Competition among investment bankers, lawyers, and accountants is causing a drop in fees for bank recapitalization efforts, with banks reaping the benefits.
It was widely anticipated. When Nigeria’s Central Bank declared in March 2024 that it was increasing the capital requirement for commercial banks by up to ten times, it was a significant development. The task ahead was formidable—Nigeria’s commercial banks had just two years to raise ₦4 trillion ($2.9 billion).
For many banks, this was not their first experience. Back in 2004, the minimum capital requirement was raised to ₦25 billion, resulting in various mergers and acquisitions.
Nevertheless, the exclusion of retained earnings, including FX gains, by the central bank in the 2024 capital-raising efforts has added to the challenge. This has compelled banks to resort to selling shares to retail and private investors.
While this poses a tight deadline for banks, it presents a lucrative opportunity for investment bankers, accountants, and lawyers.
According to the capped fees outlined in the Investment and Securities Act, investment bankers, accountants, and lawyers stand to earn as much as ₦113.2 billion ($82.07 million). The Securities and Exchange Commission (SEC) in Nigeria imposes a 2.83% limit on the fees these professionals can levy on equity raises.
“Most of the time, we don’t charge the maximum due to competition. There is always someone willing to accept a lower fee. Also, for significant transactions, the fees can still amount to a substantial sum,” a source from the investment banking sector shared.
Issuing houses, which assist banks in selecting the most suitable approach for capital-raising and overseeing the process, reportedly charge less than 1% for such activities, indicating intense competition. For instance, Fidelity Bank listed nine issuing houses in its rights circular.
Lawyers are also grappling with similar challenges. The competitive landscape has led to reduced fees, as mentioned by a lawyer from a Lagos-based firm involved in assisting multiple banks with capital raising. As per SEC regulations, legal fees are capped at ₦10 million for lawyers advising on rights issues.
Despite the capped fees, most law firms often end up receiving less due to negotiations. The lawyer added that refusing a bank’s fee offer might result in the bank seeking services elsewhere.
Accountants and auditors, like other professionals, earn from a rights offer, but their fees are restricted to ₦4 million and ₦7.5 million, respectively, as per SEC rules.
Both the SEC and the Nigerian Exchange Limited (NGX) generate revenue from each public raise through fees. The SEC’s fees are capped at ₦500,000 for the first ₦1 billion and 0.15% on amounts exceeding ₦1 billion. The stock exchange can earn a maximum of ₦400 million.
The bank recapitalization exercise will fortify the banking sector and aid Nigeria in moving closer to its target of becoming a $1 trillion economy by 2030.
While the long-term benefits may favor Nigeria, at present, the supporting players in the banking realm are reaping the rewards of the new capital raise.
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