No Credit Crunch Today, Come Tomorrow

The Nigerian Stock Exchange lost 31% of it’s value in January alone.

There were only 19 trading days in January yet the index was sinking at nearly 2% EVERYDAY.

To put this is in perspective, even the Dow Jones in the country where the credit crunch supposedly emanated from only dipped 9% in the same January.

There’s 2 ways to look at this a] we can bury our head in the sand and declare the credit crunch has nothing to do with Nigeria or b] ask some serious questions.

As usual we Nigerians have overegged the omelette again. Nothing is ever what it appears to be.
Take a look at the stat below

“The stock market lost over N3 trillion in 2008. It opened in January last year at N10.18 trillion market capitalisation and then peaked at N12.6 trillion on March 5 before the bears set in. The market closed for the year 2008 at N6.957 trillion. This is against the gain of over N6 trillion and a growth rate of 74.7 per cent in 2007”

The above is even more stunning.
As of Friday 13th February 2009, the NSE closed with a market capitalisation of just under N6trn.
Effectively, the NSE is now worth less than the gains that were made in 2007 alone!
Incredible.

It’s safe to say that what fuelled the crazy boom of 2007 and early 2008 was the easy access to money people had through the share loan scheme of our magic banks.
When you really think about it, it is almost impossible to have the kind of growth we have had without the active participation of speculators.

Take N1m to the banks and they’d promptly give you another N2m to trade the stock market.
As 9ice would say; Let’s go there……everybody was making money and the world was a wonderful place where nothing could ever go wrong.

Some of these shares were rising phenomenally even in cases where the underlying company was not doing any business at all.

Now, I’m an accountant [I think] and I have an idea of what a balance sheet looks like.
It’s got assets in it and it’s got liabilities in there as well.
The whole idea of course is that it all balances nicely, thank you very much, at the end of the day.

I also happen to work in a bank which has done pretty well [relatively] since the credit crunch started.
This has been parlty due to the bank being quite well diversified and having different types of businesses that are not totally related.
So when investment banking has totally tanked in the last 1 year, other parts of the bank have kept it going and some have even grown despite the conditions.

Now back to Nigerian banks and their share loan schemes.
Say a bank borrows you N2m and you bought First Bank shares with everything early last year at N50 per share.
The bank holds this shares as collateral against the loan you have borrowed, no?
Now First Bank’s shares have since lost 65% of their value and are now trading under N18 per share.

So you are the accountant for say Zenith Bank and you know the bank has billions of naira in outstanding loans to people who used them to buy shares such as First Bank.
Again, when you are giving out a loan to somebody, surely you dont take a collateral worth less than the loan you are advancing do you?
Now you know there’s a problem.
You know that given the current market conditions, the value of the collateral you are holding has been severely impaired.
I am talking severely.

One of the first things you learn as an accountant is prudence. From the first day to the last, the concept of prudence in accounting is hammered into you until it becomes second nature.
Therefore if you are carrying assets that have been so badly impaired, you need to make a write-down ASAP.
Sort of like holding your hands up and saying ‘I dont think we would be able to sell this asset for what we thought anymore’.
That writedown of course has to go somewhere….so you stick it through your profit and loss and it in turn reduces your profit for that year.

Out here, this is the reason why we have mark-to-market accounting…..where companies are constantly valuing their assets against the current market and if a problem is detected, neccesary action as above is taken.
Hence the reason why it appears banks in the western world are running out of money and making huge losses.

But in Nigeria, things are done differently.
Our banks have chosen to operate in a parallel universe.
I have not heard of a single bank making less profits this year than it did last year. Tufiakwa!…..loss making is for mumu oyinbo banks.

This is truly phenomenal. Perhaps we are witnessing the development of a new type of accounting to be called Pretend Accounting:IFRS 419.
Just pretend like the problem is not there and eventually it will go away.

Take UBA Plc  for example, the bank is on track to make Profit After Tax of N52bn [$351m] for the year ended Dec 31st 2008.
In the previous year to Dec 2007 it made PAT of N21bn [$141m].
To save you the trouble of finding a calculator, that’s a 128% increase in profits year on year.

If you care, you can look at the other banks…the numbers will be similar….all of them making spectacular profits while the rest of the markets crashes and burns.
Who cares when you are operating Pretend Accounting eh?

So where did the N8trn [$54bn] that has been lost on the NSE since March last year come from?
Ok, some of it came from foreign investors and other assorted mugus like me [my portfolio is currently down 45% and it’s still going down…like the yellow submarine] who poured money into the system when the market was like a dog on heat.

But that alone is not enough to account for $54bn that has now evaporated into thin air is it?

This is a classic example of how we as Nigerians operate with no rules and nobody bothers to think about tomorrow.
The DG of the NSE, bless her, was perhaps too busy organising the very well attended Obama dinner to notice that something was going wrong.

Even now, we are still pretending like nothing happened and everybody is waiting for the ‘markets to rise again’.
We have no interest in learning any lessons from this disaster.

We need to confront our mistakes and be honest with ourselves.
People need to sit down and critically analyse what went wrong in Nigeria with a view to preventing this sort of thing from happening again.
Almost everybody has been a loser in this……the ordinary man on the street who was genuinely looking for an extra income has also lost out big time from the market collapse.
In a society with no safety net like Nigeria, the pain is felt even more.

In the last 3 years a lot of nonsense has gone on in the Nigerian financial sector.
Stuff like the Nospecto ponzis are a complete disgrace.
We cannot always wait for the damage to be done before we begin the hand wringing.
These things need to be prevented from happening in this form in the future.

There will always be problems for a nation state to deal with.
But it is double jeopardy for the same problems to keep coming up everytime and no one seems to remember from the last time.

Nigerian banks need to start some very honest accounting and declare the bad stuff they are carrying in their books.
All these magic figures they are declaring doesnt really help anyone ….it has clearly become a game now because no bank wants to be seen as the one who hasnt doubled it profits from the previous year.
The banks do not even have that many lines of business to the point where if one side has a bad year, the other parts of the bank simply prop it up.

Every crisis always presents an opportunity for fundamental changes that are not usually possible when everything is going well.

Maybe this is the time for banking reform in Nigeria.

Maybe I am talking to myself.

Like Jenifa, Like Wall Street

The premise is all too familiar; starry eyed village girl leaves her village behind for the bright lights [when there is indeed light] of Lagos carrying the hopes and dreams of her entire family on her shoulders.

Of what extraction would such a person be if not the very epitome of Ibadan Mesiogo?
Claiming to represent the ancient town of Aiyetoro, she declares to anyone who cares to listen; Suliat Kan, Aiyetoro kan……. everyone in Aiyetoro is just like me!
Founded in 1947 by a group of  Seraphim settlers who had left their previous dwellings after violent clashes with members of the Oro cult, Aiyetoro [loosely translated to mean happy city] underwent very rapid development on account of the hard work and industry of it’s citizens.
One of the most remarkable achievements of these people was the building of a seven mile canal linking the village with the then inland waterways.
They didnt wait for development to come to them, they made it happen.

Fast forward to 2008 and things have certainly taken a drastic turn for the worse in Aiyetoro…just like the rest of Nigeria.
The once industrious town’s flag is now proudly hoisted by Suliat, our heroine.

Jenifa is not so much a Nigerian home video as it is an event.
This movie happened on an unsuspecting nation and it happened it’s way across practically every class in our society.

I believe this was a lost teaching moment.

In my thirty odd years as a citizen of the Federal Republic of Nigeria, I cannot remember [correct me if I am wrong] a single policy of successive governments that has managed to alter people’s behaviour without the use of force.
It just never happens…our central governments never manage to think that far.
You might say WAI [War Against Indiscipline] succeeded in making Nigerians cleaner people but that was achieved practically at gunpoint.
We promptly went back to our dirty ways as soon as we had a government with different priorities.

Recently I was reading an interview Oliver Stone gave about his 1987 film Wall Street.
He said he had created the Gordon Gecko character to be viewed in a negative light by the public….perhaps even a hate figure.
To his utter amazement, the public fell in love with him and he became cool.
Today the famous line uttered by Gordon in that movie ‘Greed is good’….is now part of movie legend.

There is indeed a message in Jenifa.
But the producers are too weak to make it the central point of the movie. 
They were too busy, perhaps unwittingly, glamourising the caricatures they created and disguised as characters.
They are shrewd enough to know that Nigerians love caricatures…..Baba Suwe  has had a long and successful career searing the caricature of the ultimate buffoon into the consciousness of Nigerians.
The list goes on… Dejo, Opebe Disable, Baba Sala, Alabi Yellow ….men who have made a career elevating buffoonery into an art form.

We do have a problem with the way our women are growing up having their self worth determined by money and money alone.
There is a social time bomb ticking with the amount of ladies on our campuses who are putting their body and their psyche through so much abuse to the point where it becomes normal to them.

The gratification is instant but the penalties are slow burning.
Simply put, women were not designed for the sort of thing they are putting themselves through on our various campuses these days.
We will begin to see the results of this when said women begin to have children of their own and raise a new generation.
Your guess is as good as mine as to how they will turn out.

The main problem with Jenifa as an event is that the case is not made sufficiently and forcefully enough that the perils of life as superficial as the ones on display on campuses are very real and damaging.

Gbogbo Bigs Girls [spelling correct?] is indeed made to look cool.
There is no hope whatsoever given, that the lifestyle of her crew can be resisted with any measure of success.
The message is that if you are poor and you come to University, you will be pimped and handed on a platter to some predator to have his way with you ..for a fee of course.
In this movie, the bad girls dont win but the good girls dont either!

And this is why I think a teaching moment was lost.
A chance to send a message to would be Suliats that you can come to campus and leave with your self esteem and dignity intact.
A message that this evil scourge can be successfully resisted even if it means such a person is the last girl standing.

The moment is gone now and we must wait for the next one….the event has happened…..but there will be another one.
God helping we will recognise it and make maximum use of it.

Movie makers should not shirk their responsibility to society because they they want to titillate and entertain Nigerians while making a fortune at the same time.

That, in my humble opinion, was the way it should have been Don Jazzied!

UPDATE: I think it’s also fair to say that the movie was quite funny in parts and made a lot of people laugh.
In these difficult times, I think it’s very important for Nigerians to get a good laugh now and again.
As in…..

Federal House of Pork

I saw this story  in the papers a couple of days ago and I was exasperated yet again.

N4m was apparently dispensed to each of the 360 members of the Federal House of Representatives to help them celebrate the christimas and sallah festivals in 2008.

Firstly, why should each lawmaker get N2m to celebrate EACH festival? I accept we are a multi religious society but surely this cannot be taken to mean people now practice more than 1 religion?
You are either christian or muslim, so a christian lawmaker should not be paid N2m to celebrate sallah.

But the more disgraceful aspect of the whole story is that the lawmakers threw a hissy fit when they discovered the repayment of the apparent loan had been taken from their salaries.
According to the lawmakers, they thought the N4m had been a gift.

Gift from who?

They also argued that the House returned N2bn to the Federal Government relating to money unspent from their allocation last year.
Now, there are 360 members of the House….so at N4m each, this ‘gift’ had cost N1.4bn.

Oh, I get it now…..if you manage to save N2bn for the Federal Republic of Nigeria, it is reasonable to expect that the government will instantly return N1.4bn to you as a reward for your troubles.
That’s a 70% finder’s fee…..nice work if you can find it.

It’s not a lot of fun being a Nigerian these days.

By my estimation, Nigeria is still stuck somewhere in the 1990s in terms of the level of thinking of public officials.

The Federal House of Representatives has now become a den of ex-419ers, bombastic grammarians, illiterates and an assorted company of characters who will only accept personal enrichment as the only marker for the success of their sojourn in Abuja.

To them, Nigeria has become the pig from which every ounce of pork must be extracted for consumption.

Good luck to them.