The rise and fall of the financial Sector and the way forward

The Soludo Era: After the banking consolidation exercise reduced the number of
Nigerian banks to 25, Professor Charles Soludo became a national hero. He was hailed as
a practical genius who translated abstruse economic phenomena into reality, a man who
easily vanquished the stodgy and connected grey eminences that had tried to resist his
reformist agenda.

As the masses sang his praises, the canny bank chiefs who had succeeded in saving their
institutions knew that they had to embrace him in order to protect their empires. To
seduce him, they levied themselves 2 million naira each and hosted him a superlative 50
million naira "dinner". He was initiated into the luxury life.

Soludo, the hyper-intelligent economist soon morphed into a dapper dresser who wore
Savile Row suits and expensive Rolex watches. He became very close to a privileged
group of bankers who became the de facto rulers of Nigeria’s financial sector. The tough
talking regulator lost his sense of impartiality.

The Stock Market Boom.

General Olusegun Obasanjo's decision to work with Bretton Woods economists
combined with soaring oil prices to draw foreign investors to the Nigerian financial
sector. In addition to hedge fund managers who invested a small fraction of their
portfolios in the growing market, ordinary Nigerians joined the fray when they realized
that banking sector reforms had transformed the stock market into a veritable cash
machine.

Growing investor confidence quickly led to a sharp rise in stocks and attracted the hoi
polloi. Small investors rushed to the stock market in droves and sank their money in
"high growth stocks". The snake oil bankers quickly read the situation and drew up plans
to further increase their capital base.

In order to achieve abnormal returns, they enlisted the support of stockbrokers who
brazenly manipulated stock prices with the tacit support of the leadership of the
Securities and Exchange Commission and the Nigerian Stock Exchange. A rash of public
offers soon followed, leading to an exponential increase in stock market indices.
Some states even compelled civil servants to buy shares, forcibly deducting the value
from their salaries.

Clergymen told their congregations about the "miraculous wonders" of the stock market.
As the unsophisticated “sheep” emptied their nest eggs into the Nigerian Stock Exchange,
the bankers and their sidekicks got richer. Mid-level managers earned millions in bonuses
as reward for bringing in ensnaring ignorant investors. The stock market became part of
the national conversation. And there was no stopping the bubble as the new financial elite
was born.

Greed and Recklessness.

As the money rolled in, the banks immediately went on a spending spree. South African
brand consultants were paid huge sums to design new logos, Indians got millions for
software and overpaid managers were poached from rival banks. In little time, the
banking tsars became delusional and started a turf war. They commissioned ostentatious
offices and hired buxom bimbos to reinforce their marketing departments. These
“happiness” officers were given huge allowances for miniskirts, contraceptives and
expensive baubles.

The battle assumed a personal dimension as nouveau riche bankers fought for prime real
estate in Ikoyi and Victoria Garden City. Others rented Banana Island flats and joined
expensive boat clubs where they flaunted their expensive curios. The gnomish Jim Ovia
took over an entire street in highbrow Victoria Island where he built an imposing edifice
and commissioned a flashy ATM galleria. His amazing architects delivered The Civic
Centre, a ship-inspired building that came to define his expensive taste. He became a
trusted confidante to Aliko Dangote and Femi Otedola, Nigeria’s richest men. Aig
Imoukhuede, one half of the now infamous United Alliance, built a fortress complete
with angry mobile policemen. Jeremiah Omoyeni, the banker cum politician, got a 450
million naira housing allowance for his short stay at the helm of the crisis-ridden Wema
Bank.

Anthony Elumelu, Cecilia Ibru, Jim Ovia and Tayo Aderinokun commissioned private
jets to take them around the world while Akingbola curiously started an FM radio station
and announced that he would treat himself to a Rolls Royce on his 60th birthday. Prince
Nduka Obaigbena, This Day’s flamboyant chairman became the cheerleader-in-chief as
banks picked up the tabs for visiting global dignitaries at the newspaper’s exquisite “town
hall meetings.” Vanguard raked in billions from its annual Bankers’ Awards.

Foreign praise singers also realized that there was money to be made and set off a craze
for dubious awards. African Business, Business Initiative Directions, The Banker and
EMEA Finance came calling, dishing out awards in exchange for cash. Renaissance
Capital, led by the mercurial Stephen Jennings staked its claim and exchanged ratings for
securities contracts.

As oil prices continued to spike, savvy local entrepreneurs became potential oil and gas
traders. They drew up grandiose business plans and convinced bank chiefs to advance
huge loans for the purchase of tank farms and refined crude. The bankers obliged and
shared the "upfront" interest. “Oil and Gas” became the most important phrase in the
lexicon of the Nigerian banker.

Some of the oil traders were not satisfied with their bulging bank accounts. Since real
estate is the Nigerian's true barometer of wealth, they went back to the bankers and drew
up plans for an African Dubai. The bankers obliged and doled out more cash. Deals were
sealed in posh country clubs as huge loans were given with utter disregard of risk
management processes.

Foreign credit lines and unnecessary forays into the capital market meant there was just
too much money to spend. Banks soon decided to have a taste of the apple and
incorporated subsidiaries to market “luxury estates”. Lekki, Ikoyi and Abuja became the
new Hamptons. Even foreigners began to complain about the skyrocketing prices of
Nigerian real estate. "Expatriate Only" signs soon became de rigueur.

The Early Signs.

When the subprime mortgage crisis ballooned into a full scale economic meltdown, the
foreign bankers knew they had to run. After all, the global banking system was on the
brink of collapse. Indy Mac had disappeared and fabled Wall Street institutions such as
Bear Stearns and Lehman Brothers had imploded.

The Nigerian banks had no chief economists and were blissfully ignorant of the
implications of the crisis. Akingbola, Okereke-Onyiuke and Soludo all publicly declared
that the country’s financial system was isolated from the rest of the world. Most
Nigerians continued to buy stocks not knowing that Peter Ololo and his fellow
stockbrokers were using cheap money to prop up the stock market. This made it easier for
foreign operators to exit the market at a premium. Firms such as Actis, the private equity
fund, dumped its shares in UAC for 50 naira. By the time, the stock market went into a
tailspin, it was too late.

Deconstructing the Fallen Five.

Erastus Akingbola - Some staffers of Intercontinental Bank have accused me of bias,
claiming that I have personal scores to settle with Dr Erastus Akingbola. This is untrue. I
have always believed that Erastus Akingbola was a crook and I owed the Nigerian public
a duty to expose him. It is now clear that he was an exceptionally talented huckster who
used his avuncular mien to shamelessly manipulate the public.

He frittered away the bank’s money on questionable “CSR” schemes designed to

influence politicians and lay the groundwork for a future political career. In the week
before the August 14 temblor, he instituted a 50 million naira scholarship scheme for
Katsina natives in a clear attempt to lobby the president through Ibrahim Shema, the
governor of the president’s home state. Akingbola also instituted a similar scheme in his
home state, Ondo, where he was rewarded with the chancellorship of the state-owned
university in a clear case of quid pro quo. As part of his national “save me from Sanusi”
tour, Dr Akingbola finally ended up in Sokoto where his attempts to lobby an unsmiling
Sultan fell flat.

He didn't show up for the historic August 14 meeting. Three days later, he had vanished
into thin air. Nobody can underestimate the danger still posed by the highly influential
Akingbola, who has been in the industry for thirty years. His case is not just an error in
judgement. In any serious country, he would be the subject of an international manhunt.

Cecilia Ibru-Long before the stock market correction and the rapid fall in global oil
prices, Cecilia Ibru had inexplicably shackled Oceanic Bank to a bilateral 175 million
dollar five year loan from Merrill Lynch. This transaction was packaged by Osaze Osifo,
a financial consultant and business partner of Andrew Alli, a CBN debtor who is
currently at the helm of the controversial African Financial Corporation. A former chief
executive of Oando, Osifo had made a killing in Nigeria's GSM licence auction before
joining the Oando triumvirate of Jite Okoloko, Wale Tinubu and Mofe Boyo.

The Slick Osifo had cultivated a friendship with Oboden Ibru, Mrs Ibru's son and heir
apparent, who doubled as the bank’s executive director and chief executive of Oceanic
Capital. Osifo, Alli and four other principals needed additional capital for their
investment boutique and through Oboden, Osifo’s company Travant Capital Partners was
selected as the financial consultants for the transaction.

Oceanic Bank mismanaged this loan. In addition to heavily betting on real estate and
petroleum marketing, the bank lent vast sums to the Delta State Government and other
firms with ties to the powerful James Ibori. The bank also perfected numerous ways of
diverting money through imaginary companies. One of such transactions involved
lending millions of dollars to Meggitto Clothing for the purpose of exporting fabrics. This
money vanished into thin air. We now know that there were other shady transactions such
as the incomprehensible 19 billion naira loan extended to Nigeria's most famous nanny.

Insiders say that the dim witted Cecilia Ibru was hopelessly out of her depth at the helm
of the bank. Surrounded by lackeys and relatives, she signed documents without reading
them and gave loans based on her personal judgement. She relished being a mother figure
and even though her staffers have kind words to say about her, they acknowledge that
there was too much laxity with respect to management issues.

When it became apparent that Oceanic Bank was tottering, Mrs Ibru embarked on a
number of questionable projects to raise money for her bank. These included an unethical
400 million dollar football reality program and a shady raffle in partnership with the Suru
Group. It is a pity that the United Nations Global Compact did not do a thorough
investigation before they named her to its committee on corporate governance.

Barth Ebong - Only a powerful witchdoctor could have known that Union Bank was in
trouble. Long criticised for its horrendous customer service and aversion to technology,
its chief executive was neither ostentatious nor publicity-hungry. As the oldest bank
chief, he had a measure of gravitas which turned out to be a mask for incompetence.

With the benefit of hindsight, one should have guessed something was wrong with the
big, strong and reliable bank when last year, in response to a campaign to force its chief
executive to resign, the board moved its AGM to Maidugri, effectively disenfranchising
the bulk of the bank's shareholders.

Union Bank also stunned analysts when it agreed to underwrite half of Afribank's
overpriced public offer. Now it turns out that the dour Ebong also gambled heavily on
high risk sectors. It is now clear that years of mismanagement had turned the bank into a
corporate cadaver.
So far, Union bank’s loan recovery efforts have yielded little fruit when compared to
Intercontinental, Oceanic and Afribank. The authorities must also investigate how the trio
of Nike Akande, Jite Okoloko and Festus Odumegwu ended up on the bank’s board of
directors.

Sebastian Adigwe - Many analysts believe that Afribank's current problems stem from its
relationship with African Petroleum. The bank was heavily involved in financing Femi
Otedola's takeover of the petroleum marketing company and the huge debt added to its
woes. The two firms forged a strong relationship that resulted in Adigwe joining AP's
management board while Osa Osunde, an alleged front for Lucky Igbinedion, doubled as
Vice-Chairman of AP and Chairman of Afribank.
Apparently, the effete Adigwe was a figurehead who pandered to the whims and caprices
of the bank's powerful backers. A few weeks to the CBN action, Afribank took out paid
advertisements congratulating Ogbueshi Uche Luke Okpuno, one of its prized clients
who later showed up on the CBN’s debtors list. How interesting.

Okey Nwosu - FinBank raised more than 100 billion from its public offer and invested
heavily in the oil and gas sector. The bank clearly had no long term strategy and one
wonders if Mr Nwosu believed that oil prices would hit 400 dollars. A week before he
was sacked, the suave Okey Nwosu approved a loan to Jevcon Oil and Gas. It was widely
celebrated as a testimony of the bank's devotion to indigenous operators in the maritime
business. Amazingly, Jevcon shows up in the CBN list of debtors. Dr Onyung, Jevcon's
chief executive, has not issued any public statement to counter the CBN’s claims. What
was Mr Nwosu smoking?

Ndi Okereke Onyiuke and Musa Al-Faiki-Ndi Okereke - Onyiuke is an amazing creature,
a corpulent buffoon who somehow clawed her way to the zenith of Broad Street while
earning a dubious professorship. It is hard to understand how she kept her job after she
publicly claimed that CNN and the Internet caused the stock market crash. While the
NSE is a privately-owned organization, it is now clear that Okereke-Onyiuke has no
business at the helm. For years, she has allowed the Exchange to be controlled by
compromised acolytes and highly-placed insiders.

The case of Mallam Musa Al-Faiki is a cautionary tale. The former SEC DG was
hopelessly out of depth during his five year tenure and did little to stop the widespread
abuse in the market. Part of Mallam Al-Faiki’s problems was that he owed his position to
Madam Onyiuke’s friendship with President Obasanjo. The vacillating SEC DG clearly
did not want to offend his benefactor and when SEC staffers like Charles Udora, leaked
their critical views to the press, he was always quick to issue a quick retraction.

The 'Talented' Peter Ololo-Two years ago, one of Okereke’s aides told me about Peter
Ololo, whom he simply called “Falcon”. The aide was starry-eyed as he described the
powers of this mythical "Falcon", who could effortlessly double the price of First Bank
stock within a month. Today, Peter Ololo is in EFCC custody. He owes 88 billion.
Like every smart businessman, he filled his firm's board with power brokers such as
Senator Tunde Ogbeha and Senator S.A Otegbola.
Unfortunately, the indolent Nigerian press has not really scratched the tip of Ololo’s
schemes. In addition to Falcon Securities, the disgraced accountant also controlled two
active publicly listed companies, DEAP Capital Management and Trust and DVCF Oil
and Gas Fund.

These companies were empty shells whose complex schemes were powered by insider
trading and exploitative business models. If Mrs Waziri’s EFCC is serious about
sanitizing the sector, it wouldn’t be a bad idea to question the chief executives of these
two “fund management” firms.

Fit and Proper Person Test

Nigerian regulators must adopt a system of screening bank executive directors to
ascertain that they are of sound mind and body. Private investigators should be hired to
pry into their backgrounds and their educational and analytical skills must be evaluated
by an impartial panel. People should not be appointed to highly sensitive positions
because of ethnic politics and tenure. I believe that such as test would have shown that
Mrs Ibru, Mr Akingbola and Mr Ebong were not suited to the task of managing their
respective financial institutions.

Financial Services Authority

Perhaps the CBN, NDIC, SEC and other agencies should seriously consider the idea of
establishing a Financial Services Authority to supervise the financial sector. The head of
this agency must be chosen through a transparent recruitment process that has nothing to
do with ethnicity, religion and other petty considerations. If the head hunters conclude
that no Nigerian is suitably qualified, the government should consider foreigners for the
post.

During the stock market bubble, a shocking thing happened. Pyramid schemes,
commonly known as "wonder banks" sprouted in droves and earned the patronage of
even highly educated bank managers who allowed greed to cloud their judgement. While
they were eventually closed down, the SEC and the CBN has still not resolved the matter.
An effective FSA could have nipped this development in the bud.

Vanguard newspaper and the Northern Agenda.

Unbelievable!!! In what must be a contender for this year's most stupid argument,
Vanguard has backed its campaign against Sanusi with an article it published in March
detailing a supposed plan by “anti-consolidation” forces to take over five Nigerian banks.
I don’t understand why the Nigerian public is taking this rag sheet seriously when Sam
Amuka-Pemu’s “tissue paper” newspaper does not even qualify to be called a tabloid.

Let’s look at the timeline. Vanguard published the article on March 23, 2009. At the time
the article was published, those five banks were already heavily indebted to their peers at
the inter-bank market and there were already concerns over their financial health. In fact,
Dayo Coker was already on the trail of Erastus Akingbola and had released his findings
to the press.

Their chief executives must have suspected that Sanusi would be a tough cookie and
quickly dispatched their PR strategists under the aegis of ACAMB to plant the story. Of
course, Vanguard’s moronic journalists played along and concocted this baseless story to
distract the new governor. The article was meant to preempt Sanusi and force him into
making a compromise but he refused to buckle under pressure.
The Nigerian public does not understand that Vanguard newspaper is one of the biggest
beneficiaries of the corporate malfeasance that pervaded the Nigerian banking sector. For
years, the “newspaper” made a killing from the Vanguard Bankers Awards where a table
for eight went for a whopping five million naira.

From a logical standpoint, this “northern agenda” argument holds no water. As the CBN
Governor has pointed out in newspaper interviews, some Nigerian banks are controlled
by nominees who are hidden behind legal documents. One does not have to be a chief
executive to actually control a bank. It is possible that there could be individuals from the
North that have designs on the banking sector but it makes no sense to speculate that a
Northern "movement" is keen on hijacking the banking sector. And if Sanusi is a Fulani
supremacist as his detractors have argued, then it means that other non-Fulani
Northerners are unlikely to support this purported plan.

Opinion and Analysis

I doubt that Sanusi Lamido will be successful in ridding the financial sector of the crooks
that call the shots. My pessimism stems from the experiences of other reformist crusaders
that have tried and ultimately failed to change the status quo in this dystopian conundrum
called Nigeria. His job will be made harder by his colleagues at the central bank. They
understand how the system works and may not be committed to his disruptive agenda.

Sanusi’s dalliance with the EFCC might reap short term dividends but anybody who
understands the workings of Mrs Waziri’s EFCC knows that the agency is simply using
this God sent opportunity to con Nigerians into believing that it is serious about the anti-
corruption war. We must also consider the legal angle. Senior lawyers have told me that
it is difficult to prosecute debtors when there is no evidence of fraud in the loan
disbursement process. This explains why hardcore debtors such as Ike Okolo’s Aquitane
Oil and Gas have ignored the EFCC and opted to hire legal heavyweights to defend them.
In spite of the EFCC’s public relations blitz, other notable debtors such as the imperious
Peter Odili have also headed to court.

The CBN has done the right thing by releasing the list of debtors whose loans are not
performing. The composition of the list shows that there is a problem with our banking
sector. Some of our most respected corporate titans showed up on this list. I'm surprised
that Alhaji Aliko Dangote and other respected Nigerian businessmen could brazenly
decide to connive with these banks to short-change small investors and depositors. What
if the banks had collapsed? The banks didn't help matters with their dubious interest
charges. They basically gave debtors an excuse to stall.
Contributed by Dayo Coker
Policy Analyst