Nigerian retail investors still count losses 10 years after meltdown

Ten years after the 2007-2008 global financial crisis, which instigated a worldwide economic recession, bringing to a halt more than a decade of increasing prosperity for western economies and wiping a staggering $1 trillion off the value of the world economy, Nigerian investors are recounting their loss, even as they battle with perennial issues bedeviling the nation’s capital market.

The crisis ranges from over N700 billion trapped in private placement scams during the era of stock market boom to the sale of the three nationalised banks.  Also the case involving 300 investors of Partnership Investment Plc whose stocks totalling N4.8 billion are involved in a ‘shady’ deal with the crises of confidence rocking Oando Plc. The latest is the allegations of fraud against the Director-General (DG) of the Securities and Exchange Commission (SEC), Mournir Gwarzo.

Indeed, the Nigerian Stock Exchange (NSE) witnessed unprecedented growth in total market capitalisation as reflected value of shares traded between 2004 and July 2008 when the crisis was pronounced in USA.

The market capitalisation of the 303 listed equities, which had opened on January 1, 2008 at N10.18tn and later appreciated to N12,39 trillion as at March 2008, suffered its highest fall in the 48-year history of the Nigerian Stock Exchange, depreciating by N3.223tn  and crashing by 32 percent to N6.957 trillion by the year end of that year.

Similarly, the NSE All- share index depreciated by the same margin from 63,016.60 at which it opened in January to 31,450.78 at the last trading day in 2008. Foreign investors, who realized the danger posed by the on-coming financial turmoil, withdrew their funds, depressing the stock market further, as the All Shares Index (ASI) shed more than 70 percent of its value between March 2008 and April 2009.

Companies, which had undertaken private placement during the stock market boom period, had tied down funds without listing the shares on the Exchange to generate returns as, stated in the prospectuses.

The situation thus created much liquidity problem for the equities segment and further depressed the market, as these retail investors did not have the purchasing power to patronise the market after the global financial crises.

Consequently, whopping N700 billion investors’ funds were discovered to have been trapped in private placements by firms. The affected investor, therefore, urged industry regulators to wade into the perceived scam.

Trapped funds in Nigeria’s capital market, especially when it happens in less than transparent manner is considered a failure of regulation.

Part of this contributed to the market crash eight years ago. Continued scam in Nigeria’s ailing capital market could also have eroded confidence and deprived the NSE of the much-needed recovery in recession time.

Checks by The Guardian revealed that many of the firms were successful in their bids and sourced over N700 billion, but a large portion of the money was diverted into other investment outlets outside the objectives declared in the prospectuses.

The shareholders, who spoke through a telephone interviews with The Guardian said the situation has created much liquidity problem for the equities segment and further depressed the market, as these retail investors do not have the purchasing power to patronise the market.

Retail investors, still grappling with the loss of investment, occasioned by the global financial crises were faced with the dilemma arising from the sale of the three nationalised banks: Keystone Bank Limited; Mainstreet Bank; and Enterprise Bank.

The shareholders of the banks have found themselves in dilemma as they lost their investments estimated at N83 billion. Investigation had shown that one of the reasons why retail investors had shown apathy to the Nigerian stock market since the meltdown in 2009 was because of the issue of nationalised banks.

Another issue that erodes confidence in the nation’s stock market is the case of the N10 billion scandal, relating to diversion and misappropriation of funds by Partnership Securities Limited (PSL), and its sister companies – Partnership Investment Company Plc; Life Care Partners Limited; and SBDC Microfinance Bank Limited where over 300 investors of Partnership Investment Plc whose stocks total N4.8 billion are involved in a ‘shady’ deal.

According to investors, the SEC’s inability to upgrade its operational guidelines by using modern Information Technology (IT) facilities to monitor day-to-day market operations, especially the trading platform would continue to undermine efforts to restore confidence in the market.

These investors who used partnership Securities Limited as their broker said they were persuaded by the company to deposit their portfolio with the Partnership Securities Deposit Account (PSDA) for trading activities.

A shareholder with investment portfolio worth N36 million said that when it was obvious that the company was no longer following the terms of agreement, he wrote a letter last year, demanding a termination of  his investment.

According to him, he requested that the shares should be returned to the Central Securities Clearing System to enable him to claim the shares but the request was not granted.

Few months after the incident, crises erupted in Oando Plc where aggrieved shareholders of the company, apparently worried its future of the oil company, in view of the unresolved corporate governance issues relating to the group’s financials stormed the venue of the Group’s Annual General Meeting in Calabar, Cross River State.

In a letter read out by the leader of the shareholders, Clement Ebitimi, had accused the Oando management of mismanagement, following allegations of infractions filed against it by Ansbury Inc., and Alhaji Dahiru Mangal On Wednesday, 18 October 2017.

Subsequently, the NSE, with a directive from the SEC, announced the suspension of trading in the shares of Oando Plc from October 20, followed with a forensic audit of the company to the tune of N160 million.

Afterwards, Oando filed a court order restraining the suspension of its shares on the Exchange, accusing SEC of bias in the management of the crises noting that the penalties for the alleged infraction far outweighed the offence.

Shortly after the event followed the recent saga brewing in the nation’s capital market, involving N104 million-severance package fraud against the DG of the SEC, Mounir Gwarzo.

In a petition to the House of Representatives seen by an online media, Gwarzo was said to have demanded a severance package entitled to a commissioner immediately he assumed office.

It stated that despite opposition mounted by the acting head of SEC’s Legal Department, Frana Chuwuogo, Gwarzo allegedly received over N104 million as benefits for his former position.

A document on one of the petitions states:“On assumption of office as the DG of the Commission, Mr. Gwarzo immediately requested that the sum of N104,851,154.94 (One Hundred and Four Million, Eight Hundred and Fifty-One Thousand, One    Hundred and Fifty-Four Naira and Ninety-Four Kobo), be paid to him as severance package for the cessation of his appointment as Executive Commissioner of the Commission,” the petition read.

“The requested severance package in the sum of N104,851,154.94 (One Hundred and Four Million, Eight Hundred and Fifty-One Thousand, One Hundred and Fifty-Four Naira and Ninety-Four Kobo), was paid by the Commission into Mr. Gwarzo’s bank account, held with Guaranty Trust Bank Plc, with account number 0023868895.

“Mr. Gwarzo received the above stated payment of a severance package in total disregard of the opinion of Mr. Frana Chukwuogo, the Acting Head of the Commission’s Legal Department, who clearly stated, in accordance with best practices, that a severance payment can only be paid to an employee of the Commission who has concluded his or her service and has completely disengaged from the Commission and not to an employee who has been promoted within the Commission and has not severed his employment with the Commission.”

With the barrages of crises rocking the nation’s capital market, investors who spoke  with The Guardian maintained that poor regulatory roles, coupled with sleaze and mismanagement in the affairs of listed firms’ and government neglect of the capital market have caused Nigerian investors intense hardship.

They urged federal government to tackle challenges of confidence and trust in the   nation’s capital market in recent times.

The President, Progressive Shareholders Association of Nigeria, Boniface Okezie said; “Yes, investors have experienced hard times in the capital market, occasioned most times, by negligence, poor regulation as well as misdemeanor by the operators themselves.

“However, the hiccups we are experiencing in the market now may not last if the regulators and government do the needful.

“In all of these things, I still believe that there is still hope in view of what the present DG SEC is doing. If the trend continues, we will get there and the capital market, in terms of hope and confidence, will bounced back.”

The President, Trusted Shareholders Association, Mukhtar Mukhtar explained that poor regulatory roles, coupled with sleaze and mismanagement in the affairs of quoted companies have caused investors untold hardship and loss of confidence in the market.

“The capital market must always be sustained with sound regulatory framework and honesty on the part of management of the companies, which are quoted in Nigeria’s capital market. These two factors will engender investors’ confidence and growth of investments.

“On the other hand, poor regulation and sanctions, coupled with sleaze and mismanagement in the affairs of quoted companies brings about loss of investor’s confidence. This is the predicament we are presently facing, with the exception of a few companies in Nigeria.

“When companies can be so dishonestly managed, then it means the capital market is on the verge of significant de-escalation, because more and more investors will loose confidence in the market. This is very dangerous and urgent steps are required to halt the slide.”

The President, Standard Shareholders Association of Nigeria, Godwin Anono bemoaned the level of allegations and corporate governance lapses recorded in the market in the past years.

He stressed the need for the market to go through proper sanitization process to get rid of the ‘bad eggs’ in the market and boost retail investors’ confidence.

“All these are affecting the market and reducing the value of our investment on a daily basis. Nigerian investors have suffered; even the regulator is being accused. The market needs a general clean up to restore confidence; it was not like this before. No body is buying shares because many people are broke.”

The President, Rennaissance Shareholders Association, Timothy Olufemi who noted that Nigerian shareholders have suffered untold hardship since the period of the global financial crises till date argued that the regulators have failed to protect the Nigerian retail investors.

According to him, even while the desire to invest in the stock market was not driven by greed, the retail investors have lost virtually all their investments in the market due to poor regulatory exercise.

He blamed most of the crises rocking the stock market on regulators’ lapses, stressing the need for the SEC to install an information technology network for monitoring the day-to-day operations of the stock market.

Citing the case of Oando, Olufemi noted that SEC ignored the complaints of investors to investigate the operations of the company until the case was taken to the National Assembly.

“There is no protection for retail investors. We have lost virtually all our investments in the market but we will continue to fight for sanity to return to the market because it is our investment. When the regulators refuse to hear us, we will take our case to the higher authority and that is what happened in the case of Oando.”