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Nigeria touts nine banks in negative equity

Share prices rebound; Pressure on recapitalizations at year-end

Will international investors follow the emerging-market rebound into Nigeria? Last year the country was one of the world’s two worst-performing markets. With prices so low, Templeton fund manager Mark Mobius touted Nigerian bank stocks last month.

Nigeria’s share index rose 10% in the first weeks of 2010. Some of the biggest gainers were the nine banks that failed the central bank’s audit of systemic risk in the summer.

However, the proposed auction of these banks, which are in negative equity, might prove difficult. And the longer this recapitalization process takes, the more fearful markets might become. If some of the nine banks are sold before others, risk around the remainder might be magnified – and such increased risk recognition might be contagious.

An opportunity
For foreign banks this could be an opportunity to buy existing networks in what is set to become Africa’s biggest economy.

Two of South Africa’s biggest banks, First Rand and Standard Bank, have expressed an interest in buying one of the nine. Old Mutual, Africa’s largest insurer, announced that it had been negotiating an increase in its 1.7% stake in Oceanic Bank, one of the affected lenders (Old Mutual owns South Africa’s Nedbank).

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