The new minimum capital requirement announced for the various types of capital market operators under the regulatory purview of the Securities and Exchange Commission are about to face major political head winds as an unlikely partnership of mid-sized and small indigenous companies operating in the capital market space and the political opposition is being forged to discredit the initiative.
Most capital market operators – particularly full service investment banks – will be hard put to meet the new requirements, which in practical terms are actually far higher than the minimums announced for each genre last week. In an effort to get the requirements reduced, a conspiracy theory is now being formed which suits the respective agendas of both the small and mid-sized investment banks and the political opposition which is seeking ammunition with which to shoot down the incumbent President Nana Akufo-Addo administration during the run up to the impending December 7 general elections.
The indigenous investment banks problem is that they would be hard pressed to raise the requisite new minimum capital without engaging in consolidation through mergers and acquisitions which would force them to cede ownership power. The capital market is not nearly seen as glamorous and potentially profitable as the commercial banking industry which means attracting new equity capital will be comparatively difficult, even as the new capital they need is massive.
The new minimum capital levels demanded by SEC latest by the end of 2021 require a broker – dealer to have at least GHc1.5 million in tier one capital; a fund manager, GHc1 million; a corporate investment advisor, GHc1 million and an individual investment advisor, GHc200,000; an issuing house, GHc1 million; a margin trader GHc2 million; a market maker GHc3 million; a nominee GHc1 million and an underwriter GHc2.5 million.
Even as capital market operators are staggered by the increases, some of which are high as 1000 percent, most investment banks will require much larger minimum capital than that for any of the above listed activities. This is because where an operator is engaged in two or more of the above listed activities – as is the case for virtually every investment bank in Ghana, – the requisite minimum will be arrived at by taking the highest minimum requisite for any of the activities to be engaged in, plus at least 75 percent of the minimum capital required for each of the other activities to be engaged in.
Effectively this means, for example that an investment bank that trades in securities, is an investment advisor, and manages investment portfolios for clients would require at least GHc 4 million will be required. If the company wants to also be an issuing house for new securities issuances and also underwrite such issuances, as many investment banks currently offer to do, the minimum would rise to nearly GHc6.7 million
To be a full range investment bank, acting as margin trader and market maker in addition to those other services, the requisite minimum would rise further to about GHc 10.45 million.
Companies that do not trade but rather provide custodial and registrar services for those that manage investment schemes such as private pension schemes, unit trusts and mutual funds, usually combine the activities of custodian, trustee and registrar. From 2022 to do this would require total tier one capital of about GHc88 million, based on the new regulations for multi-service operations as announced by SEC.
In an attempt to get around these requirements, which only the biggest investment banks will be able to comfortably meet, a conspiracy theory is being devised. This is that the new minimums have been made unnecessarily high by SEC in order to drastically reduce the competition to Databank, the largest indigenously owned investment bank in Ghana, which was co-founded, and still largely owned – albeit now through beneficial ownership – by Finance Minister Ken Ofori Atta. This conspiracy theory in the making holds that the Finance Minister is able to use SEC to do his bidding because he has appointed his former loyal top tier manager, Reverend Daniel Ogbarmey Tetteh, to head the regulatory institution. Prior to his current appointment as the chieftain at SEC he was the head of fund management at Databank, the culmination of a professional career at the investment bank that began with its establishment at the start of the 1990s.
The political opposition would consequently join the fray, ostensibly to defend local participation in the industry, but instructively at the same time discrediting the Finance Minister who would be portrayed as selfish in that he is willing to see indigenous investment banks that cannot meet the new minimum capital requirements, have their licenses revoked or be acquired by bigger, financially well-endowed foreign owned counterparts, simply in order for Databank to increase its market share.
The conspirators – both investment banking entrepreneurs and opposition politicians – are reportedly banking on the ignorance of the average voter with regards to the workings of the capital market, to win their sympathy in the matter. The expected end game is that SEC would be tempted to lower its minimum capital requirements – which would enable the investment banks meet their objectives – or the Finance Minister ‘s alleged stance would cost the incumbent government votes at the impending election which would suit the political opposition perfectly.’
In all this the technical arguments in favour of SEC’s stance – covering the real need for much higher capital buffers, to protect investors and also allow Ghana’s capital market operators to be competitive against their counterparts from other West African countries at a time that the respective stockmarkets across the sub region are being integrated – would be lost on the average citizen.
It is still unclear how both SEC and the Finance Ministry will handle the situation when the allegations begin shortly, but capital market analysts believe the two institutions should simply stick with the technical arguments in favour of the recapitalization because they are correct.
However public policy commentators aware of the impending conspiracy theory point out that in such situations political exigencies often override technical realities in decision making.
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