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Why The Capital Market Won’t Bounce Back Soon – Adetunbi

By on July 15, 2012

Mr. Seye Adetunbi, who clocks 50 next week, is Chief Responsibility Officer, Value Investing limited, Lagos. He has well over 17 years of experience in Senior Management position in Finance and Banking Sector. Preparatory to the proposed launch of his new book — the MINDSET — which x-rays the twists and turns in the nation’s capital market — he spoke to MARCEL MBAMALU on options open to regulators. Excerpts:

Congratulations on the forthcoming public presentation of your book on the capital market and integrated contemporary issues locally and internationally to mark your 50th birthday. What really was your motivation for writing the book?

MINDSET, my multidimensional pictorial book, is actually not my first book. The first book is a biography of one-time leader of the Nigerian Union of Teachers, Chief David Opeyemi Adetunmbi, my most venerable beloved father. It is available on the web I concluded the maiden edition in June 1990.

The second one is a technical book. It is titled Financial Intermediation & Practice, a guidebook for financial market operators, in an emerging market. I finished the initial manuscript in 1994 when I was in Zambia on a consultancy assignment. It is yet to be formally presented to the public.

My other work is the “Speeches from the Throne” which was put together in 2008 to mark the 50th anniversary on the throne of my most beloved royal father, His Royal Majesty, Oba Adetunla Adeleye II (1929-2010), the Elekole of Ikole and the Paramount Ruler of Egbe-Oba Land. Prof Ade Ajayi, the octogenarian scholar and authority on history wrote the foreword.

MINDSET, the one to be presented to the public on July 21st in Lagos is essentially a collation of my various reflections on the financial market in Nigeria, integrated national matters and contemporary issues around me between 1986 and 2012. They are made up of materials some of which have been published in The Guardian and other newspapers, news magazine and journals over the years.

The motive behind it is to put everything together under one cover for ease of reference since the substance of the issues written about are timeless and cut across wide range of subjects which make it a one-stop book.

Primarily, it is not lose track of my well-thought out writings in the innocent days. I have been on it some years back. As a matter of fact, the first manuscript was passed to Prof Akin Oyebode for the foreword in 2007 towards marking my 45th birthday. Five years after, the revised manuscript is bigger and apparently ripe for public presentation with the foreword written by the professor of jurisprudence.

Since your new book covers a whole lot of events in the capital market, what in your opinion are the things that actually went wrong with the market; is it ever going to recover?

What we experienced (which appears not to be going back to normal or expected situation so soon) is a fall-out from excesses, indiscipline and outright discountenance of fundamental operational ethics.

Every sector of the market had a hand in it. The regulators, operators, and the investors too have their own portion of blame in the rat race until the burble burst.


Regulators went to sleep to some extent while some of the watch guards got compromised. Few of them were involved, in one way or the other, in the rat race.

This gave operators the latitude to go out of bounds through an unprecedented margin trade facility regime. Of course, the restless investing public bought the bug, and everybody wants “s’ogun d’ogoji” (this is word that Yorubas give to money doublers, people who want N20 to become N40 in a jiffy). The discerning ones who exercised caution were lucky by exiting when prices went haywire.

Apparently, they were smart enough to know that whatever goes in such a crazy market must come down.

Also, when you copy foreign culture and practices where there are some measures of basic and effective checks and balances and put into practice in Nigeria with its peculiarities, when the bubble bursts, it is bound to be catastrophic. This is why it appears that, in the developed world where meltdown was experienced in their capital market, they seem to be getting over their setback faster than Nigeria.

In the climes where double standards is played down with zero tolerance, unlike the Nigerian factor which has infiltrated all the facets of the system, it is not helping the turnaround needed for the capital market.

Nevertheless, there is no cause to give up on the market. For as long as there are still some operators standing, then there is hope. The old way of going about the market affairs may have gone for good, yet the market is on the path of full recovery, it will only take its time.

It has been discovered that only the stocks of foreign and multinational companies on the Exchange are really appreciating (recovering) substantially. Why is it so, and what role has corporate governance got to play here?

Corporate governance is the catchword here. Why is it that the share prices of Nestle, Mobil and their likes did not crash abnormally or at least below N100 during the crisis in the stock market? Apparently, the companies were focused and did not compromise corporate governance issues in the management of their affairs, books and shareholders’ register.

When there is no room to issue shares that couldn’t be substantiated or backed up with corresponding resource and verifiable balance sheet, it is only natural they will be able to withstand any storm.

Anyway, before you can manipulate share price, you need stocks to do it. Thus, where shareholders hold on to their stock holdings because there is value in holding on to it, as a result of considerable returns on investment; then an abnormal crash will be a mirage.

As a matter of fact, this scenario could actually prompt genuine capital gain because of people who are actually desirable of getting a bit of the action and willing to pay premium for such security.

In essence, the companies under reference are well managed and have been consistent over the years in giving back to their shareholders. It must also be noted that it is not all the multinational firms that are exceptionally good.

What is your assessment of the quality of regulation of the capital market in recent times; has SEC actually lived above board?

The way I see it is that it is often difficult to build back when lasting structures have been destroyed. The mess on ground is massive and such that it would take a focused and disciplined regulator to make the desired impact. Spoil of office could easily cause distraction and make anyone in charge, who is not discerning enough, to fall prey of set mines.

Having said that, the scar of the 2008 meltdown is there and the effect is still biting hard. Activities have not picked up as much as stakeholders had wished.

Fallouts from the meltdown are still rearing its ugly head. For instance the various private placements that people put money into, which turned out be a kind of scam or a rip-off, are giving the market credibility problem. Issue of confidence in the market is thus brought into perspective.

This is why everyone remotely connected with any deliberate act to defraud the unsuspecting investors should be dealt with accordingly.

In short, activities are still low; while all hopes are not lost. There is practically very few new entrants into the market, while the existing firms are thinning out operationally and in numbers.

Any hope at the moment?

Of course, there is hope in the challenging situation; otherwise no operator would be left in the market. The reality is that the era of questionable rally and abnormal bubbling market may have gone with the wind. The market is still on the course of a restoration journey. However, in the midst of it all, those who have the resources and are discerning may still take advantage of measured opportunities in the market with medium and long-term horizon in view.

What’s your take on the suspension of the Director-General of the Securities and Exchange Commission (SEC), Mrs. Arunma Oteh, and implications on capital market regulation?

No doubts, it sends wrong signals to the market place that we have not got our acts together. The dust is barely settling down over the unceremonious exit of the erstwhile Director General of the Nigerian Stock Exchange before the SEC probe arose. While we read report of anacting SEC DG, we also read in the papers about the madam DG attending economic council meeting.

Anyway, with this development, I put it to the stakeholders: To what extent have the market operators positioned themselves to ensure that as many tested and trusted professionals as possible are part of the recruitment process?

Information about any recruitment to senior management positions within the regulatory bodies should be made public for qualified and applicable capital market operators to apply for the openings appropriately. Well-meaning operators should encourage tested professional capital market practitioners to show interest in the senior management positions in SEC and similar institutions with related responsibility to the market.

I have always been of the opinion that until our market is consistently managed by us (I mean we that rose through the ranks in the market operations over the years); the fortune of the market may not improve as desired.

When people who don’t know where we are coming from take charge and manage our affairs, we may not make much progress. If the market operators truly believe in this market, they just have to be involved. The time to seize the moment is now.

Recently, market makers were created to absorb the shock in the capital market. Do you think the quality of that intervention is above board; is it really working?

You can’t build something on nothing. Market makers play strategic role of having the capacity to take out excesses capable of causing or resulting to glut or upset in the market. Their role can be related to what is called staging in the capital market whereby institutional investors would have access to initial public offerings (IPO) at a relatively negotiated offer price. This would be sold to willing investors at a margin through the secondary market window when the market can accommodate it.

The challenge of this is the volume of toxic assets out there. This puts the capacity required of the market makers to be quite tasking. Whoever is going to play a market maker role in managing the mess on ground must have a deep pocket. It would have been a different thing if the market were starting on a clean slate.

Nonetheless, whatever legitimate approach and any tested model that suits the reality of the structure of our market is a welcome development. However, past mistakes must be avoided in the implementation process. Solution should be driven by what will benefit the market and not about helping out those responsible for the distress in the first place without disciplining those who have erred criminally.

Where are the market makers going to source their huge funds from? The banks are closely watched with limited resource for banking responsibilities. How many international fund managers are looking at the Nigerian market at present?

As a matter of fact, a reporter asked me, not too long ago, what I consider as the reason behind some foreign investors divesting from the some quoted securities. Nobody does market making for the fun of it. In essence, when there are superior window of opportunities elsewhere or when I know that I will earn higher yield on stock A, why go for stock B on a sentimental note?

On demutualisation of the exchange…

If this will help curb the excesses we witnessed in the immediate past dispensation, let the market go for it. However, Nigerian Stock Exchange belong to the dealing members, they must be carried along in the design, structuring and implementation such that in the end, they as an entity, will have equity in the newly demutualised NSE.

The capital market probe by the National Assembly stirred great controversy casting doubts on the integrity of the reforms (sack of former DG of NSE and other matters) in the first place. What are your thoughts?

I don’t see it having any direct immediate positive impact on the market. Those who have scores to settle are the immediate beneficiaries.

There is need to stabilise on fundamental policy issues and manage market regulatory affairs responsibly. In essence, the recent probe in the capital market and the fall-out from the manner the DG of SEC had to go on a compulsory leave is neither complimentary nor portends good image for the market.

The negative side of the probe is embedded in the uncomplimentary message sent to the investing community. This leads us confidence issues in the market when the watchdog because the object of attraction for the investors to watch.

For instance, recent reports have shown that there exit of foreign investors from the Nigerian bond and equity markets in recent times, which has resulted in consistent drop in activities in the market. The foreign investors are institutional players with set investment objectives and motives. They review their portfolios from time to time and monitor performance as well as opportunities in other climes or markets. Thus, they may be exiting in line with their investment policy and portfolio management objectives to meet up with legal obligations or explore an alternative high yield investment window among other considerations such as perhaps lack of confidence in the market.

The banks… are they really making progress sequel to the reforms?

The banks have stabilised reasonably and some of them have resumed dividend pay out culture, which points to one thing, that things are looking up. The extent they support the real sector businesses towards boosting the GDP is another thing entirely.

Why are the banks not really lending now, especially to manufacturers and others?

It is either there is no money to lend, or none of the parties you referred to are meeting the minimum lending terms. No bank may ignore a good account that yield the desired or target returns and the bank has funds in place for such commercial relationship. Except the bank is not on good standing in terms of exposure and prudential guidelines.

Banks are releasing their half -year financials. What do you expect?

Naturally, as a nominal investor in some of the banks, I expect an improvement on their last year performance.

What’s your advice to investors?

Investors should face the reality of the challenging season and don’t give up on the market completely. They should look beyond the past portfolio that went bad. Discerning investors should still follow developments in the market and take advantage of arising opportunities. It takes investors who have not given up to identify opportunities and seize it appropriately.

What are the ways forward for the capital market in your opinion?

It is high time the market moved away from inconsistencies and send out consistent signal to the investing public that we are on top of our situation. This will be evident in the professional and proficient manner our market is managed. When those who are supposed to work in concert together in educating investors play “cat and dog”, then little hope left in market is burgled. Discerning investors will seek other windows of investment opportunities.

Government should avoid making the same past mistake on the appointment of the substantive head of SEC. We have a lot of competent hands in Nigeria who can do the job. They should carry along as many well-meaning operators as possible. Operators know themselves those who are honorable and the elements who are not. Do background check before placement of anyone.

Nevertheless, this development creates an opportunity to reconstitute the board/council and bring on board of the top management team, new tested operators of integrity with fresh perspective.

Take cue from the CBN whereby career bankers who have worked in the commercial banking sector and have even managed banks were brought into the system.

Thus, conscious effort should be made to depart from the old way of going about the appointments, which has failed the market. Otherwise, we continue to get the same result if the status quo is allowed to stay and keep doing the same thing.