With a population of 300,000, Iceland is probably smaller than Magodo. It has also been living on borrowed time for quite a while, running a financial service industry that is bigger than its national GDP (probably the only country in the world with this abnormal situation). And how is Iceland different from Nigeria? Our banks are very insular. Until Soludo's revolution in the sector, the entire banking industry was smaller than Daimler Benz's dealing room or the balance sheet of GE Capital. We simply did not partake in the party that has resulted in the bubble.

As for the intervention package, it is not the money that really counts. The gesture is critical for confidence. They may well embezzle the money but if they allow the economy to falter, we will all suffer. Jobs will be lost, savings and investments will disappear and national output will drop below the current abysmal level. Between a rock and a hard place, we can only hope.

I quite agree that the capital market does not need bailing out. Where an intervention might be justified would be in safeguarding the savings of Nigerians in banks (not the investment of the rich) but luckily that is not required at this point.

I did mention that 'no economy is fully immune from the crises' and that remains so. The specific analysis I did relates to the financial mess in western Europe, Japan and North America and not the 'global economic slowdown' formally known as recession. It was an attempt to dimension the impact of America's near systemic meltdown on our financial system. I still insist that our banks will weather this very well.

I am amused at people when they write off the American economy so easily. I have seen people lose their shits by betting against America and I not about to join them. America will come out of this and very soon too. Mark my words.

And as for Nigeria, we have a fairly deep buffer. First, we have never applied the current oil price in our budgeting (and consequently, we have built large reserves for price shocks). In addition, we have created capacity to borrow at the sovereign and sub-sovereign levels on the back of one of the healthiest balance sheet in sub-Saharan Africa. Besides, a devaluation on the Naira substantially increases the revenue to government in Naira, discourages importation and encourages export and as such is sometimes (not always) a positive thing (Think Japan and their exchange policy).

Our reserves were meant to build confidence and enable us access money. We have not done this (borrow) in eight years and we are not likely to do that now. Reserves, while nice, cannot translate to growth. We have just commenced the process of translating those reserves into growth by investing in power and other critical infrastructure.

As for companies’ ability to access funds and remain in business, The Central Bank of Nigeria has demonstrated willingness to provide liquidity to support lending. Financing cost may spike but liquidity is slowly returning to the system and we expect that to continue.

We need to understand that some of these global funds will seek hiding places and Nigeria with its oil wealth and reserves looks good to me. When the chaos is over, Nigeria will emerge relatively unscathed. I don't have a crystal ball but I think we will do just fine.

We really must appreciate the question. We must also acknowledge that nobody has all the answers (If we have learnt anything from this crises, it is that professionals an experts know very little when push comes to shove). Besides, if we are all so 'informed', why are we here? To show off?

Back to the issue, we can safely conclude that no economy is fully immune from the crises. It now comes down to how far reaching is the implication for our economy?

Two major ways our economy can suffer from the crises

(1) How exposed is our financial system to the American economy? How much subprime credits are Nigerian Banks carrying on their books? Do we have to 'write down' loans to American institutions and consequently erode our capital?

(2) What is the impact of the global liquidity squeeze on Nigerian banks? Do we have enough liquidity to continue lending through the crises and avoid economic slowdown? If foreign financial institutions scale back on the lending activities in Nigeria (lines of credit, trade facilities etc), what will be the impact on the system?

I don't have all the answers (nobody does) but it is safe to say that we are not exposed to sub-prime assets (we need to remember that at the center of the crises is the asset bubble in the American mortgage market). Nigerian banks capital (lifeline) has doubled in the last year and the banks remain adequately capitalized (over $10billion was raised last year to strengthen banks' balance sheet).

On the second but less severe risk of foreign banks withdrawing their funds from our market, we have to thread more carefully in making assertions. It is happening. When you are in trouble in home waters, you instinctively withdraw into yourself and conserve liquidity. Fortunately, our exposure to this source of funding in minimal. The only impact is pricing, where customers must be prepared to pay more for loans, especially long term loans. Clearly, this will be paid by the consumers in the long run.

I will have to give credit to the Central Bank for the timely intervention. By releasing some liquidity into the system, they have sent the right signals to the markets (money market, fixed income market and capital market).

Nigeria is safe from the crises because we missed the 'party'. We had a taste of asset bubble when the stock market suffered a correction but that was expected. The lesson for the future is that regulators, though independent of the markets, must always show the amber light when prices become irrational. They must also be prepared to bail out the market because a few traders (backed my irrational investors) can bring Armageddon on all of us

Sterling Bank Explains Share Reconstruction
By Abiodun Eromosele, 10.07.2008

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Perturbed by several complaints by investors about the recent share reconstruction embarked upon by Sterling Bank Plc, the bank's board of directors has clarified issues on the process.
The board, in a statement made available to THISDAY, said the reconstruction exercise was carried out after due diligence and approvals from regulatory authorities.
Specifically, the bank said: "the five banks that merged into Sterling Bank, entered into a scheme of merger, sanctioned by the court, which provided for two key review exercises to be undertaken in order to, whereby necessary, adjust the relative pre-merger values of the legacy banks. The two review exercises prescribed in the scheme were:
"A close-out audit of the accounts of each of the legacy banks as at 31st December 2005: to take into consideration and compensate pre-merger shareholders for changes that had occurred to the legacy banks' values since 31st March, 2005, when due diligence was conducted on the banks, i.e. the cut-off date for the merger.
"Post-merger adjustments: to further compensate pre-merger shareholders of the legacy banks, for material changes attributable to any of the legacy banks, provided that the aggregate value of such material change exceeded N100 million.”
The bank explained further that each of the legacy banks appointed a firm of auditors/ consultants as its shareholders' representative. "The five shareholders' representatives, who derived their power from the court sanctioned scheme of merger, submitted a report dated 13th March, 2007 wherein they unanimously recommended the issuance of additional 13,317,026,285 ordinary shares as compensation shares to be issued to the various shareholders of the legacy banks who hitherto, were the holders of 10,552,847,651 ordinary shares of the bank."
“Also the shareholders' representatives, mindful of the implication of almost 24 billion shares in issue also recommended a reconstruction of the entire shares. The shareholders of the bank, at the 45th yearly general meeting held on 28th August, 2007, approved a resolution for the reconstruction of the entire shares of the bank that is 23,869,873,936 ordinary shares of the bank,” the statement explained.
In the statutory notice of the yearly general meeting, which was published in at least two national daily newspapers, the bank noted that it was specifically stated under special business, among others, “to consider, and, if thought fit, to pass the following resolutions as special resolutions: resolution10:'that the directors be empowered to reconstruct the bank's shares as a result of the post-merger share adjustment in accordance with the approved scheme of merger on the basis, terms, and at a time to be determined by the directors. This resolution was unanimously approved by the shareholders.”
The statement added: "the two key regulatory agencies, the Nigerian Deposit Insurance Corporation (NDIC) and the Central Bank of Nigeria (CBN), in September 2007, separately wrote to the bank to invoke the clause relating to the close-out audit share adjustment in the scheme of merger to compensate the shareholders of the legacy banks as recommended by the shareholders' representatives.
"The Board of directors of the bank consequently applied for regulatory approvals to issue the compensation shares and simultaneously reconstruct the shares from the CBN, the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE); all the approvals were obtained.
"The bank subsequently placed the shares on total suspension from daily trading in order to effect the issuance of compensation shares as well as the reconstruction of the shares of the bank. This reconstruction was carried out at a ratio of 10 new shares for every 19 existing shares.
"It is true that the reconstruction of the original 10.5 billion shares (10 for 19) should have led to a simultaneous doubling of the share price; however, the issuance of the additional 13,317,026,285 compensation shares (also reconstructed) automatically diluted the expected effect. "The situation was further exacerbated by the current bearish market."
The bank assured the shareholders that the merger/integration process has been completed and the financial institution "is on course to deliver superior return on investments and enhance shareholders' value."