AMBASSADOR MEETS WITH STANDARD CHARTERED BANK

C O N F I D E N T I A L SECTION 01 OF 03 LAGOS 000453

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DOC FOR 3317/ITA/OA/BURRESS AND 3130/USFC/OIO/ANESA/REED

E.O. 12958: DECL: 11/30/2019
TAGS: EFIN ECON PGOV NI
SUBJECT: AMBASSADOR MEETS WITH STANDARD CHARTERED BANK

Classified By: A/CG Richard Walsh for reasons 1.4 (b & d)

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SUMMARY
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1. (SBU) The Ambassador met with top management of
Standard Chartered Bank, which is growing in Nigeria by
focusing on profitability, not size. Standard Chartered
offered their approval of Central Bank Governor Sanusi,s
reforms with some criticism of previous Central Bank Governor
Soludo's actions. Standard Chartered believes the banking
sector will rebound soon, despite dubious past practices by
some in the sector. END SUMMARY.

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STANDARD CHARTERED GROWING IN NIGERIA
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2. (C) The Ambassador met with Standard Chartered (SC)
Managing Director Christopher Knight, Head of Global Markets
Roger Woodbridge, Head of Corporate Banking Remi Oni, and
Head of Client Coverage Olukorede Adednowo at SC offices in
Lagos November 6. Knight mentioned that SC had 12 offices at
the end of 2007 in Nigeria and hoped to grow to 50 by 2012.
SC targets consumer banking in the high-end and middle
market, which Knight defined as those earning USD 4,000 per
annum and above. On the corporate side, their target
clients are core companies in need of cash services such as
distributors and suppliers. SC locates its retail offices in
urban centers, close to target customers, as opposed to its
corporate offices, found in both urban and rural settings.


3. (C) SC seeks profitability, not size, according to
Knight. SC's share of the market is small at two percent
while, in their target market, they have a four percent
market share. They lead the sector in return on equity (ROE)
at 34 percent and return on assets (ROA) at six percent. The
closest bank to SC has a ROA of three percent. SC is number
one on profitability.

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SANUSI VS. SOLUDO
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4. (C) The Ambassador queried what SC thought the Central
Bank of Nigeria (CBN) was doing right or wrong. Knight
responded by referring to a recent media event that labeled
the CBN Governor the "Sanusi Tsunami" for his quick and
drastic actions. Knight continued that, since 2008, all bank
managers knew that problems existed. Banks that had made
large numbers of margin loans were drastically affected when
the stock market precipitously declined. The rumors of
abuses that had been circulating were confirmed. SC was
hesitant to work with other Nigerian banks by the end of
2008, in that they did not know where these other banks stood
in terms of liquidity.


5. (C) Former CBN Governor Soludo made matters worse, in
Knight's opinion, when he supported banks by pumping in more
liquidity. Soludo established the extended discount window
(EDW) and broadened the types of assets that banks could use
as collateral. The EDW was supposed to be a temporary fix
for banks with infrequent liquidity problems but the problem
banks became permanent customers of the EDW. The Ambassador
wondered if, in hindsight, Soludo had erred in providing more
liquidity. Knight responded by comparing Nigeria to Japan of
the 1990s and the prolonged banking crisis there. Knight
stated that Sanusi wanted to avoid becoming another Japan
hence his "Sanusi Tsunami." Time will tell whether Sanusi
has been effective but, so far, the GON has supported Sanusi.
The trick now is to "keep up the pressure and not let the
initiatives wither," per Knight.

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DUBIOUS BANK PRACTICES
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6. (C) The Ambassador queried if Soludo did not create the
EDW would the problems with the banking sector come to light
sooner? Knight answered that interest rates were
increasing, deposits were commanding a 25 percent rate, so

LAGOS 00000453 002 OF 003


bank loan interest rates had to be higher to cover costs.
The EDW became a necessary source of liquidity, and matters
would have been much worse without the EDW. The situation
deteriorated further after Soludo placed caps on interest
rates in April of 2009 due to banks offering a flat fee on
top of the interest rate, effectively skirting the cap.


7. (C) The Ambassador queried whether more banks with
troubles awaited detection. Knight thought that 80 to 90
percent of the trouble in the banks had been uncovered.
Knight continued that, with the balance sheet profit and loss
analysis now made available, international investors can see
a more accurate picture of banks for the first time.

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DEMAND FOR GOODS EXISTS BUT NOT FOR CREDIT
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8. (C) SC Head of Corporate Banking Remi Oni, in describing
the corporate banking market in Nigeria, said distributors
failed to pick up manufactured goods due to the lack of
credit. Consumer demand exists, but the distributor is not
able to buy inventory due to banks not lending. This remains
a problem across all of Nigeria. Prices are cut for those
who produce non-perishable goods. The producers of
perishable goods pass on credit to the distributor if they
trust them. The result has been a slump in sales. The first
half of 2009 benefited from the 2008 momentum but that came
to a grinding halt with the actions of Sanusi. Demand is
growing even more with the holiday season around the corner.

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STOCK MARKET VIABLE
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9. (C) Knight stated that the foreign investment interest in
Nigeria was still there and that the Nigerian Stock Exchange
(NSE) was still low. Transparency was needed for investors
to know exactly what they were investing in. The banks were
a large percentage of the NSE capitalization. It will take
three months to determine the fall-out with the banks now in
a state of flux. Knight is hopeful for a sane fourth
quarter, which should help the NSE.

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BOND MARKET REBOUNDING
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10. (C) Head of Global Markets Roger Woodbridge stated that
the corporate bond market was coming back, as was the ability
to raise debt. Historically, the bond market was a large tax
impediment and had not been used well. SC was fortunate in
that they had significant demand from U.S. and UK hedge funds
that were pro-Nigeria. SC has taken advantage of its
international skills to reach out to the global bond market.
Most Nigerian banks, however, do not have a similar global
reach.


11. (C) Woodbridge stated that the CBN has two challenges.
First, the CBN must be brutal, up front, and honest in meting
out punishment. Secondly, the economy itself is a challenge,
with the economy breaking even if oil is at $50 per barrel.
CBN Reserves look like they will be increasing while
inflation should decrease to nine percent or less. The
interbank market is very short right now at seven days.
Banks are only willing to lend to each other for no longer
than one week. The activity in the near future should be in
bonds, treasury bills, and securities since most credit is
shut down. Woodbridge continued that the CBN is faced with a
money supply that is greater than the demand. The economic
slowdown is one cause, while the repatriation of dollars to
pay off bad loans is a second reason.

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QUESTIONS FROM STANDARD CHARTERED
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12. (C) The Ambassador asked if Standard Chartered had any
questions or concerns. Knight queried whether the United
States was less interested in Nigeria than other countries.
The Ambassador took the opportunity to discuss the Binational
Commission (BNC) and the proposed working groups on

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elections, corruption, energy and investment, and the Niger
Delta. The Ambassador mentioned sanctity of contracts, an
area where the Embassy has advocated on behalf of U.S.
companies and which represents one of the larger impediments
to foreign direct investment. Knight stated that the &fear
is slightly ahead of tremendous interest.8 He sid SC has
sanctity of contract issues with a new branch they are
building where the owner of the land now wants more money
even though he agreed to the project. The Ambassador
concluded by observing that the United States must
dynamically court the immense resources that exist in
Nigeria, both human and natural but on a level playing field.
&It all comes down to leadership." she added; "You need
good leaders to compete fairly.8
BLAIR