Issuing houses seek FG purchase of toxic assets from banks
BY ABDUL IMOYO & ONYINYE NWACHUKWU
(BUSINESSDAY, NIGERIA)

Daring to suggest one of the most plausible ways through which the Federal Government could bail out the ailing financial sector, the Association of Issuing Houses of Nigeria (AIHN) has insisted on the setting up of a special purpose vehicle for the purchase of toxic assets from banks in exchange of short-term loans.
The association suggested four broad options in a 16-page recommendation sent to the Economic Management Al Faki
Team (EMT) headed by Murktar Mansur, the finance minister. These recommendations among others from other stakeholders, including the Chartered Institute of Stockbrokers (CIS) would form the plank of the discussion between the EMT and the crisis management committee headed by President Umar Yar’Adua, scheduled to hold at the Presidential Villa, in Abuja, today.
Part of the recommendations harped on the very urgent need to rescue Nigerian banks from failing and in this regard, it was suggested that government should allow the purchase of toxic assets from banks by “an aggregator or bad bank” in exchange for a five-year term loan or notes.
“One of the approach is to create an aggregator bank or bad bank strategy where the Central Bank of Nigeria (CBN) or the government forms a bank to buy ‘toxic assets’ from affected banks for cash.”
The aggregator bank or bad bank is expected to hold these toxic assets for a term of five years and would enable value restoration for the banks, off their balance sheet.
According to AIHN, government could also inject funds directly into the banks by acquiring preferred equity stakes. To this end, it is expected that the banks would be committed to government’s restructuring programme and other restrictive policies.
To save the capital market from collapsing, it was disclosed that an intervention fund be made available to qualifying capital market operators. This funds, the AIHN posited, should be repaid over a period of time as the market stabilises.
On the other hand, the association also canvassed government’s direct participation in the capital market through a Sovereign Wealth Fund (SWF) or an Unfunded Pension Vehicle structure. The association warned that the Nigerian government needs to move urgently to stem the impact of the recession on the domestic economy.
As part of strategies to minimise recession impact on Nigeria, AIHN noted that, “It is imperative that we all work in a bi-partisan manner with the executive on a National Emergency Plan to provide a bail-out option to the Nigerian financial markets. There is need to recognise that this crisis has wider economic ramifications, beyond banking and the stock market and there is an urgent need to re-open the credit market.”
Besides, the association noted that any combination of direct model for intervention in the capital market would require a commitment in the region of N250 billion to N500 billion.
“Resolving the banking market crisis, on its own without addressing the capital markets exposes the banks as well as the government through its intervention to further downside risk,” AIHN declared.
However, not a few Nigerians have called on the Federal Government to apply transparency in its operations to make current efforts at sanitising the economy meaningful. For instance, Idris Kutigi, Chief Justice of the Federation, yesterday, in Abuja, called for transparency in the system.
Kutigi urged that strict sanctions be handed out to all market defaulters in line with legislations and rules enacted to duly govern capital market operations.
He made these submissions at the opening session of a two-day capacity building workshop on capital market laws, ethics and judicial interpretations, co-organised by the Securities and Exchange Commission (SEC) and National Judicial Institute for judges.
While the Chief Justice readily acknowledged various reports of frauds and scams perpetrated in the capital market, which observers believe contributed to the present crisis, he also advised that all market participants must avoid all forms of economic crimes, abuses, manipulations and contrivances in order to protect peoples’ investments.
“On the part of the regulators, they must ensure that in the course of exercising their power and functions, their actions are fair and transparent. Indeed, there is every need to apply legislation and rules enacted to govern the capital market with every sense of responsibility for the protection of the investor and the sanctity as well as integrity of the capital market against abuses arising from market operations,” he told participants.
For operators and market participants, Kutigi who declared the workshop open stressed that “they must conduct their activities within the ambit of the laws, regulations and good ethical standards,” noting, that “there have been reports of cases involving fraud and various scams in the capital market.”
He urged the regulators to work out viable collaborative mechanism in the interest of the ordinary investor and the nation and advised SEC, the Central Bank of Nigeria (CBN) as well as the National Pensions Commission (PENCOM) to continue to examine laws and ensure consistency with the rule of law in the market operations regularly.
In the face of the deepening global recession, the technical workshop entitled, “Corporate Governance, Mergers and Takeovers: Investments and Securities Act 2007/ SEC Rules In Perspective” was intended to assist the judges interpret some legal issues with regards to the market.
It was also an opportunity for SEC to interact with the legal luminaries in view of legal issues that may arise from the dwindling stock market.
Advising the judges, the Kutigi asked them to be dynamic where disputes relating to the capital market operations are brought before them for adjudication, bearing in mind that the greater goal of protecting the confidence of the investing public and the integrity of the market.
Earlier in his welcome address, Musa Al-Faki, director general, SEC who observed that the workshop was apt, considering the global meltdown maintained that the workshop was an opportunity to sensitise judges on the attendant complexities and dynamic nature of the market.
He pledged SEC’s commitment, as the apex regulator to continue to protect the integrity of the market against all forms of abuses, especially in its quest to enhance the seven-point agenda of President Yar’Adua.