Equity Bank chief executive James Mwangi was hardest hit by last week’s two-day free fall in the prices of bank stocks as top 10 investors in the listed lenders took in more than Sh5 billion in paper wealth losses following President Uhuru Kenyatta’s signing of a law that caps the cost of loans.
The value of Mr Mwangi’s 4.54 per cent shareholding in Equity Bank shrank by Sh1.1 billion while that of his wife Jane dropped by Sh395 million in two trading days taking the family’s paper loss to Sh1.5 billion.
Nervous investors rushed to sell bank stocks in anticipation of a looming fall in earnings due to the capping of interest rates. The fire sale wiped Sh84.7 billion off the market capitalisation of listed banks, leaving nine of the 11 listed lenders to trade at the lowest prices in 52 weeks.
“We believe the market is pricing in a likely squeeze in net interest margins and return on equity going forward. We expect further price falls as investors continue to digest the news, and understand the full extent of impact of the new law on earnings,” said analysts at Standard Investment Bank.
Equity Bank shed 18.1 per cent between Wednesday and Friday to trade at Sh29.50 per unit, slashing the value of Mr Mwangi’s stake in the company to Sh5.3 billion from Sh6.5 billion. That of his wife fell to Sh1.7 billion from Sh2.1 billion.
Other wealthy investors who took in huge losses from the loan caps shock waves include Co-op Bank’s chief executive Gideon Muriuki and the Ndegwa Family who owns a quarter of NIC Bank stock.
Co-op Bank lost 18.5 per cent of its market value, taking out Sh245 million from Mr Muriuki’s paper wealth which is now valued at Sh1 billion.
Former Central Bank of Kenya governor Philip Ndegwa’s family saw the value of its wealth at NIC Bank contract to Sh3.8 billion from Sh4.5 billion following a 15.8 per cent drop in the bank’s share price. NIC is currently trading at Sh24 per share.
The Shahs at I & M Bank – Sarit, Sachit and S.B.R Shah – have seen their wealth shed Sh1.2 billion with the mid-sized listed lender being the largest loser in the marketing, down 18.7 per cent.
The Babla family which has a 1.55 per cent shareholding in KCB had Sh553 million shaved off the valuation after the country’s largest bank by capital base lost 17 per cent in the two-day bloodbath to trade at Sh27 per share.
Andrew Mwangi’s worth at Equity Bank dropped to Sh2.5 billion being a Sh568 million capital loss.
Kenya Bankers Association believes the drop in share prices is only temporary and expect the market to stabilise and return to normal.
“It is a normal reaction to the news that came to the market but it is transient; we will see it settle and go back to normal,” said KBA’s chief executive Habil Olaka.
Research firm Exotix Partners estimates interest spreads by banks which have been the key driver of their huge profits will fall by 26 per cent.
Analysts at Standard Investment Bank said they expect large banks to cope with the new regulations but investors seem to differ by exiting six large banks that are listed.
Wealthy investors are expected to continue holding the stocks but it remains to be seen whether the share prices will recover.
The losses at the counters would have been greater save for regulations capping the loss or gain of share prices at 10 per cent in a single trading session.
There were more than 100 million shares put in the market for sale mostly to non-existent buyers.
Internationally owned banks –Barclays and Standard Chartered – recorded 11.9 per cent and 8.2 per cent drop despite enjoying the surety of their deep-pocketed anchor shareholders.
CFC Stanbic, majority owned by South African Standard Bank, lost 6.3 per cent to trade at Sh75 per share.
National Bank recorded the smallest loss with investors having previously factored in adverse information on the bank in their pricing. The bank, majority owned by the government and National Social Security Fund, reported a sharp decline in profits last year following disclosure of wild insider lending.
Other wealthy individuals who have booked major paper losses include Equity Bank’s chairman Peter Munga and Britam’s chief executive Benson Wairegi who have lost Sh100.2 million and Sh60 million respectively from their investment in Equity Bank.
Billionaire investor Baloobhai Patel’s portfolio size has contracted Sh24.2 million due to his exposure in Barclays Bank and DTB.
Pension funds are set to book huge losses owing to their heavy investment in the banking counters which have for long reported good returns in terms of capital gains and dividends.
Retirement Benefits Authority disclosed pension schemes had invested Sh26 billion in KCB as at the end of last year when the share price was Sh38. This means the schemes are looking at an estimated Sh8 billion haircut from last year to date.
“Expectations are that the current trend shall continue with most schemes invested heavily in the Banking and Investments, manufacturing and allied, and telecommunications and technology sectors,” said RBA in a report released earlier this month.