Search Site: OnlineNigeria

Close






CBN to Punish Banks for IPO Frauds

Posted by By Samuel Famakinwa on 2005/01/10 | Views: 312 |

CBN to Punish Banks for IPO Frauds


Elations which greeted some of the over-subscriptions recorded by banks in their recent Initial and Public Offerings may not last too long if the Central Bank of Nigeria (CBN) concludes its on-going routine investigation and find out that any of the banks had rigged the process.

Elations which greeted some of the over-subscriptions recorded by banks in their recent Initial and Public Offerings may not last too long if the Central Bank of Nigeria (CBN) concludes its on-going routine investigation and find out that any of the banks had rigged the process.

This is coming on the heels of a recent directive by the Securities and Exchange Commission (SEC) that companies raising fresh funds from the nation's capital market will no longer be allowed to absorb any over-subscription resulting from such offers.

Banks now wishing to raise funds from the capital market, either by way of Initial Public Offering or Public Offering may have a little cause to worry as the CBN said it will begin to punish banks that engage in unwholesome activities aimed at influencing the outcomes of such offerings.

The newly merged Banking Supervision and Bank Exami-nation Departments of the apex bank have been empowered to specially scrutinise all claims by banks as to how the results of such offers were arrived at.

The department is to ascertain whether the monies claimed to be raised by such banks in such offerings are real or not and if they are not, the department should establish the level of discrepancies in the applications submitted.

THISDAY reliably gathered that this decision was taken when the CBN discovered that a particular bank (name withheld) which recently went to the capital market to raise funds actually rigged the process in a desperate move to meet the N25 billion new capital base directives of the CBN.

For instance, when Offers are announced and subscribed to, receiving banks send all monies raised to the Issuing House(s) which then carry out the allotments before sending them to the Securities and Exchange Commission (SEC) for approvals. And in most cases, the bank whose shares are on offer also serves as a receiving bank.

Although, this is a routine check which the CBN normally carries out if a bank is raising funds from the capital market before approving that such new applications be added to the books.

But, according to information, it was discovered the bank in question returned over 80 per cent of the applications for subscriptions of its own shares while other receiving banks could only collectively return less than 20 per cent.

Although, it is normal for the bulk of the money for such shares to come from the particular bank raising funds from the capital market and at the same time is serving as a receiving bank in its own offers, yet this huge difference, in what the bank in question returned and what other banks returned was said to have raised the question of the possibility of the process being rigged.

The apex bank is said to be worried that the only way this could have happened was for the bank to use deposits placed by customers and then loan it to third parties for the purpose of buying its shares which are then dumped later after listing on the Stock Exchange to pay back the loans.

According to the CBN, such a bank would be contravening the guidelines which provided that people are not allowed to “borrow money” from any bank for the purpose of purchasing shares in the same bank or another.

CBN is said to be worried because some banks got away with the trick and from feelers, others intending to come to the market are now perfecting ways to use the same strategy.

In other words, such banks would announce a capital base that would not be real while the bank may still be prone to collapsing, CBN has therefore decided to now verify all bank subscription lists and source of funds before they are sent to the SEC for approval.

CBN Governor, Prof. Charles Soludo, who disclosed he was aware of the latest sharp practicecs told THISDAY yesterday that “no matter how it is hidden, CBN will find out. It may even come out in such banks’ loan portfolio”.

Although he said “I will be the happiest if we have over 30 banks that are well capitalized at the end of the consolidation exercise”, but he vowed that “we would not tolerate nefarious activities and we would punish any bank if we find out”.

The CBN had last December said it will start denouncing investment advertisement by banks that cannot be substantiated especially when wrong figures are used to attract investors.

CBN Director, Banking Supervision, Mr. Ignatius Imala, who dropped the hint in Lagos at the 276th edition of the Bankers Committee meeting also confirmed that the adverts placed by some banks in a bid to raise funds were being economical with the truth.

“You must have been seeing the newspapers, television and people talking about the potentials of the institutions they want you to invest in.

“Well, to use the Governors words, some of these contain half-truth so to say in the sense that if you want to look at the figures as they are and do your computation depending on where you’re coming from.

“For instance, someone says he is undertaking private placement which is not supposed to be made public and what you find out is that a flyer or sort of advert is tucked into a newspaper. This is an irregular thing and it was discussed extensively today and the governor reminded the bankers that it has the duty of denouncing or making a statement to the public that the facts contained are not credible or should not be accepted,” he said.

The SEC also declared that companies raising fresh funds from the nation's capital market will no longer be allowed to absorb any over-subscription resulting from such offers, thus, suspending Rule 64 (4)a of the Commission’s Rules and Regulations..

Consequently, the Commission said all issuing companies who want to make public offers of their securities from January 1, 2005, must state the specific amount they require in the prospectus.

The Commission noted that it will no longer allow the absorption of excess proceeds, on any Offer as over-subscription must be made after allotment. It further urged all issuing houses to underwrite facilities to the issues they manage, in order to avoid large scale under subscription.

The apex regulator of the capital market also warned that all advertisements and marketing materials in respect of public offers for both local and foreign media must be submitted to, and approved by the Commission before release to the public.

Read Full Story Here.... :
Leave Comment Here :



Add Comment

* Required information
1000
Captcha Image

Comments (6)

Gravatar
New
Joel Efiong(Calabar, Nigeria)says...

This is a great piece. The examination bodies should hire you as ICT consultant.

Gravatar
New
Sunday Mbe(Kaduna, Kaduna, Nigeria)says...

ULIMASI means' GOD,THANK YOU' not THANK GOD.

Gravatar
New
Sunday Mbe(Kaduna, Kaduna, Nigeria)says...

The name ULIMASI is from the UTUGWANG tribe in OBUDU local government area of CROSS RIVER STATE in Nigeria.

Gravatar
New
Okfold(Sobe, Edo, Nigeria)says...

I want the meaning of female owan name Ekeke (Edo state)

Gravatar
New
Toluwalase Samuel Olufemi(Ijebu, Ogun, Nigeria)says...

Authority belongs to God, once He decrees it is final and binding