Capital market will collapse again, Soludo tells House Committee

Former Central Bank (CBN) governor, Chukuma Soludo, on Tuesday inserted a fresh twist to the House of Representatives capital market hearings, with a firm declaration to the lawmakers that the nation’s frail capital market remains at risk of a collapse, and “no amount of regulation or reforms will stop future crashes.”

“Someone is complaining of the rain that beat him yesterday, but look at the sky and another is threatening to start,” Mr. Soludo said in remarks he presented before the committee.

“Except this committee is ready to switch from an Ad-Hoc committee to a permanent one, the stock market will always crash,” he said.

The failure of the market had been blamed on the regulatory failings of the CBN which Mr. Soludo headed for five years between 2004 and 2009, as well as the market regulator, Securities and Exchange Commission (SEC), on account of testimonies from officials and operators in the market.

Mr. Soludo’s appearance on Tuesday, after repeated rescheduling, was expected to offer a new dimension on the troubles of the market from the standpoint of the CBN, and a former head accused of not doing enough to arrest the decline.

In a testimony that hardly drew objections from the committee members, Mr. Soludo spelt out his performances as governor of the bank, and rejected allegations his stewardship helped in bringing down the capital market.

“There will never be an end to regulation. No amount of regulation will ever be perfect,” he said. He said the market had suffered the normal “boom and bust” of any other market globally.

Beside the capital market controversies, the former governor has been linked to a fraudulent currency printing contracts entered with an Australian company while he was in charge, and has been blamed for the banking sector crisis of 2009 over toxic loans.

At the committee hearing Tuesday, Mr. Soludo repeatedly brushed off inquiries requiring his comments on the happenings in the banking sector since leaving office in May 2009. He said he would not comment on his predecessors or successor.

He harped on his key achievement with the N25 billion capitalization base for banks which according to him, transformed the previously frail 89 banks with only four having deposits up to N50bn and none making top 1000 banks in the world.

After recapitalization and mergers, Mr. Soludo said, 14 of the emerging banks made top 1000 in the world while two of the banks made top 300 within three years, each one of top two bigger than previous 89 put together.

“The race for size by the banks also spurred second and even third round capital raising by some banks — and investors smiling to their banks — new millionaires emerged, and a thriving briefcase carrying middle class began to emerge; new cars adorned the streets,” he said.

Still, that reform, Mr. Soludo conceded, also triggered a mad rush for cash by the banks, through margin loans, that turned out to become the breaking point for the capital market.

“We (CBN) basically engineered the new market we talk about. Without consolidation, there would have been no market collapse to talk about,” he said.

“As thousands made tonnes of money, thousands also poured in; some even sold their assets to join in the speculative frenzy in the irrational expectation that what goes up remains up; everyone wanted to become a Stockbroker or dealer in the market,” he told the committee.

In an earlier presentation, the Minister of State for Finance, Yerima Ngama, linked the market near crash to the global economic crises at the time and the delay in the implementation of a presidential committee set up by President Umaru Musa Yar ‘Adua to respond to the crisis.

The Minister however scored the SEC, headed by Arunma Oteh, low on performance so far.

“It should be better, far better than what it is…From what I have read in the papers, from what I have watched, the body is not one” he said when asked to comment on the role of the commission in the capital market crisis.

 

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