The Securities and Exchange commission says it has uncovered N180 billion owed by stockbrokers to banks. The staggering amount is mostly made of nonperforming loans. The decline in prices of capital market stocks, which were used to secure the loans means many of the stockbrokers are unable to pay or even service the loans.

These disclosures were made to the House of Representatives Committee on Capital Market by the Acting Director of the Securities and Exchange Commission (SEC), Daisy Ekineh. Ms. Ekineh was speaking to the Aliyu Wadada chaired committee when they paid a visit to the commission offices in Abuja on Wednesday.

According to her, the Commission discovered the indebtedness while inspecting 24 stockbrokers and seven fund managers with their trustees and registrars. The commission is intensifying its on-and-off site inspection of operators and stockbrokers and fund managers are among the first group to be inspected.

According to Ms. Ekineh "Most of the inspected stockbrokers are still heavily exposed to banks as their total indebtedness was about ₦180 billion. With the considerable decline in the value of stocks, most of the firms have been unable to repay their loans which they mostly secured with stocks. ‘‘As at June 2009, of the 301 stock broking firms, 157 or 52 per cent were indebted to the tune of ₦296.23 billion while the value of their investment in quoted securities stood at ₦176.0 billion",

It is not clear, if the N180 billion announced by Ms. Ekineh is separate from the N296.3 billion owed by the brokers as at June 2009, or if the amount represents what is outstanding from the total debt portfolio of five months ago.


A costly legacy

Ms. Ekineh's disclosures have brought again to the fore, the unholy alliance that existed between some banks and stockbrokers during the boom years, and for which the Nigerian economy is now paying the price. In those days, it was not unusual for a bank to loan stockbrokers money with the explicit instruction of utilising it for margin trading. This enabled the prices of bank stocks to sky rocket even when there was nothing tangible driving the price.

This manipulation was detailed in a ‘NEXT on Sunday' exclusive report which examined the life and times of Peter Ololo, the most indebted stockbroker. We reported that "the capital market witnessed an unprecedented boom during this time, between late 2006 and early 2008, the regulating securities and exchange commission, especially under Mr. Musa Al-Faki (who was relieved of the position in May this year) was relegated to inconsequence by a cartel that included some stockbrokers, banks executives, and officials of the Nigerian Stock Exchange (NSE)."

And Peter, "Ololo was a principal actor in that environment," a NEXT source said, adding that this cabal made it a mission to crush the prospect of corporate governance in the market environment, weakening transparency wherever it could be found.

Ultimately, as another stock market insider said to NEXT, "the typology of crime in the Nigerian capital market revolves around five key principles: insider trading, share manipulation, regulatory failure, regulatory collaboration, and outright fraud." The momentum driving all these, according to the lady, is good ole greed.

"The types of Ololo thrived on information, which is the oxygen of the market, and if you have insider information plus easy credit line as he had from the bank chiefs, you can afford to drive the market in the furious style Ololo did," said a broker from a rival outfit who, like Mr. Ololo, also dealt solely in institutional stocks''

Not all doom and gloom

But it is not all bad news according to Ms Ekineh who says despite the manipulations in the banking and capital market sectors, SEC has recorded ₦5.14 trillion market capitalisation as at October this year, adding there was a marginal increase of ₦0.2 billion over the ₦4.88 trillion that was recorded at the end of January this year.

She also told the lawmakers that the commission has directed all operators to make full and immediate provisions for their impaired capital by November 15, 2009. However to guarantee fair hearing, the SEC boss said the commission had instituted an Administrative Proceeding Committee (APC) "to hear market operators who may have breached provisions of ISA and SEC rules" following the action of the EFCC and the regulatory bodies in the capital market on weak banks.

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