Sunday, November 08, 2009              

Banking Expert, Kendis, Calls For Shareholder Protection, Good Governance
By Marcel Mbamalu

Kurt Kendis, Chief Executive Officer of The Banking Group, a US-based financial data and training firm, has said that only good corporate governance could guarantee shareholders investments in banks. Reacting to the public discourse over alleged plans by the Central Bank of Nigeria (CBN) to sell the eight banks whose chief executives were sacked and in which it said it had injected about N620 billion, the banking expert said share or bond holders often lose out when management fail to run the bank properly, especially as the 'banking system is the most important to protect'

In an e-mail exchange with The Guardian, Kendis said the current issues in the banking sector struck a nerve not just for Nigeria, but all around the world, as efforts were often made to ensure that depositors do not lose their money.

He queried: "What about other bank customers - especially the small companies (again not just in Nigeria but all around the world) - who need bank loans and other services to function and, at the same time, create jobs? Explaining that central banks are now trying to stabilize all the banking systems in the world so that they can get back to being proper banks, he the banking expert urged better information dissemination among investors in Nigeria in the light of the fact that the only formal protection shareholders have is good governance.

"Equity investment is, by nature, a high risk / high return punt. The better a shareholder's information and the more transparency, the less risk; the more opaque a Board of Directors, the greater the risk.

"In countries where they have 'carried shareholders along' (I think of France) the taxpayers - every man, woman, and child - pays the bill for many years.

"Sometimes, governments support banks like Citibank, which is, after all, a good bank with some terrible divisions, but the shareholders still suffer ($55 to $3) because they were not paying attention to the risks," said he.

Kendis, who called for caution in the whole process, however, noted that "there is usually a short-term disruption that unsettles everyone involved, when banks are being sold forcefully, but with proper planning, transparent recapitalization process, and long-term stability, the system becomes stable and secure.

The United States, he said, now has over 100 banks that have failed in 2009 (and I refer you to Iceland, where the entire banking system collapsed)."

"One never knows if selling banks is the best answer, or mergers, or simply winding them down. What we do know is that letting the resolution process go too long is the worst-case scenario; quick resolution is usually the best. All economies need good, well-run, healthy banks to grow and prosper," he said.