Friday, March 07, 2008

Failure to Learn

March 5 2008 marked the end of the 2nd 6 month statutory management period for after the collapse of Francis Thuo stockbrokers. It also came to mark the beginning of a 6th month statutory management period for another stockbroker - Nyaga Stockbrokers which was a much larger operation than the former.

In the collapse of the second stockbroker, there is a failure to learn from the mistakes of the former, and also myopia in regulation and awareness.

The CMA and NSE continue to treat Nyaga and FT stockbrokers like a rogue computer that has gone amok and chewed up stockbrokers funds. It was not - it had directors, managers, and employees. Who are these people? We have not heard any names or their stories, explanations, their questioning/arrest/convictions/disbarment's/fines etc.

It’s a trend we have here: looking at all the recent financial scandals we have had Charterhouse, Invesco, Francis Thuo, Euro Bank, and even the Electoral Commission of Kenya (bad math in 2007) - an organization is condemned (after it collapses), a beautiful report is written (and filed away), while the principals/employees walk away scot free.

From the big scandals of the past, over 40 bank collapses in the 1990’s, including giants Trade and Trust Bank’s not many lessons have been learnt. We have a culture that does not allow us to learn from the past, and dooms us to repeat those mistakes in future. It was only with Goldenberg (and to a lesser extent Anglo Leasing) where after the principals and officers were called forward to explain their odd (& previously secret) actions that some level of truth came out. That should be a model for dealing with other and future scandals; public hearings, not behind boardroom doors, and public reports, which will make it easier for anti-corruption prosecutors.

It is a dark secret in banking that very few employees are ever convicted of financial crimes and scams at their place of employment. What happens to these bank and stockbrokers employees, and where are they now? I don’t want them to move to CFC, but chances are they will get jobs with other brokers and bankers. They will lie low, but it's only a matter of time before the easy money trap sets in again; if they have amassed enough, they may even dabble in politics, or go for MBA’s...

There, I hope they encounter business classes looking at the past scandals, case studies on Goldenberg, Trade, Trust, Prudential Building Society, the genesis of Consolidated Bank, and the collapse of stockbrokers in 2007/08. Etc. Otherwise such events will recur in 2009 and 2010.

But some things can’t be fixed, and one Kenyan bank will collapse about every other year, a trend that is likely to continue as the industry continues to absorb the shocks of the post election period.

Other timely reading
- Are the shocks over? Coldtusker hints at other brokers
- Riba Capital’s infamous rogue broker alters from October 06 and April 2007, the second of which had Nyaga brokers at the top of the list
Nyaga Stock Brokers
Nyaga Stockbrokers has received a warning from Capital Markets Authority in regard to their issuing of Bouncing cheques something similar to what Francis Thuo and Partners did.

This broker has been struggling for several months to clean up its act to avoid being suspended but the problems have been running deeper with the MD claiming that the only bouncing cheques they issued were those of Eveready IPO refund a claim which Eveready refutes and which other stockbrokers disagree with.

There are reports also that this broker was involved in illegal ‘shorting of the market’ whereby they would sell clients shares without authority on a market peak and buy back on a market slump. The CMA is said to have summoned the broker 2 weeks ago and given them an ultimatum to clean up something which the NSE had raised much earlier. If this does not happen, then we could see another broker going down due to money trouble.

- How to change your broker

5 comments: said...

I read an article in bdafrica that said some of these brokers made almost $ 8 million dollars (yes, dollars) in fee's last year and I sort of wonder why you would need to steal or engage in funny business if you were making that much money?

It just doesnt make sense when you factor in the cheap labor costs in Kenya. These brokers are probably taking home a cool 99% of that money even after covering salaries and expenses.

mocha! said...

You have been tagged!!! did the issue regarding Madaraka flats go?

coldtusker said...

Banks: Solid Securities will be OK coz NIC Bank has put their money & reputation on the line.

Some of the smaller (& maybe a large one) brokers are looking for sugar daddies. The problem for the sellers is that buyers want the license NOT the broker...

bankelele said... true, seems like easy money 1.5 t 2% per transaction, regardless of size, but greed + no oversight/repercussions = collpase

Mocha: yikes, si I can decline? Madaraka is strill in court I believe, justice wheels are slow

Coldtusker: I think NIC wanted a bigger stake in Solid.
True about new sugar daddies - but will anyone outbid Old Mutual again and can the NSE say no to them with a straight face?

mocha13 said... can't decline. We your readers want to know alittle about Banks' aside from the great advice you give here. So, do the necessary.

As for the wheels of justice, I hear you on that one. Keep me posted.


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