Visit: http://www.proshareng.com/investors/company.php?ref=GUINNESS

I am sure you may have seen Guinness half year result by now. Personally, I think that is how a company should be run.

Look at Trade Credits which jumped from N6 billion to almost N11 billion – meaning they have increased the line of credit to grow the business as short term borrowings dropped from almost N7 billion to N1.4 billion and above all a working Capital of N41 billion.

This is what good management is all about – shareholder value has a new poster boy – That is a pool of cash!

This alone sends a message that Guinness is well positioned for growth and success and only well informed investors will take advantage of this growth explosion that is about to happen with Guinness.

I think this is a tradition borrowed from DIAGEO (DEO), – their parent company, voted the best run company in the world ten years in a row by Forbes Magazine. If this turns out not to be fabricate, I would say I have not seen a company with this much in cash flow in Nigeria soil and well position for growth and success than Guinness.

Francis Idaewor, USA

info@proshareng.com and fidaewor@yahoo.com

The NSE index which began 2010 with very promising up trend appears to be turning into a whimper. Although the NSE all share index gained 1,713 or 8.2% in January 2010, approximately 1,233 or 72% of the gains were made in the first half of the month. To illustrate this point, it can be seen that between December 31 2009 through January 12, 2010; the Nigerian Stock Exchange gained 1,952.59 or 9.5% as highlighted below, but the index appears to have gone into a holding pattern by trading in a very tight range as highlighted in the graph below:

Although, the NSE all index is showing indications of a breakout, it is having problems breaking above its 200 day moving average. Breaking above the 200 day SMA and sustaining it will demonstrate technically that the index is no longer in a bearish mode.

While the NSE index is above its 20 day and 50 day moving averages of 21,912 and 21,354 respectively, the index has only been above 50 day SMA since January 5, 2010 and technically, chartists agree that stocks or index trading above their 50 day SMA indicates strong relative strength. However, as shown in the graph below, the index traded above the 50 day SMA between April 23, 2009 and July 3, 2009, before falling below average.

The all share index continues the attempt to break above the 200 day SMA which as of January 28, 2010 is approximately 23,330. As highlighted in the graph below, the index is only 790 points removed from its 200 day SMA.

Although the all share index appears to be moving anemically, some stocks within the various sectors are moving full speed ahead. For example, in my January 11, 2010 article “Profit Taking Not Responsible for NSE January 2010 Pullback” (http://www.proshareng.com/admin/upload/reports/Profit_Taking_Not_Responsible_for_NSE_January_2010_Pullback.pdf) I noted that  GTB was ready to breakout, but a bump against significant resistant at N16.90k, created a double top reversing its uptrend temporarily. I further indicated that GTB has to trade above N17.00k and sustain the prices to resume its uptrend.

Subsequently, on January 26, 2010, GTB broke above N17.00K on heavier than normal volume. GTB stock closed at N17.79k on January 29, 2010 reflecting a slight pull back from its previous day close. Although there is no guarantee that the stock price might pull back below its previous resistance (N16.50k) due to selling pressure, the good news is that the stock has breached its recent resistance and is more likely to go higher than reverse course except if the bank reports bad earnings.

Week-in-Profile
Another stock that broke-out on heavy volume this week was WAPCO. The stock broke above the N30.00k price level on more than normal volume. The stock price is currently trading above its 20 day, 50 day, and 200 day cumulative simple moving averages’ of N30.55k, N29.78k, and N27.69k respectively. The closing price of N34.00k on January 29, 2010, represent an increase of N22.11k or 186% from its lowest price of N11.89 in February 3, 2009, and a gain of N3.89k or 12.9%, since breaking out on January 26, 2010.

Although, the current break out indicates further up trend, there is a possibility for a temporary pull back due to pressures from profit takers. However, current support for this stock is at N30.00k and it will be ill advised not to sell if the price trades below the resistance.

Conclusion

Like the famous saying goes “there is always a bull within a bearish or consolidating market”.  Although, the NSE all share index is not increasing by leap and bounds, it appears that some individual stocks within some sectors are being favored by traders/investors as indicated by volume and price.

This is becoming a market of selective performance rather than a broad base rally. Traders should watch for stocks experiencing increased volume and price and ride the trend.

Reference: http://www.proshareng.com/admin/upload/reports/Profit_Taking_Not_Responsible_for_NSE_January_2010_Pullback.pdf

Prepared by Chukwumah Biosah, President CEBAL Audit Group, USA and InvestIQ, Technical Analysts to Proshare. All opinions on this page/site constitute our best estimate judgement as of this date and are subject to change without notice. Investors should see the content of this page as one of the factors to consider in making their investment decision. Proshare Limited, its employees and analysts accept no liability for any loss arising from the use of this information. All enquiries should be directed to Biosah@aol.com  or info@proshareng.com

February 01, 2010; 1955 hrs, UK

The Central Bank of Nigeria (CBN) recently issued a guideline to banks limiting the tenure of bank Chief Executive Officers (CEOs) to 10 years. This guideline is generally controversial for two main reasons.

First, it arguably interferes in private arrangements by intervening in and rewriting banks’ memorandum and articles of association as well as the service contracts of the CEOs. These documents are generally regarded as private contracts. For example, this private contractual status is recognised in section 41(1) of the Companies and Allied Matters Act which provides that the memorandum and articles of association of companies (including banks) constitute a contract between the company, and its members and officers.

Second, the CBN’s guideline purports to have a retroactive effect.  It expressly provides that 31 July 2010 is the cut-off date for the 10-year tenure with the result that it affects any CEO who has been in office from 1 August 2000. In calculating the period of office, times spent as CEO of any bank apart from the current bank are combined with the latter.

The fundamental issue arising from the CBN’s guideline is that it could be interpreted as an implied removal of the affected CEOs albeit from a future date.

The CBN’s power to effect the removal of the CEOs consequently needs to be investigated from at least two perspectives. The first is legality. This requires subjecting the guideline to the provisions of the apparent enabling statutes- CBN Act 2007 and the Banks and Other Financial Institutions Act (BOFIA) as well as the Constitution. The second aspect of the scrutiny goes beyond legality and constitutionality by looking at the CBN’s guideline in the light of theoretical and practical questions of regulation and intervention in apparently private affairs.

Simply put, the twin issues are one of ‘right’.

First, there is the question of the (legal) right (‘power’) of the CBN to issue the guideline. Irrespective of the answer to the first question, the second issue is the right (that is the ‘appropriateness’) of the state or an agency of the state (the CBN) to intervene in private arrangements generally and in the particular case of management of banks. Incidentally, the CBN’s guideline expressly provides that it applies notwithstanding contractual provisions on the tenure of bank CEOs. The second issue is now topical, for example, in the

United States where President Barack Obama recently announced a number of proposals including limiting the size of banks and the prohibition of banks from engaging in certain high-risk businesses.

This essay therefore examines the legality of the CBN’s guideline in view of the CBN Act and BOFIA as well as relevant regulatory issues. The constitutionality or otherwise of the guideline will be examined in another essay.

As previously indicated, the legality of the CBN’s action depends on the relevant statutory provisions. Specific provisions of BOFIA relating to qualifications of directors and officers of banks appear to be in sections 19, 33 and 44. It seems that none of the provisions expressly permit the CBN to issue a guideline restricting the tenure of bank CEOs. Section 19 prohibits employment of bankrupts and persons convicted of offences involving fraud, dishonesty or professional misconduct. It also prohibits joint directorships of banks and engagement of bank directors in any other business or vocation. Section 19 does not in any way authorize the CBN to limit the tenure of CEOs or prevent banks from engaging their CEOs for more than 10 years.

The theme of qualification as a bank director is also contained in section 44. Section 44 disqualifies the following from being directors or continuing as directors of banks: persons of unsound mind, bankrupts, persons convicted of fraud or dishonesty and persons subject to actual or suspected disqualification from professional practice. Section 44(3) prevents directors and other persons directly concerned in the management of a bank that has been wound up from managing banks without the express authorization of the CBN.

Section 33, which is concerned with a failing bank, contains provisions for removal of bank directors and other officers. A failing bank under section 33(1) is a bank which has informed the CBN of its likely inability to comply with its obligations under the BOFIA, an insolvent bank or a bank the CBN has determined to be in a grave situation after carrying out a special examination under section 32. Section 33(2) (c) and (d) provide that the CBN Governor may remove directors, managers and officers irrespective of anything to the contrary in any written law or in a bank’s memorandum and articles of association. The CBN Governor may also appoint any person as a director or adviser of a failing bank. The reasonable interpretation of section 33, therefore, is that the CBN’s power to remove a bank director, whether or not the CEO, is conditional on the bank’s status as a failing bank.

The clear conclusion is that there are no explicit enabling provisions in the BOFIA for the recent CBN tenure limit guideline. However, there are provisions in the CBN Act and BOFIA that suggest the CBN’s legal right to impose tenure limit on banks’ CEOs. It is submitted that a holistic approach to both statutes would indicate that the CBN was probably legally right, at least under the two statutes, in issuing the tenure limit guideline. For example, section 42(1) of the CBN imposes a duty on the CBN to, among other matters, ensure high standards of conduct and management in the banking system. Although tenure limit is arguably an issue of high standards of conduct and management, the difficulty here is that the CBN’s duty is to “seek the co-operation of and co-operate with other banks in Nigeria.” Mandatory tenure limit is plainly not a co-operative activity.

However, section 2(d) of the CBN Act provides that one of the principal objects of the CBN is the promotion of a sound financial system in Nigeria. More importantly, section 33(1)(b) of the CBN Act confirms that the CBN has the power to “issue guidelines to any person and any institution under its supervision” (emphasis supplied). Read with section 2(d), the implication is that the CBN can issue guidelines to any such person and institution while acting in furtherance of the statutory object of promoting a sound financial system in Nigeria. Tenure limit arguably comes within this remit. It is clearly a question of proper governance of banks which, in turn, is connected to the existence of a sound financial system. Incidentally, sections 1 and 2 of BOFIA confirm that the CBN retains and can exercise its powers under the CBN Act and BOFIA.

Part of the legality question is the permissibility of a retroactive tenure limit guideline under the CBN Act and BOFIA. There is nothing in the two statutes that seems to expressly or impliedly require the CBN’s guidelines to have prospective effect only. An approach that looks at the retroactivity of the guideline a bit more broadly may be helpful in appreciating whether the CBN was legally right to issue a retrospective tenure limit guideline. For example, would one question the CBN’s guideline if it has, instead, disqualified persons convicted or running away from a charge of sponsoring or participating in terrorism within a period from being bank CEOs and directors? Would it matter that the CBN directs the immediate removal from office if a CEO has been convicted or is a fugitive from a charge of money laundering and corruption within the past 10 or so years? The CBN’s action in either case is arguably for Nigeria’s financial stability. Incidentally, the CBN’s legal role of promoting a sound financial system is not restricted to issuing prospective guidelines.

There is one view that banks are private enterprises and, as a result, there is the need to encourage free enterprise and entrepreneurial spirit instead of interfering in their affairs. However, insisting that banks are private institutions and their affairs are private is a weak argument. The recent local and global financial crisis, at least, has clearly demonstrated that this argument is spurious and supposititious. It is akin to saying that banking profits are for operators of banks while its losses are community or state-owned. It is evident from the interventions of governments and state agencies including the bailouts of banks and provision of stimulus packages for the economy that banks are not exclusively private institutions. This is also the inference from the fallouts of local and global banking corporate governance failures and other scandals.

Following the issue of whether the right of the state to intervene in banks is justified is the question of the regulatory appropriateness of the intervention.

What is corporate governance is the critical issue here. Corporate governance is a concept that encompasses internal corporate processes and structures in as well as society’s (including the state) mechanisms for controlling the internal and external operations of corporations. Issues in corporate governance include the existence, membership, role, control and effectiveness of internal structures such as the board of directors, non-executive directors and the members in general meeting.

In looking at the broader question of interference in private arrangements in banks, the key questions include whether internal control or self-regulation by banks individually or as an industry would have been more effective; and whether shareholders can be trusted to ensure proper governance of banks by, for example, ensuring that personality cults do not exist or are promoted to the detriment of the banks. Without going into details, it is apparent from the recent and persistent banking failures and scandals in Nigeria that proper corporate governance and effective internal control mechanisms, including shareholder control, in banks are either non-existent or at least severely attenuated in many banks. A corporate governance model based on shareholder control and other internal mechanisms has not worked with many Nigeria banks. The result is that the CBN cannot effectively perform its role of ensuring financial stability and promoting a sound financial system without intervening in apparently private arrangements in banks. CEOs’ tenure is presumably one of such arrangements that affect internal corporate governance and the national financial system.

In conclusion, the CBN was probably right to issue the tenure limit guideline. There is nothing in the CBN Act and BOFIA that suggest usurpation or overstepping of legal power. Going beyond the strictly legal questions, the CBN was also probably right to interfere with private arrangements in banks in order to ensure the proper governance of the banks and a sound financial system in Nigeria.

Dr. Onyeka Osuji teaches law at the University of Exeter School of Law, Cornwall Campus,United Kingdom. Material courtesy of ValueFronteria for Proshare subscribers.

Dr. Oladimeji Alo*

These are indeed very interesting times for the Nigerian banking sector. Every new day, those that found themselves on the wrong end of the dynamics created by the reform agenda of the new CBN governor take out expensive paid advertisements to draw our attention to what they consider evidences that support their thesis that the whole reform was a ruse to disguise some personal vendetta or, at worse, some ethnic agenda. To counter this, the CBN, supported by the EFCC and some of the interim Management of the banks that were rescued, had been releasing, by installment, spectacular information on the scale of executive recklessness unearthed by the special audits that triggered the initial actions of the regulatory authorities and the subsequent scrutiny of the books of the banks by the new Management. In turn, every step taken by the interim Management is being subjected to intense scrutiny for evidence to support the accusations that they are accomplices in the grand design to seize the banks for some ulterior motives. It really did not matter that there are several cases in the law courts on virtually all the matters now been freely debated in the court of public opinion.

In a sense, therefore, the media war between the two parties was approaching what the Yoruba refer to as ‘roforofo’ fight. In such a fight there are no rules. The combatants employ anything available and sometimes it is even difficult to identify the combatants from the mediators. The longer the fight took, the wider the circle of combatants until a point that no one would remember the original cause of the fight. In the current media war, substantive issues of due process, risk management and corporate governance raised in the cross fire are conveniently ignored, while appeal is made to the base sentiments of the public. Unfortunately, the media war does little to advance the course of the Nigerian banking sector. In my view, what would matter, at the end of the day, is to what extent the pains we are all bearing now, on account of the current reforms, deliver a more stable banking sector, capable of supporting the developmental aspirations of Nigeria as a nation.

One thing I have always admired in the administration of public affairs in some of the more advanced nations of the world is the duality they bring to bear in their approach to dealing with tragedies. On the one hand, they go to every length to bring those that break the law to justice, even if they have to spend multiples of what was at stake to get to that end or if it took them twenty years to arrive at justice. Examples of this abound in the American system where no expense is spared to bring an offender to justice. On the other hand, these countries go to equally great lengths to study and understand what happened and draw out lessons that could be used to strengthen the system. The current Panel probing the actions that the British government took in the period leading to the decision to take that country into the Iraqi war is a good example. Very senior British officials are daily being dragged before that Panel of Enquiry to state what they knew and did. Extracts of that testimony are being broadcast live on BBC. That way, continuous improvements are achieved that deliver greater good to the entire nation.

In Nigeria, it would appear that we do not spare enough effort to understanding what happens and how it did happen. We tend to concentrate on punishing the culprit and even that we do in a most haphazard way. We set up commissions of enquiries and publish white papers that nobody reads. We make public shows of arresting and detaining offenders in communal crisis; only to release them once public attention wanes or when another crisis erupts elsewhere that diverts the attention of the public. Little wonder we have communal and religious crises, with attendant loss of innocent lives lost, year after year in the same state or city. As a nation, we seem to lack the capacity to learn from events around us. Literally speaking, we waste every crisis.

While the CBN is not bound to tell the public every step it is taking to deal with the fallouts of the current crisis in the banking sector, as a stakeholder I could not but ask some questions each time I open the dailies and read screaming headlines on the atrocities allegedly perpetrated by some of the CEOs that were sacked. For instance, I ask myself whether these atrocities were committed in the financial year leading to the August date of the first public announcement of the new CBN governor. From some of the information coming out recently, some of these acts went far back in time. If that is so, what is the CBN doing to learn from the banks’ Compliance Officers, Chief Inspectors, Resident Examiners, and External Auditors how they missed out on all these information? What must change in the structure of things to ensure that these important gate keepers earn their keep in the corporate governance structure? Where were the boards of these banks when all the alleged acts, some of which bother of plain criminality, were being perpetuated? In addition to prosecuting particular board members who might be found to have committed criminal offences, how do we reach out to others to learn of their experiences on the board of these banks? Were they compromised, blindsided or fooled? What must change in the appointment, screening, orientation, remuneration and education of board members to fortify them against such occurrences in the future?

In the last four years, a lucrative business had grown around the conduct of corporate governance audits and the issuance of governance certificates to banks by some reputable professional firms. The reports of these audits were proudly published by the banks concerned in their annual reports. In retrospect, it would appear that these reports helped in the mass deception of the public on the health of these institutions until the stress tests initiated by the CBN and the NDIC. In this regard, I wonder if the CBN had gone back to read the reports of these governance audits in the light of recent revelations. If so, one would like to know if the authors of these audit reports have been invited by CBN to discuss their methodologies and the scope of their audits. More importantly, there must exist some useful lessons to learn from these corporate governance auditors on the large gap between their rosy reports and the stark reality uncovered by the stress tests?

Another matter that must really scare a discerning observer in all the recent revelations is the possibility that the pattern of gross abuse of office uncovered might not be limited to the ten banks that failed the stress tests. Put differently, if the banks recently indicted had passed the test of asset quality, liquidity, and capital adequacy, would we have bothered about the several variants of executive recklessness lately exposed? Is the CBN doing any thing now to study and understand the prevailing system of staff recruitment, performance management, contracting, executive remuneration, outsourcing in the other banks that passed the stress test? Today, we are in the era of universal banking: has CBN shown sufficient interest in the relationship between the banks and their subsidiaries? What do these relationships portend to the average customer who is literally corralled to deal with these subsidiaries in all his/her transactions with the banks? To what extent are the business relationships between the banks and their subsidiaries done at arms length? Could anyone of the other players in the financial services sector (Insurance firms, Stock Broking firms, Issuing Houses, Mortgage firms etc not associated with the banks) sustain a charge of anti-competitive tendencies against the banks in the way the businesses of their customers are diverted to their subsidiaries? What are the rules guiding these transactions and relationships in jurisdictions where we copied the present model of universal banking?

Since the goal of the reform efforts is to strengthen the banking system to play its role in the Nigerian economy, these are far more important matters to engage the attention of the CBN governor than for him to bother about the size of the war chess of his detractors. It is in this light that I welcome the recent regulation issued by the CBN on the tenure of CEO of banks. For once, it shifts the discussion to what we must do to achieve the greater goal of the reform efforts. Since the new rule was announced, I have read all manners of commentaries on it, ranging from the sublime to the ridiculous. As I do not intend to lend my voice to some of the ridiculous claims made to fault the rule, I would concentrate on what I consider the more serious of the objections that have bben raised too the new rule and what I consider the extenuating circumstances that made its application imperative.

In supporting the new rule that stipulates a limit of two terms of five years each for bank CEOs, I would like to state that the rule is only one of the several initiatives that had been canvassed to raise the level of corporate governance in the Nigerian banking sector in the last four years. In an article published on this subject on page x of the Guardian edition of September 20, 2009, I drew attention to some of these initiatives that pre-dated the current reform of the new CBN governor. In the same article, I had urged the CBN to urgently take steps to insulate its top executives from the corrupting influences of the institutions they regulate. I, therefore, see the new rule banning retiring executives of CBN (and NDIC?) from accepting board appointments in any Nigerian bank or their subsidiaries for a period of three years after their retirement a very good, and necessary first step in that direction. On term limits, over 160 bank directors that attended a corporate governance training seminar in Lagos in 2008 had recommended a term limit of twelve years consisting of three terms of four years each for all directors of banks, as part of their communiqué. The communiqué was widely circulated and published as a full-page advertorial in the Guardian Newspaper in the last quarter of that year. Thus, it would be wrong for anyone to see the new rule as an attempt by the new CBN governor to target any one set of bank CEOs.

There is the argument that by stipulating term limits for bank CEOs, the CBN was taking over the responsibilities of the owners of the banks to set their own rules in their Memoranda and Articles of Association. I suspect that those who raise this argument themselves know that it holds no water. All over the world, banking is a highly regulated business. When a company applies for a banking license, it voluntarily signs up to be bound by the rules and regulations guiding that business issued by the relevant authorities. The banking license itself confers on the holders certain rights, powers and privileges. Those who grant the license have a duty to ensure that those powers are exercised in a manner that balances the interests of all stakeholders in the business. When a bank goes bust, what is at stake is far more than the investment of the shareholders. There is thus a need, which is universally recognized, to protect the interests of these other stakeholders.

Other commentators have argued that no regulator-imposed term limits exists for CEOs of banks in the US and the UK. My simple answer to that point is that these other jurisdictions have mature institutions and had developed complimentary structures of checks and balances for their corporate governance regimes. It is common knowledge that some of the corporate chieftains we celebrate in Nigeria today, even outside the banking sector, would be languishing in jail in these other countries were they to attempt some of the things that brought them their fabled wealth. If we must set time limits for bank CEOs while we work to build a sustainable culture of good corporate governance in the sector, so be it.

There is the point of those who argue that by stipulating term limits, as in any of its intervention agenda, the CBN was trying to impose a regime of one-size-fits-all. They caution that the regulatory authorities should be careful not to stifle the initiatives and the enterprising abilities of the banks as they seek to right the wrongs of the past. In my view, what those who make this point fail to realize is that what the regulatory authorities do is to set minimum operating conditions. Over an above the minimum, the players are allowed to exercise their freedom of enterprise and flexibility. In road traffic management, we are all expected to drive on the right side of the road and to observe set speed limits for different grades and stretch of the road. For anyone to consider such rule an attempt to stifle the initiatives and the spirit of enterprise of the drivers is to invite chaos and anarchy on our roads.

While I commend the CBN for its courage in introducing the new rules, I hasten to state that there are far more initiatives that had been canvassed in the recent past for strengthen the governance of banks and their regulators. While there is a lot of wisdom in proceeding cautiously, there is also the danger of reform fatigue that could set in if we proceed in this installmental fashion. I would, therefore, recommend that CBN set up a technical committee of experts to thoroughly examine all the initiatives and draft a comprehensive corporate governance reform agenda for the sector. The outcome of the work of such a Committee must, in turn, be presented to a larger conference of stakeholders before it is finalized for presentation to the CBN. In all of these, we must keep in mind that enthroning good corporate governance in the banking sector is a journey and not a destination.

*Dr. Alo is the MD of Excel Professional Services Limited, a management consulting firm based in Lagos

By Chijioke Ohuocha, Reuters

* Political support for central bank chief may wane

* Bank reforms unlikely to roll back, may stagnate

* Government’s fiscal discipline key

LAGOS, Jan 28 (Reuters) – Nigeria’s fiscal and bank reforms could stagnate amid uncertainty over the future of President Umaru Yar’Adua, particularly if any successor fails to give the central bank the political backing it has enjoyed so far.

Yar’Adua has been in Saudi Arabia for more than two months receiving treatment for a heart condition but has not formally transferred power to his deputy, leading to questions over the legality of government decisions in his absence.

Whatever the outcome of his medical trip, few expect him to run for a second term in 2011 elections and no clear candidate to replace him has yet emerged, clouding the country’s policy outlook and causing investment decisions to be put on hold.

Yar’Adua’s support for Central Bank Governor Lamido Sanusi helped push through the boldest bank reforms in the nation’s history last year, a 600 billion naira ($4 billion) bailout which took down some of Nigeria’s biggest financial executives.

The drive to clean up the banking sector won praise from foreign investors but also won Sanusi powerful enemies, among them politically influential figures with interests in some rescued banks who could seek to undermine reform, analysts say.

“If Yar’Adua is not there, the new administration could scuttle the reforms,” said Wole Famurewa, head of research at Lagos-based PHB Asset Management.

One Nigerian analyst said that should Yar’Adua not return from Saudi Arabia, or be replaced, that in itself could trigger a downgrade of recommendations on Nigerian bank stocks.

Nine banks, five of which accounted for 40 percent of the total lending market in sub-Saharan Africa’s number two economy, were given a liquidity injection and effectively remain on life support from the central bank while new investors are sought.

Eight bank chief executives were fired after central bank auditors found lax governance had left their institutions so weakly capitalized that they posed a systemic risk.

Many analysts believe the bank reforms have gone too far to be rolled back.

“These reforms have gone so far down the road that they will probably have to continue in one form or the other,” said Razia Khan, head of Africa research at Standard Chartered in London.

“Even if a leader less supportive of the governor comes in, that leader will have to understand that (removing) the life support that the banks are on at the moment would involve pretty severe systemic risk,” she told Reuters.

BROADER REFORM MOMENTUM

Sanusi’s reform drive has so far continued unabated despite the uncertainty. Last week, the central bank announced it was limiting the tenure of bank chiefs to 10 years in a bid to avoid an excessive concentration of power which it says contributed to the near failure of several of the bailed out banks.

But the first real test of the depth of political backing for reform is legislation currently before parliament to create an Asset Management Company (AMC), which would buy up bad bank loans in exchange for government bonds in the hope of freeing up their balance sheets and getting them lending again.

Finance Minister Mansur Muhtar said on Wednesday parliament understood the urgent need for the AMC and voiced optimism the bill would pass soon.

But even if it does, and bank lending resumes, the central bank’s ability to direct the economy through monetary policy depends heavily on the government’s spending decisions.

From his sickbed, Yar’Adua last month signed a $2.4 billion supplementary 2009 budget covering spending to the end of March, an amount which comes in addition to a planned rise in spending of a third this year.

Much of the funds are earmarked for helping lift Nigeria out of economic gloom, overhauling its shambolic power sector and developing the Niger Delta, the heartland of its mainstay oil industry whose poverty is a root cause of years of instability.

But some of the earmarked projects have been included in successive Nigerian budgets without being fully executed. The quality and transparency of spending, particularly in an election year where political minds are focused on expensive campaigns, will be key, analysts say. Much is at stake.

“The biggest risk for Nigeria … is for people to keep paying too much interest to vested interests not reforms,” said one European emerging markets analyst who asked not to be named.

“If things go wrong, Nigeria is bound to be a big liability rather than a force in Africa.”

Editing by Nick Tattersall, Ron Askew; Reuters messaging: chijioke.ohuocha.reuters.com@reuters.net, Lagos Newsroom +234 1 463 0257

At the conclusion of the monthly Bankers’ Committee meeting in Abuja last week, the Central Bank announced that, henceforth, no managing director of a bank shall serve more than two terms of five years each. The service period includes such times as the particular individual may have headed another bank. Thereafter, no former bank chief executive shall be appointed into any position in the same bank, or any of its subsidiaries, until after three years.

The policy, which takes retroactive effect, implies that the aggregate 10-year limit comes into force immediately. In the circumstance, any serving bank managing director affected by the new rule has up to July 31, this year, to relinquish the position. It is probably a measure of stakeholder reception of the new directive that, within days of the announcement, two banks – United Bank for Africa and Zenith Bank – unveiled successors-designate to their respective long-serving chief executives. A third, Skye Bank, is already in the process of making public its succession arrangements.

Questions are bound to arise about the impact of the new policy on the notion and practice of free enterprise. On the face of it, banks are private entities, whereas, the delimitation of tenure for bank chiefs creates the impression that banks are government parastatals, which can be dictated to by the supervising Ministry or government department. Such was the case when government was a major stakeholder in banks, until it divested in the course of a massive privatisation programme.

Yet, even as private enterprises, banks are subject to regulations that are anchored in the public interest on the one hand, and the management of the economy on the other. This is the proper context for evaluating the new corporate governance rules spelt out by the Central Bank. Obviously, the goal of the new tenured regime is to prevent the sit-tight syndrome that invariably breeds a personality cult that is often subversive of corporate governance rules. The more entrenched a bank chief executive is, the more readily he/she would get away with practices that are neither in the company’s interest nor those of the shareholders.

Of course, there is the counter-argument that longevity in office ensures maturity of the officer, fosters a sense of stability and continuity, and therefore predictability, which is a vital sign for investors. On the other hand, it is equally valid that a combined period of 10 years is long enough for a chief executive to make a positive impact on his/her bank and pave the way for a successor in a sector that is at once dynamic and demanding of mental and physical resources.

What is no less contentious is the perception that, by restricting the tenure of bank chiefs, the CBN is usurping the functions and powers of the statutory organs of corporate governance, namely, the members in general meeting, and the board of directors. Shareholders vote to appoint directors, and the latter vote for one among their ranks to be managing director. The latter can be removed by the board; while the shareholders can also remove any director, or decline to re-elect him/her. As general principles of corporate governance, the foregoing is acceptable.

What is equally acceptable in corporate governance is that, usually, managing directors become too powerful as to be beyond the control of the board. Especially for shareholders in publicly-held companies, such as the public limited companies (Plcs), most shareholders are afflicted with rational apathy, which becomes a licence for certain managing directors to impose and entrench their own agendas that are tolerant of self-dealing and other practices that, in turn, diminish shareholder value maximization. This then provides an aspect of the public interest factor that the CBN regulatory activities seek to protect.

CBN regulation of corporate governance in the banking sector is not new. Shortly after the consolidation exercise, the apex bank, desirous of forestalling the reduction of banks into private estates, directed that no one person could combine the position of Chairman and Managing Director of a bank. In addition, no two family members can be on the board of the same bank. Those restrictions are still in force.

However, it is not sufficient for the CBN to create new governance regimes, and then assume that its task is over. As the rot in the five banks, that were taken over by the CBN last August, has revealed, the apex bank has been a woeful failure in its supervisory oversight. Bank examination must be regular, rigorous, and the outcome met with stipulated consequences. Over the years, bankers and officials of the CBN have developed an unhealthy amity, such that the CBN can neither bark nor bite. To achieve meaningful results, the apex bank must act with firmness and a determination to tolerate only the best practice.

Above all, the CBN must begin to think and act earnestly about the intended outcomes of its varied reforms. This is because, merely reforming the banks is not an end in itself. Right now, despite the flurry of changes brought on by Sanusi Lamido Sanusi, since he became the CBN Governor in June last year, there is no proper accent on the management of the economy. Interest rates remain exorbitant, while the Naira has fared poorly against a basket of convertible currencies. Whereas interest rates are below five per cent elsewhere in the world, in Nigeria, it is being bandied as a potential achievement to reduce interest rates to below 20 per cent. No real sector can thrive under such interest rate regime; and the economy would be the worse for it.

The Guardian Editorial – January 28, 2010

The Nigerian Stock Exchange (NSE) gained 1,952.59 or 9.5% from December 31, 2009 through January 12, 2010. The 8 days ascend brought back euphoric feelings for many stock brokers and investors resulting in pronouncements of the stock market revitalization. However, by Wednesday January 13, 2010 sellers besieged the market resulting in the first crack in the uptrend. When the current uptrend began, the NSE index was 2,342 or 10.1% removed from its 200 day CSMA of 23,169, and at the time of pull back, the NSE all share index was only 676 or 2.9% from its 200 day CSMA of 23,194.8 as highlighted in the graph below.

Technically, the NSE all share index has to trade above the 200 day CSMA and sustain the trend to indicate a full blown bullish trend. In the last two days, I have read several articles and newsletters stating that the current pull back is due to profit taking. It is rather amazing that the market pullback is being attributed to profit taking by several analysts. I generally believe that the performance or gains generated by several stocks during the current uptrend is not significant enough to necessitate profit taking by any serious investor or trader.

To illustrate this point, blue chips stocks like FBN, UBA, and GTB gained N1.93 or 13.8% (N14.05k to N15.93k), N0.7 or 6.5% (N10.80k to N11.50k), and N1.88 or 11.1% (N15.02 to N16.90) respectively from the beginning of the uptrend on December 30, 2009 through January 12, 2010. Are these gains sufficient enough to warrant any profit taking? The current pullback has seen FBN and UBA decline N1.54, or 10.7% and N0.6 or 5.2% respectively. Both stocks have literally been pulled back to the price levels where they began their climb as show in the graphs below.

Although I will not attribute the current pullback to profit taking, I believe it was influenced by some investors selling into any uptrend to get out of their old losing positions. Reviewing the charts, the trading volume does not reflect convictions by traders. It seems that traders are unwilling to chase or buy stocks above certain price thresholds. For example, as reflected in the GTB chart below, the stock is ready to breakout, but it recently just bumped up against a significant resistant at N19.90k, creating a double top and reversing its uptrend temporarily. GTB has to trade above N17.00k and FBN has to trade above N16.50k and sustain the prices to resume their uptrend.

Conclusion:
The NSE current bearish market trend will be two years old on March 5, 2010, and technically most of the aggressive sellers should have been washed out by now, but evidence abounds that some sellers are still hanging on to recoup some of their losses. For the NSE to break out above the current level, buyers have to overwhelm the sellers. It does not appear that a lot of investors are willing to be the brave soldiers at this point. Technically, certain positive indicators are beginning to emerge.

The NSE all share index is trading above its 50 day CSMA and the index is hovering around its 200 day CSMA. Additionally, the trading volumes are showing resurgence. However, for the NSE to experience another uninterrupted squeamish bull market, there must be major structural changes and transparency at the NSE. The Federal government, CBN, NSE, and SEC have to do more than just pay lip service. The long bearish trend has left most investors badly wounded and unwilling to invest in the capital markets.

Reference: http://www.proshareng.com/news/singleNews.php?id=8764

Prepared by Chukwumah Biosah, President CEBAL Audit Group, USA and InvestIQ, Technical Analysts to Proshare. All opinions on this page/site constitute our best estimate judgement as of this date and are subject to change without notice. Investors should see the content of this page as one of the factors to consider in making their investment decision. Proshare Limited, its employees and analysts accept no liability for any loss arising from the use of this information. All enquiries should be directed to Biosah@ca.rr or info@proshareng.com

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The Central Bank’s Monetary Policy Committee met early this month and noted that Nigeria’s real GDP grew by 6.90 per cent in 2009. That finding requires a close look as that growth rate happens to be the highest level recorded since 2004 with the least growth rate of 6.0 per cent being registered in 2006.

Ordinarily, in spite of the fluctuating oil production volumes caused by youth militancy in the Niger Delta, the operation of the excess crude oil account based on the relatively low budget oil benchmark price amid surging oil prices between 2004 and mid-2007 and the accumulation of large amounts of foreign reserves were expected to shield the economy from the adverse impact of the global financial meltdown that pushed down oil prices beginning in the second half of 2007.

However, government conveniently used the fall in oil prices and militancy-induced reduction in oil exports to explain away and hide its poor management of the economy. Consequently the non-oil sector and particularly the agriculture sub-sector came to be credited as the major driver of growth in GDP. Yet, as contained in the MPC communiqu�, the growth recorded in 2009 had been without employment owing to the stagnation in the manufacturing sector and the failure to link growth in agriculture to industry.

Besides, there was no visible increase in the export of agricultural produce; neither was any reduction in food imports seen nor was there moderation of food inflation as food inflation as at October was 13.5 per cent compared to the all items index of 11.6 per cent. By implication, in the unlikely event that there was growth in agriculture in 2009 as official data purport, the contribution to growth from agriculture was below 3.0 per cent, the annual population growth rate.

The MPC similarly reviewed other aspects of the economy and observed that monetary growth in 2009 was sub-optimal with money supply and credit to the private sector barely crossing halfway to the indicative benchmarks, evidence of slack aggregate demand. Could this outcome be the result of the gradual and final cessation of margin loans for trading in stocks? Capital market performance was generally bearish and market capitalisation declined by over 28 per cent in the year owing to what the NSE termed the harsh operating environment and the gloomy economic outlook. Furthermore, the 2009 federal budget was grossly under-implemented.

The obvious conclusion from the above is that official claims that GDP grew at 6.90 per cent with the non-oil sector particularly agriculture in the vanguard are false. Yet, the MPC strangely celebrated what it conceded to be higher than anticipated real output growth of 6.90 per cent in 2009 as justification for sustained implementation of the very monetary policies that had driven the economy into a rut.

The MPC communiqu� explains that the ongoing reforms in the banking sector seek to provide stable, price and financial conditions with a view to creating an enabling environment for sustained economic growth and employment. But the MPC is thoroughly confused about how to realise that objective. For instance, in one breath the MPC expresses discomfort that the current rising trends in both crude oil prices and production volumes along with possible private capital inflows pose a threat of inflation, which in reality is completely avoidable.

Apparently for that reason, the MPC canvasses the retention of the oil benchmark price in the draft 2010 budget which it considers expansionary. In actual fact, the heavy reliance of the proposed budget on bank borrowings would unleash high inflationary pressure which would be absent if increased oil earnings were well managed. In another breath, the same MPC expects that elevated oil receipts will raise foreign reserves and enhance the CBN’s ability to maintain exchange rate stability and protect currency from speculative attack. The MPC is disappointingly oblivious of the primary accelerated developmental and massive employment role of export earnings.

Second, the recent introduction of the asymmetric monetary policy rate was intended to free funds that would help moderate retail lending rates. The measure has so far led to falling inter-bank rates, but retail-lending rates are climbing with average lending rates of 23.1 per cent as at end-November. The banks prefer the sinecure, riskless and high interest-bearing treasury bills and federal bonds (which are wastefully sterilised rather than invested and therefore unnecessary) used in mopping excess liquidity to lending to the productive sectors, which runs the high risk of non-performing loans.

To get around the prohibitive retail lending rates, the MPC supports plans by the apex bank to urge banks to provide funds at as yet unstated reduced interest rate to the power, transportation and agriculture sectors which are said to possess growth-enhancing and employment-creating potentials. Such discriminatory intervention, a conduit of corruption, will fail. With respect to the rest of the economy, the MPC resignedly advocates that moderation of lending rates should depend on the reduction of unspecified structural and institutional impediments as well as banks’ risk perception level of borrowers.

It is only charitable to remind the specialised monetary committee that it is merely shirking outright its statutory responsibility by feigning ignorance of the begging solution to the core problem spewing myriad socio-economic difficulties. Surely, when beneficiaries of the Federation Account begin to convert thereby duly monetising their foreign exchange allocations through deposit money banks using a generally accepted abuse-free method, the ex-ante budget Appropriation Act, depending on the level of implementation, will lead to ex-post budget surplus, balanced budget or harmless low budget deficit with resulting low inflation, stable and realistically valued domestic currency and low lending rates across-the-board in a production-friendly environment that will be comparable to the situation in the 1970s when prime lending rates stood at 7.0 per cent and average manufacturing capacity utilisation ranged from 70 per cent to 79 per cent.

At that stage the present culture of releasing sham official data in order to dress up inadequacies in government performance will fade away because the economy will be actively private sector-driven.

The Guardian Editorial 18 January 2010

 

1. The need to expunge the recommendation for the post of an executive Chairman for SEC from the Adedotun Sulaiman led Committee on the Capital Market Reforms;
2. The conflicting status apparent in the office of the SEC chairman who was a director in UACN Plc at the time (subsequently he has confirmed that he is equally a Director at Unilever Plc and Vice Chairman of the board of Linkage Assurance Plc) – all quoted firms listed on the floors of the Nigerian Stock Exchange; and
3. The irrelevance of the belated query of August 19, 2009 from SEC to the DG of the NSE over the Transcorp Plc debt issue – which they got wrong both in context and timing.

•           Lecturer in Law – University of Lagos
•           Investment Analyst – Chase Merchant Bank
•           Consultant to the Nigerian Liquefied Natural Gas(LNG) Project
•           Founding Partner Udo Udoma & Belo Osagie (Barristers & Solicitors)
•           Appointed a member of the team set up in 1984 by The Nigerian Government to implement the LNG Project.
•           Consultant – Retained on a part time basis as a consultant by Sherman and sterling.
•           Member of the team set up by The Federal Government to carry out a review of the Legal Aspects of the Nigerian Privatisation and commercialization Programme in 1991.
•           Member of the committee set up by the Federal Government to review existing policy on Solid minerals in 1996.
•           Appointed Member of the ‘Vision 2010 Committee’ that was set up the Federal Government in 1996 to articulate a national vision.
•           Member, Nigeria Economic Summit Group.
•           Member, National Senate, Federal Republic of Nigeria 1999 – 2007.
•           Chairman of the Senate Appropriations Committee, 2001 -2003.
•           Chairman of the Senate Committee n National Planning.
•           Chairman, Revenue Mobilisation and Poverty Alleviation, 2003-2005.
•           Appointed Chief Whip of the Nigerian Senate, 2005-2007.
•           Chairman, Securities & Exchange Commission, 2007 to date.

 

•           Nigerian trade and investment Laws
•           The Legal Aspects of Privatisation and commercialization
•           The Juridical Aspects of Private Sale and public Offering
•           Winding up and striking off of Companies: Problems of Implementation.
•           Incentives for Gas Projects in Nigeria
•