Tuesday, February 17, 2009

Is the falling NSE a blessing in disguise?

You either make the change, get ready for change or change will sweep you away. For years now, investors have agitated change at the NSE that brings about:
  • integrity in transactions
  • dynamism in reacting and adapting to changing technology
  • customer service
  • liquid bourse
  • strong institutions either controlling or regulating the bourse
  • no conflicts of interest
  • no political-business affliations
  • a decent economic thermometer...
  • leading to strong brokers, investment banks
  • informed investors
  • and a viable saving and investment vehicle
But wapi? We seem to be stuck in a timewarp where we go forward two steps and slowly go back to step one again. Strong measures such as those on disclosure, capitalisation and ownership are only adapted under extreme duress.

We motored between 2002 and 6, but within that period, managed to sow some destructive seeds that we've been harvesting ever since.
Its notable that every time we've had a dip, one or two brokers have said sayonara. FT went out after the Feb '07 dip, Nyaga survived but hobbled throughout 2007 by Mumias' 2nd IPO but succumbed when money ran out after the clashes in early 2008. 2007 also accounted for Solid Investment.
The 2008 bear has accounted for Discount, Crossfields and possibly Suntra. I believe this is the tip of the iceberg. If we went to 2,000, I think we would probably bring Reliable, Sterling, AIB, Ngenye into the net.
Most of these have one or two of the following in common; malpractices, leveraged business model, or operational risks galore. And unlike in some markets where firms react to worries about their "going concern" status by opening their accounts, at the NSE all you hear is typical "deny deny everything".
We need to sweep away the deadwood and hopefully come out of the otherside with strongly anchored brokers either via strong shareholding and governance structures or by being absorbed banks...


coldtusker said...

None of the brokers publish their balance sheets.

Though I have faith in CFCFS coz of CFC Stanbic Bank. I believe they have a strong balance sheet.

NIC Capital (formerly Solid) is on not so solid grounds. NIC Bank bought 60% of SS before they realised the rot ran deep. NIC Bank needs to buy the remaining 40% & clean the books.

I think Crossfield will survive for now. I have no idea of ABC Bank's strength but it is among Kenya's smaller banks.

And then there is Genghis Capital owned by Chase Bank. I have no idea of ABC Bank's strength but it is among Kenya's smaller banks.

25% of AIB is owned by Kibuga Karithii (who controls 51% of City Finance Bank).

Ssembonge said...

The worst part about brokers going burst is that investors lose their money while the brokers are laughing all the way to the bank.

Going burst may become appealing if no one is going to be prosecuted.

pesa tu said...

I think if we had another Nyaga-esque episode it would make the investors more millitant and force the Government to institute stronger regulation.

BTW, since we might have to go to the IMF for budgetary support,it might make us institute stronger regulation.Remember, RBA,CMA are partly regulatory outfits that the Bretton Woods bodies forced on us in the 1990s.

MainaT said...

CT- don't you think its absurd especially when these guys are in industry which is entirely reliant on such information? KK has done well for himself.

MainaT said...

Ssem-I'm not saying its ok for investors to lose their funds. On the contrary given I'd also lose out. But when you look at this eating chain Treasury <-> CMA <-> NSE <-> Brokers, you realise we have to break it somewhere.
Its not dissimilar to what you've done to IBs in the US, forcing some into shotgun weddings and letting one go to the wall.

MainaT said...

Pesa-tu; The problem with IMF/WB suggestions is that they seem to be implemented shingo upande. So if they say we ha ve to have a CMA, Jimnah says ok but it'll have to be my friend Ntalami and there we get ourselves into trouble.

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