whole economy and the
international support built over the years.
We deployed this to all members of the financial community in Nigeria, United

Kingdom, United States of America, Canada, Ghana, and South Africa. Indeed,
we took the unusual step of sending same to His Excellency, The President, his
Vice President, Principal officers in the presidency, All Ministers, CBN, SEC,
NDIC, NSE, BPE, NAICOM, Professional associations, Guild of Editors, all
members of the federal and state Houses of Assembly, all State Governors and
Commissioners, all Universities, publishers and business editors of media
houses, analyst firms and national institutions.
The motive was clear - let us all move beyond the blame game and agree
on a consensus of what was needed to be done. Our recommendations were
very clear just as our opposition to the plans put forward was rightfully
debunked. We indeed predicted that no recovery will occur in our NCM until Q2
2010, subject to the actions needed to recalibrate the changes needed were
taken with motives devoid of grandstanding.
We adopted the most ‘useful’ model under the circumstance and perhaps, not
necessarily the most ‘honest’ model. The hope was that such a situation as has
presented itself since August 14, 2009 could be avoided. The inevitable has
happened, so what next?
Managing the Bull in the China Shop…..
We were wrongful optimistic of our capacity as a people to embrace unforced

change! We now find ourselves at a cross roads of sorts. The move to ‘tear
down’ the negative aspects of our development legacy and to ‘build’ on a
foundation devoid of such practices, values and low risk management of our
financial systems, is a generational challenge.
This is the task Sanusi Lamido Sanusi has inherited. The laws of cause and
effect have now manifested, even at this early stage of the impending battle
for the soul of the market! The consequences can only be imagined if not
properly managed.
The good money is on the resilience of the Nigerian people and our markets to
rise up from this dark chapter in our national development. It is our hope that
the overriding motive remains the recognition that the consequence of actions
to be taken to deal with the subject of ‘incompetence in managing a bank’
and its systemic problems does not expand on the current ‘drama’ being
played out by later-day converts presenting themselves as patriots or
regulators/enforcement agencies with altruistic intents. A similar case was
announced by the Senate committee on Banking and none of them took action,
so what makes this one a must-do task?
The threat of publication of names has come and gone and we are not sure it
has done much to promote civility in conduct by this country. If at all, it
revealed that for the CBN to resort to such desperate measures, the truth has
not been told about how bad the case of the bank really is.
Such actions are only taken where the going concern of an organisation has
been so imperilled that the only feasible option is to call in the debts, package
the companies for resale and hopefully mitigate the systemic impact of such a
move on the industry/sector. Under this scenario, the need to wait for the
conclusion of the examination of other banks was, in terms of priority, not
uppermost. If action was not taken, the whole system would get worse.
Recognising this therefore, the question must be asked – Why is CBN not
guaranteeing the customer deposits/funds in the banks?
We leave you to make your own judgement and conclusions.
"There are very few men – and they are the exceptions – who are able to think
and feel beyond the present moment"
- Carl von Clausewitz, 1780-1831
THE MARKET & HISTORICAL REVISIONISM OF FACTS

What is the price we have to pay for getting it right?
Today, a lower sovereign rating for Nigerian banks means that we are going to
have to pay much more money to foreign banks to borrow funds for our
government whose revenue has been falling as a result of Niger Delta
problems (State Governors have no idea that from next year their monthly allocations
may drop drastically and they may have to turn to the banks to lend them money).
A similar fate awaits our businesses funding any project going forward. We
would now have to either deplete our sovereign reserves or pay higher interest
to foreign banks whose math we do not trust; considering all the arguments
that followed our national debts to foreign financiers before they were paid off
under Okonjo-Iweala as Finance Minister.
The unintended consequences from our otherwise market-reform goals are

now beginning to manifest and we must ask questions on what the CBN truly
seeks to achieve.
Some of the contributions by commentators and government functionaries so

far have been emotional, sometimes ill-informed and at odd times, out of
context. Could it be a function of the communication approach, sequencing of
action or the fabled mischief Nigerians are known to deploy at times like this –
the crab paradigm?
One thing that cannot be in doubt is the level to which we as a people sunk –
the ‘accused’ and the ‘cheering’ crowd.
The public rejoiced at the fall of the leaders of the five banks – icons
synonymous with brand Nigeria. It was as if we had daily prayed for their
destruction… the scorn and glee with which we discussed them was personal
and unfortunate. It was a case of rejoicing at the fall of the rich and powerful,
akin to how we relate to politicians – those whom we hold responsible for
holding us down as a nation.
We recall that there was no indictment or guilty verdict yet on the table except
CBN’s professional assessment (not forensic) that they have ‘acted in a
manner detrimental to the interest of their depositors and creditors’.
Perhaps it was the self-indicting admission by Sanusi Lamido to a CNN
correspondent that “the Nigerian banking sector had been replete with
engineering of their financial books over the years …..for which the
ongoing forensic audit by the CBN would determine the next line of action”.
Yet, this exposes the danger in rushing to judge.
The reaction of the public must therefore speak volumes of our collective
disillusionment with the country; played out with this ‘drama’ now unfolding. It
also goes to the very heart of the question – To win an economic war, we must
prevail over the moral war that confronts us a people.
The consensus in all this though is the admission, through this crisis that the
near collapse of our society’s fibre is directly linked to the diminished moral
value we have defined, celebrated, honoured and positioned as a guide for
success in Nigeria. This invariably is the key to what has held us down.
We do not challenge this conclusion at all.
Yet, for those cheering the EFCC in its ‘renewed spirit of relevance’ to act
against those affected, we say to them – BEWARE, lest they fall! No matter
how you look at it, this cannot be an acceptable behaviour and standard of
conduct without ridiculing the respect for the rule of law. We must remain a
nation of laws which are clear, unambiguous and not selective as to allegation,
crime, person or purpose.
Let’s recall a bit of history here:
In the not-so-distant past, we have had issues related to self-lending, insider

abuse, overreaching by CEOs’, ineffective board of directors, non-adherence to
credit rules, lack of enforcement, etc.
What makes this instance unique should perhaps be the positioning these
CEO’s established as a moral icons for the society – religion, professionalism
and success role models.
Be that as it may, those that came before them equally positioned themselves
as such. The key ingredients of a wonder bank were always an attribute of the
new-age banking whether here or overseas.
You recall that in 1996, Nigeria reported 50 banks as distressed with over
N65bn trapped in the melee. These banks had given out loans of about N50bn
of which N40bn was classified as non-performing loans?
The Directors of the banks that were closed down and liquidated before now –
SGBN, Savannah Bank, Peak Merchant Bank and the wholesale liquidation of
24-33 banks between 1994 – 2006 that included Progress Bank, Commerce
Bank, Crystal Bank, Alpha Merchant Bank, Kapital Merchant Bank, All States
Trust Bank, Trade Bank among others where never so ridiculed or treated with
scorn. These banks went down, not just with depositor’s funds, investors’
funds, job losses and the attendant implications on the economy and the
financial market.
There were distinguished Nigerians on the board of these banks, perhaps not in
a CEO position as we now have it. What did the regulators do to avoid such a
systemic dismissal of the rules of the game?
Even banks that have been liquidated under the recent bank consolidation, for
poor management and indeed Wema Bank with its history of depleted capital
and shareholders funds were never so hounded. (Extract of the NDIC report -
http://proshareng.com/reports/view.php?id=2013 and -
http://proshareng.com/reports/view.php?id=2005)
The market needs to calm down, step back and look deeper into the issues
why we keep on having this musical chair adventure, over and over again.
The notion that some people have cornered wealth is revisionist and we must
avoid this attempt at revising the true origin of wealth in our land.
Rewriting the Origin of wealth in Nigeria…..
Intended or otherwise, the message out there, is that it is now a shameful

thing to owe money to a bank or to borrow from one, yet it remains common
knowledge all over the world that banks exist for the primary function of
collecting deposit and lending money.
It now appears that owing money and defaulting could make its way into our
penal code as a jailable offence or a matter for the EFCC to adjudicate upon.
Something that makes one shudder at the thought process that made this a
possibility!
Are we are sure that we are not invariably sending out a wrong signal that
stealing money, making arrangements to settle the demandingly compromised
officers of the state represents a viable alternative to pursuing legitimate
funding arrangements for whatever purpose such debts were for?
This is a subject of concern when the current ‘commentaries’ from enforcement

agencies are viewed in the context of financial crime allegations (often made
by such agencies) against serving or past holders of public offices who have
deployed the machinery of our courts to either fend of action being taken
against them, or outrightly stalemated the consequences. We assume that the
allegations in the first place were not politically motivated as our recent history
has shown.
The politicians are mandated to declare assets before coming into office.
Maybe it is high time we ensure that banking CEO’s and members of the board
do the same and pass it to the CBN.
Let’s get back to the point at hand.
Every debtor has a contract with the bank (not the CBN). It is not a
misrepresentation of facts to say that some banks have been known to breach
the terms of such contracts that makes performance by the debtors difficult, if
not impossible.
Thus the issues before hand require a bold, direct and unambiguous
intervention. This we equally cannot wish away as the debtors do have rights
that must not be ignored by the CBN and its ancillary government agencies.
If a borrower defaults, banks have procedures and steps leading up to the

deployment of legal means of secure payment as Access Bank Plc
demonstrated by writing to its client – African petroleum (AP) Plc first,
explored many other time-tested options before heading to the court over a
disagreement and as a result of court action, the story came into the public
domain. The ironic twist in the delay for payment was the long awaited
interpretation or clarification sought from the CBN for weeks. Once this came,
AP Plc did the right thing and settled its obligations, made up with its bankers
and even challenged them on another issue.
The system may be imperfect but it works. What is needed is the discipline to
understand where the system needed to be adjusted to avoid the culture of
perennial debt defaults by other less integrity inclined customers.
If banks don’t have borrowers, they would not make money, create jobs,
finance business or lend money to government when they need it and also pay
taxes on profit.
The importance and relevance of credit in nations’ development and survival is

too crucial to reduce to a comic episode played out daily under media frenzy. It
is just too serious an issue.
With the crisis now raging in our country, if we leave bank managers in the
hands of EFCC for lending money to business people; how do we expect other
“free” bankers to make long term lending decisions to your manufacturers and
business people?
This cannot be the risk management the CBN Governor desires. It is more like
the end of risk taking by financiers. Which bank would now step forward and
undertake that long term funding necessary to provide infrastructure under
PPP or IPP or any other combination?
CBN – Source of Injected Funds
One would expect commentators to ask the responsible question – Did the CBN
and the Presidency approached the Senate or the House of Representatives to
debate the N400bn and to secure the approval of both legislative houses to
legitimize their decision to invest this said N400bn in the weak five (5) banks?
Given the adoption of global best practices, it stands to reason that ‘good
intentions’ count for little, respect for process, sovereign corporate governance
and the focus on institutions (not the decency of the Governor which we
acknowledge) is the way forward as we seek to restore the much needed
discipline and professionalism to our financial markets.
This was the same procedure that was adopted in Europe and North America
when President Obama/Gordon Brown did exactly the same cash injection
which Nigeria is copying very badly, albeit with the benefit of hindsight.
The National Assembly, along with other government arms who reacted to the
news have supported the move by the CBN that “government is injecting
N400bn into the banking sector” to stem distress. The Presidency endorsed the
move to save our banks from the reckless credit exposures undertaken by
these five banks. No one has however bothered to explain to the market ‘who
is paying for this ‘borrowed lunch’ considering that it was not budgeted for’?
The CBN has a right to intervene in the market when it considers it necessary,
but we need to move towards institution building as part of the larger goals of
the reforms embarked upon. So, is it the Presidency or the Government
Treasury making the N400bn investment on behalf of the people of Nigeria
considering that the CBN Act specifically prohibits the CBN from investing or
holding any interest in the same banks it is regulating?
Which agency of government is investing this N400bn? What if we now

discover at the end of the audit of the remaining 11 banks that we need far
more than the preliminary funds so far injected?
CBN – Expediency vs. Thoroughness
From the comments of fund managers, rating agencies and international media
personalities; the CBN may appear to have weakened itself by making an
authoritative pronouncement on the health of Nigeria’s banking sector, even
before it has completed audit of all the 24 banks.
This is apparent on four fronts:

1. The new management the CBN installed in the five banks have issued
claims and counter claims to debtors ‘announced’ by CBN. Are they truly in
charge or being tele-guided by unseen hands at the CBN?
2. The CBN itself had to issue a public apology for ‘typographical errors’ in the
debtors list it issued and publicised with a threat to businesses to pay up or
go to jail. This threat of jail and EFCC harassment is being made without
recourse to the private contract between the bank and the client, even the
publication of the list without a court order; appears to be in violation of the
sacred contractual privacy which underpins a bank’s contract with its client.
Could the exigency of the moment have made this practice an expendable
issue?
3. The very basis for the believability of the communications from the CBN has
been undermined by the perception created that the figures relied upon in
arriving at a decision could possibly have been inaccurate, incomplete or
outright misleading. The list that purports to show names of Directors/Major
Shareholders appeared selective or at best inconclusive as so many firms
did not have individual names published. The list should have been
complete – thus eliminating any possibility of inferences such as made
above.
4. The dry up of credits in the system – local and overseas; with attendant
risks heightened and reflected in ratings and regard for instruments cannot
be ignored.
The above can only be part of the unintended consequences of such a bold
move fraught with risks. The specific consequences are discussed further in
section 4 of this report.
CBN – The Banks and Associated Companies
The Lamido Sanusi action was based on a special examination, albeit not
forensic exercise but sufficient enough for the CBN Governor to arrive at a risk-
based opinion.
While this decision model will be tested at the law courts by aggrieved persons,
the closure of the EDW (set without a time frame or a framework for using it to
identify and serve as a model for sustained weakness) by the CBN accelerated
the consequence seen in the audit results.
The more important point is the unclarified status of the associated companies
and subsidiaries of banks ‘cleared’ and those sanctioned.
First Bank Plc, in its latest financials indicated that First Trustees had N26bn
written off from their books. Is the CBN evaluating a group report or a
bank report?
This information is necessary to enable us eliminate the possibility of disguised

‘toxic assets’ in the books of the group as well as ensuring that all such
‘blurred’ relations, arising from the universal banking template adopted by the
banks are nipped in the bud.
An unintended consequences of our adoption of a universal banking principle

has been the non-upgrading of the compliance, supervision of enforcement
functions of regulators to ensure that this ‘grey areas’ are effectively dealt
with. It was one of such opportunities that emboldened those who took
advantage of the regulators laxity to bring us to this point.
CBN – The Debt Collector Paradigm
As the market already knows, it's awfully hard for government to regulate just
one thing. Citizens alter their behaviour to dodge the rule, and soon officials
face a choice of either extending the regulation or giving up on the original
idea. The history of the crusade against debt in our banks exemplifies this
point.
The CBN is not a debt collection agency. If it were empowered to do that, it

had both the means and motive, giving the current situation, to collect such
debts as owed the banks from BPE (NITEL), IPP based projects/contracts,
debts owed Finbank by ‘The Ministry of Finance & Economic Planning –

N250.1m and The Judiciary, Bauchi State – N351.8m’ to mention a few.
This must be because it knows that there is no legal status to invoke the right
of set-off in the loan agreement that recognises such an action.
If it is unable to collect such obvious debts, how does it propose to use the
resort to threat of legal action (EFCC has been the only organ mentioned here
and not the law courts) to achieve the current moves?
The role of Government organs such as the CBN, SEC, NDIC, NSE and the
EFCC are clear - Debt collection is not one of them. Critics of this position have
however said that for a country like Nigeria where most of these "iconic big
boys" believe and act as if they are above the law, collecting debts by the
banks is impossible.
To illustrate their point, they cite the case of Mr. Jimoh Ibrahim who quickly
paid N3.1bn when he found out that the CBN and EFCC were serious. They also
use as evidence the case of Alhaji Aliko Dangote who quickly paid a sum of
N3bn. All this, they concluded, makes the use of ‘jungle justice’ justifiable.
We disagree entirely with the notion that a subversion of the law or an induced
use of force is a fit and proper role of Government. The issues are clear, the
processes for recovery are also clear. CBN only needs to apply the assets of all
members of the Board and management of the banks to liquidate their non-
performing loans and ask the banks to exercise the terms of the facilities by
taking over the securities pledged by these people where payment is not
forthcoming.
The resort to ‘power flexing’ is not only a dangerous precedent but an

unsustainable one lest we descend to anarchy.
What if we have a government that its motives were not so ‘convincing’ or ‘in
the interest of the nation’? We would not be able to talk. If we are to be a
respectable nation, we must not find any justification to go outside the rules of
engagement we set for ourselves.
The debtors have as much right to be protected by the CBN who should use
the opportunity of having the goodwill of the Nigerian people on its side to take
such steps as we know Sanusi Lamido would have wished.
Arresting, harassing and hounding people without a charge, petition or formal

case reported is not a perception that should be associated with the CBN.
We have a choice. We can present ourselves as a people of laws or as one

managed under a ‘banana republic’ – unless of course, there are excruciating
circumstances that inform this not yet made public.
The threat of publication of names has come and gone and we are not sure it
has done much to promote civility in conduct by this country. If at all, it
revealed that for the CBN to resort to such desperate measures, the truth has
not been told about how bad the case of the banks really are.
Such actions are only taken where the going concern of an organisation has
been so imperilled that the only feasible option is to call in the debts, package
the companies for resale and hopefully mitigate the systemic impact of such a
move on the industry/sector. Under this scenario, the need to wait for the
conclusion of the examination of other banks was, in terms of priority, not
uppermost. If action was not taken, the whole system would get worse.
Recognising this therefore. The question must be asked – Why is CBN not
guaranteeing the depositors funds in the banks.
There are instances where such an approach was undertaken in other nations
but then a special purposes provision was made to deal with it as such.
The deterrent factor has been eliminated, the media has flogged the subject
and we would all move on to the next ‘breaking news’ from the cesspit of
scandals that defines this sector in need of a revival.
The tactical advantage that would have been envisaged from the strategic
plan, assuming one was in place, has been sacrificed to the need for expedient
action. We are not sure the message has sunk. If anything, the message is
that the CBN has taken on a huge problem that will take on an expanded life of
its own if due care is not taken. In the meantime, what happens to the credit
market?
CBN – The Unexplored FIRS Angle
Financial market regulators often boast of a "growing partnership between

them and the law enforcement agencies." While it is the opinion of the authors
of the report that the law enforcement agencies have some clearly defined
roles to play in ensuring that financial crimes are dealt with, pressure mounted
to coarse compliance, and the full weight of the law brought to bear on wrong
doings – we insist that this must be done within the laws guiding the conduct
of such regulatory agencies such as EFCC, NDIC, SEC, NSE and CBN.
The more interesting and unexplored partnership opportunity in such a crisis

ought to have been the exploration of the ‘value’ an agency like the Federal
Board of Inland Revenue presents.
Somewhere along the way, these regulatory authorities would discover that
they have a better ally in the tax authorities as a collaborative partner in
keeping the banks, debtors and investors (local and foreign) honest enough.
Take the instance where it was reported that Bank CEO’s contributed money to
the Yar A’dua campaign and the purchase of a private jet for a church head.
Why was the tax authority not empowered to seek the facts and trace how the
payments were funded? This would have revealed much more insight into how
these individuals functioned. Indeed, it could have stemmed the ‘fabled’

recklessness exhibited or debunked the rumours that gave rise to such.
In the current scenario, the tax authorities ought to have been brought in to
verify the ‘fictitious’ accounts created by the banks to facilitate the deception in
the record books and margin loans accounts. The tax authorities would have
been able to validate the true net worth of debtors; and on this basis, the CBN
can actually affirm that the banks gave loans to persons or firms beyond their
capacity/net worth.
The opportunity is still not lost and the approach is recommended to the CBN
as part of its overall strategy.
CBN – Banking Crisis & the Silence of Accountants & Auditors
This is a no-brainer. We did not get to this state without someone, somewhere,
somehow knowing what was going on and for the clean out to be complete –
the reporting accountants for public offers and auditors of the five banks or
any other bank where ‘impropriety’ or/and ‘potential material risk issues’ have
been identified must be culpable.
The standard duty of care and fiduciary responsibility of the auditors to the
members of a company must be sufficient grounds for a class action by the
investors in these banks.
Auditors collected large amounts in audit and non-audit fees. These

declarations by the CBN raises questions about the value and credibility of
bank audits, auditor independence and quality of audit work, economic
incentives for good audits and the knowledge base of auditors.
To leave the matter unaddressed is to ignore the factors that impact

confidence in a market where trust is broken on account of these expose. The
qualified audited accounts of Finbank Plc for the period ended April 30, 2008 by
Messrs Akintola Williams Deloitte and Messrs Aminu Ibrahim & Co on account
of the treatment of goodwill should have been followed through by the NSE,
SEC and CBN before now. What other trigger was needed to be placed on
enquiry?
To assume that the adoption of IFRS or GAAP will address the concerns and
credibility gap created here is to ignore the enabling blocks of the possible
conspiracy of criminality acts that has been alleged by the regulators.
CBN – The Bank Audit Committees
Deriving from the above is the subject of the Bank Audit Committees review
that the CBN needed to have undertaken as part of a larger corporate
governance assessment – its constitution, deliberations and review of actions
taken during the period under which actions described have taken place.
These people should be made to answer to the questions being raised by the
CBN in terms of corporate governance, risk management and reliability &
accuracy of their financial information. Lessons are there to be learnt from the
findings that such an important review would unfold and this ought to be a
priority task.
CBN – The Shareholder Associations
This point is quite ironic. The pre-consolidation years were dominated by

shareholder activism led by the late Chief Akintunde Asalu. Over the years,
unverified complaints and outright claims of compromise against the
association and its numerous versions led to a weakening of the voice and
perhaps, value/relevance.
At best, they positioned themselves to question and put on enquiry, CEO’s,

management and the board on the misuse of power and excesses.
The relevance and place of this, hitherto whistle blowing apparatus of our
market should be reconsidered and a pronouncement made on the value or
otherwise of continuing to retain the vehicle in the scheme of things. The
market developments, it must be said, have altered the historical relevance of
such an organisation/grouping.
CBN – The Disclosure of Debtors List
If you thought very little else about the CBN’s decision to publish the list of
debtors, three working days after the CBN Governor had appointed acting
GMD/CEO’s for the five banks and declared the desire to follow due process;
you must concern yourself as to the wider implications of the action on privacy
of data, sanctity of contracts with banks, and the role of the CBN as a debt
recovery organ. These matters are discussed in section 3 of this report.
CBN – The Protection of the Sovereign Banking Brand
This basic principle of privacy is a universal banking principle on which

Switzerland has built its national reputation and some of its leading dominant
Swiss global banks. There is a huge debate on why this should continue in the
light of the possible use by ‘terrorists’, ‘tyrants’ and ‘transparency-averse’
individuals. Yet the country has found a way to protect this system and fend
off attempts to change it.
The parallel here is not so much about debtors but the larger role the CBN has
in protecting the image of its institutions - not to condone corruption, illegality
or indeed management incompetence in risk management. It goes far much
deeper than that. The point here is that while we must ‘cleanse’ and
‘raise the standards’ of our banking institutions but we must be
mindful not to ‘kill’ our own national institutions over “disclosure and
transparency”. The wisdom to do this is what separates one nation from the
other; and defines the leadership attribute required to deliver on the goals of
developing Nigeria into the ‘financial hub’ for Africa.
It is not an easy task but we must note that the same battle for full disclosure,
transparency and accountability is going on all over the world, but they are
careful not to destroy their national financial and banking institutions for
market expediency. Notice that the G7, G20 and more are yet to reach a
universally accepted consensus on these matters because each country is busy
protecting their own national market. Should we not be proceeding with the
same caution in Nigeria?
No matter what we do in Nigeria, the west would never concede that our banks
are better than theirs, now that we give them a talking point by describing our
leading bank executives as criminals even before we have brought them before
a court and given them the right of fair hearing.
The banking brand will now be equated with the Nigerian brand. That will not
be the problem of the media as the Honourable Minister of Information would
have us believe. That was a controllable action we scripted ourselves.
CBN – Why was the choice of a very public action necessary?
Could we have fixed these problems with a different approach without

resorting to washing our dirty linen in public? The validity of this question is
apparent from a review of actions by countries that have treaded this path
before us. As we all know, the whole Western world is constantly demonizing
China and their businesses for being inferior and so on; but the Chinese
government and people ignored the criticisms and continually marched into
new markets, acquiring some of the world’s best resources and global brands
funded by Chinese banks.
The sense is that, if we could address this problems in some ways other than
ridicule our sovereign brand in the process, would it resolve the objective for
the exercise in a manner that promotes our national economic well being
without covering up the cracks in the banking mansions we built up?
Without doubt, these problems will go away at some point. When that time
comes for our banks and bankers to go out and attract credits and
investments, would they be accorded the very high respect to borrow for our
benefit as they commanded before now? The world tends to have longer
and stronger memory of our history, than we do in Nigeria,
unfortunately.
CBN – Learning From History
Sometimes, in our national engagements, there are moments that make you
laugh, while at other times, it seems easier to cry for our leadership on issues.
Last Monday, August 17, 2009 alone our capital market (NSE) lost N380bn in
one day, N20bn short of the total sum being invested in the five banks. Where
are the circuit breakers for the ‘shock and awe’ approach adopted?
You may want to check the history of some of the world largest financial
institutions and discover the origin of their wealth; then we may begin to see
why some analysts held out some measure of appreciation for the achievement
of our contemporary banks all along. Let’s examine two below:
LESSONS OF HISTORY – Latin America
In the May 2008 IMF working paper 08/135 titled - Central Bank Involvement
in Banking Crises in Latin America by Luis Ignacio Jácome
(http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1153751#); The central
bank involvement in 26 episodes of financial disturbance and crises in Latin
America from the mid-1990s onwards was reviewed.
The paper finds that, except in a handful of cases, large amounts of central
bank money were used to cope with large and small crises alike. Pouring
central bank money into the financial system generally derailed monetary
policy, fuelled further macroeconomic unrest, and contributed to simultaneous
currency crises, thereby aggravating financial instability. In contrast, when
central bank money issuance was restricted and bank resolution was timely
executed, financial disturbances were handled with less economic cost.
However, this strategy worked provided appropriate institutional arrangements
were in place, which highlights the importance of building a suitable framework
for preventing and managing banking crises.
LESSONS OF HISTORY – Japan
The point has been established that no national economic stimulus will succeed
unless the banking sector is repaired. The lesson from Japan dictates that
actions by the CBN/SEC/NSE/Federal Government should be well co-ordinated,
devoid of ‘ambushes’ and packaged as a rescue plan rather than a ‘punitive
plan’ because its impact will determine the fate of the wider economy.
Our knowledge of the Japanese crisis of the 1990s and early 2000s with roots
similar to the current global crisis is worth revisiting.
At first, Japan’s leaders underestimated how badly the real estate collapse
would hurt the country’s banks - where a policy of easy money had fuelled
stock and real estate speculation, as well as reckless lending by banks.
Many in Japan thought that low interest rates and economic stimulus measures
would help banks recover on their own. In late 1997, however, a string of bank
failures set off a crippling credit crisis. Prodded into action, the government
injected 1.8 trillion yen into Japan’s main banks. But the injections — too
small, poorly planned and based on little understanding of the extent of the
banking sector’s woes — failed to stem the growing crisis.
Fearing more bad news if banks were forced to disclose their real losses,
Japan’s leaders allowed banks to keep loans to “zombie” companies on their
balance sheets. Japan, instead, experimented with a series of funds, in part,

privately financed, to relieve banks of their bad assets.
The funds brought limited results at best. For one, the funds were too small to
make an impact. The depository for bad loans had no orderly way to sell them
off. And the purchases that did take place failed to recapitalize banks because
the bad assets were priced so low.
So far, the Yar A’dua administration’s plan avoids the hardest decisions, like
nationalizing banks, wiping out shareholders or allowing banks to collapse
under the weight of their own bad debts as did Japan. In the end, Japan had
to do all those things.
Economists say these blunders meant Japan’s financial system did not start to
recover until late 2002; six years after the crisis broke. That year, the
government of the reformist leader Junichiro Koizumi ordered a tough audit of
the country’s top banks.
Called the Takenaka Plan after Heizo Takenaka, who headed the government’s
financial reform efforts, the move finally brought the full extent of bad loans to
light. Initially, banks lashed out at Mr. Takenaka. “The government can’t order
bank management to do this and that,” Yoshifumi Nishikawa, president of the
Sumitomo Mitsui Financial Group, complained to the press in October 2002.
“It’s absolutely absurd.”
But Mr. Takenaka stood firm. His rallying cry, he said in an interview on
Wednesday, was, “Don’t cover up. Don’t distort principles. Follow the rules.”
“I told the banks clearly, ‘I am in a position to supervise you,’ ” Mr. Takenaka

said. “I told them I am not open to negotiation.” Sounds similar to Sanusi
Lamido? It took three more years to finally get the majority of bad loans off
the banks’ books. Resona Bank, which was found to have insufficient capital,
was effectively nationalized. From 1992 to 2005, Japanese banks wrote off
about 96 trillion yen, or about 19 percent of the country’s annual G.D.P. But
Mr. Takenaka’s toughness restored faith in the banks.
“That was a turning point in the banking crisis,” said Mr. Gomi of the Financial
Services Agency, who worked with Mr. Takenaka on the audits. By then, other
factors had fallen into place that aided economic recovery, including a boom in
exports to the United States and China.
Conclusion …. Playing the Zero Sum Game
We must be clear on this one point - the foundation upon which we built was
not solid and the surprising conduct as described in the disclosures made is
mind boggling and seriously disturbing to say the least.
However, that must be as far as the ‘drama’ goes.
The rest is steeped in the factual reality of the failure of regulation to move
in tandem with the dynamic changes the banking sector unleashed. If
we had deployed foresight in the management of this rapid build up of capital
through a commensurate build up of capacity (see comments under corporate
governance) to manage the increased activity and process demands that would
ensue, we might have a different outcome than we are confronted with today.
We failed to do this and must now deal with the consequence of the lack of and
absence of capacity planning and risk/contingency planning in the operations
of our financial services regulatory system.
The truth, if it must be told is that this is as much a failure of the oversight
function by those entrusted with policy, supervision, enforcement and remedial
action as it is as much that of the recklessness of a market long on greed and
exuberance.
Caution was simply thrown to the winds by the players and the regulators and
market commentators maintained a distant watch emboldened by incestuous
relationships at varying layers of the ‘value chain’.
This is a sovereign failure at the very minimum.
There is a serious need for change in mindset and the rules of engagement in
our financial services sector.
The challenge now is how to go about concluding the work started by

Sanusi Lamido Sanusi! The Sanusi Lamido Sanusi plan would have been
prepared from June 2009 when he came in. The thoroughness or otherwise of
his plan will determine a lot not just for our banks, but the wider economy.
We might as well get it all out of the way in one fell swoop and this must
definitely include the Insurance companies, Asset Management Firms, Auditors,
Stock broking firms, the Securities & Exchange Commission, the Nigerian Stock
Exchange and the NDIC.
What do we have to lose again?
“Our regulators have mastered the art of, and ability to hold two opposing
ideas and approaches to a singular issue in mind at the same time and still
retain the public authority to adjudicate on issues that challenge the other view
previously or simultaneously held by them."
THE CBN GOVERNORS’ ADDRESS, DEBTORS LIST & MATTERS ARISING
It is instructive to recall, as a description of his mindset, a comment made by

the Governor to a colleague in response to what regulators must do to build
confidence in our markets, after a meeting of the board of Enhancing Financial
Innovation and Access(EFInA) years back when he said that "Let's cut the
chase and bite the bullet. You only die once". This thinking and school of
thought, which defines his honest approach to the issues affecting the
fatherland is well respected and embraced by so many of us even as we
recognise that in this clime, this mindset and outlook is fraught with risks and
unintended consequences.
Our initial response to the decision to take action by the CBN was well
documented here - http://ww.proshareng.com/news/singleNews.php?id=.
Critics of the former Governor and the CBN had made claims of incestuous
relationships between the CBN Governor and the banks, the possibility of
wrong doings by some CEOs’ in the management of their banks as seen from
some decisions taken which would surprise a first time banker, the quality of
their loan assets and credit management efforts after the consolidation, the
people capacity and process management of risk and contingency/collateral,
the blurring of lines due to the ill-informed application of universal banking
principles, the increasing negative perception of bank CEO’s occasioned by
their less than conservative lifestyles.
Yet, it should not be lost on the new CBN Governor that it is important to the
public that the apex regulators along with support regulators of the market
demonstrate that they take commensurate action to deal with their internal
lapses as a critical part of restoring market confidence.
Things truly needed to change.
To deliver this change, we sought the conduct of a stress test on the

Nigerian banking system as a critical component of determining the true
state of the industry. This was contained in our July 18, 2009 Half Year Review
of the NCM published - http://www.proshareng.com/reports/view.php?id=1937
(executive summary) which was a follow up to our NCM 2009 outlook (issued
in February 2009 - http://www.proshareng.com/analyst/downloads/ncmFULL.zip.
The report, on pages 30 - 35, focussed on the challenges to the capital market
and the banking system based on the exposures of listed banking institutions
to margin loans and the contagion effect of the global market crisis on
aviation, Oil & Gas, Real Estate and credit lending to firms and governments.
Further, in our public presentation to the media in April 2009, we made it clear
(http://proshareng.com/reports/view.php?id=1939) that the issue that confronts
the market is yet to unfold. We affirmed that this issue could not be wished
away and we would have to confront it at some point.
The Governors Address
Key points in the address are:
In Nigeria, the banking system appears to have weathered the storm due to a
number of factors. Among these are the facts that our financial system is not
strongly integrated into the international financial system, as well as the relatively
simple nature of financial products and strong capitalization and liquidity of Nigeria
banks.
…whereas the system in general is likely to absorb and survive the effects of crisis,
the effects vary from bank to bank. A few Nigerian banks mainly due to huge
concentrations in their exposure to certain sectors [Capital Market and Oil and Gas
being the prominent ones], but due to general weakness in risk management
and corporate governance, have continued to display signs of failure.
As far as October last year, some of the banks showed serious liquidity and
had to be given financial support by Central Bank in the form of an
“Expanded Discount Window” [EDW] Where the CBN extended credit Facilities
to these banks on the basis of collateral in form of CP’s and BA’s, sometimes of
doubtful value.
As at June 4, 2009 when I assumed office as Governor of the CBN, the total
amount outstanding at the Expanded Discount Window was N256.571 billion
most of which was owed by the 5 banks.
A review of the activity of in the EDW showed that four banks had been almost
permanently locked in as borrowers and were clearly unable to repay their
obligations. A fifth bank had been a very frequent borrower when its profile
ordinarily should have placed it among the net placers of funds in the market.
Whereas the five banks were by no means the only ones to have benefited from
the EDW, the persistence and frequency of their demand pointed to a
deeper problem and the CBN identified them as probable source of
financial instability, most likely suffering from deeper problems due to
non- performing loans.
The impact of the situation of these banks was being felt by the market in different
negative ways. Because of this staring in their balance sheets, the banks pushed
up the interest rate paid to private sector deposits and their competitors had to
follow suit. They also contributed to the destabilization of the inter–bank
market as many of their competitors were unwilling to take an unsecured
risk on them. It was primarily because of these banks, or at least some of them,
that the CBN took the step of guaranteeing the inter-bank market when it stopped
granting new lines under the EDW. Without that guarantee, almost four banks
would not have been able to borrow in the inter-bank and would probably
have collapsed.
As you are aware, we guaranteed the inter-bank market to give us the time
to conduct a thorough diagnostic of the banks and ensure that appropriate
remedial action is taken. At least four of the banks under question have since the
guarantee came into force either remained heavy users of funds at the EDW or
drawn heavily from other banks under cover of the CBN guarantee to wind–down
at this window. In all events, it is clear that they do not have the ability to
meet their obligations to depositors and creditors as they are in a grave
situation.
In view of the aforementioned circumstances, I instructed the Directors of

Banking Supervision of the CBN to carry out a special Examination of the
following five banks: Afribank Plc, Finbank Plc, Intercontinental Bank Plc, Oceanic
Bank Plc and Union Bank Plc.
The examination was conducted by a joint team of CBN and NDIC officials. The
major findings on the 5 banks included:
1. Excessively high level of non- performing loans by the five banks which was
attributable to poor corporate governance practices, lax credit
administration processes and the absence or non- adherence to the
bank’s credit risk management practices. Thus the percentage of non-
performing loans to total loans ranged from 19% to 48%. The 5 banks will
therefore need to make additional provision of N539.09 billion.
2. The total loan portfolio of these five banks was N2, 801, 92 billion. Margin
loans amounted to N 456.28 billion and exposure to oil and Gas was
N487.02 billion. Aggregate non –performing loans stood at N1,143 billion
representing 40.81%
3. From 1 and 2 above, it is evident that the five banks accounted for a
disproportionate component of the total exposure to Capital Market and Oil
and Gas, thus reflecting heavy concentration to high areas relative to other
banks in the industry.
4. The huge provisioning requirement has led to significant capital
impairment. Consequently, all the banks are undercapitalized for their
current levels of operations and are required to increase their capital.
Indeed one is technically insolvent with a Capital Adequacy Ratio of
[1.01%]. Thus a minimum capital injection of N204.94 billion will be
required in the 5 banks to meet the minimum capital adequacy ratio
of 10%.
5. The five banks were either perennial net- takers of funds in the inter-bank
market or enjoyed liquidity support from the CBN for long periods of time, a
clear evidence of illiquidity. In other words, these banks were unable to
meet their maturing obligations as they fall due without resorting to the CBN
or the inter-bank market. As a matter of fact, the outstanding balance on
the EDW of the five banks amounted to N127.85 Billion by end July 2009,
representing 89.81% of the total industry exposure to the CBN on its
discount window while their net guaranteed inter-bank takings stood at
N253.30 billion as at August 02, 2009. Their Liquidity Ratios ranged from
17.65% to 24% as at May 31, 2009. (Regulatory minimum is 25%)
It is important to note that at least three of the banks are systemically important
(accounting for more than 5% of Assets and Deposits in the banking System) and
together the five banks account for 39.93% of loans, 29.99% of deposits, and
31.47% of total assets as at May 31, 2009.
Given the extent of the asset quality problem leading to liquidity stresses, and the
variety of stress points on the banks’ balance sheets, failure to act to secure
the financial health of these banks will clearly place the system at risk.
The Central Bank has a responsibility to act to protect all depositors and creditors
and ensure that no one loses money due to bank failure. The Bank also needs to
move decisively to remove this principal cause of financial instability and restore
confidence in the Banking system.
Consequently, having reviewed all the reports of the examiners and the comments
of the Directors and Deputy Governors, I am satisfied that these 5 institutions
are in grave situation and that their management has acted in a manner
detrimental to the interest of their depositors and creditors. Therefore, in
exercise of my powers as contained in Section 33 and 35 of the Banks and Other
Financial Institutions Act 1991, as amended, and after securing the consent of the
Board of Directors of the CBN. I hereby remove the Managing Directors of the
following banks from office with effect from Friday, August 14, 2009.
1. Afribank Plc
2. Intercontinental Bank Plc
3. Union Bank of Nigeria Plc
4. Oceanic International Bank Plc
5. Finbank Plc
These persons forthwith cease to be directors and officers of their

respective bank. The Board of Central Bank of Nigeria has also appointed the
following as the MD/CEOs of the affected banks:
1. Mr. John Aboh – MD/CEO Oceanic International Bank Plc

2. Mr. Mahmud L. Alabi – MD/CEO Intercontinental Bank Plc
3. Mr. Nebolisa Arah – MD/CEO Afribank Plc
4. Mrs. Suzanne Iroche – MD/CEO Finbank Plc
5. Mrs. Funke Osibodu – MD/CEO Union Bank Plc
Each of the above will head a management team that will include Executive
Directors and Chief Financial Officers to be appointed by the CBN. This
team is tasked with continuing the business of the banks as a going concern. I
therefore appeal to the Boards of the affected banks, in their own interest to
cooperate with the newly appointed Executive Management.
We are conscious of the fact that changing management alone will not
resolve this problem. Consequently, the CBN is injecting a total of about
N400billion into these five banks with immediate effect in form of Tier 2 Capital to
be repaid from proceeds of capitalization in the near future. This injection is
sufficient to resolve and stabilize all the institutions and enable them continue
normal measure as government does not intend to hold the shares for long and
shall divest its holdings as soon as new investors recapitalize these banks.
Let me also advise all debtors of Nigerian banks, that the CBN and all
government agencies are united in our commitment to support the recovery
efforts of the banks. Debtors who do not pay shall have their names
published in National Newspaper in due course and we will solicit of law
enforcement agencies in recovery.
Let me reassure especially the customers of the affected banks and all the banks
in general that there is no cause for alarm. They should continue to transact
their normal business in the banks where their accounts are domiciled as this
exercise is meant to further strengthen the banking industry and recapitalize the
affected banks.
I should also state at this point that the scope of the special Examination was
widened to cover all 24 banks. So far, we have concluded the audit of 10 banks
including these five, the others being Diamond Bank, First Bank, United Bank for
Africa, Guaranty Trust Bank and Sterling Bank. We have also commenced the next
batch of 11 banks and hope to conclude them by end of August. In all, we
expect to conclude the audit in mid September. The Central Bank is requiring
all banks to make appropriate provisioning for non-performing loans and disclose
them. We hope that by the end of this quarter, all banks would have cleaned
up their Balance Sheets. On the basis of the information available to us so far,
we are confident that the banking system is safe and sound and we have dealt
with the major sources of systemic risk.
I will conclude by residing that, going forward, the CBN will not waive in its desire
to ensure that public confidence in the Nigerian banking system is maintained
through appropriate disclosure and the reinvigoration of its policy of zero
tolerance on all professional and unethical conducts.
We will not allow any bank to fail. However, we will also ensure that officers
of banks and debtors who contribute to bank failures are brought to book
to the full extent of the law and that all proceeds of infraction are
confiscated where legally feasible.
The Expanded Discount Window
Afrinvest in its recently released report titled “Nigerian Banking Sector -

Disclosure is the New Valuation Benchmark”, page 21 -
http://www.proshareng.com/reports/view.php?id=2014 described the development
thus:
CBN: limitations of Monetary Policy
We also note below a number of events of significance that continue to impact

market outlook for the Nigerian banking sector. Firstly, Afrinvest Research
believes that Nigeria remains largely a play on the oil price, with the outlook
for short to medium term macroeconomic performance being driven primarily
by the international dynamics of the crude oil market. We note that oil price
dynamics play a crucial role in setting the tone for federal fiscal policy, and to a
lesser extent, CBN monetary policy. We note also that the historical limitations
of monetary policy as a tool for setting market behaviour have been even
further exacerbated in 2008, evidenced by the increasing disconnect between
the benchmark CBN Monetary Policy Rate (MPR), the indicative inter-bank
unsecured overnight lending rate (Nigeria Interbank Offer Rate, NIBOR) and
bank prime lending rates to commercial borrowers.
Just as rate hikes by the CBN in early 2008 failed to help contain
inflation, or slow down lending; so did several rate cuts later in the
year fail to achieve the desired objective of lowering interest rates or
channelling liquidity into risk assets. Indeed, credit growth appears to
have performed counter-cyclically to CBN intentions as interpreted by MPR
signals (with high growth in early 2008, and a slowdown in Q4 on the year).
However, 2008 saw the emergence of a new tool that appears more than any
other to be capable of greater levels of success at ensuring market adherence
to CBN liquidity directives: the new CBN Expanded Discount Window (EDW).
Expanded Discount Window Dynamics: Pressure Valve, or Red Flag?
According to the CBN, the EDW was set up: “...in order to ensure a robust
operation of the discount window and in the process provide effective and
efficient guidance for the conduct of monetary operations”. To summarize, the
key elements of the EDW operations include:
Provision of two categories of facilities, namely; the overnight standing facility and
the fixed tenor repo
Increase in the tenor of borrowing from the window from overnight to 360 days!
Increase in the number of financial instruments acceptable as collateral in the
window to include non-FGN securities
Widening of the base of the financial markets from which the instruments are
drawn
Broadening of financial innovations to support the operations of the discount
window
First opened in October 2008, the EDW appears in practice to have been set-up
primarily as a “pressure valve” to help ensure the consistent availability of
liquidity options for Nigerian banks during times of severe market stress,
allowing for the use of typically less liquid short-term instruments such as
Guaranteed Commercial Paper (GCP) and Bankers Acceptances (BA) as
collateral for longer tenored facilities (up to 360 days).
While the EDW does appear to have been successful in this function of
smoothing liquidity mis-matches on bank balance sheets and ensuring calm
and steady operations of the inter-bank market, there continues to be
significant levels of volatility in overnight lending rates, as observed by daily
NIBOR quotes.
What is less debatable is the fact that EDW operations appear to have helped
forestall a major liquidity crisis within the industry, as counter-parties remain
confident that short-term obligations will be met, irrespective of underlying
market conditions.
What remains unclear however (as this information is not readily available
within the public domain) is the extent to which individual banks may have
accessed the EDW, the nature and underlying quality of the instruments that
may have been pledged, and indeed an official statement as to the precise
identity of banks that have accessed the EDW.
To this extent, and given that the CBN explicitly stated in its official circular
opening up the EDW that: “Institutions seeking to utilize the EDW must first
fully exhaust all alternative market sources. The EDW is to be approached on a
last resort basis only”, there appears to be a case for viewing access to the
EDW as a red flag item.
This view suggests that otherwise illiquid assets of quality and pricing that are
indeterminable by exhausting all alternative market sources are being used as
a basis for securing financing from a single buyer with unlimited purchasing
power, the Central Bank. Questions arise therefore as to the transparency of
the entire process, and the potential for a longer term crisis emanating from
the ultimate treatment of these assets.
Comparing Affected Banks with Industry Averages
We present below some of the charts comparing the asset quality and liquidity
conditions of the 4 banks recently rewarded by the CBN. The charts were prepared by
Value Fronteria using the banks' recent (2008) published/audited accounts. Since
Oceanic Bank's 2008 accounts is not yet fully available, this comparison does not
include it. All indices are benchmarked against the industry average. You can reach
your own conclusions.
CBN: The
“It is a fact that the affected five banks enjoyed not just wide patronage but
also the endorsement of the media, rating agencies and even the same Central
Bank of Nigeria which passed the books and occasionally organized awards
where it decorated the banks and commended them for efficient performance”.
– Reuben Abati
Afribank
Award Year Awarding Institution
Most Valuable Bank Award in transforming UAC 2008 UAC Franchising
Franchising
Most Improved Bank Award 2008 Kaduna International
Trade Fair
Best Supportive Bank 2008 Omatek Computers PLC
Euromoney Industrial Deal of the Year award 2007 Project Finance
International (UK)
Union Bank
Award/Rating Year Awarding Institution
Bank of the year 2000 (Nigeria) 2000 The Banker
Best Bank in Nigeria 2006 Euromoney
A+ Long-term National Rating 2009 Fitch Rating
B+/stable outlook Long-term Foreign Currency 2009 Fitch Rating
IDR
Oceanic Bank
Award/ Rating Year Awarding Institution
Best bank in Nigeria 2008 EMEAfinance, UK
Best Bank in SME financing 2008 Vanguard Newspaper
Best Bank in poverty eradication in Nigeria 2008 NAPEP

Bank of the year 2007 The Banker
Bank of the year 2006 The Banker
“Aa” Rating Agusto & Co.
"A1+","AA" Global Credit Rating
(South Africa)
BBB+(nga) 2009 Fitch Rating
B/Stable Outlook 2009 Fitch Rating
5th bank in Africa and 310th in the world in Claimed by the Bank
terms of Tier 1 Capital
Intercontinental Bank
Award/ Rating Year Awarding Institution
Intercontinental Bank as at July 2008 also 2008 Claimed by bank – Source
claimed that it was among the world's top Unknown
500 banks and the second fastest growing
bank in the world.
Bank of the year 2008 The Banker, Financial
Times, London
African Bank of the Year 2008 African Banker Magazine
Financial Brand of the Year 2008 World Bank/IMF Annual
Meeting Daily
The Most Corporate Socially Responsible 2007 Vanguard Newspaper
Bank in Nigeria &
2008
Best Growth Award in Cards & E-payment 2008 Postilion, United States
Transaction
Sectoral Leadership in Banking and the Best 2006 Pearl Awards
Performer in the Nigerian Stock Market
(Banking Sub-sector)
Most improved Bank 2005 Thisday Newspaper
A+ Long-term National Rating 2009 Fitch Rating
B+/stable outlook Long-term Foreign 2009 Fitch Rating
Currency IDR
The Debtors List and Matters Arising
The newspaper publication of the list of high-profile Nigerians and their

companies with huge non-performing loans in the named five banks on 19
August, 2009 is a decision, the merit of which, the jury is still out on.
Much as the means, approach, timing and relegation of the rule of law was
questioned in the publication of the bank debtors list, the actions of the Central
Bank signalled the mindset and modus operandi of achieving the goals of the
intervention.
The publication suggests that a determination to carry out to the letter, the
cleansing of non-performing assets in the ‘entire’ Nigerian banking sector.
The CBN press release of 20 August, 2009 confirmed this, when the apex bank
stated that “the list of other debtors/defaulters is being compiled and
will be published on an on-going basis.”
The tone of response of the Central Bank in addressing the grave mistakes
noted by some of the named debtors in the publications further confirms that
the Lamido Sanusi would run the CBN like a ‘medieval’ empire. This cannot be
good news to those who would like to see us show character by rising above
the resort to ‘strong tactics’ to bring about change.
The Governor stated that “if there is any dispute (referring to the
variances in the published amount of debts), it will be for the banks
and regulator to sort it out.” He went further to say that any of the debtors
who have made payments on their existing non-performing loans post May 31,
2009 date should sort things out with the affected banks.
We do know of not a few who have attempted this only to be told that the
‘orders from above’ hinders them from doing anything but secure all the funds
advanced by the bank without exception. This can only be an invitation to
chaos and ‘flight of confidence’.
Intent Confirmed
If the CBN wants to close down on those to whom the debts does not represent
an economic value offering, they can based on the ‘zero-sum game’ scenario….
So long that the rules of his intervention are not mired in the ‘messianic’ cloak
that office holders often present themselves in.
We are concerned about the institution and the precedent we seek to lay.
A case in point is the dispute between one of the five banks and a customer
over the classification of its debt as non-performing. Our investigations
revealed that:
Both parties are agreed on the value of the debt.
Both parties are equally agreed that the debt was not serviced between
January to June 2009.
Both parties are agreed that payments have been made up to and
including October 2009.
Both parties are agreed that payment was made before August 14, 2009.
Both parties are agreed that the company shores up the security coverage
to at least 100 per cent notwithstanding the personal guarantees of its
promoters.
The bank, however, says it is under pressure from the CBN to get the client to
liquidate approx N20bn debt in a matter of days (if one goes by the EFCC
pronouncement, which will be 7 days).
The bank, in driving home the point said that “all other banks will be informed
about the non-performing status of the account to the effect that if “any other
account of your company in any other bank in Nigeria is performing that bank
will be forced to classify your account as non-performing, and stop further
credit availability to you”. The consequence of this is that the company will not
be able to assess funds anymore in the banking industry.”
Impact Extrapolated
The bank has the option of selling the securities which were pledged and that
would mean the debtor/customer losing the equity in his business; used as
security/collateral in the first place – through a possible sell-off of the shares
on the open market or to private or vested interests.
There are just too many aspects of this approach that leaves room for
conjecture and reflects the same old tired approach to execution of plans by
this nation. Given the CBN Governor’s pedigree as a risk manager, he should
at least have been aware that his game plan is fraught with loopholes that will
surely be exploited. These will be a disaster if the CBN intervention is now used
as an asset transfer vehicle to produce new owners through the back door.
This is all the more relevant an issue, when one considers that the ability to
secure credits from the system is under a ‘lock-down’ with the market resigned
to a graveyard sense of inevitability.
Finally, what about those firms whose debts were contingent upon the
government paying for services or releasing mobilisation? The ‘pay up at all’
cost mantra of the EFCC, whether the loan is performing or non-performing
cannot be right but perhaps expedient for the CBN Governors purpose.
The Market: Where do we go from here?
Sanusi Lamido’s sanitation of the banking industry will continue apace and
perhaps with less finesse than it was under the consolidation CBN Chief,
Professor Chukwumah Soludo. This approach will definitely have a number of
positive impacts, not only on the commercial banks, but the entire domestic
financial services system.
The tight-coupling of the financial services sector post bank consolidation

however, makes stiff regulatory actions imperative, yet the CBN should be
reminded of the need to conduct itself in a manner that recognises the cause &
effect nature of Government/Bank relationships beyond the pursuit of the
CEO’s to an averagely financial-literate citizenry.
When this drama is all over in a few weeks and perhaps years ahead, it is most
likely that nothing much would have changed, due to factors beyond the CBN’s
fervour for sacking inefficient bank executives and publishing a list of debtors.
This is a resilient system that takes it cue from the way the Federal
Government functions. So what has really changed in the institutions of
governance to encourage belief that these actions will be sustainable and can
be built upon?
"You only find out who is swimming naked when the tide goes out."
- Warren Buffet
IDENTIFYING THE UNINTENDED CONSEQUENCES

A bank failure can be interpreted in at least two different ways: as an
exceptional example of how not to manage a financial institution or as a
symptom of something more generally wrong with the operating environment
and regulatory regime.
In this case, and according to the CBN Governor, there is no impending

banking failure except for one. Which one?
Also the CBN Governor said he had audited 10 banks of which he cleared 5
and took action on the remaining 5, and now has 11 banks under audit.
Someone needs to remind the CBN governor that his address left out 3 banks
to make up the 24 public quoted companies under his function. What are we to
make of the 3 banks not mentioned (or are we to assume that they are
excluded from the decision or a decision already taken on them without an
audit)?
The two questions above can only be explained by the CBN Governor, but in
his absence, any one of the agencies and ‘actors’ now engaged in a newly
found rumour industry unintentionally created by the CBN.
The media can also give you pointers and with the growing list of persons
trying to outdo themselves and air their ‘expert’ opinion on the subject, we
must assume that all 24 banks have their names in the straw-hat used by the
CBN.
Going Beyond the Drama……
In our report published under the title - Aug 14, 2009: The Banking
Paradigm Shift gathers momentum (http://www.proshareng.com/blog), we
made it clear that the timing, approach and ‘drama’ associated with this
development gives us cause for concern.
We averred that:
1. The problems with our bank loans portfolio did not occur overnight and the
CBN must admit its failure as a supervisory and enforcement institution.
Not doing this presents a barrier of sorts to believability of motive.
2. The leverage provided those for whom their audits were not concluded, to
take steps to address concerns seen.
3. The massive sell-off of the shares envisaged will be that of those banks not
enjoying or/and protected by the ‘FULL SUSPENSION’ placed on the share
price of the affected stocks.
4. Naturally the depression of the banking stock index provides short to

medium term opportunities for investors or/and institutions interested in
acquiring these hitherto value stocks as rock bottom prices.
5. The ironic twist to the point above is that the uncertainty prevalent in the
market (outside the reflexivity rule) will create a strong doubt as to whether
the company will survive government interventions or closure. The safe
money is to stay on the sideline till the credibility of CBN pronouncements
can be discerned.
6. Just how does the CBN want to energise growth without credit to
businesses that need them to cater from working capital expanded
requirement due to the widening gap in government service and obligation
failures?
7. How long and how severe will the ‘ambush’ laid for debtors, their
harassment and effective lock-down of credit outlets last?
8. The Financial Services Authority (FSA) UK may request that Nigerian banks
operating in the UK refrain from taking deposits or obtain a deposit
guarantee from the CBN, one we did not provide for, to the local market.
9. The refusal to honour letters of credits issued by Nigerian Banks owing to

the general state of uncertainty and lack of clarity on the health and
standing/clearance of Nigerian banks by the CBN.
10.The extent of co-ordination with other regulatory authorities and relevant

government agencies is not apparent.
11.The CBN introduced/established the principle of force majeure in explaining

away the conditions that precipitated the financial crisis that exposed the
‘irresponsible and reckless’ actions of our banking CEO’s thus opening up
the room for possible class actions by and against a range of persons.
12.The conflicting positions of BOFIA and the constitutional rights of citizens to

conduct their business in private has been exposed in the reaction to the
publication by CBN which cannot be said followed the ‘due process’
considering that the CBN is not a debt collection agency and descended so
low as to start chasing debtors, who by the way, have risen stoutly to
defend their legal relationships with the banks (even if only to save face).
13.On Friday, August 21, 2009; Standard & Poor's cut its sovereign credit
ratings on Nigeria deeper into junk territory. It cited the government bail
out of five large banks and a fall-off in oil revenue. Nigeria's foreign
currency rating was cut by one notch to B+, while the local currency rating
got a two-level cut, also to B+. The ratings firm, which maintained its
stable outlook, said Nigeria has become less fiscally flexible after its central
bank planned a $2.6 billion capital injection into five domestic banks, which,
combined, make up 40% of the country's loans. "In our opinion, the
central bank's action has begun a welcome restructuring of
Nigeria's banking system, but it also reveals deep problems in
Nigeria's credit markets," S&P said. S&P said that the government would
increase its borrowing requirement as a result of the bank takeover, and
forecast a 2009 deficit of 4.5% of GDP. "On the other hand, our central
forecast is that the current problems in Nigeria's financial markets will not
lead to a balance-of-payment crisis," the credit rating body added.
14. The foreign reaction has now grown. Financial Times (FT) described the
developments thus: Whinging western banks take note. The Central
Bank of Nigeria, with armed guards in tow, seized control of five banks
close to insolvency, and threw out management (often big shareholders). It
then demanded payment from debtors, naming some of Nigeria’s leading
lights in a list it admits had the odd error. There are 24 Nigerian banks,
down from 120 in 1992. But the market remains relatively fragmented. And
banking assets were 52 per cent of 2008 output, says Renaissance Capital,
against South Africa’s 121 per cent. More transparency and consolidation
are needed. But dramatic action risks undermining worthy ambitions,
such as attracting foreign capital. Nigerian authorities overhauled
banks’ management in the 1990s, but oversight failed to keep pace with
market change. The challenge now is to finish the job.
15.The economy-wide issues the CBN will have to confront arising from the
inability of the Federal Government to aggregate alternative sources of
income to meet the shortfall expected from the Niger Delta crisis, falling oil
prices and the unintended compounded crisis in the financial sector which
should see the FG having less sums of money to distribute to its state
governments and agencies. The state government will have to deal with
less than planned for income and approach a banking industry unable to
lend to such agencies under such a risk alert market that does not have a
government guarantee backing possible exposures by the private sector as
represented by the banks.
16.It is instructive to note that the private sector have been critical to the
running of the public sector up till now, albeit dubiously and this has been
elevated into a state practice as seen in the funding of public initiatives
such as patrol vans, telecommunications equipment, ambulances and
bullions vans to the Nigerian Police, whose funds ironically were publicly
acknowledged as siphoned away by Government officials without any
redress or/and justice being exercised. This is one example of the
maladjustment in the economy that have made the banks so critical to the
economy and provided them the illusion of an untouchable – examples
abound of this sovereign failure in the areas of medical facilities, drugs,
private schools, roads and transportation for which the government collect
taxes. In other cases, they have been known to provide loans, support and
donations to churches, mosques and pet projects of Govt officials’ without
any eyebrows raised. Indeed, the banks were known to have advanced
loans to members of the national assembly to purchase furniture and other
amenities. This involvement was conducted under the purview of the CBN
and indeed with tactic approval from the Federal Government. How does
the new CBN handle the perception that it is chasing shadows when in
actual fact, the economy had long been handed over to the banks through a
combination of Government inertia and abdication of responsibility? Who

fills the gap created by the current action?
The Questions that Come to Fore
Dr. Martin Oluba, a strong advocate for the type of action taken by Sanusi
Lamido on Friday, August 14, 2009 has some immediate concerns arising from
the drama episode of last week. We combined this to the independent
evaluation submitted by the Proshare team of analysts, viz:
1. Why did the CBN not carefully ascertain the correctness of some of the
names and titles of individuals and institutions in its published list of
debtors? Is it’s admittance of the errors here an admittance of
inefficiency or hasty action by the institution?
2. Since it is mandatory for banks to make daily, weekly, fortnightly,

monthly, quarterly, half-yearly and yearly returns of their transactions
to the CBN, why was it that it was not able to update its records to the
time it published the list of debtors – a two and half months gap?
3. Does the CBN have the statutory right to publish the names of debtors
when indeed the banks and its debtor customers are engaged in a
contract? Should it not have been better for the CBN to put more
pressure on the banks (the CEO’s of whom it appointed) to recover
these debts failing which it could take further necessary actions?
4. Does this particular conduct not indicate the ‘interference’ or

‘overreaching’ role of our CBN in circumventing organisational initiative
and operational capacity?
5. Was it necessary to have involved the Economic and Financial Crimes

Commission (EFCC) at this time? The action seems to communicate
incorrectly that being in debt or having a genuine business failure is a
crime.
6. Was it right to have narrowly based conclusions on the patronage of the

expanded window facility for arriving at the axed banks? Was the
window encouraged by the CBN for banks in need of funding as a trap?
What of Union Bank with a huge deposit base and non performing loans
of N71 billion, which appears to have the capacity to absorb the loan
loss provision. Should the bank have been axed too?
7. Was the examination conducted by the CBN a special examination or an

ad-hoc investigation of records in order to zero into some target banks?
For instance Intercontinental Bank insists that it was never subjected to
any special examination and that the special examination was only being
conducted now by the CBN, after the decision.
8. What is the wisdom in approving the results of Oceanic Bank Plc for
release to the market weeks ahead before such a decision, when
according to the words of the CBN Governor; they had observed this
‘disturbing trend in data’ upon resumption of office?
9. Why and how did CBN arrive at five banks? Why did it not complete the
examination of all the banks before sanctioning some banks? Does the
injection of N100 billion into a bank with capitalisation of over N500
billion justify the takeover of the bank?
10. What is the value of the injection vis-à-vis the total value of the bank to
entitle the CBN to appoint the GMD/CEO’s and other directors of the
bank?
11. What role if any does the existing board, appointed by the shareholders,
have over their bank?
12. Did the CBN not approve these banks financials all these past years? If
yes, what has changed? Were the non-performing accounts put in the
books in last three months?
13. Why is there no culpability charges against the CBN banking supervision
team entrusted with ensuring that the figures released to the public are
reliable and accurate? Were the proper work done by this supervision
team and ignored, set aside or acted upon by the previous leadership?
14. Why did CBN take this decision without regard to the interest of the
shareholders? Why should CBN not allow the shareholders to appoint
and or remove their directors?
15. Why were the sacked managing directors not given any opportunity to
explain their actions and the debt profiles in their books after the
examination? Couldn’t this have helped in correcting the
misrepresentation of facts contained in the published list of debtors and
the amounts they are alleged to owe the banks?
16. Would it not have been better that the CBN publishes the bad loans or
non performing loans of all banks including those that are cleared so
that the public can assess how much of this is either to direct loans to
government or indirect loans to government through their contractors or
other government agencies like PPPMA?
17. What is the action to be meted out to the Bank inspectorate of the banks
so ‘audited’ by CBN?
18. How does CBN intend to resolve the loan advanced to NITEL by other
banks including UBA and Wema Bank Plc not sanctioned to whom
Transcorp is owing money paid to a government agency – the BPE
(about $500m for the acquisition of 51% of the privatised firm) now
taken back by the same Government?
19. What does the CBN intend to do about the risk management capacity of
the banks which still reflects the risk management team (outlook,
approach and conduct) pre-consolidation?
20. Can the CBN clarify the extent of its collaboration with SEC to address
the systemic problem of debts by stock broking firms carrying facilities
1000% times above their share capital? How could this have happened
under the watchful eyes of regulators?
"The trouble is that financial regulation, by its nature, can be a pretty abstract
business.”
OF WHISTLE BLOWERS, ALARMS AND REGULATORY RESPONSE

The Central Bank of Nigeria had never left anyone in doubt about its
capabilities to respond to any issue within the banking sector it regulates. The
current CBN actions however, presented a question of whether anyone saw the
storm on the horizon.
These enquiry is however not limited to the response of the CBN but indeed
those of SEC, NSE, NDIC, EFCC and the Ministry of Finance.
Who knew what and how did they respond? What lessons should the CBN
Governor and the other agencies take away from these developments to guide
them in the future.
Nigeria is not a country with a reputation for whistle blowing. It is culturally

frowned upon and smacks of betrayal of trust. Most societies indeed adopt the
same approach even while paying lip service to the ethos and encouraging
people to come forward.
There is just not enough incentive and protection to encourage such a critical
component of crime detection and law enforcement.
In the United States of America, and arising from the Madoff scandal, a
new SEC approved whistleblower proposal is in the works.
Buried deep within the President Obama’s historic new proposals to oversee
and regulate the financial markets (“Financial Regulatory Reform, A New
Foundation”) is the outline of a provision that garnered no headlines but might
well become the most effective new anti-fraud regulation of all in the world.
He recommends that whistleblowers who disclose fraud cases to the SEC be

rewarded. It is surely the only part of the massive proposal that gives insiders
with knowledge of wrongdoing a chance to speak up against and even profit
from the types of financial and securities fraud that has infected financial
markets in recent years. This may be the beginning of the golden age of
whistle blowing - Protecting them and making their jobs easier is getting
increased attention in the US Congress. While federal qui tam actions initiated
by whistleblowers who report fraud against the government have been around
for many years, the concept of rewarding those who report on securities fraud
(other than insider trading) is new, and revolutionary. The potential for
such a statute, covering the entire growing jurisdiction of the US SEC, is vast.
While current law provides for rewards for whistleblowers who report insider
trading, a very limited class of fraud which generally does not have significant
market impacts (and few whistleblowers); the recent Treasury Department

announcement makes clear this provision would be much broader in scope:
“The SEC should gain the authority to establish a fund to pay whistleblowers
for information that leads to enforcement actions resulting in significant
financial awards. Currently, the SEC has the authority to compensate sources
in insider trading cases; that authority should be extended to compensate
whistleblowers that bring well-documented evidence of fraudulent activity. We
support the creation of this fund using monies that the SEC collects from
enforcement actions that are not otherwise distributed to investors”. US SEC
Commissioner Mary Schapiro has been speaking out for this enforcement tool
since April 2009.
Back at home, our SEC has it own dilemma – its handling of the Udora whistle
blowing. The Board and management of SEC’s reaction and subsequent
posture after the CBN August 14, 2009 declaration suggests that the message
has not sunk in. If there is a market that needs the kind of program the US is
working hard on, our SEC and market does.
In the case of regulatory actions such as the ongoing Lamido Sanusi’s

sanitisation of the banking sector, one cannot ignore the four unrelated actions
that serve as a critical pointer to where we now find ourselves:
1. The alarm on the state of loans, reliability of accounts and possible criminal
conducts by CEO’s of banks by the very person mandated to ensure the
compliance and enforcement of rules at the Securities & Exchange
Commission (SEC). We cannot help but wonder how we could have saved
the market – investors and the nation – a lot at that time.
2. The first warning shot about a possible action against the banks and the
approach how was published before the appointment of the new CBN
Governor – March 23, 2009 (Vanguard Newspapers). Was this a credible
expose or an unfounded alarm? The report is reproduced so that you can
decide for yourself.
3. The Plan for action laid out by the CBN governor himself through the FT
interview remains quite illuminative. There is nothing new and we have
benchmarked his actions against the interview to evaluate how much and
how seriously we should take such remarks, interviews and disclosures
from the office of this Governor of the Central Bank of Nigeria.
4. Last is the TAR report – much maligned and roundly condemned at the
time. It has now proven to have been an effective gauge of the mood of the
market to such shock therapy that is now being administered.
All in, the above sheds a lot of light into the selective amnesia that is often
revealed by the market in plural in an age where information related to the
market have moved beyond the mundane. We explore all these actions in
greater detail below, as well as the key lessons from the whistle blower role in
the Bernard Madoff case and conclude with the incentive available for
whistleblowers in United States for example.
Far more important however is the need to pass the Freedom of Information
Bill before the house of assembly as an enabling tool for financial
commentators to use in exposing such damaging realities as exposed by the
CBN. Within the Nigerian context, we must define a means of addressing
matters related to the rights, reward and protection of whistleblowers
and the specific challenges of data collation and access.
This subject has gone beyond that of news gathering to one of the FOI
servings as a critical component of our society’s early warning signal on
business, economy, politics, security and our democracy.
1. The SEC Executive Commissioner, Enforcements’ Remarks – Feb 09
Mr C.A. Udora, an executive commissioner, legal and enforcement of the

Securities & Exchange Commission (SEC) is widely regarded by colleagues and
the public as an astute, articulate and exceptionally brilliant barrister of law.
Sometime in early February 2009, represented the then SEC boss, Musa Al-
Faki at a seminar organized by the Office of the Accountant-General of the
Federation for the Forum of Accountant-General’s of States, held in Abuja.
He, however, made headlines, when he made certain unscripted remarks

based on information available to him that has since been confirmed by the
actions of the Lamido Sanusi led CBN.
Reacting to questions from the participants at the end of his presentation, he

was reported to have said among other things that “if we can take
sometime to address the problems in the banks, we would have
addressed all the problems (in the capital market).”
Mr. Udora, when pestered consistently on the seeming incompetence of SEC

and his office to take action on the crash of the stock market went further to
state that: “some bank CEOs have become richer than their banks. If we
can take sometime to address the problems in the banks, we would
have addressed all the problems. We should revert to the era of failed
banks and arrest and prosecute any (bank) CEO found guilty. Banks
(are) awash with illiquid assets and high interest rates which
contributed to the fall of the stock market.”
It would be safe to assume that Mr. Udora was expressing a personal opinion
as this was outside the script later made available to the audience present.
Almost immediately the news hit the streets, Mr. Erastus Akingbola led CIBN
laid it on SEC heavily suggesting that the commission does not know what it
was doing/saying.
Barely two days after the publication of Udora’s statements, and while analyst
were still pondering on the above posers, the media department of the SEC
issued a press release stating: “the management of SEC wishes to state
categorically that those (Mr Udora) statements do not reflect the
position of the Commission and therefore dissociates itself from those

views. The Commission is looking into the circumstances whereby
those statements were made.” The SEC ostracised one of its own.
Seven months after, the SEC was still ‘looking into the circumstances whereby
those statements were made’. The Commission found its voice last week,
August 19, 2009 and acted on the published list of debtors on the same day. A
matter consequential to an information which its own had provided months
ago. Why it took an outsider to execute that same observation remains a
concern.
To some people on the street, Mr Udora comes across like a man with a
conscience who’s tired of the game of silence about the goings on in the
financial services sector and therefore chose the occasion in Abuja to do so.
Placed side by side with the actions of the Central Bank so far, Udora was right
on the money. Its unfortunate that we don't have people in important
positions that possess the sort of talent and candour that he does. At the end
of the day, the issue could not be ignored and therein lays his victory and
service to the market, whatever happens hereafter. This will forever be known
as the UDORA test for regulators – how not to ignore whistle blowers if the
market must survive.
The CBN has opened the Pandora box and a return to the era of failed banks
under the military regime of Late General Sani Abacha is well underway. The
banks are at the heart of the financial system and the economy. If banks fail,
the country may fail as well or badly destabilised as in the case of Iceland and
others in Europe in the past one year or so.
More curious however, was the manner in which the current development was
predicted long before it happened by the Vanguard newspaper in March 2009
2. The Vanguard Publication – March 2009
The first warning shot before the appointment of the new CBN Governor –
March 23, 2009 (Vanguard Newspapers). A credible expose or an unfounded
alarm? The report is reproduced so that you can decide for yourself.
Stockbrokers in the country in March fingered the managing director of one of the five
top banks in the country as the source of the de-marketing going on now in the
banking industry. The brokers said the bank boss wanted to promote both his ambition
of becoming the next CBN governor and a regional agenda set for him by his sponsors.
According to the brokers, the said top banker “using direct de-marketing antics, big
time depositors including state governors and ministers are being harassed with text
messages, e-mails and other information devices suggesting that only two banks are
healthy in Nigeria today, thereby urging depositors to move their funds away from all
other banks to those two banks.” As a result, highly placed Nigerians have been calling
on their brokers to disclose to them the true financial position of each of the banks in
the country.
It will be recalled that Vanguard last week reported exclusively that anti-consolidation
forces have regrouped with the hope of dissembling the banks and forcing a take over
of the top five banks in the country. The report had said “The grand plan by the group
is to cause panic and uncertainty in the industry and make the target banks look
unsafe for depositors.
Their aim, Vanguard gathered, is to cause loss of public confidence in the banking
industry and compel the Federal Government to move in by injecting funds.
Further, they ultimately plan to instigate government to take equity holdings
in the targeted banks.
Vanguard investigations revealed that the group at work is made up of former bank
owners who lost out during the consolidation exercise, a powerful clique in the present
government, and some aggrieved persons in three of the six geopolitical zones in the
country who felt left out in the consolidation exercise.
“Presidency sources disclosed that those who felt left out in the consolidation exercise
are grieved and are up in arms to recoup what they felt they lost during Obasanjo
years. Part of the plan hatched by the group is to ensure that incumbent Central Bank
Governor, Professor Chukwumah Soludo does not get a second term. The plan is also
to ensure that whatever gains that consolidation had is discredited.
This it was learnt was meant to force the President to act quickly in matter of
appointment of a successor to Soludo as they anticipate that the president’s slow move
may scuttle their dreams and cause the renewal of Soludo appointment for a second
term.” The group’s second game plan is to make Nigerian banks look unsafe in the
eyes of the banking public. They have perfected their game by spreading rumour that
some categories of banks are unsound and are on the verge of collapse. They send out
text messages to individuals and account holders passing wrong information on their
target banks.
At the moment the group’ target is two of the high flying new generation banks where
they have sent out several messages. Stockbrokers who have been in the eye of the
storm over margin loans which banks granted them that have gone bad as a result of
the global financial meltdown denied that they contributed in any way to the bad loans
in the banks, but rather they were acting on behalf of their clients in all buy and sell
contracts in stocks, contrary to an allegation by a first generation bank’s chief
executive.
The first generation bank chief executive, the brokers alleged, who is currently vying
for the Central Bank of Nigeria (CBN) governorship position, also has stock of loans
that have gone bad, while using de-marketing to shore-up his bank’s financial position
against its year end which falls due in March. This is also expected to improve his
profile against other candidates jostling for the CBN job.
However, the stockbrokers have also identified other banks that have joined in the de-
marketing of competitors to cause more confusion in the industry. Thus, no fewer than
13 banks have been mentioned as being distressed at-the last count. It’s believed that
over 18 banks have gone to CBN for the expanded discount window money to shore up
their deposits and meet customers’ obligation amidst tight liquidity-situation in the
industry, arising from de-marketing going on in the industry.
3. The Sanusi Lamido FT Interview – laying the Ground Rules – Jun 09
We believe the Sanusi Lamido plan was laid out in his FT June Interview -
(http://proshareng.com/reports/view.php?id=1938) where he stated that, inter
alia (page 2):
“FT: There’s a huge clamour in the market for more clarity on the size
and shape of this (margin loan) problem. You mentioned that a
diagnosis needs to be done. Could you expand on what kind of
procedure you would envisage carrying out to do that?
Lamido Sanusi: It’s extremely important that whatever we do does not cause
a panic in the system. We’re dealing with two different participants with
completely different profiles and mindsets….You’ve got on the one hand the
investors, and while many shareholders might just be retail shareholders a
substantial part of the investments in banks is in the hands of institutional
investors…These are generally educated, they understand finance and they
would be extremely happy to have the full picture blown up in the newspapers
so that everybody knows. But on the other hand you’ve got the millions of
retail depositors who would easily just panic if you send out signals that this
particular bank has a problem without putting in place the mechanism and the
structures for resolving them. I suppose the communication strategy is
extremely important as we go through.
We’ve got our own examination teams; we’ve got our own supervision teams
in the central bank and NDIC. What I would like to do is have them go into
every bank, including those we don’t think have problems. I would start with
First Bank among the first batch of banks to go and actually do an asset quality
audit and a capital audit and bring a report. (Ed: Mr Sanusi was formerly head
of First Bank before he took up his post as central bank governor). We would
then sit down and dimension. Ideally would like to break them into three. We
would like to break them into the banks which are really marginally affected by
the margin loan thing. The second category -- and that would be the largest
number – would be banks who have some margin loan exposure but who have
enough capital to deal with it., who really have not exhibited any kind of
liquidity pressures in their balance sheets.
The third category would those banks which seem to have a strong liquidity
problem and maybe even a solvency problem. And then with those banks
we’ve got to work out a strategy and frankly its not yet fully worked out…There
are a number of options, there are a number of models which have worked.
The strategy for dealing with it and the strategy for communicating it and the
remedial steps that need to be taken – all of that will have to be worked out.”
Probed further about Margin loans, he replied on page 7:

“FT: Given that the central bank has allowed banks to reschedule their
margin loans until the end of December this year, do you think that
will serve to concentrate minds and make sure that these issues are
tackled?
Lamido Sanusi: I don’t have any issues with restructuring, even beyond the
end of this year. What is important is that if they are non-performing
(loans) then they should be recognised as that. If they are
restructured and all the income is taken in on the assumption that it’s
going to come back then we are living in the dream that the markets will go
back to the highs that they were at and that’s not likely to happen. We would
work on the most conservative and prudential basis and see how things go.
But as a risk manager I can tell you that margin loans are not a problem
they are a symptom. The real problem is weaknesses in risk management
systems. You may find that a bank has serious margin loans problems but it
also has other problems in other portfolios, whether its oil and gas or real
estate and so on, so we don’t know.”
FT: Could you envisage a situation where there would be government-

appointed boards having to run some of these banks?
Lamido Sanusi: I would not like to have that. It would be a last resort. They’ve
got boards. If you need to have a transition in the institution, the boards can
appoint a new CEO. I don’t think there is compelling evidence that in the past
having government officials managing financial institutions have worked. My
preference is to get private capital.
4. The African Report on Nigerian Banks – Jul 09
Although the publishers of the report were still working out their response with
regard to the criteria for the rating at the time of publication, they stated on
their web site: "The Africa Report covers issues closest to the hearts of
Africans and international investors alike accurately, incisively and
comprehensively. The Africa Report goes beyond the headlines to give you in-
depth reportage and analysis from writers who know their way around Africa's
fast-changing worlds of business and politics."
The report says the performance of the banks follows the fall in the prices of oil
and the crash of the capital market, adding:
"Some hold the CBN governor, Charles Soludo, responsible for allowing a host
of bad banking practices to go unchecked. Fortunately, a growing number of
banks are beginning to equate more transparency with better returns."
On July 1, 2009, The Central Bank of Nigeria (CBN) and the Nigeria Deposit
Insurance Corporation (NDIC) gave a clean bill of health to all the 24
banks operating in the country.
The Nigerian Tribune reported that the apex bank’s acting Head of Corporate
Affairs, Mallam Mohammed Abdullahi, while reacting to the report in the latest
edition of TAR, published by the Paris-based group, Jeune Afrique, disclosed
that one needed to read the full report in the weekly magazine to be able to
have an understanding of the analysis made in the report.
Describing the report, which said only four Nigerian banks are strong,
as a mischief, Abdullahi said the report only analysed the categories of bank
in Nigeria.
He described the report as nonsense, asking rhetorically whether it

was possible to describe banks in the satisfactory group as weak.
Noting that banks were bound to have categories, Mallam Abdullahi said there
would always be first class banks, while others would be in other categories,
stressing that this did not mean that banks in other categories were weak.
In its reaction, the Head, Communications and Public Affair Unit of NDIC,
Mallam Birchi Sule, said the public should ignore the report. He said, as far as
the NDIC was concerned, “we don’t know the criteria used to rate the
banks.”
Find below a summary of the report and consequential impact after the CBN
action of Friday, August 14, 2009.
Strong Satisfactory Shaky Stressed

Diamond Bank Afribank Access Bank Finbank
First Bank of Nigeria Citibank NigeriaUQ Ecobank Nigeria Spring BankTO
GT Bank Equitorial Trust BankUQ FCMB Unity Bank
Skye Bank Fidelity Bank Intercontinental Bank Wema Bank
Bank PHB Oceanic Bank
Stanbic IBTC Sterling Bank
Standard Chartered BankUQ Union Bank
UBA
Zenith Bank Plc
UQ –
Unlisted Banks operating in the Nigerian financial System.
TO
- subject to pending takeover appeal
Opinion: Thriving but Opinion: Some have Opinion: Serious Opinion: Ton the
may be in a position to margin lending issues but Corporate Governance ropes, will either
profit from crisis. all will survive issues, needs urgent sink or be
attention. swallowed.
Legend: BLUE – Subject-to clearance given pre August 14, 2009 Declaration
Legend: RED – Actioned based on Outcome of Special Assessment by CBN, August 14, 2009
Lamido Sanusi in Responding to the above report at the Monetary

Policy Committee meeting on 7 July Sanusi, excerpts (Courtesy
NEXT234 report), doused any tension building in the financial sector over the
health of the banks, saying there is no evidence before him to the contrary
that the sector is not safe.
In a speech at his first Monetary Policy Committee meeting since resuming

office as CBN governor in June, Mr Sanusi said, "there have been concerns in
recent times about the health of the Nigerian banking system occasioned
largely by the system's exposure to the capital market and the effect of the
global financial crisis as well as exposure to oil marketers and Ministries,
Departments and Agencies (MDA).
"While there is no doubt that the banks were challenged in the face of these
developments, there is no evidence, thus far, that our banking system is facing
a crisis as has been reported in some newspapers recently. All reports
purporting to suggest that some named banks are not sound or shaken
are unfounded and we urge journalists to exercise caution and show
more responsibilities in reporting and quoting unofficial sources. Our
view is that there are stress points in banks' balance sheets (margin loans,
proprietary positions, oil marketing firms, unsecured large exposures) and
these are being dimensioned. An appropriate resolution framework will be
developed in consultation with reputable independent advisers, and the market
will have information on steps being taken at appropriate junctions in the
process", he said.
He added, "We reiterate that, based on the totality of information available to

the regulator, there is no basis for suggesting that the system is at risk.
We also re-affirm our commitment to stand behind every financial institution
and work with its board and management to ensure a smooth resolution of any
issues that may arise as an outcome of the diagnostic process. No bank will be
allowed to fail."
Bank Executives’ Response vide a press Conference, Thursday:
Bank representatives held a press conference last week Thursday and issued a
statement titled, "misleading publication on Nigerian banks". The statement,
signed by Uju Ogubunka, registrar/ chief executive of the Chartered Institute
of Bankers of Nigeria (CIBN), said "the Institute, as a responsible professional
body, is making this pronouncement to advise the banking public not only to
disregard the report but to consign it to the trash can. We equally advise banks
not to be bothered about the report but to continue their businesses and
services to their numerous stakeholders."
5. DOUBLE STANDARDS OR LACK OF STANDARD OF ENGAGEMENT: The

Position of EFCC, NDIC and SEC before SANUSI’s action – Jul 09
We publish this news story to allow you all gauge what manner of justice we
serve in this country. Are the people – investors and depositors – affected here
not deserving of action.
Given the new impetus by the Sanusi Lamido led CBN, can NDIC, EFCC and
SEC now take this matter head on with the same ‘headline grabbing speed and
bragging’ as they have done post August 14, 2009.
This is a long outstanding matter and one with the same characteristics as
that which everyone is falling over themselves to partake in? What is the
attraction here that is different from the current game? Can we not give this
the same intensity and 7-day dispatch as well?
We do note that not a few errors will be on this list as well and those
affected/concerned have challenged the information and its import. They are
lucky to have such a chance as the current set of debtors do not and on
account of this particular story, the cry by the public for ‘blood’ is
understandable. Yet, it still remains a resort to the ‘trial by the mob’.
The sad part in all these must be the human tragedy that is often missed in
reporting stories like this daily – those affected by the crisis and who may no
longer be with us today. For some, the families may be unable to recover their
hard earned wealth. That is the tragedy that is not captured in the CBN
Governors report…. Is it not high time we truly put a stop to this?
What manner of sanitisation can we therefore tout with this moral stain
hanging over our collective heads? The verdict is clear.
ANTI-GRAFT BODIES LEAVE FAILED BANKS DEBTORS TO REGULATORS

By Emmanuel Ogala
July 11, 2009 04:18AMT
Published by Next234
Anti-graft agencies, the Economic and Financial Crimes Commission (EFCC)

and the Independent Corrupt Practices and other related matters Commission
(ICPC), say they will prefer to remain on the sideline until it has become
obvious that the financial services industry regulators are unable to handle the
failed banks debtors' imbroglio.
Even then, Mike Sowe, head of public enlightenment at the ICPC, insists that
the scope of the crime is beyond his agency's mandate, saying, "Banking
sector crimes are under the EFCC."
His EFCC counterpart, Femi Babafemi, the spokesperson of the agency, says
the agency will intervene when the Central Bank of Nigeria (CBN) and
the Nigeria Deposit Insurance Corporation (NDIC) have exhausted
their regulatory mechanisms.
"NDIC and CBN are working on it already; if it gets to the point we

should come in, we will definitely come in." Mr. Babafemi said. "At least,
let the other regulatory agencies that are involved do their basic duties first, if
then we have to come in, then definitely we will come in."
As the anti-graft bodies watch events unfold, the Senate has invited the parties
in the case-CBN, NDIC and the debtors-to defend their roles in the credit abuse
of N53.3 billion leading to the collapse of many commercial banks in Nigeria.
The senate believes that the NDIC in particular had failed in its responsibilities
to protect depositors' funds in the failed banks, thereby causing hardship for
their depositors.
The failed banks

Among the failed banks are Gulf Bank, All States Trust Bank Plc, Trade Bank
Plc, City Express Bank, Eagle Bank Plc, Assurance Bank of Nigeria Plc, African
Express Bank Plc, Liberty Bank Plc, Hallmark Bank Plc, Lead Bank Plc and
Metropolitan Bank Plc.
The senate committee on Banking, Insurance and other Financial Institutions

investigating the state of affairs on the failed banks and their depositors,
reports that a major factor hampering the full compensation of the depositors
of these banks is the non-recovery of debts owed the banks, especially
due to insiders' credit abuse amounting to N53.3 billion.
The committee notes that the numerous petitions submitted by

depositors of the failed banks "indicated a situation of misery,
frustration, agony and despair, with a possibility that some might have
died and many rendered financially incapacitated by their inability to
meet up with their daily obligations of normal life."
To bring succor to depositors, the committee sought the backing of the entire
senate to publish the names of the directors that were involved in the insider
credit abuses contained in the list sent to it by NDIC.
However, the Senate, too anxious to know which names were on the list,
unanimously voted that Nkechi Nwaogu, the committee's chairman should read
out the names on the debtors' list.
Ms. Nwaogu, with a trembling voice, thereafter read out the names of the
failed banks and their debtor directors.
Debtors' list
According to the committee, top on the list of debtors are Ebitimi Banigo, a
former Minister of Science and Technology, who borrowed N15.17 billion from
his bank, All States Trust Bank Plc. So far, only N10 million has been recovered
from him.
Tailing after him are Samuel Adedoyin (Chairman) and Sola Adeoti
(Managing Director/Chief Executive) of City Express Bank Plc. They jointly
borrowed N5.13 billion from the bank. So far, only N453 million has been
recovered from Mr. Adedoyin.
Gulf Bank Plc crumbled under the debts of its directors: Adeyaba Adekunle
Johns borrowed over N5 billion from his bank; Muyiwa Osho, N242 million;
Sanusi Ado Bayero, N45 million; and Babajide Rogers, N11.87 million. So
far, nothing has been recovered from any of them.
Also, Emeka Ofor of African Express Bank Plc borrowed N7.5 billion from his
bank. Out of this, N3.6 billion has been recovered from him.
Great Ogboru and Remi Adiukwu-Bakare borrowed N799.7 million and

N2.03 billion, respectively, from Metropolitan Bank Plc without collateral and
have not paid anything in return.
Mohammed Shaaba Lafiagi, a former governor of Kwara State, has an

outstanding debt of N1.156 million owed Trade Bank Plc, which was owned by
the Kwara State government.
Liberty Bank was gutted mainly by Victor Odili and Aliko Dangote. Mr. Odili
took over N50 million from the bank while Mr. Dangote, through his
company, Bullion International, took N650 million which has been fully
recovered.
Threat to Nkechi Nwaogu

Series of threat messages have allegedly been sent to Ms. Nwaogu via her
mobile phone since reading out the debtors' list, but it is still unclear what they
are meant to achieve.
Source: http://www.234next.com/csp/cms/sites/Next/Home/5435607-146/story.csp
6. The US example – The Bernard Madoff Whistle Blower & Impact
Harry Markopoulos, an investment manager attacked US regulators for failing

to act on his tip-off about Bernard Madoff's alleged $50bn (£33bn) fraud.
During a Congressional hearing. He stated that the Securities and Exchange
Commission (SEC) had not been willing or able to uncover the fraud.
Mr Markopoulos said he had tried to get regulators to probe Mr Madoff from

2000, called SEC officials "too slow, too young and too under-
educated" to catch the alleged fraud.
"They looked at the size of Madoff and said he's a big firm and we don't attack
big firms," he said.
He also said he was planning to turn over the names of "feeder" funds that
helped Mr. Madoff raise money, to prove that he had not acted alone.
The testimony has raised issues we could benefit from and we

reproduce an article by John Mervin, BBC on the subject.
Madoff scam reveals regulatory failure

By John Mervin
BBC News, New York
Now that he has pleaded guilty, Bernard Madoff's story might be seen to have
reached an end of sorts. But so vast was the scale of his crime that the legacy
of his extraordinary fraud will take years, if not decades to reveal itself.
First and foremost of course are the many livelihoods and life savings lost to
Madoff's fraudulent scheme.
But behind the personal fortunes that Madoff leaves in ruins, looms the
crumbling wreckage of the US's system of financial regulation.
Risk profiles
It's not as if the regulators here were in such good shape anyway. A banking
industry on its knees, threatening to bring down the rest of the economy, has
led many on Wall Street and in Washington to conclude that something is
fundamentally wrong with the way the US polices its financial markets and the
players in them.
Just this week no less than Federal Reserve Chairman, Ben Bernanke, and
Treasury Secretary, Timothy Geithner, have spoken of the need for the US, if
not the world, to have a full rethink of how the financial industries are
regulated.
The trouble is that financial regulation, by its nature, can be a pretty

abstract business. Getting to the bottom of how the US's regulators failed
will require some of the finest minds being applied to some horribly complex
subjects, which, to the general public at least, may be a tad elusive.
The models that investment banks use for risk profiles, for example, are not
something that even many investment bankers claim to understand.
What is so striking about Bernard Madoff's story is the way it seems to reveal
failings by regulators, in the starkest of terms, which anyone can grasp.
That leaves certain regulators badly exposed at exactly the time when their
role is up for grabs.
'To protect investors'
Bernard Madoff wasn't an obscure crook, operating from a remote location,

where the surveillance might be expected to be a little lax.
He was based in the financial capital of the world, as New Yorkers still love to
call their city, finding some of his clients in its richest, most financially savvy
neighbourhoods.
Beyond that, he was a man whose career had taken him to the heart of the
financial establishment. At one point he served as chairman of the NASDAQ
stock exchange.
So surely some part of the US's vast regulatory network should have been
expected to spot such a massive rooking of investors?
Well, yes. That would be the Securities and Exchange Commission which states
that its mission "is to protect investors."
That Madoff was able to run the biggest Ponzi scheme in history right under its
nose, making a mockery of its mission, has already brought trouble to the SEC
and is likely to cause more.
Many in New York's financial world think the fallout from the scandal will mean
that as a new framework for financial regulation is stitched together in the
coming years, the SEC will either be disbanded or forced to change beyond all
recognition.
'Gift-wrapped'
The criticism of it for the Madoff mess has been scathing.
Bad enough that such an egregious fraud was carried out over many years -
what has enraged some is that for years, the SEC was told, in ever greater
detail, that Madoff's investment fund was a Ponzi scheme.
While the SEC is lining up to be the scapegoat that every big financial scandal
demands, Harry Markopoulos has cemented his position as the whistleblower
whose warnings went unheeded.
Between 1999 and 2008 Mr Markopoulos, who worked for a rival firm of
Madoff's, made increasingly detailed submissions to the SEC which illustrated
how Madoff's fund simply couldn't be for real.
As he told Congress in February: "I gift-wrapped and delivered the largest

Ponzi scheme in history to them."
Yet the SEC seemed unwilling or unable to act on Mr Markopolos's information,

a fact that has led to some of the fiercest criticism it's ever faced.
After Mr Markopoulos testified, the House Financial Services committee heard

from the department heads of the SEC.
It's said that compared with the British House of Commons, the US congress is
much less adversarial and aggressive. If true it doesn't apply to committee
hearings.
For hours the SEC department heads were excoriated for their treatment of the
Madoff case. At one point, Representative Gary Ackerman, of New York yelled
at them: "You couldn't find your backside with two hands if the lights were on."
'Gravely concerned'
And yet in the face of that, and more graciously worded attacks, the SEC has
stayed remarkably quiet about its role, or lack thereof, in the Madoff case.
In December, its then chair, Christopher Cox, admitted the SEC had received
credible allegations that Madoff was running a Ponzi scheme.
He said he was "gravely concerned by the apparent multiple failures over at

least a decade to thoroughly investigate these allegations or at any point to
seek formal authority to pursue them".
He then announced an internal investigation to get to the bottom of those

apparent failures.
But with the change of administration Mr Cox has now gone, to be replaced by
President Obama's appointee, Mary Schapiro. No result of the investigation has
been published.
7. The US example – Regulation to encourage Whistle Blowers
Developing Whistleblower Incentives-Thoughts for SEC, Nigeria

The full text of United States SEC Inspector General Kotz's letter to Chairman Kanjorski
on June 30, 2009:
Dear Chairman Kanjorski:
Thank you for your June 16, 2009 letter regarding the Securities and Exchange
Commission (SEC) Office of Inspector General's (OIG) investigation into allegations
regarding Bernard L. Madoff (Madoff) and Bernard L. Madoff Investment Securities, LLP
and for meeting with me on June 23, 2009 at your offices to discuss our ongoing
investigation.
I am glad that you are generally pleased with our progress in connection with our
investigations and audits of these important and complex matters. As I indicated to
you during our meeting, we are committed to producing, in an expeditious manner,
thorough and comprehensive investigative and audit reports analyzing the reasons that
the SEC did not uncover the Madoff Ponzi scheme notwithstanding examinations and
investigations conducted over a period of nearly 20 years, as well as providing
recommendations to improve the operations of the pertinent SEC divisions and offices.
I appreciated the opportunity to brief you on developments in our investigation at your
offices last week and am happy that you felt the meeting was productive.
While we have not yet completed the investigation, we are able to provide to you, at
your request, several legislative suggestions that have arisen out of our Madoff
investigatory work, which we believe will strengthen the ability of investors and the
regulatory agencies to uncover frauds such as Ponzi schemes in the future. We
understand that the SEC is also recommending to the Subcommittee the legislative
suggestions numbered 1 and 4 below. These suggestions are as follows:
(1) Extend the regulatory jurisdiction of the Public Company Accounting Oversight
Board (PCAOB) to audit reports prepared by a domestic registered or foreign public
accounting firm regarding issuers, broker-dealers, investment advisers and any
companies subject to U.S. securities laws. The PCAOB's current responsibilities include
the following: (a) registering public accounting firms; (b) establishing auditing, quality
control, ethics, independence, and other standards relating to public company audits;
(c) conducting inspections, investigations, and disciplinary proceedings of registered
accounting firms; and (d) enforcing compliance with the Sarbanes-Oxley Act of 2002.
The PCAOB is able to address many auditing problems through a combination of
inspections and standards-setting. The PCAOB's supervisory model uses several tools
to improve audit quality, correct audit deficiencies, and promote compliance with
applicable standards and laws. Where necessary, the PCAOB exercises its enforcement
authority.
Extending the regulatory jurisdiction of the PCAOB would allow for increased oversight
of these accounting firms and reduce the risks associated with unknown accounting
firms that have been able to avoid scrutiny. We believe that H.R. 1212, as currently
introduced, accomplishes many of these same goals, except that we would recommend
that the legislation clarify that the PCAOB oversight be extended to audit reports
prepared by a registered accounting firm which provides reports for investment
advisers, investment companies and other registered entities, as well as registered
broker dealers.
(2) Amending the Investment Advisers Act of 1940 (Investment Advisers Act) to
require the use of independent custodians in a manner similar to Section 17(f) of the
Investment Company Act of 1940 (Investment Company Act), which requires the use
of an independent custodian by mutual funds. Section 17(f) of the Investment
Company Act requires a registered management company to "place and maintain its
securities and similar investments in the custody of" a bank or a dealer admitted to a
national securities exchange, subject to such rules and regulations as the Commission
may from time to time prescribe for the protection of investors. See 15 U.S.C. § 80a-
17(f) (1). In addition, Rule 17f-2(b) of the Rules and Regulations promulgated under
the Investment Company Act requires that all such securities and similar investments
be deposited in the safekeeping of, or in a vault or other depository maintained by, a
bank or other company whose functions and physical facilities are supervised by
Federal or State authority. The Rule further provides that investments so deposited
shall be physically segregated at all times from those of any other person and shall be
withdrawn only in connection with transactions of the character described in the Rule.
This custodian requirement essentially removes the ability of an investment adviser to
fraudulently use the proceeds invested by new investors to make payments to old
investors.
Hedge funds are currently exempt from the Investment Company Act and are not
subject to the independent custodian requirement. In addition, investment advisers
who are also registered broker-dealers are currently permitted to clear their trades
through their own broker-dealer firm. Thus, both investment advisers and hedge funds
should be required to use an independent custodian.
We are aware that the SEC is currently proposing amendments to its custody rule
under the Investment Advisers Act to require a written report from an independent
public accountant that includes an opinion regarding the custodian's controls relating to
custody of client assets if the client accounts are not maintained by an independent
qualified custodian. However, we believe that a more direct way to remedy this
statutory loophole would be to amend the Investment Advisers Act in conformity with
the Investment Company Act.
(3) The Sarbanes-Oxley Act of2002 requires ongoing certifications of certain reports by
chief executive officers and chief financial officers of public reporting companies.
Executives who knowingly file noncompliant reports face possible criminal prosecution
including substantial fines and imprisonment.
Certifications have been determined to be effective controls to ensure compliance with
particular requirements or guidelines. We would recommend imposing a requirement of
certification by senior officers of registered investment advisers that shows they
conducted adequate due diligence in connection with investments. This certification
requirement should apply to all funds of hedge funds. The adequate level of due
diligence required in accordance with the certification may be defined pursuant to a
particular model of best practices, such as the Managed Fund Association (MFA) model
or the Alternative Investment Management Association (AlMA) model, or could be
developed by the SEC. Enforcing an adequate level of due diligence would ensure that
investors have adequate information when investing through intermediaries.
(4) Bounty programs are an effective tool to encourage whistleblowers to

come forward and would provide necessary incentives for outside entities to
bring complaints about possible illegal activity. There is some evidence that
the bounty program implemented by the Department of Justice (DOJ) has
played a role in the increase of civil recoveries obtained by the DOJ over a 10-
year period. The Internal Revenue Service (IRS) also has a system in place
where it provides a bounty to individuals who present the IRS with
information leading to the collection of federal taxes.
Although the bounty system has been in place at the SEC for more than 20
years, there have been relatively few awards made. The SEC program is
limited to insider trading cases, and the stated criteria for judging bounty
applications are broad, somewhat vague and not subject to judicial review.
Currently, Section 21A (e) of the Securities Exchange Act of 1934 (Exchange
Act) [15 U.S.C. 78u-l (e)] authorizes the SEC to award a bounty to a person
who provides information leading to the recovery of a civil penalty from an
insider trader, from a person who "tipped" information to an insider trader, or
from a person who directly or indirectly controlled an insider trader. All
bounty determinations, including whether, to whom, or in what amount to
make payments, are within the sole discretion of the SEC, however, the total
bounty may not currently exceed 10% of the amount "actually recovered"
from a civil penalty pursuant to a court order.
We would recommend that the Exchange Act be amended to authorize the
SEC to award a bounty for information leading to the recovery of a civil
penalty from any violator of the federal securities laws, not simply insider
trading violations. We would also suggest that the Exchange Act be amended
to provide specific criteria for awarding bounties, including a provision that
where a whistleblower relies upon public information, such reliance does not
constitute an absolute bar to recovering a bounty. The statute should also
require that the whistleblower be provided with status reports at certain
milestones during the investigation or examination that was based on the tip.
We would be happy to discuss any of the above legislative suggestions with you or the
Subcommittee at your convenience. If, as we conclude our investigation, we determine
that there are any further legislative recommendations that would be appropriate for
your Subcommittee, we will share them with you at that time.
Thank you again for your continued interest in our work.
Sincerely,
H. David Kotz, Inspector General
cc: The Honorable Mary L. Schapiro, Chairman, Securities and Exchange Commission
SEC "Bounties" for Whistleblowers--The Statute

By: Finch McCranie, LLP.
Source: http://www.whistleblowerlawyerblog.com/2009/07/sec_bounties_for_whistleblower.html
The statute authorizing the SEC in insider trading cases to pay whistleblowers
"bounties" of up to 10% of civil penalties is below.
15 U.S.C. § 78u-1
§ 78u-1. Civil penalties for insider trading
"The financial crisis has revealed severe shortcomings in corporate governance.

When most needed, they often failed to provide the checks and balances that
the market needed in order to cultivate sound business practices."
THE SEC AND ITS CORPORATE GOVERNANCE IMPERATIVES

The immediate response of the apex capital market authority in Nigeria, the
Securities & Exchange Commission (SEC) on August 19 to the August 14
actions of the Central Bank of Nigeria in disciplining the executives of five
banks portrays a regulator who was in no hurry to reform both itself and the
market it presides over.
This was a golden opportunity at self redemption and revival lost. How and
why? Let us review some recent milestones.
October 26, 2004: A new beginning?

Musa Al-Faki, a former CEO, equity holder of a stock brokerage firm, and
former member of the NSE Council resumes as the Director General of the
Securities and Exchange Commission.
November 16, 2004: Another new beginning?

Transcorp Plc was incorporated by the promoters headed by Prof. (Mrs.) Ndi
Okereke-Onyuike, Director General/CEO of the Nigerian Stock Exchange. This
was widely reported online, in print and on TV around the world with the
former President, Olusegun Obasanjo in attendance.
December 2005: The Point of Change!

The 18-month old bank consolidation programme was concluded, midwifed by
the CBN; 84 commercials banks were ‘restructured’ into 25 recapitalised
institutions. There was no communication from SEC in the form of a circular on
what investors should do in the event of any dispute on their holdings.
2006: The Morning After

Banks continue aggressive capital raisings through public offers and rights
issues; aggressive expansion that includes creation of subsidiaries, overseas
outposts and bold risk taking at the stock market and credit transactions;
Proshare Analyst Report profiled the domestic bourse populated with 85%
speculators.
2006: SEC and the Council of the NSE on the Ndi Okereke appointment
to the board of Transcorp
After the President of the Federal Republic of Nigeria wrote to the council of the
NSE to request the appointment of its DG as the Chairman of the company,
mid-wifed by the government; it failed to issue a guideline on conduct,
corporate governance and ethical issues it would consider critical to ensure the
integrity of the capital market. This will prove crucial to the current
developments and interpretation of its August 19, 2009 declaration. SEC did
not make any comment in support or against Ndi’s appointment but approved
the public offer by Transcorp (opened in Dec 2006) that recognised her
as the Chairman, thus obtaining SEC endorsement by reason of

approval.
2007: Pimper’s Paradise

The year that can best be described as one of brigandage. The height of
regulatory impotency as the banks and their cohorts wrote the rules of
(market) engagement.
Established market rules and regulations on capital raisings were flouted with
impunity. The SEC was prevailed upon to pronounce firm underwriting of share
offerings to feed the greed factor. Banks and their subsidiaries floated all
manner of mutual funds with the central objective of ‘playing’ the stock
market.
The next move by the banks and their cohort companies was to promote
private placement offerings. The few rules in the books guiding PPO’s were
flagrantly flouted and the authorities were rendered powerless.
When the SEC ordered the recapitalisation of all capital market operators, the
market ganged up and subdued the Commission and the Stock Exchange. The
‘honeymoon’ appeared heavenly but revealed a growing incidence of
interference in the management of SEC.
The market posted an impressive annual return of 75% and the regulators
themselves benefited. The Nigerian Stock Exchange alone posted an annual
gross income of N16.180billion and an operating surplus of some N5.0billion.
There were no announcements on capacity building to cope with the growth
recorded even in the light of increasing delays and extended turnarounds of
offer completion cycles which created another loophole with depositor’s funds.
Proshare Nigeria issued an alert that a bubble was being approached – this was
published in November 2007.
2008: Trouble in Paradise

The party continued into the early part of 2008. The global market meltdown
spiked by the sub-prime mortgage market in the United States, landed on
Broad Street with a massive outcry from the investing public. Allegations of
insider abuse, insider trading, excessive margin lending, etc began to manifest.
The SEC itself blew the ‘whistle’ with its allegations of price manipulations in
the shares of Afroil, Capital Oil, First Aluminium, AP, IPWA and Big Treat or the
February Six. The SEC however did an outstanding job in 2008 with the
handling of the Cadbury Plc financial malpractices.
As far as the banks and their immediate constituencies were concerned, the
SEC failed to bring anyone to justice. When the Central Bank in May 2008
tacitly advised banks to halt margin facility expansion, the SEC failed to read
the handwriting on the wall.
All through the end of 2008 financial year, the SEC was busy on issues such as
market fees, guidelines on market makers, etc. By year end, the stock market
had fallen almost 50% in value.
The call for the sacking of SEC and NSE Director Generals reached a
crescendo. At year end, almost all the banks posted jumbo profits in 2008,
widely criticised by analysts both at home and internationally because the
accounts did not reflect the reality of the times. Yet SEC was not aroused.
Feb 2009: A whistle blower from SEC raises the Alarm

Mr C.A. Udora, an executive commissioner, legal and enforcement of the
Securities & Exchange Commission (SEC) while at a seminar responded
to a question thus: “Some Bank CEO’s have become richer than their
banks. If we can take sometime to address the problems in the banks,
we would have addressed all the problems. We should revert to the era
of failed banks and arrest and prosecute any (bank) CEO found guilty.
Banks (are) awash with illiquid assets and high interest rates which
contributed to the fall of the stock market.” SEC subsequently
disassociated itself from the statement.
Early 2009: Chasing Shadows

The capital market regulator grappling with the meltdown of 2008 received the
report of the Dr. Dotun Sulaiman led capital market reforms commission. Its
submission however failed to provide a clear-cut answer to the ‘heartbeat’ of
the market crisis. The SEC kept the margin loans ‘disease’ and its wider
implications close to its chest.
Mid 2009: Point of Correction

Musa Al-Faki, the Director General of the SEC stepped down in May and an
interim DG, Ms Daisy Ekineh took over. Yet SEC remained in a state of near
comatose, except with the few posturing that the Dr Sulaimon’s
recommendations will be implemented to the full. The SEC was set on a
collision course with the NSE.
The provision in the Adedotun Sulaiman led Commission on market Reforms

that there should be a provision for the post of an executive chairman was
rejected by all. This development will prove incisive in understanding the
motivation of the current chairman in the scheme of things.
Both institutions battle on how and who should de-mutualise the NSE, fought
over the ‘registration or licensing’ of market makers, among other things but
no one quarrelled over the market primary focus: investors’ protection.
Who ‘Guards’ the Guardian?

The Securities & Exchange Commission (SEC) is an organisation that prides
itself on its commitment to good corporate governance. It remains the first
organisation to raise the issue to the level of policy. History has shown
otherwise as its plans to have a full operational code on good corporate
governance has not become fully operational, years after it was started.
The Dr. Adedotun Sulaiman report on market reform submitted to SEC early in
2009 was a direct indictment of the Commission itself. SEC commissioned the
report to be done at the peak of stock market crisis in 2008. In other words,
the Commission was much part and parcel of the market boom years (2005 to
2007), that it failed as a watchdog.
It is painful that it took the August 14, 2009 actions of the Central Bank of
Nigeria to get the full picture of margin loans crisis.
Even when the Nigerian Stock Exchange boss, Ndi Okereke-Onyuike stated
months earlier that the stock market downturn should not be blamed solely on
margin loans facilities, the SEC kept mute. She placed the total margin
loans lending at about N800billion to N1trillion.
On August 14, the CBN confirmed this position when its said that the margin
loans was not much of a serious problem compared to the huge non-
performing loans carried by the quoted banks.
The unaddressed problem by the two regulators remains the high incidence of
borrowings by stock broking firms (not a criminal offence but a capacity issue
that regulators should have been on to).
The reactions of SEC on August 19, 2009 ignored this development nor the
unaddressed implication of CBN’s action on investors/shareholders of the five
banks taken over.
Also left unaddressed is the myriad of unresolved Private Placement

Offers of 2007 – 2008 which had in its placement documents a statement that
those firms will be listed on the Stock Exchange, to which the NSE and SECX
only issued a disclaimer and never took action against the firms for ‘an attempt
to misled or pass off’.
The Challenges SEC Face

The following summarises what both Proshare and MBC News Corp consider as
the challenges that the SEC face in the ongoing banking sector cleansing:
1. That the Lamido Sanusi’s August 14 and its own August 19, 2009
actions and pronouncements about near future actions have opened
a floodgate of wider capital market issues beyond the five banks now
under the CBN ‘receivership’.
2. The SEC is hereby placed in a tight corner to untangle the mess

created by the ‘bundled’ relationships between securities firms, asset
management companies, underwriters, issuing houses, registrars and
stock broking firms all belonging to the same group.
3. That the office of the Chairman of the SEC needs to be unfettered

and unencumbered from any relationship that would tie it to any of
the companies he is expected to regulate upon. We explore this in

greater detail below.
4. The query/directive to Prof. (Mrs.) Ndi Okereke-Onyuike with regards

to the Transcorp debt to Intercontinental Bank Plc and Afribank Plc
was an unnecessary grandstanding and show of force. We explore
this in greater detail below.
5. The handling of the possible criminal conspiracy case of the AP public

offer underwriting saga was an exercise in publicity stunt. This was a
matter placed before the SEC in 2008 and for which is now a matter
for the consideration of an arbitrator after the SEC failed to take any
meaningful action, choosing to plead with the parties involved to go
find a meaningful and peaceful resolution to a case that falls right
under its purview of interpretation and adjudication. The cost of
inaction cannot now be packaged as a benefit to the public. A lot
could have been done long before now, so we find the directive quite
laughable.
6. The Commission should be able to have at its disposal the schedule

of market operators involved in the complicity of margin lending,
reckless and/or criminal insider trading and speculations.
7. The capital market authority should admit regulatory failure, dating

back to 2005 and lay out plans to redress the issues or subject the
Adedotun Suleiman led commissions report to consideration for
adoption after expunging issues identified by the market as unhelpful
and introducing changes that reflect our ‘frank’ understanding of the
gaps prevalent in the system.
8. Since the sacked bank executives and many of the highly placed
debtors are also shareholders in the same banks, the SEC will have
the unenviable job of disentangling the spider web. This they have
not given any clue they have a clear plan on.
9. How will the SEC deal with the matters arising regarding investors’
protection after the two weeks full share trading suspension on the
affected five banks lapse?
Some of these issues are:
the outstanding, now suspended annual shareholders meeting of

Oceanic Bank,
the annual financial report of Intercontinental Bank pending since

its year ended February 28, 2009,
the expected trading activities in the shares of the five banks

whenever the suspension is lifted,
the absence of a full board of directors for the five banks and the
need for a guidance circular to investors that clears the air on
what is going on.
10. Audit committees of quoted companies have a burden of

responsibility – what will the SEC do right now with the audit
committees of the affected five banks and others playing in the
capital market?
11. Is SEC working with the CBN, representing the government in how
the N420billion bailout fund is being capitalised or representing
investors?
12. The CBN stated that the five banks will repay the bailout “from the
proceeds of capitalisation in the near future”. Has the SEC therefore
been briefed by the CBN on its thoughts on how this would be
achieved and is working on modalities that it would communicate to
the market to ensure that the process, if it materialises, is
transparent and open to the public?
13. Is SEC ready to supervise thoroughly, the coming rounds of capital

raisings by banks through public offers, rights and bonds? This next
round of capital consolidation will be a matter of ‘life and death’ for
the banks because of the paradigm shift?
14. What is SEC doing to recalibrate its internal operational efficiency and
capacity to process applications, follow through on execution and
adherence to timelines set, and ensures that allotments notices,
certificates and post-offer audits are conducted?;
15. How ready is the SEC for a possible avalanche of investor queries on
how to resolve their margin loan problems as well as possible cases
of class action suits against itself, CBN, the banks, auditors and stock
brokers individually or severally;
16. How ready is the SEC for the possible bankruptcy claims that would
naturally be the resort by stock broking firms, individuals and fund
managers who are unable to meet their commitments?
17. Will the SEC revisit the abandoned recapitalisation of capital market
operators? If yes, what will it base its decision criteria on?
18. Since the CBN has thrown the gauntlet, the SEC should expect
questions to be asked regarding all the allegations and public outcries
regarding banks, insurance firms and other public share offerings
between 2005 and 2007.
19. Beyond the hoopla currently unfolding, the SEC faces the daunting
task of publishing its own report and assessment of the goings on in
Broad Street.
The market earnestly await this report to enable it gauge the

understanding of SEC of the market realities it needs to confront and
the regulators understanding of what needs to be done. This is not a
matter for media briefings but of policy review and directive
issuance.
20. When will SEC commence its own special examinations or forensic
audit of the capital market operators, quoted companies, etc?
Reading the mood on the street right now and in view of the loss in popularity
of the SEC for more than a year now, the Commission surely has its back up
against the wall.
It can surely understand that there is no longer a hiding place once Lamido
Sanusi launched his actions from the CBN.
The Commission can use the Lamido’s initiative to redeem its own ‘battered’
image and reinvent itself in a current world in which ‘capital market regulatory
influence’ has moved beyond the hitherto exalted pulpit mantra to a one of
active responsibility to members of the flock.
The ‘shepherd’ must now rethink how it gathers its flock and keep them.
The Office of the Chairman, SEC Nigeria

The time has come to take this office and the attendant powers and influence it
wields over the management of the SEC a bit more seriously and accountable.
After all, the reform commission proposed on page 66 of its report under
RECOMMENDATION 16 the redefinition of the role of the SEC Board whom it
proposed should now be headed by an Executive Chairman who must possess,
at a minimum, ‘at least 15 years relevant experience in capital market
operations, finance & investments, law, economics, accounting,
business administration or any other ‘related fields’.
The reasoning behind the creation and responsibilities of the office of chairman
ab initio, was not intended to make the office an ‘executive’ type role but an
oversight role that ensures that professional managers appointed to act as the
DG, SEC are carrying out their functions in a manner that promotes
transparency, equity, accountability, investor rights and protection, and above
all, integrity.
The enabling blocks for this would involve the following:

Having the Chairman ensure that decisions on process, policy and rules are
subject to the highest level of consideration, thought and legal framework;
Ensuring that the office of the Chairman is not only independent in
appearance but in deed.
Having rules that ensure that the office of the Chairman should have a set
limit to shareholdings in any company listed and this must be a subject of
a declaration of interest that would involve him/her disclosing every trade
made on the market while in office.
Rules should also be clear that any Chairman should not hold any
directorship of a quoted company while in office.
The current holder of the office of Chairman SEC is a distinguished senator and
a widely acknowledged believer in the upliftment of standards and values.
It is thus curious to note that in the performance of this role, he ought to have
recognised that his current directorship of UACN Plc raises serious issues that
could compromise the perception of impartiality. It is simply not right and
there must be a cogent explanation for this, giving what we know of the man
and his pedigree.
We do not have any case of wrongdoing alleged against the Chairman but we
believe that the elimination of the room for ‘unregulated relationships’ is
critical to any perception of integrity or the ability of the regulator to take
actions without fear or favour of ‘powerful’ forces that loom large over the SEC.
It must be noted that SEC has operated under excruciating circumstance that
have seemingly drowned out the considerable amount of good work done.
This work however, we insist, is not at a level that matches the level of growth
in the market. That is the responsibility gap the Chairman will have to address.
The August 19 directive to the DG, NSE

The query/directive to Prof. (Mrs.) Ndi Okereke-Onyuike with regards to the
Transcorp debt to Intercontinental Bank Plc and Afribank Plc was at best
diversionary from the fundamental regulator imperatives arising from CBN’s
latest actions and pronouncements.
It is not only unnecessary but ridicules the SEC for not taking action earlier if it
considers such a position a ‘potential integrity time bomb’.
Why wait almost five years after the appointment and exercise of office
(including SEC’s approval of their public offer which includes the fact that the
company borrowed money to pay for NITEL acquisition and had other
borrowings) to hold her accountable for a facility she did not provide a personal
guarantee.
We recall that in Proshare’s independent white paper and other

communications herein reproduced below for follow up enquiry, the issue of
the DG’s ‘career appointment’ by the Federal Government to the Board of
Transcorp was a ‘banana peel’ on the integrity and perception of the Exchange
which she manages.
The Council of the NSE deliberated on the matter and approved for her to
respond to a national assignment, which we are sure, suited their need for
political relevance in an administration that had a long memory of put downs.
We found her not to have broken any law of the land through such a
controversial appointment and equally recall that the Punch Newspapers wrote
to the World Federation of Exchanges who issued a response to the effect that
‘there was nothing wrong in such and appointment in the letter of its
interpretation ….and that they had no jurisdiction to comment on the matter’.
SEC is aware of this appointment and at no time has it ever made the subject
of the dual role and possibility of a conflict of interest an issue for resolution.
Indeed the SEC lost a unique opportunity to ‘issue a set of guidelines’ to the
DG and indeed the council of the NSE on what it considers appropriate code of
conduct in the interest of the market.
The revisionism of history that is taking place now is regrettable. This cannot
be a fit and proper approach to deploy by a regulator.
By the way, since when has the SEC used newspaper commentaries or
advertorials as a basis of its actions? Instructive to note was the point that the
letter to the DG, NSE got to her after the directive had been made public. What
was the purpose of such a public release?
In the release, the SEC was equally economical with directive calling for the
‘Immediate suspension of any of the affected Executives of the five
banks who are members of the Council of the NSE pending the
conclusion of investigation of allegations against them by the CBN’.
Why the posturing when the whole world knows that the only executive
affected by the August Five declaration was Mr. Erastus Akingbola. What was
the fear in being direct by the regulator?
Was the fact that a number of the council members of the NSE including its
President, Alh. Aliko Dangote and its former president, Oba Otudeko’s names
were also published but may not be under the purview of the SEC to comment
upon as they were not employees of the Exchange?
Our market deserves better.
Failure to set a proper advisory/guide at the early stage diminishes

the high moral ground that SEC seeks to deploy or stand upon. It can
act, after the fact but must not present this as a fresh insight.
In the absence of any new loans taken by Transcorp for which we are not
aware of, and believe such is possible in the normal cause of business, the
public information on loans taken relates to the over USD$500m obtained from
4 banks paid directly to the BPE.
Is SEC and CBN ready to claim ignorance of the reality that the chattel pledged
as collateral has been returned to the owners (federal Government) who took
NITEL back and must now pay back the sums collected while Transcorp deals
with the interest issue under negotiations with some of the bankers who
provided the facility and who have their ED’s serving on the Transcorp Board?
We understand that the FG will on Monday inaugurate the technical board of

the NITEL and its mobile subsidiary. Part of the responsibilities of the new
board, which became controversial before its inauguration, was to oversee the
technical and financial audit of the beleaguered telecommunications company
before sale (again). The audit was directed by the National Council on
Privatisation, chaired by Vice-President Goodluck Jonathan following the
acrimonious position taken by different members of the technical committee
(even the government appointees could not agree on what was needed to be
done). This reconciliation committee is chaired by the Minister of National
Planning, Dr. Shamsudeen Usman.
Let us be clear, the DG NSE has a lot to answer for but this one will not fly
procedurally. We on our part have concerns why the NSE and SEC have not
taken action against Transcorp and its board based on the following:
The price of the shares have fallen way below the offer price and stayed
there for upwards of more than one year and because the key asset it used
to raise funds has been collected by the government should be made to
explain how it intends to sustain its going concern questions, dividends to
investors and the new business model.
How come the arrest and prosecution of the GMD/CEO, Tom Ishegohoi, in
spite of concerns over the approach adopted by the EFCC/securities
agencies did not signpost a basis for a suspension of the company?
Was a query issued to the Chairman to explain what happened or is
happening here in the interest of investors?
Where are the financials submitted to the Exchange as part of its post
listing requirements? The company only held an AGM after a request/query
from the SEC was made.
Let us therefore get back to brass tacks. Our objection to the move by SEC is
not to protect Ndi Okereke-Onyuike but to resist the use of unrelated matters
to achieve a goal. If the interest of the market and its integrity is paramount to
the SEC. It knows where it missed it and what else to do. Ndi will have to die
another day!
We suspect that the Council of the Exchange would consider it appropriate to

wade in and provide an appropriate response to the 7-day ultimatum issued to
its DG and itself on Akingbola; and set the records straight once and for all.
SEC and indeed the NSE have more serious problems at hand and if they are
convinced that she should retire before her tenure ends in 2010, they should
say so or put up with her for the remaining time left. The wisdom of the choice
open to SEC lies in the reading of the tea leaves on this matter.
SEC and the Insurance Sector/NAICOM

The SEC will have to get ready for the implosion of disclosures from the
insurance sector, especially the listed firms. It is not a hidden fact that not a
few insurance firms invested proceeds of their capital raising exercise in the
stock market and ended up with losses. Some of this has had to be written
down by some of the firms which indeed led to changes in management and
business model. The write downs are already trickling in based on their
exposures to the capital market speculation they engaged in. What is the
commission’s plan to look into this and address the lopsided revenue matrix of
the insurance firms which has titled more to income from asset management
activities than from core insurance engagements?
The Commission will have to work closely or independent of NAICOM (as the
permutations allow) to examine closely the books of accounts to determine
whether the insurance firms had been engaging in activities of asset
management in the past few years rather than their core businesses.
What is paramount now is the protection of the integrity of the market and the
investors who have staked their funds in the ‘publicised resurgence of the
insurance sector’ as the next goldmine for investors.
United We Stand, Divided We Fall

As we write, there is yet no public insight into a collective market regulators
response to the gauntlet thrown by the Central Bank on August 14, 2009. The
CBN obviously did not inform both the Securities & Exchange Commission
(SEC) and the Nigerian Stock Exchange (NSE) before hitting the ground and
running, despite the known fact that the five banks were also subject to capital
market regulatory oversight.
In spite of the gravity of the CBN actions that’s gone far and beyond the
‘responsibility to act to protect all depositors and creditors and ensure that no
one loses money due to bank failure’, the Central Bank of Nigeria should have
been engaged by the SEC to align its actions with. Millions of bank depositors
and creditors as well as debtors are also investors and shareholders in the
same banking institutions. That is a fact.
The banks currently under CBN sanctions and those that will follow before the
year end, were recapitalised in the past five years with the active support of
the depositors and creditors both within and outside Nigeria. Hence it takes
more than a passion to succeed and good intentions to undertake the
ongoing CBN crusade.
It’s often said that it takes more than being a thief to run a country aground.
Sheer speed over accuracy could be equally disastrous.
The wider implication therefore, is that the CBN might actually be overreaching
at the detriment of other regulators, if they are alive to their responsibilities.
The CBN cannot go it all alone and where there are procedural conflicts in the
management of the market correction/reform plan; it represents a basis for a
change in legislation and the need for a financial market ombudsman or/and a
financial services authority that co-ordinates and serves as a critical bridge
between parallel regulatory authorities.
As soon as the current messianic public drama dies down and Nigerians get
back to their normal businesses , SEC and its kind will go back to ‘business as
usual’. We have been here before.
For the records: The CBN action practically slammed down about 80 billion
ordinary shares of the affected five banks with hundreds of thousands of
investors holding the short end of the stick. Four of the five banks
(Intercontinental, Oceanic, Afribank and Union Bank) are among the Top 20
most capitalised companies on the Stock Exchange as at the end of June 2009
while Intercontinental Bank and Union Bank were among the Top 5 most
capitalised.
Right now, the Central Bank has suspended until further notice, the statutory
annual general meeting of any of those banks – so what has the SEC got to
say about that? The market has gone far ahead of the regulators and this fact
should not be ignored without a much more fundamental risk to the regulatory
framework. It is not about the rules but the strategy, structure and processes
that deliver the goals of such a regulatory body. The stakes have become
much higher than it was two to three years ago.
Can SEC read the ‘Tea Leaves’ Correctly?

Thinking and feeling beyond the present moment therefore, it is our candid
opinion that the SEC will behave true to type: meaning that the Commission
will keep nibbling at the heels of the CBN without making any strong leadership
move that would calm investors’ nerves, restore and sustain market
confidence.
Instead of charting a course of pragmatic actions beyond the rhetoric, the

Commission wants the new management of the affected five banks to “settle
down and appropriately brief the market” (NOT the SEC – passing the
buck). This is a regulator that cannot and will not likely assert itself, even
under a Tsunami like we have now.
The Central Bank has stated that its ‘forensic’ audit will encompass the
subsidiaries of all the banks that mushroomed immediately after consolidation.
Suffice to say that most of these subsidiaries are involved in capital market
and other financial services activities and their actions thus fall under the
purview of the Securities & Exchange Commission or SEC. These include
companies registered and licensed by the SEC. What is SEC’s role in this
development and what should investors be looking at? The sad news is that
the SEC is not addressing the wider implications: the Commission cannot think
and feel beyond the present CBN debtors list and the sacking of bank
executives.
Failing to recognise that this is one unique opportunity to get all the bad news
out – and use that to rebuild confidence in a market showing some resilience
to recover cannot be an encouraging signal, yet we still retain a cautious
hope that this time, things will not remain the same. SEC will not waste
its time trying to tout its achievements but recognise that even if its one issue
that is unresolved in the market – it is a Major issue. It is this mindset that
would make it win back the confidence it so much requires to function.
“The Regulators of the NCM i.e. the SEC and NSE are almost silent about its
biggest apparent failure, just as public attention on the failure is at its
greatest.”
NSE AND THE CHALLENGE OF SELF REGULATION

It’s often said that a country deserves the type of leaders it get. This is apt in
the case of the Nigerian Stock Exchange.
Cutting through the chase, it is a well known fact that we a ‘balance of terror’
situation in the market. The NSE is able to stalemate the SEC at any given
point in time through a function of its history and the influence of its principals
and market clout.
The game has been on for a while and we discussed extensively at the
confidential market briefing we held on August 3, 2009 at the Moorehouse,
Hotel Sofitel in the wake of the NSE Council presidency crisis.
The Securities & Exchange Commission’s regulatory inertia and lack of will-
power, perhaps owing to the manner in which its leaders have emerged over
the years (where some have performed better than others due largely to their
business acumen, political leaning and individual clout) has resulted in a
situation in which the Nigerian Stock Exchange, although a self-regulatory
organisation can blindside the SEC.
The SEC has spent most almost all of its 30 years existence trying to tame the
larger-than-life existence and image of the NSE. But the SEC has always ended
up one step or several steps behind the Stock Exchange.
History testifies to the fact that the SEC will prosper as a regulatory body if it
stops chasing the shadows of the NSE and faces its core functions as provided
under the enabling law.
Are we truly a market and nation of laws?
We answer in the affirmative. We are this and much more.
We are a people, whom when confronted with tyranny and bad governance
have worked hard to achieve changes painfully and slowly but doggedly and
with conviction.
It is that Nigerian spirit that motivates us to believe that action will be taken
by all concerned including the stakeholders for whom this report is equally
available.
The powers of a self-regulatory organisation not limited by shares or publicly

owned could be enormous in a country such as Nigeria.
Of course, its common knowledge that self-regulation is not an easy task.

From simple rules against over-speeding to obeying traffic lights to zebra
crossing, and so on.
Self-regulation was one of the pillars of the BASLE 2 Capital Accord that asks
banks to challenge its own actions and inactions. But the events of the past
two years from United States to United Kingdom, from Japan to Nigeria have
shown that self-regulation of market institutions require constant regulation
from the apex regulatory body, market analysts and the government.
NSE and the Market – Benefits of History
The challenge of self-regulation at the Nigerian Stock Exchange was borne of

the preamble stated above. The NSE itself was a creation of the CBN.
The NSE, we believe would like to work closely with the SEC and perhaps
retain some level of influence of the regulator. The NSE however operates and
communicates a position that suggests it believes the SEC was hell-bent on
pulling it down at all cost rather than grow and develop the capital market. It
has thus dug in its heels and raise d a firewall in its relationship with the
regulator.
This is a strong conclusion or assumption to make but the evidence all point to
the same conclusions.
The past twenty year history of constant ‘warfare’ between the SEC and the
NSE, especially during the tenures of former SEC Chiefs, Late George
Akamiokhor and Mallam Suleyman Ndanusa come readily to mind. Simply put,
both institutions hardly had a time of peace and quiet to handle the principal
interest of investors’ protection and development.
The position of both the SEC and NSE as partners in progress has also been
worsened by the interference of the political class, during the military heydays
as well as under the current civilian democratic dispensation.
The government created the SEC just like every other parastatal - with little or
no infrastructure and funding to do the job. The government and its
paramours coveted the shares of government institutions, poked their nose
into who gets on the Council of the Stock Exchange and SEC’s Board - and
practically make life miserable for the NSE, bogged down the SEC with
bureaucracy and retains the levers to tele-guide it by claiming ‘due process’
and ‘regard to protocols’ to such an extent that it has almost ruined the market
place.
The boom in the activities of the capital market since 1999 after the advent of
the current political dispensation has lent credence to the fact that the
government, if unchecked, is a spoil-sport.
NSE and Stockbrokers
Let the truth be told, there is a need to review this relationship from a holistic
perspective.
The concerns here are as follows:

The absence of a transparency in the information flow through the NSE
website to enable investors know what is going on, real time is not
reflective of an exchange that we seek to be.
The NSE rules on insider trading are not available for public consumption.
These rules ought to be set and reviewed by the SEC but a forward looking
exchange would seize the initiative to advance an advisory to SEC on the
feedback from infractions (reported and otherwise) that have been brought
before it, which often is not available to the SEC.
There are no protections for those who speak up against the system – not
to be ignored is the unwritten code at the exchange that to speak up
against the DG or the exchange is a crime. We however done so over the
years when considered critical without any punitive measure taken against
us till now. Rather, we have enjoined a rigour in the discourse generated
and thus lies the problem of perception or ‘cloud of fear’ created which
needs to be removed.
The level of infractions in the market has grown over the years and the
means of resolution has done little to promote the building of an institution
as against that of personal responsibility. This is seen in the ‘role’ or
‘interference’ played by the current House of Representatives Chairman in
a number of issues which suggest an overreaching of the oversight function
the house has.
The recapitalisation of the market must now be revisited and decided upon
in favour of an increased capital requirement. The arguments before was
that stock broking firms did not need capital to conduct their business. The
current crisis has revealed far more reasons and justification to take more
than a closer look at the operational structure, capital and capacity of
these firms as a vehicle of wealth creation and growth in the country. Key
issues immediately come to mind:
o Increased transparency and disclosure requirements – The annual
financial statements of brokerage firms and other capital market
operators are not verified, scrutinised or audited by the NSE and
SEC independent examiners.
o The stock exchange conducts visits to brokerage firms but, as we
found ion the case of Transglobe and so many other firms – some
of these firms do not even have audited accounts or carry
qualified accounts for upwards of two to three years without any
sanction being imposed on them.
o The level of credit that can be expected to undertake must be
pegged relative to their capital to stem the current situation
where a stock broker took on an exposure of N88bn under
whatever guise. It was simply unethical for the SEC/NSE to find
themselves in a position where they could not have ascertained

what was going on.
o It is high time we democratised the operations of the stock
broking business to allow individuals to trade with brokers of
choice through an electronic system that guarantees the brokers
their commissions.
o The sanctions and reprimand on erring stockbrokers have been
sidestepped on a number of occasions. This cannot be a good
indicator of the market.
o The role of stockbrokers in the price movements of the stocks of
certain banks and quoted companies must be thoroughly
investigated to identify why this continues unabated. The
disclosure by the NSE in its annual accounts that the NSE has
bought software to allow it track decisions, actions and trends by
brokers is welcome. This should equally be made available to the
SEC to create a comparative evidence platform should such
allegations occur.
The number of brokers and their spread is not a reflection of our growth
but that of our greed. The case for the promotion of an industry wide
consolidation amongst firms has been made. We call on the NSE to act
accordingly.
Self Regulation – Facing the Facts
All of the above notwithstanding, the Nigerian Stock Exchange has issues to
face regarding its own internal self-regulation processes. The lacuna therein
has been seized by the public and sometimes by the SEC to lash at the almost
50-year old stock exchange.
First, we must acknowledge and express our debt of gratitude for all members
of management and council of the stock exchange for the great heights they
have brought the market. This is no mean achievements and it would not be
an attempt to rewrite history or praise-singing, if we say that the country has
benefited from their industry. The NSE and its officers should be praised for
surmounting all odds to have become the centre of capitalism in Nigeria, even
in the face of personal adversities.
Yet in this achievement lies the paradox of all heroes – soon, enough they
would have to fade away lest their success becomes the Achilles heels of their
downfall. They do not have to do anything wrong afresh for the standards they
set must be sustained and raised beyond that at which they are now tired.
This is the irony of life and nowhere is it truer than in this market. Longevity
is not the goal, achievement and transition is the name of the game.
The clamour therefore for the DG, NSE exit must therefore reflect the
sophistication she brought into the market for which we would hold her
accountable, albeit not through a mob trial or on spurious charges.
Effective self-regulation in a country where lawlessness is the order of the day

from top to bottom is surely a challenge. As faulty as the processes were, as
weak as Ndi would admit her management and council had been in the face of
political pressures and self-interest; and as humanly possible, the Nigerian
Stock Exchange has grown from a market worth just N16.846million before
the Civil War in 1966 to more than N12.0trillion at the peak of 2007, a period
of about forty years.
Many issues have tried the ‘soul’ of the Nigerian Stock Exchange as an
institution, but the Transcorp affair is in a class of its own. In the current
matter of bank bad creditors, Transcorp Plc’s and the name of its Chairman,
Professor Ndi Okereke-Onyuike has come to the fore. We dealt with this briefly
in the last section but now explore it as it relates to the NSE.
The Transcorp Affair – Case Study of Position and Reality
A few of our reports and comments on Transcorp and indeed the DG, NSE as
far back as 2007 and up till 2008 are provided hereunder to demonstrate the
point that this entity is worth a lot more dead than alive! The soul of its
creation has left the vessel carrying its physical frame. A good end must be
found to this ‘problem’.
The Initial Public Offering of Transnational Corporation (Nigeria ...

http://www.proshareng.com/admin/upload/reports/Transcorp%20White%20Paper%20-%20Jan%202007.pdf
Transcorp: At What Price?

http://www.proshareng.com/articles/singleNews.php?id=4
Transcorp: Matters Arising

Transcorp and Martial Law

Transcorp Nigeria Plc. and Tom Iseghohi

Understanding the SEC directives

The full suspension placed on the shares of the five banks viz: Afribank,
Finbank, Intercontinental, Union and Oceanic) was based on precedent and
designed to protect the investors. Both SEC and the NSE have almost always
acted jointly to prevent a run on the shares of any quoted companies,
including banks whose problems became so controversial and investigative in
nature. Examples of these include: African Petroleum, Wema Bank, Cadbury,
Transcorp etc. The action of the SEC to confirm the NSE full suspension
on the shares of the five banks was therefore commendable.
Dissecting the SEC August 19 directive further however, the SEC order to the
NSE directing it to suspend any member of the Council who were affected by
the CBN action in the five banks pending the conclusion of investigations of
allegations, raise a number of fundamental questions and issues.
First, the Securities & Exchange Commission (SEC) is a bystander on how the
members of Council of the Stock Exchange are chosen or appointed.
Under what authority therefore did the SEC order the immediate suspension of
any member of the NSE Council involved in the CBN-sanctioned five banks?
If any member of the NSE Council is guilty of any civil or criminal matter, such
individual are brought into the full extent of the applicable law in his or her
personal capacity. The council, despite all its challenges and limitations
comprise of the icons of our society and we should hesitate a moment when
taking action.
For example, in the instance of the prosecution of the Late MKO Abiola on
allegations of treason against the state/government of Nigeria on the
matter of the botched June 12, 1993 general elections, the SEC did not call for
the suspension nor removal of Chief M. K. O. Abiola, FCA who at the time was
the sitting President of the NSE. In the specific case of Mr. Erastus Akingbola,
the displaced Chief Executive of Intercontinental Bank, his service on the
Council of the NSE was honorary and not representative of his commercial
bank.
We acknowledge the thin line threaded here between personal and official
capacity but an advisory and not a directive would have been sufficient from
SEC. Indeed, the council would have, on their own, met with Erastus Akingbola
and discussed on why he has to ‘step aside’ for the sake of the overall market,
albeit; subject to an indictment by the court of law or in the absence of that, a
letter from the CBN.
This advisory would and perhaps be rejected by Erastus Akingbola who may
cite the recent history of the stock exchange through the election of Aliko
Dangote as its president on allegations and not indictment. This was the
argument made then, and echoed by most analysts who were concerned about
the unnecessary heating up of the market.
Suffice to say at the moment that the CBN’s removal of the CEOs and
executive directors of the ‘August Five’ has nothing to do with insider abuse or
share price manipulation yet, one on which the SEC has full jurisdiction.
The Five bank executives including Erastus Akingbola were accused of granting
excessive loans, weak corporate governance and exceeding the expanded
discount window. These are professional banking practice misbehaviours as
alleged by their regulator.
We recall that no advisory was issued by SEC on this development. Either way,
the NSE should self –regulate itself here as a matter of decency. There is a
limit to defending what cannot be used as a standard of conduct. Rather the
NSE should seek to raise standards of decorum, conduct and responsibility.
The more cogent explanation for Erastus Akingbola’s removal and not even
suspension from the council of the exchange can be located in the CBN’s rule
that ‘all persons removed/sacked by the apex banking regulator for
unprofessional conduct may not serve in any capacity in the financial services
sector’.
SEC and indeed the NSE council are therefore advised to seek clarification from
CBN on the basis on which its orders were given and the extent of its
application beyond the immediate purpose for which it issued the order.
Our guess is that, if the national award bequeathed on him as well as others
are not rescinded by the Federal Government yet, we should tarry a while for
an advisory from the Attorney general or/and CBN on the matter.
The SEC’s directive of suspension could therefore have been, at best, advisory
in nature, written directly to the Council of the NSE and not celebrated on the
pages of the national newspapers.
NITEL – The Problem Child and the NDI Connection
The case of Transcorp and the NSE Chief, Ndi Okereke-Onyuike was a major
item on the SEC directives. To begin with, Ndi Okereke has stated that she did
not take a personal loan from any of the five banks neither did she give a
personal guarantee on the credit obtained by Transcorp plc in the bid for the
controlling 51% equity in the embattled government telecoms utility, NITEL.
The funds sourced by Transcorp for NITEL acquisition via Union Bank and other
banks were paid into the coffers of the Bureau of Public Enterprises (BPE), the
government agency in charge of privatization. These billions of Naira have
been sitting in the accounts of the BPE, nay the government for almost four
years while the same government through the BPE has withdrawn NITEL from
Transcorp but failed to return the bid money to Transcorp or directly into the
banks where it was sourced.
Ironically, the government has consistently acted in bad faith against every
company that have taken bank credit locally to acquire the shares of NITEL,
badly run aground in itself by the same government over the years.
Some six years ago, before the birth of Transcorp, a company known as
International Investors Limited or IILL sourced some 100 million US Dollars
from First Bank plc to acquire majority shares as core investor in NITEL. The
process was botched and First Bank wrote down some one billion Naira in the
financial year through its share premium account. The BPE returned only
about 85million US Dollars to First Bank through IILL. The rest is history.
Despite the misgivings of some against the Chairmanship of Professor Ndi

Okereke-Onyuike of Transcorp while acting as the CEO of the Stock Exchange,
Ope Banwo, an Attorney-at-Law and Market Ombudsman, told Business
Morning, a top-flight television programme on Channels Television on
August 21, 2009 that the ‘debt situation of Transcorp Plc results from a
shift in political considerations and leverage guiding the privatization

of NITEL.’
The former Managing Director of Transcorp, Bernard Longe, who was the CEO
of First Bank that was sacked over the 100million Dollars NITEL/IILL loan, said
during Transcorp initial public share offer road shows in 2006, that some
political elements dissuaded banks from granting credit to Transcorp to acquire
NITEL controlling shares. When Transcorp eventual got the bank loans, the
Fifth Columnists never allowed Transcorp to settle down and revamp NITEL.
Over the past three years, Transcorp has consistently accused the government
of bad faith in the joint venture of NITEL. The SEC never lifted a finger.
To begin with, Ndi-Okereke’s Chairmanship of Transcorp was officially

requested in writing to the Council of the NSE by former President Olusegun
Obasanjo, the midwife-in-chief of the transnational corporation. The NSE
Council’s accent to Obasanjo’s request resulted in Ndi becoming a ‘career
Chairman’ of Transcorp, Ndi not being statutorily elected by the Board of
Transcorp. The safety net for the SEC at the time was to issue a set of
corporate governance guidelines expected of Ndi during her tenure at
Transcorp. SEC never did that.
Having said that, we restate our conviction that this scenario should and must
never happen again. The ‘conflict of interest’ lines are simply too blurred and
the level of our market cannot rise up to such complex arrangements that calls
for a higher level of transparency, disclosure and corporate governance not yet
available at the stock exchange.
Information available to us that the Federal Government having realised

that it has mismanaged NITEL as an organisation as well as its
privatisation over the years, would issue a directive to the BPE
directing that the ailing national telecommunication utility be
privatised in 60 days in a manner devoid of previous ‘shenanigans’ heavily
influenced by political considerations over market and economic realism.
The Bureau for Public Enterprise’s Director General, Dr. Christopher Anyanwu
admitted earlier in the year to the association of issuing houses that the
political undertones of the fifth columnists in the political and business arena
make the job of privatisation difficult for the BPE and that he hopes that this
elements would allow the BPE carry out its functions without any hindrance
during the next phase of the privatisation
The botched privatisation of NITEL has had unintended consequences on the

banks and the integrity of contracts related to the Federal Government of
Nigeria.
The current Vice-President made a veiled reference to this during his

discussion with the BPE top officials that the next NITEL privatisation should be
done devoid of previous mistakes that resulted in the cancellation of NITEL
majority sale to Transcorp Plc.
The matter is thus rested. Transcorp as a company is the Federal

Government’s creation under the Obasanjo administration. The subsequent
headache it represents is indicative of the change in government and policy
and practice approach.
Thus, the Federal Government under Yar A’dua appears to be determined to

put it out of its misery without accepting liability for the investor’s funds it
sourced publicly.
Failure to do this would be the establishment of a paradigm that would be

closely used to define any engagement with the Federal Government – can we
trust that this Country will not reverse itself when another administration
comes in? For some countries, this is already true but we, as a nation, cannot
risk such at this time.
The ability of government to raise such an institution with a purpose to enter

the capital market is forever lost. We intend that this document reminds the
people of such a possibility and hope that through the actions of Government
that will be able to rebuild the broken trust laid bare.
NSE: The Aliko Dangote Presidency and Matters Arising
There is no denying the fact that the most recent buffeting of the NSE has its
roots in the not too distant past, compounded by the recent worldwide financial
markets turmoil that has wiped-off several trillions of naira of investors’
money.
Added to the global market malaise was the increasing market discomfort with
alleged discovery of malpractices by market operators, some quoted
companies, and regulators (who failed to act to stem such practices). The
fallouts of this leadership meltdown can be seen in the increasing demand for
action to encourage more disclosures, risk management, improvement of the
weak corporate governance of listed firms and regulators, waning confidence in
the capital market due to the chaotic nature of getting things done, and the
unclear and conflicting signals on the impact of toxic assets on the banking
stocks listed on the Nigerian Stock Exchange.
The inconsistencies on policy matters by the regulators (including the NSE) as

well as the reality based perception among the investing public and the
government, that the market regulators and supervisors are as much
of the problems themselves rather than the solutions gives the status of
the NCM at this time, a not so deserved image considering the strides it has
made.
Expectedly, both SEC and NSE continue to receive damning assessment of

their supervisory independence, capabilities, relevance, efficiency,
effectiveness, competence as well as sincerity. This clamour and perception
has not abated as was evident during the run-in to the NSE’s AGM, which was
dangerously approaching a political field type battle rather than the
professional and gentlemanly succession process it has been known for.
THE SUSTAINABILITY ISSUES ARISING: THAT WHICH MUST CHANGE!
“Our Market must not run like a medieval Kingship where all around it, you find
intrigues and courtiers seeking to advance self interest. Under such a
perception, the principle of level playing field which builds confidence is
compromised."
The first step to addressing would appear to be the unity of purpose shown by
the principal players in the market without exception which went a long way to
douse any flame of discord and helped to position the presidency and the
exchange in a fair starting position, considering the challenges. The Aliko
Dangote presidency must therefore take advantage of this ‘summer break’ to
set the tone for the change needed.
So what can the Dangote presidency achieve?
Already, the market has spoken – what is needed is a bold, visionary and
efficient leadership by an independent minded council. This must be an
immediate but well thought-out sequence of interventions and engagements all
geared towards ensuring that a signal is sent to the market that the NSE is
ready and willing to do what is needed and has the understanding of how this
will be done.
The re-engineering of the Nigerian Stock Exchange must therefore be a task to

be pursued at three levels:
Political/Corporate Governance – This will involve the review of the

past reports on the NSE to identify critical elements of its corporate
governance that needs to be re-calibrated (maybe not entirely
overhauled).
The most obvious is the role, relevance and effectiveness of the NSE
Council as a Board of Directors platform where best practice corporate
governance rules will be set and enforced. This cannot be achieved without
revisiting the basis and criteria for Council membership. This is a thorny
issue for which there are no easy answers. A symbolic change will be a
disaster.
The changes needed will cover code of conduct, declaration of interests and
direct/indirect holdings in companies listed on the stock market and a
disclosure requirement for directors of quoted companies to ‘disclose’ their
share dealings above set limits (as applicable in other climes).
The more feasible approach to this is the delicate management of the de-
mutualisation plan as a basis for negotiation. This would ensure that past
presidents and council members who have worked so hard for the NSE are
not relegated or ignored but the conciliatory benefit must be the shift in
the constitution of the new council/BOD to reflect the needs of a 21st
century stock exchange which also has room for the management team to
‘become directors’ in the new BOD.
On this issue will be the obvious management of the planned exit of the
incumbent DG of the NSE. The challenges here are huge as the NSE has
hitherto functioned without a succession plan that allowed its top managers
to function in acting or leadership roles.
The NSE Management Structure & leadership Development Plan
The NSE has had a glorious growth under the DG since she took over from
Apostle Alile in 2000. As she approaches the end of her 10 year tenure in
2010, the market owes her a debt of gratitude and must seek to work with
her, in partnership, to deliver on the changes needed to bridge the
management gaps apparent in the structure of the NSE.
Since 2004 when Razak Oladejo retired as the Deputy Director General,
the NSE has functioned without a DDG, despite its increased level of
business activity and challenges. This presents a succession challenge
which we understand is a key focus of the DG, and most certainly that of
the new council.
Moving Forward
Far more important is the skill set of the team in place to deliver the huge
changes required. The experience, knowledge and clout of the current DG
remain invaluable and must be a factor in any consideration for the
changes needed. This must however not be a deciding factor in the
rationale for building a post-Ndi NSE. She can and must not be treated
with scorn as will be seen in the actions of President Obama who
intends to nominate Ben Bernanke (whose term expires in 6
months time) to a second term as head of the Federal Reserve
despite the pressure to ‘hang him’ for the collapse of the economy.
More important however must be the relationship between the NSE and the
SEC. This remains a very difficult issue whose challenges stem from the
formative history/years.
There must never be a doubt as to the role and responsibility of the SEC.
The NSE must do all in its powers not to whittle down the powers and
relevance of the SEC but actively engage in the politics of its structure and
leadership through a combination of the deft management of the SEC, the
House of Assembly, the Presidency and the Ministry of Finance on the one
hand.
At the other hand, it must forge a ‘back door channel’ of communication

needed to build a close relationship with the institution and resolve
challenges.
The more apparent one is the re-introduction of a consultative forum

between the NSE, SEC, CBN, DMO, NDIC and the Ministry of Finance to
discuss issues of common interest.
Strategy/Reputation Management – From a strategic viewpoint, the

composition of the market (covering its membership, discipline and rule
book) will have to be reviewed to bring it at par with current best practice.
We can no longer hide away from the fact that a correlation has been
established between the actions of the NSE, its communication and the
impact on investor’s confidence. The sustained bear market is evidence
enough.
The setting up of a high-end communications management team (internal

communications, Events management, media relations, brand
management, external relations, lobbying and foreign affairs) is long
overdue.
Institutionalising this is a most; and this should be approached from a

more strategic perspective to enable the Aliko presidency draw closer to it
the much needed goodwill it requires to execute the change management
program.
Handling such issues as de-materialisation, de-mutualisation, and the

current negative press on the person of the president, the DG and indeed
the NSE must be a priority for this team.
It is not enough to have a ‘relationship’ with the media which, it has

been shown is nothing more than ‘historical courtesies sustained by
money’. In this approach, loyalty is negotiable while feedback is
often at times sycophantic. We need to step up the game and create a
dual level of engagement that addresses the base needs but moves rapidly
to build on the ‘break’ offered to move the message directly to
stakeholders.
Technology affords us the opportunity to deliver this, just as strategic

alliances offers us the common touch to build an open communication
system that eliminates middle men who retain their relevance due to the
‘rumour’ mill created by the absence of a credible information management
system. This we expect to cover TV, Radio, Print and the Web with a
conscious focus on ensuring that the leadership is not overexposed but
positioned to represent the power base sought for the exchange to achieve
its goals. The focus must be on institution building in order to fulfil
the legacy objective this market deserves.
The Exchange, if compared with the new London Stock Exchange building,
must realise the need for a fully equipped and market funded (through
sponsorships) press centre that allows unfettered access to news and its
dissemination for all accredited journalists. Truly, this must be more like an
office for them just as BBC and Sky News does.
The NSE venue is also useful for quoted firms to hold all their press
conferences in a place where all the capital market correspondents are
usually present. This will not be a revenue earner but a value added to
quoted companies as an incentive for being a listed member (meeting all
post-listing requirements of market information) of the exchange. This will
engender a basis for compliance with the ‘facts behind the figures’
presentation.
Further, the NSE building as at today could be improved to look a lot more
like a modern exchange that intends to attract men of distinction and value
by turning it into a place of order and service excellence. Creating this will
and should not be a difficult task. The change required starts with the
recognition that such an institution must be a place where kids can
undertake school tours, businesses can undertake a familiarisation tour or
exchange program as well as make it friendlier for shareholder associations
to hold parleys.
Suffice to say, the exchange must become a platform where ‘business is

done’ and a veritable venue for holding corporate activities which
enhance the ‘news-to-market’ model required for effective
communication.
Processes/People – The need to take the exchange towards a

technological shift where the processes for conducting and managing the
business of the exchange is IT driven and compliant.
This will include such processes as available on www.proshareng.com and

such interactive services like a partnership with mobile phone companies
for text and data updates as well as market round ups on multi-media, TV
Programs like we do.
The more factual one will be the integration of CSCS data with the NSE to
allow investors in and outside Nigeria to access their personal data from a
secured service and provide the intelligent information needed to make
decisions.
The above cannot be achieved however with people who do not have flair
or affinity for IT and its deployment challenges. This must be a key factor.
To achieve this, the market would have significantly moved to address a

key concern in ensuring that the exchange moves closer to the process
requirement of a post 2006 consolidation and capital market boom in
clientele and service issues which it has maintained (or has reduced)
capacity to deliver on.
The needed professionalism in the exchange will be attitudinal i.e. seeing

working in the exchange as a career move with the attendant respectability
whereby companies see the institution as the preferred recruitment ground
for competent, capable and credible hands to manage their stock broking
businesses. The change we seek will come from within and not one that
would be attracted to an institution plagued with a perception of perfidy.
This should be the tool to reclaim the moral authority of the market. The
institution, through the deployment of adequate and need-based
technology will be able to send the most important signal to the market
that enforcement will only be the human intervention required. We need
this as a nation, as a people and as a market.
We believe that the above informed the thinking of the NSE president when
he laid out in his short address the means of dealing with the realities of
the market. His address touched on key issues, saying that the changes
sought would be:
“accomplished by ensuring that we have a more open and fair market,

improving the disclosure standards, forging a closer and better
collaboration with other regulators particularly SEC ( while still protecting
the independence of the NSE). The zero tolerance regime envisaged should
be emboldened to ensure speedy penalties on operators who flout our
rules. Our surveillance, compliance and enforcement units will be further
strengthened to ensure that they operate optimally. We will update our
corporate governance rules not only for our listed companies but also for
operators and the Council itself because charity must begin at home.”
“If the Stock Exchange and its dealing members must continue to remain
viable economic units, we must make sure that we increase the liquidity
and turnover in the market. One of my first missions will be to lead and
intensify discussions with other relevant parties in the economy to put in
place a plan to improve the liquidity and turnover in our market particularly
in the secondary market. We have to discuss and agree on what to do with
the ‘toxic assets’ in our market and very critically how to provide funding
for our stockbrokers to refloat their businesses. If we are to compete with
other market on the continent, then we have to begin aggressively
marketing all the high quality companies in the sub region to make sure
that they are listed in our market. I will make sure that we take very
concrete steps to ensure that we further deepen and expand our market by
introducing other products and attracting more investors. Working with the
management of the NSE, I will make sure that we adhere to the timetable
to dematerialize the market so that by January 2010 we do not have
certificates in our market.”
He added, “I will ensure that we strictly implement the ongoing enterprise

business transformation exercise which is aimed at improving the efficiency
in the operations of the market and update the entire business processes
of the Stock Exchange. I am aware that the business transformation team
is currently working on the detailed operating process for each business
unit of the NSE. What is left is to ensure that market rules are reviewed,
aligned and harmonized with issuance and trading practices and
technology. Given the recent world wide experience, risk issues have now
come to the fore in the markets. We have no choice than to increase our
focus on ALL RISK issues that are likely to affect our market.”
NSE simply has to start preparing for a change
This new council is in it its sixteenth day (today) and come November 08,
2009, the first 100 days would beckon. We need on this day, an activity
schedule that would define the council as being relevant to the times.
The NSE council would have to address the succession requirements for the
post of the DG, NSE this year and not any time later. Such a choice must be
one that has the boldness, visionary leadership and political acumen to lead
the capital market/exchange out of the woods into a growth path.
"I am not so much interested in the staging of the fight, more in the results.
My way is results-oriented."
- The Banker Manager, page 17, March 2008 Ed
CLOSING THOUGHTS ON THE DEVELOPMENTS SO FAR

We are not under the illusion that the reforms we need will be an easy task, or
that the forces stacked up on both sides will give in.
After all, those who have benefited from the previous order would resist
vigorously the changes being sought. It is at such moments of national crises
as we have that nations find a means of pulling together. This is one of such
moments.
This period would challenge individual and national values and ethos and we
must resist the resort to anarchy to fight the obvious ‘conspiracy of criminality’
that has been exposed.
The comments made here are not designed for ‘screaming headlines’ but for a
sober reflection by all those concerned, including you the reader – investor – to
rise up to the challenge.
Before we conclude this report/review, we have some few comments to make

on certain issues.
CBN – The Decisions Taken
There was another way that would have delivered the same objectives sought
by the CBN.
In brief the following could have happened:

In the light of an uncompleted exercise but being faced with a need to
make a decision on banks considered ‘capable of creating systemic
problems’, the CBN can get the approval of the president to give it
permission to carry out a series of options that would both be timely, far
reaching and critical to the market – enough to send out a signal of intent
and foreign investor signpost.
For one, the CBN would have called the Board Chairman, Bank CEO and
Company secretary for a meting where the following decisions would have
been presented:
That the CBN demands that the negative position at the EDW and
Interbank be eliminated in a set period – say 3 months through an
injection of cash from the CEO;
That the CBN would be recommending for immediate employment
an Executive Director/DMD for the bank to resume immediately to
manage the operations of the bank and that the authority mandate
of the bank will have tom reflect this appointment such that no
money is signed out without the signature of this appointee;
That this appointment will be backed up with the posting of officers

from the banking supervision unit to conduct a ‘forensic’ audit of the
bank;
That the obligations of the bank to international customers will be
guaranteed by the CBN at a price;
That the immediate provisioning required to be made by the bank be
announced by the existing CEO who would be held liable for the sum
and made to offset this with the current value of the shares – direct
and indirectly held – in the bank and elsewhere;
That the CEO will be proceeding on a compulsory leave at the end of
the 3 months timeframe for restoration and restitution;
That the passports of all members of the executive management
team be submitted to appropriate agencies till the CBN is satisfied of
the plan review; and
That a massive debt recollection programme for debtors categorised
‘under & non-performing’ loans be undertaken which would include
demand letters copied the CBN who would have briefed the judiciary
on the need for a speedy resolution of the applications to it as a
matter of national security. The massive collection of debt will be
driven through communications with debtors backed by the full
weight of the CBN.
The above steps would have helped the CBN to contain mischief, address
issues and take legal and criminal proceedings against any or all persons it
is able to establish evidence against.
Our sense is that these steps were considered but was considered unfeasible
due to the capacity of Nigerians to exert pressure on the political class who
have never been able to stand up to the money class.
CBN: Motivation for Aggressive Debt Collection becomes Apparent

- Plans to Auction the ‘distressed’ Banks
Tony Chukwunyema of Business Hallmark declared last weekend that any

hopes that owners of the five troubled banks recently taken over by the
Central Bank of Nigeria (CBN) may have had about regaining control of the
institutions appear to have been finally dashed. This followed revelations, late
last week that the apex bank plans to auction the banks.
A source close to CBN Governor, Mallam Lamido Sanusi, informed Business

Hallmark that the decision to sell off the banks was arrived at after a careful
consideration of several other options that the CBN had originally wanted to
adopt on the issue; signifying a shift in the Governors address.
According to the source, the earlier plan announced by the country's top
financial institution that its newly appointed Managing Directors for the
five banks would run the organizations for between five and seven
years, during which steps would be taken to recapitalize them that would
include allowing former owners, able to raise the required capital, to regain
control of the banks, has now been jettisoned in favour of an outright sale
of the sick banks.
Giving reasons why the CBN plumped for the auction option, the source
stated that it was after the apex financial body realized that it would
have to inject trillions of Naira into the financial institutions in
order to keep them afloat for the period that the search for new capital for
them was on.
“The truth is that we grossly underestimated the level of bailout that would be
required to keep these banks afloat while we look for ways to recapitalize
them. From what we have seen in these first two weeks since the banks'
boards were fired, it is clear that we are going to require trillions of Naira as
bail out for these banks. The CBN can't afford that,” he stressed.
Dismissing speculations that the takeover of the banks was a ploy by the CBN
to ensure government control of the institutions, he noted that it was a
generally agreed fact these days that government lacks the capacity to
efficiently manage banks. “There is no interest, at all, on the part of
government to have a stake in these banks. The CBN cannot sustain the level
of bail out needed to keep the banks afloat and that is why we want to auction
them”, he stated.
CBN failed to see the early warning signs
Indeed, the signs were clear, very early, that the CBN was going to have
problems providing adequate bail out funds for the banks because barely 24
hours after Mallam Sanusi's revelation that the CBN had injected
N400billion into the five banks, this figure mysteriously jumped to N420
billion. Although the CBN did not give reasons for the sudden increase,
unconfirmed reports attributed it to urgent requests for further support from
the apex bank, by at least three of the five newly appointed Managing
Directors of the banks.
It has since emerged that the N420billion was shared by the five banks in this
format:
Oceanic Bank N100bn
Intercontinental Bank Plc N100bn
Afribank N50bn
Finbank N50bn, and
Union Bank was given N120billion.
Toxicity of Assets – Reasons for aggressive pursuit of debts
But indications that this amount would not suffice in bailing out these
institutions started emerging early last week when the new Managing Directors
confirmed, in their maiden press conferences, that their immediate brief from
the CBN was to embark on an aggressive recovery of debts. The apex bank
followed this up last Tuesday when, in an unprecedented move, it published in
most national dailies, a list of some of the affected banks’ huge debtors. The
list which read like a who-is -who of some of the wealthiest individuals in the
country caused a sensation on account of the mind-boggling figures that were

listed against the names of many of the debtors. It, also, revealed that apart
from the fact that only less than 300 individuals owed the five banks almost
N800billion, some of them were serial debtors, owing billions to several banks
at the same time.
More significantly, the list further showed that the bulk of these debts are
made up of the banks' exposure to the capital market and the downstream
sector of the petroleum industry thereby making any chances of their recovery
very slim. As one industry analyst put it, “Stocks have lost about 80 per cent
of their values since the market crashed last year and so even if the banks
have shares as security for some of these debts, they would not recover half of
the amount owed if they decide to sell. Same applies to debts owed by
operators in the down stream sector. The fall in the price of oil early this year
and the depreciation in the value of the Naira has made these operators to
incur massive losses, making it difficult for them to repay their debts.”
In other words, according to the analyst, “if the CBN hopes that the banks
would recover enough debts to bail them out of their predicament, then it’s got
another think coming.”
CBN – Adding up the Audit Maths – 3 More Banks to Go
One of the mathematical equations of our times was presented by the CBN on
August 14, 2009, viz:
Cleared + Distressed = 10
Currently Audited = 11
Total Banks in Nigeria = 24
The three (3) missing banks were left out but if one where to hold the CBN
Governor to his words as carried by the Thisday Newspapers on Sunday,
August 16, 2009 on the front page, the three banks were so listed by him.
In backing out of the earlier plan, pronouncement and pledge to fund the five
banks to recovery, CBN must have been influenced by its discovery that the
on-going audit of the remaining 14 banks that are yet to be cleared, is likely to
disqualify at least three more banks.
In fact, Business Hallmark has authoritatively learnt that three additional banks
have failed the audit and are soon going to come under the apex bank’s
hammer.
A list of their bad debtors would also be published. “If the number of banks
that are going to be taken over are going to rise above five, then obviously the
N420billion bailout funds provided by the CBN is going to be grossly
inadequate”, a financial expert noted at the weekend.
And as if to confirm the CBN's new line of thinking on the issue, Mallam Sanusi,
at a meeting of Central Bank Governors in Kinshasa, Democratic Republic of
Congo (DRC), last Thursday, August 20, 2009, told journalists that he
would prefer to have the five banks sold.
According to him, “I would rather have those banks valued properly and
purchased by other banks.” He went on: “Then in the event of there
being some resolution costs, finding a way of taking those costs and
writing it over a long term, which would probably mean issuing some
kind of bond over a 10 or 15 year period with National Assembly
approval”.
According to Dr. Chukwumah Biosah, president InvestIQ, “We should look at

this impending scenario – Oceanic Bank Plc received N100 billion from the
Federal Government and at the current share price of N4.94, it translates to 20
billion shares. The bank currently has 22 billion shares outstanding. So if the
government decides to sells their position at the current price, you are looking
at conservatively 42 billion shares outstanding for Oceanic Bank.”
“This is a massive dilutive nightmare to current shareholders. You can forget

about dividends and bonuses for a long time with a necessary massive share
reconstruction. Although, the bank can negotiate with the government that
they cannot sell their shares until the shares trades up to a specific price, and
the number of shares the government will receive for the injected capital can
be negotiated too.” This is a nightmare scenario we have.
CBN – The EDW vs. Bail OUT
The decision to inject N420billion into the banks is appearing to be a

recalibration of the Soludo Initiative – the Expanded Discount Window (EDW);
but with an upper limit set for which banks cannot go beyond without taking
action to increase liquidity through internally generate funds.
The simplistic interpretation we have given here presents a more honest policy
approach that could have been issued to deal with the open-ended EDW if that
was the concern and goal.
Final Thoughts
The history of bank takeovers induced by the CBN has been largely driven by a
reaction to systemic or possible systemic crisis and has been mostly
adversarial and highly charged, at best.
Not until the Prof. Soludo era did we notice M&A’s such as the IBTC Chartered
and Stanbic merger that went on without incident.
This was after his own June 2004 CBN induced consolidation, hitherto credited
as having positioned the banking institutions to compete but has now been
repackaged as a bubble.
However, here is an informed prognosis on Nigeria post August 14, 2009.
WORST CASE BEST CASE MOST LIKELY CASE

• The sovereign risk • The Niger Delta issue • We all discover that the scale
rating of Nigeria is is resolved and the and size of the problem is
downgraded for up to a revenue position of much larger than initially
year with an attendant Government is thought and bank debtors are
higher cost of credit or enhanced thus confronted with the need to
a denial of credit mitigating FG financial scale down their leveraged
position. positions as a matter of
• L/C’s from Nigeria are national importance.
not honoured for a • The decisions taken by
period or till the the CBN goes ahead • CBN reduces the banks in
auctions of the banks and the debtors pay Nigeria to 15 by announcing
are concluded up as planned to additional 3 – 4 more banks
provide the banks IGF with similar ‘distresses.
• Political pressure will rather than for
mount on the government to provide • CBN will have to act by
Government ahead of additional funds. The preparing and submitting to
the 2011 elections to N420bn paid is local and foreign investors a
force the president to recovered. plan for the auction of the
compromise by using banks ‘distressed’.
the opportunity • Debtors pay up and
provided by the ‘heat & the previous • CBN will issue a Regulatory
lock down’ to secure outstanding issues are Risk management guideline for
patronage for the ruling resolved with equal adoption by SEC, NDIC, and
party’s aspirations at dispatch. the NSE in the performance of
the polls. their duties.
• CBN ensures that
• Tight credit regime conviction is achieved • CBN will undertake an internal
means that the against those found restructuring of its supervisory
economy will contract guilty to complete the and oversight functions and
and industries and loop. bring in expertise from outside
investors returns will rather than within to head such
suffer. • Leadership changes at functions.
SEC and the NSE are
• The Bank CEO’s found implemented with • The preferred owners of the
guilty will be allowed to dispatch. new banks to emerge will be
get away with the banks possessing both the
assets amassed due to • The subject of a brand-worth and management
a plea bargain deal. hidden agenda is laid capacity and acumen to run a
to rest. financial institution of the size
• New bankers will learn we have. The point has been
a new way to beat the • Investor protection made that management
system and the lessons rules are in place that competence is the bane of the
from this development makes it difficult for problem.
will not be learnt to CEO’s of quoted
enable us avoid such in companies and their • Political compromise produces
future. directors to operate a resolution of sorts between
outside a guideline the regulator, the market and
• The CBN is revealed to that makes it a foreign investors.
have an ulterior agenda criminal offence to
through its conduct in trade in the shares of • A legal challenge to the action
taking extra-judicial their firms outside laid of CBN leads to a prolonged
steps to achieve its down rules. period of uncertainty-
objectives. bankruptcy applications, class
• CBN quickly action suits by shareholders,
• The economy slides establishes itself and suits by aggrieved persons etc.
further into recession relevance
with the capital market internationally and • Government does not learn
slumping further. acts as a voice of hope how the impact of its actions
and credibility in has created the conditions that
• The loan write downs at reversing the led to this.
first Bank of Nigeria will negativity that has
be a subject of enquiry developed. • Decision making affecting the
and challenge for the financial market reforms are
CBN Governor who was • CBN and the FG released to raise the stakes
the ED, Risk reconcile the political and concentrate the mind on
Management under class and are able to the way forward and diversion
which the credits were secure a buy-in to its of issues away from the fall-
extended. The logic of growth and out.
his actions will become development plans.
a central issue. • The possibility of reversals will
influence the 2011 election of
the next president.
Parting Shot:
Part TWO of this report which looks at the post-intervention realities, viz:
Analysis of the completed audit of 11 banks,
Decisions on the remaining three (3) banks,
Treatment of the five (5) banks classified as distressed by the CBN,
The December 31 uniform accounting year end and implications on existing
banks’
The politics and economics of the planned consolidation exercise - the
candidates, options and scenarios,
The legal ramifications of outstanding issue and matters arising from the
actions taken by the CBN,
The evolving face of the media revenue stream in tandem with the
paradigm shift in banking,
The impact of these decision on the 2011 elections and prognosis,
The regulatory changes that have taken place vis-à-vis the expectations for
the market, and
The review of the CBN, SEC and NSE reactions to our report.
We call on the House of Assembly to invite the past and current Governors of
the CBN to explain the realities of the oversight functions during the Soludo
years and why much was not done to mitigate the outcomes we are now
confronted with.
On our part, we have entered into discussions with a number of law firms
willing and able to act or/and help with the formation of a market
ombudsman to deal with the growing cases of defaults, illiquidity and
harassment from banks faced by individual investors and stock broking firms.
The next few weeks will be critical for our markets. We welcome reactions to
this report and offer of support in the areas of research, intelligence gathering
and the setting up of the ombudsman role.
Thank you.
ACKNOWLEDGEMENTS
Olufemi Awoyemi, FCA – Founder/CEO Proshare Nigeria Limited and convener of the Report
Boason Omofaye - CEO, MBC NewsCorp and Anchor, Business Morning on Channels TV.
Proshare Board of Advisors who contributed insights and research articles.
Emma Okah, Sun Newspaper Columnist on Sunday.
Several Volumes of Thisday, The Guardian, BusinessDay, Vanguard, Business Hallmark
Abuja Trust, and other Newspaper reports duly acknowledged in the body of the report.
The Theory of Reflexivity by George Soros and http://casinocrash.org/?p=40
Next234 - http://www.234next.com/csp/cms/sites/Next/Home/5435607-146/story.csp
Wikipedia - http://en.wikipedia.org/wiki/Reflexivity_(social_theory)
Afrinivest Nigeria Limited - http://www.proshareng.com/reports/view.php?id=2014
The Fronteria Post – ValueFronteira/Dr. Martin Oluba
http://fpc.state.gov/documents/organization/110816.pdf
State of the Market - http://www.proshareng.com/newsletter/avp.php
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The Bull in The China Shop - Proshare 220809

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In association with

The New Paradigm for Nigerian Financial Markets

A State of the Market Report

SEC and its Historical Revisionism of Facts

ISSN 1597 – 8842 Vol.1 No. 21

The Market and Historical Revisionism of Facts 09

The CBN Governor’s Address, Debtors List & Others 23

Identifying the Unintended Consequences 34

Of Whistle blowers, Alarms and Regulatory Response 38

The SEC and its Corporate Governance Imperative 56

NSE and the Challenge of Self Regulation 68

Final Thoughts on the developments so far 83

In sacking the CEO’s and Executive Directors of five banks - a generational

There is a growing conviction amongst market analysts that in the interest of

There is a huge incentive to foster or promote the strategic development of

The Theory of Reflexivity becomes manifest

The principle of reflexivity was perhaps first enunciated by the sociologist

Sociologist Robert K. Merton (1948, 1949) built on the Thomas principle to

An example of this is the interaction between beliefs and observations in a

In the treatise (which we reproduced in the section titled ‘Identifying the

The ‘conspiracy of criminality’ that ensued post-consolidation therefore was

The CBN is yet to discuss this root cause in any detail.

The need to avoid overreaching beyond the goal…

Following from the analysis above, it appears obvious that as we sought to

Yesterday, we crowned the week of tumultuous ‘exposes’ in our financial

We cannot embark on a journey - driving with a rear view mirror.

We categorically state that the means, approach, timing and relegation

The Future Foretold…

We deployed this to all members of the financial community in Nigeria, United

Managing the Bull in the China Shop…..

We were wrongful optimistic of our capacity as a people to embrace unforced

We leave you to make your own judgement and conclusions.

THE MARKET & HISTORICAL REVISIONISM OF FACTS

The unintended consequences from our otherwise market-reform goals are

Some of the contributions by commentators and government functionaries so

Yet, this exposes the danger in rushing to judge.

We do not challenge this conclusion at all.

Let’s recall a bit of history here:

In the not-so-distant past, we have had issues related to self-lending, insider

Rewriting the Origin of wealth in Nigeria…..

Intended or otherwise, the message out there, is that it is now a shameful

This is a subject of concern when the current ‘commentaries’ from enforcement

Let’s get back to the point at hand.

If a borrower defaults, banks have procedures and steps leading up to the

The importance and relevance of credit in nations’ development and survival is

CBN – Source of Injected Funds

Which agency of government is investing this N400bn? What if we now

CBN – Expediency vs. Thoroughness

This is apparent on four fronts:

CBN – The Banks and Associated Companies

This information is necessary to enable us eliminate the possibility of disguised

An unintended consequences of our adoption of a universal banking principle

CBN – The Debt Collector Paradigm

The CBN is not a debt collection agency. If it were empowered to do that, it

debts owed Finbank by ‘The Ministry of Finance & Economic Planning –

The resort to ‘power flexing’ is not only a dangerous precedent but an

Arresting, harassing and hounding people without a charge, petition or formal

We have a choice. We can present ourselves as a people of laws or as one

CBN – The Unexplored FIRS Angle

Financial market regulators often boast of a "growing partnership between

The more interesting and unexplored partnership opportunity in such a crisis

these individuals functioned. Indeed, it could have stemmed the ‘fabled’