Many second-tier banks in Nigeria will raise capital. Among other things, they need funds to cushion potential loan losses as the economy tanks due to myriads of things happening right now. The chief among those things is that manufacturing production output will drop since the cost of fuel will take some small players out of the game. This will trigger some loan defaults. Also, these second-tier banks will need funds to invest in tech.

Good People, expect some public offers / right issues later in the year as the season of AGMs begin where approvals would be sought and given. 

That said, Nigerian banking is solid: it continues to rain there. So, the new capital is not done out of panic, but a need to have better defense.

The floating of Naira is looking like a poison pill in the banking sector for second-tier banks, at least in the short-term. Yes, for banks with foreign currency denominated investments, they will see huge “profits”. But as that happens, with the re-positioning of the exchange rate, the second-tier banks could look “weaker”. To deal with that paralysis, many of those banks will need to raise new capital.

For investors who have joined the parties for the expectant huge dividends which are coming on profits, a critical thing to watch will be how these banks will approach the capital raise. Would they go super dilutive or otherwise? A non-dilutive raise certainly works better for investors.

That said, these banks will not be raising capital to the extent that ownerships will change hands. These raises will be marginal to a large extent. Some look small due to the valuation when examined in US dollar terms. Also, if the economy tanks due to many changes from fuel subsidy removal and the new FX regime, there could be risks of bad loans. So, more capital will be required to  cushion the effects by banks.

I expect a hybrid of public offer and right issue, as one of the playbooks to be explored by most banks. Nothing like Warren Buffett-Goldman Sachs model of 2018 great recession which happened a few days after the collapse of Lehman Brothers, is expected: give loads of cash with understanding that you cannot lose money irrespective of what happens in the market, and as that happens, you also get paid interest on that investment, even as you take equity!

FBN Holdings, the parent of First Bank of Nigeria, is going to raise more capital and will formally seek that approval in the next annual general meeting. Others will follow….

That the Rights Issue referred to in Resolution may be underwritten on such terms as may be determined by the Directors, subject to obtaining the approvals of the relevant regulatory authorities. That the shareholders, under Resolution, will waive their preemptive rights to any unsubscribed shares under the Rights Issue in the event of an under-subscription.?

That the Directors be authorized to appoint such professional parties and advisers and to perform all such other acts and do all such other things as may be necessary to give effect to the above resolutions, including without limitation, complying with the directives of any regulatory authority.?

That Clause 6 of the Memorandum of Association of the Company be amended to reflect the newly issued share capital of 22.435 billion by the creation of 8.974 billion Ordinary shares of 50 Kobo each”.?

“That the Directors’ fees for the financial year ending December 31, 2023, and for succeeding years, until reviewed by the Annual General Meeting, be fixed at N50 million for each Director and N63.7 million for the Board Chairman That the Company’s Issued Share Capital be increased from N17.948 billion made up of 35.895 billion Ordinary shares of 50 Kobo each to N22.434 billion by the creation of 8.974 billion Ordinary shares of 50 Kobo each”.?

Comment on Feed: What is loan loss?

My Response: If you have 10 companies which take loans from banks to run their operations. If due to energy costs, they reduce production or decide to shut down, those loans are now at risk since they cannot service them. Here, even the principal and interest could be lost. This is very likely as not many plants can absorb a 4x cost of fuel. In the simplest term, a loan loss is “a loss made by a bank when money it has lent is not paid back”

Update: US banks are on the same path already. Hopefully, our investment syndicate could participate very soon in injecting these funds, not just in Nigeria and Africa, but globally.

Federal regulators are seeking to reinforce and add to lending and capital rules on big banks and midsize lenders. The plan, made public on Thursday by the Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, could stir debate around whether actively increasing public confidence in the stability of the nation’s financial system reduces the competitiveness (and profitability) of banks, Bloomberg writes. Medium-sized lenders such as Regions, KeyCorp and Huntington would have to increase their capital on hand by up to 16% on average, while the nation’s eight biggest banks would confront an increase of 19%. Wall Street has been girding for a tightening of capital rules for some time, both in response to evolving international standards and the recent banking crisis, per CNBC. Banks would have until 2028 to meet the proposed rule changes.

Elon Musk’s obsession with the letter X has captured the Twitter brand, ending the 17-year-old legacy that has endeared millions of people from around the world.

Musk acquired Twitter for $44 billion last year but has replaced the bluebird logo that has identified the text-based app for nearly three decades now with X. The move is understood to be part of his efforts to turn Twitter into something that is originally his idea.

The X idea is to create an “everything app” that mirrors China’s WeChat, a super app that offers a wide range of services, including payments. However, analysts believe that the move could further exacerbate the damaged relationship that exists between Musk and advertisers.

The decision to rebrand follows months of erratic behavior exhibited by the world’s wealthiest man, which resulted in a significant loss of users and the further departure of advertisers. This tumultuous period has left Twitter in a precarious financial state and made it increasingly susceptible to competition.

Killing an iconic internet brand is “extremely risky” at a time when rival apps such as the new Instagram Threads and smaller upstarts such as Bluesky are luring users, CNBC quoted Mike Proulx, an analyst at Forrester, as saying.

Musk has “singlehandedly wiped out over fifteen years of a brand name that has secured its place in our cultural lexicon,” Proulx said in an email.

Musk appears to be betting he can get rid of Twitter altogether. Over the weekend, he introduced the new X logo and said in a tweet that “soon we shall bid adieu to the Twitter brand and, gradually, all the birds.”

Unlike Twitter, X offers a lot of services under its “everything app” umbrella.

Linda Yaccarino, who Musk hired as CEO in May, said in an email to employees Monday that the company will “continue to delight our entire community with new experiences in audio, video, messaging, payments, banking – creating a global marketplace for ideas, goods, services, and opportunities.”

Where the challenge lies per CNBC

According to Proulx, Musk’s ambition to transform X into a super app demands substantial resources, including time, money, and a skilled workforce, which Twitter currently lacks. Musk himself disclosed that the platform experienced a significant 50% drop in advertising revenue and needs to achieve positive cash flow before considering any other initiatives.

The concerns raised by some advertisers stem from the platform’s association with hate speech, racist content, and offensive comments, as documented by civil rights groups and researchers. Musk attempted to offset the advertising decline through a premium subscription service, but the $8 monthly fee would require a massive number of subscribers to make up for the losses.

With the rebrand, Twitter’s familiar “tweets” will be replaced with a new terminology, as the company attempts to navigate its path forward. However, advertisers seem hesitant to increase their spending on the platform, as noted in a recent survey by William Blair. Despite this, there are indications of improvement in the overall digital ad market, as reported by the same survey.

The name change signals a major shift in Twitter’s identity, leading some to view it as a somber day for both users and advertisers. Analyst Jasmine Enberg considers the rebrand a clear sign that the Twitter of the past 17 years is gone and that Musk, rather than any other app, has always been the most likely “Twitter killer.”

In summary, the rebranding effort reflects Twitter’s endeavor to address its challenges under Musk’s leadership, but it also underscores the uncertainties and hurdles the platform faces in winning back advertisers and revitalizing its position in the digital advertising landscape.

Update: 7/28/23

Twitter’s rebranding looks to be complete, for now. The company’s official handle @X has replaced the old Twitter handle, which is now inactive. As part of the changes, the Twitter Blue subscription service is now @XBlue, and support- and API-related handles have also been tweaked. At the same time, X has slashed some ad rates by 50% to win back clients after Elon Musk’s tumultuous acquisition and CEO tenure. Some marketers have criticized renaming the social media site, saying it amounts to throwing away “15 years of brand value.” The original owner of @X wasn’t forewarned or compensated, but he received a letter that offered merchandise and a tour of X’s headquarters as a “reflection of our appreciation.” (LinkedIn News)

Let’s call this; Learning The Law Series. Under this series, we would be pinpointing and expounding on some of the foundations upon which some famous legal principles were founded and built. This journey would take us to analyzing and explaining some old English cases where the court birthed those principles.

Today, we would be taking a look at the Salomon principle, the locus classicus for the principle of separate legal entity.

This old English case of 1897 founded the legal principle which postulates that a company is essentially regarded as a legal person separate from its directors, shareholders, employees and agents.

The purport of this legal principle is that you cannot hold one legal person responsible for the debt or sins of another legal person. An incorporated company is regarded as a legal person (although juristic, it is still a legal person).

Truth be told that this case was not the case that established this principle of an incorporated business having a separate legal personality from its owners; this legal principle has been in existence long before this case but it was through this case that the court expounded its reach and meaning and gave it a judicial notation hence why it’s it claimed that it was this case that birthed this principle.

Some sub-principles that this case birthed are; that owners, employees or agents of an incorporated business cannot be prosecuted or be sued for actions of the company or act of theirs which they committed while in their official capacity either acting as a director, an agent or an employee of the company. If the company authorized them to carry out that action or the company ratified that action of theirs then it is the company that must be held liable and not them.  Secondly, a company being a distinct legal person can be, will be and should be treated as such; it can enter into a legal and binding contract, and it can sue and be sued. Thirdly, incorporation can act or serve as a long-standing shield to the owners of a business and save them from liabilities, both criminal and civil liabilities, this shield is known as the veil of incorporation. Finally, the court cannot question the validity of incorporation through registration where all the formalities have been complied with.

Here is the summary of this famous Salomon V Salomon case; 

Mr Aaron Salomon was a sole proprietorship. He was into the business of bootmaking. In 1892 he decided to turn his sole proprietorship business into a company by incorporating it; he, therefore, incorporated Salomon & Co Ltd. He and his family members; his wife and five children became a shareholder in the company, making him and two of his sons the directors of the company. After the incorporation, Mr Aaron Salomon sold the boot-making business to Salomon & Co Ltd.

Not too long after the incorporation, the company became insolvent and entered into liquidation. As a shareholder and as a secured creditor of the company, Mr Aaron Salomon claimed that he is entitled to £1055 which is to take priority over other creditors with unsecured credit in the company.

The appointed company liquidator, Mr Brodrip, resisted this move of Mr Aaron Salomon. The liquidator posited that Salomon should be responsible for satisfying the Company’s debts just as he would if he had remained a sole trader.

They took the matter to court. At the court of first instance (Brodrip V Salomon), the court held that the company had conducted business as an agent for Mr Salomon, making Mr Salomon himself the principal. Therefore, the court held Salomon to be personally liable to indemnify the creditors for all the debts incurred in the course of agency for him. Salomon appealed but the court of appeal upheld the court of first instance’s decision.

The matter was subsequently brought before the House of Lords and the House of Lords took a detour from the previous decisions of the lower courts.

The House of Lords unanimously decided that the company had been validly brought into existence through incorporation and once a company has been validly registered, the business of the company belongs to the company and not to the shareholders, directors or employees. The House of Lords affirmed that the extent of the consequences flowing from valid incorporation confirms that a company is a separate legal entity different and distinct from its owner, therefore, Mr Aaron Salomon was not liable for the debts and liabilities incurred by the company.

Salomon v A Salomon & Co Ltd (1897) AC 22