Capital market investors lost N7.35tn to meltdown – Investigation


By Gbenga Agbana   Tuesday, 7 Sep 2010



Investors in the Nigerian stock market have lost over N7.35tn from 2007 till date.

The huge loss is as a result of the global financial meltdown and infractions committed by some stakeholders in the stock market.

Market capitalisation of listed equities dropped by 55.3 per cent, from N13.29tn in 2007 to N5.94tn on Friday, representing a loss of N7.35tn.

The Nigerian Stock Exchange‘s All-Share Index, which measures the movement of share prices, also fell significantly by 63.48 per cent or 42,129.36 points, from 66,371.20 in March 2008, to close at 24,241.84 on Friday.

The 2005 banking sector consolidation had boosted investors’ exposure to the capital market.

The banks embarked on aggressive publicity to sensitise investors to buy their shares in a bid to meet the Central Bank of Nigeria’s N25bn recapitalisation requirement.

Most of these offerings were oversubscribed, thereby providing excess equity funds for the banks.

With the excess equity funds in their possession, the banks expanded their portfolios to stock broking, insurance, fund management, bureau de change and trusteeship, among others, to boost profitability.

Thereafter, some banks, through their stock broking subsidiaries, allegedly purchased their own shares and manipulated the prices. Some others, investigations revealed, also purchased the shares of other companies, including moribund ones, only to later raise the prices to maximise profit.

This led to increased activity at the equities market in the year 2007, with the banks and speculators in the stock market driving up the market capitalisation of the NSE to N13.29tn.

The revenue of the NSE also rose from N5.74bn to N16.18bn, during the same period.

The All-Share Index rose by 74.73 per cent in 2007, from 33,189.30 in 2006. It, however, dropped by 45.8 per cent in 2008, and about 34 per cent in 2009, due to the global financial meltdown and asset bubble in the capital market.

Stockbrokers also took margin facilities from banks to play in the market, which caused huge losses when the stocks could no longer justify the values placed on them.

The Securities and Exchange Commission has dragged 260 entities and individuals to the Investments and Securities Tribunal over various infractions believed to have contributed to the stock market crisis.

The commission also sacked the Chief Executive Officer of the NSE, Prof. Ndi Okereke-Onyiuke, over alleged financial mismanagement. It later appointed an interim administrator to conduct a forensic audit of the Exchange and assist in the process of appointing a new Director-General for the NSE.

The Asset Management Corporation of Nigeria, which was established to buy up the toxic assets of banks, is expected to enhance liquidity in the system and increase capital market activities.

There are, however, moves by the government to restore confidence in the market.

The Minister of Finance, Mr. Olusegun Aganga, while addressing some journalists recently, said, ”We must restore confidence in the capital market. The market needs confidence to thrive. There are many emerging market funds trying to invest in the country. So, we need to create the environment. We need to restore confidence in the system.‘‘

As part of efforts to restore investor confidence in the market, SEC said that the NSE would have a new management by the beginning of next year, at the latest, and that listing the bourse would be among its priorities.


Source: The Punch



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