Intense competition amongst investment bankers, lawyers and accountants is driving fees down fees for the bank recapitalisation efforts, and banks are the biggest beneficiaries.
It was always going to happen. When Nigeria’s Central Bank announced in March 2024 that it was raising the capital requirement for commercial banks by as much as tenfold, no one was surprised. The absence of surprise did not make the task less daunting—Nigeria’s commercial banks have two years to raise ₦4 trillion ($2.9 billion).
For many of the banks, it’s not their first rodeo. In 2004, the minimum capital requirement was increased to ₦25 billion, leading to several mergers and acquisitions.
However, the central bank’s decision to exclude retained earnings—including FX gains—makes the capital raising in 2024 efforts more daunting. That clause has forced banks to rely on selling shares to retail and private investors.
While it makes for a challenging timeline for banks, it’s a significant revenue opportunity for investment bankers, accountants, and lawyers.
Investment bankers, accountants, and lawyers could earn as much as ₦113.2 billion ($82.07 million) in fees, according to capped fees stipulated in the Investment and Securities Act. Nigeria’s Securities and Exchange Commission (SEC) has a 2.83% cap on the fees these professionals can charge on equity raises.
“Most of the time, we don’t charge the maximum because of competition. There is always someone willing to take a lower fee. Also, if the transaction is quite significant in value or in size, it can still amount to a large amount,” an investment banker who asked not to be named so he could speak freely told .
Some issuing houses— which help banks select the most suitable approach for their capital raise and oversee the process—charge under 1% for capital raises, three people with knowledge of the matter said, citing competition. Fidelity Bank, for instance, listed nine issuing houses in its rights circular.
Lawyers also face the same problem. Competition has led to “awful” fees, a lawyer at a Lagos-based law firm helping more than five banks raise capital told . According to the SEC’s rules, legal fees are capped at ₦10 million for lawyers advising on the rights issue.
However, most law firms often make less than the capped fees. “There’s a lot of negotiation involved and if you refuse the bank’s fees, they just take their business elsewhere,” the lawyer added.
Lawyers conduct due diligence on the issuer to identify potential risks, and draft and review key documents such as the prospectus, placement agreements, and subscription agreements. They ensure compliance with relevant laws and that all material information about the issuer and the offer is accurately disclosed, protecting against legal claims and helping investors make informed decisions.
Other professionals like auditors and accountants also make money from a rights offer but their fees are capped at ₦4 million and ₦7.5 million, respectively, according to the SEC’s rules.
The SEC and the Nigerian Exchange Limited (NGX) also make money from each public raise through fees. The SEC’s fees are capped at ₦500,000 for the first ₦1 billion and 0.15% on the balance above ₦1 billion. The stock exchange can make a maximum of ₦ 400 million.
The bank recapitalisation will strengthen the banking sector and help push Nigeria closer towards the government’s goal of becoming a $1 trillion economy by 2030.
While it might benefit Nigeria in the long run, for now, the bank’s supporting cast is benefiting from the new capital raise.
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