The Bull in the China Shop – A New Paradigm in the Nigerian Financial Markets?

Proshare

Friday, August 21, 2009 8.17 AM / Proshare

“…Manipulate the truth long enough and eventually you’re selling something that doesn't exist."


The long-awaited intervention in our financial services sector, starting with the banking industry was unleashed last week guided by a deliberate ‘shock and awe’ objective by the Sanusi Lamido led CBN.


In sacking the CEO’s and Executive Directors of the 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 its 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 up 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.


…..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 ally agencies) and the market.


…..The ‘conspiracy of criminality’ that ensued post-consolidation therefore was not engineered by Prof. Chukwumah Soludo, the ex-CBN Governor intentionally. 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 contents covered:

1.      Read the full executive summary here….                                                                   03

2.     The Market and Historical Revisionism of Facts                             09

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

4.     Identifying the Unintended Consequences                                      34

5.     Of Whistle blowers, Alarms and Regulatory Response               38

6.     The SEC and its Corporate Governance Imperative                      56

7.     NSE and the Challenge of Self Regulation                                            68

8.     Final Thoughts on the developments so far                                     83

 

On publication of bad debtors list:

“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.” – page 33

 

To read more, download the full 83 page Report here…..

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