Kenya’s Co-operative Bank has cast a shadow of doubt over the future of its stockbroking business with news emerging that lenders who scrambled for the acquisition of stockbrokerage firms at the height of the stockmarket boom more than a decade ago are now struggling to sustain the loss-making business units.
These lenders are ABC bank which acquired 86 per cent stake in Crossfield Securities Ltd and renamed it ABC Capital in 2008 and Equity Bank, which acquired a trading licence from Juanco Investment Bank and renamed it Equity Investment Bank in the same year.
NIC Bank bought 55 per cent stake in Solid Investment Securities and renamed it NIC Capital in 2008 and Co-op Bank, which acquired a 60 per cent controlling stake in Bob Mathews brokerage firm for Ksh150 million ($1.5 million) renamed it Kingdom Securities Ltd in 2009.
The financial distress that has hit stockbrokerage firms due to declining share prices and low trading volumes on the Nairobi Securities Exchange has left banks holding unprofitable investments that they are unable to shut down or dispose in the interest of investor confidence in the market.
Daniel Kuyoh, an independent analyst, said banks that own the loss making stockbrokerage firms have found themselves between a rock and a hard place since shutting down or selling off those moribund subsidiaries will send the wrong signals on the market.
“I do not think these banks will shut down their stockbrokerage units because they have already sunk costs over the years in an attempt to generate a sustainable profit, but closure would possibly send the wrong signals to the market as banks are the most capitalised participants in the stockmarket,” said Mr Kuyoh.
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