Full text of Sanusi's response to the allegations of financial recklessness

I am compelled to make this public statement to address the various allegations levied against the Central Bank of Nigeria (CBN) and cited as the reasons for my suspension from office as the Governor of the CBN on the 19th of February 2014.

As a matter of record, the allegations were made in the following documents:

i. Briefing Note of the Financial Reporting Council of Nigeria (FRCN) dated 7th June 2013, Ref: PRES/188/T&I/89 to His Excellency, President Goodluck Ebele Jonathan [the Briefing Note];
ii. The Letter of Suspension dated 19th February 2014, which I received from the Office of the Secretary to the Government of the Federation; and
iii. The petition dated 9th February 2014 by Mr Erastus Akingbola.


However, before I go into the above issues, let me reiterate for the records, the achievements of the CBN during my tenure as the Governor:

The Record

Firstly, let me state that I have been extremely fortunate to have had a solid and supportive team led by the Deputy Governors and supported by the Departmental Directors, as well as thousands of hardworking and dedicated staff who must be given the credit for all that the CBN has achieved. I would also like to acknowledge for the record, the foundation laid by my predecessor, Professor Charles Chukwuma Soludo, in a number of areas. The CBN Act, 2007, which he championed, established the CBN as a truly autonomous entity of the Federation, and made it possible for us to take the difficult decisions necessary for restoring and maintaining macroeconomic stability. The FSS 2020 and PSV 2020 documents provided the principal strategic roadmaps that led to many of the innovations in payment systems, non-interest banking, financial inclusion, the Asset Management Corporation, IFRS, Risk-based Supervision, and the like.

Indeed, it will be impossible for me to review almost five years of revolutionary change made possible by the work of thousands of employees in the CBN in collaboration with other Regulators, Banks and Other Financial Institutions and Government Ministries in this press statement. However, I will mention a few of the key highlights.

On monetary policy, the Bank has improved the institutional framework for policy-making. A properly constituted Monetary Policy Committee (MPC) with a clear mandate for maintaining stability has been established. The MPC has been supported by improvements in research, data and forecasting capacity, and we have also paid attention to clear communication of our objectives to the market. As a result, headline inflation has remained below 10 per cent since January 2013, from a peak of 15.1 percent and 13.9 percent in 2008 and 2009 respectively. Core inflation declined from 11.2 per cent in December 2009 to 7.9 percent in December 2013, while food inflation maintained a downward trend from 15.5 percent in December 2009 to 9.3 percent in December 2013. In addition to the conventional liquidity management products, the Bank approved financial products to manage liquidity in non-interest financial institutions. The CBN also promoted the formation of the financial Markets Dealers Quotations Over–the-Counter (FQDM OTC) Plc as a self-regulatory OTC operator.


In the area of safeguarding the value of the local currency and maintaining stability in the foreign exchange market for the overall sustenance of macroeconomic stability and growth, the CBN over the period has successfully maintained a stable exchange rate regime and a robust external reserve position conducive to sustainable growth and development.

On the Banking System, I was appointed Governor in the middle of a global financial crisis when the Nigerian banking system was on the verge of collapse. The Bank moved swiftly to remove the managing directors and executive directors of the banks where major corporate governance failures were discovered, provided liquidity support, pioneered the setting up of the Asset Management Corporation of Nigeria (AMCON) to purchase non-performing loans, recapitalize the banks and pilot a process that led to mergers and acquisitions, as well as recapitalization of all the weak and failing banks. As a result, all financial soundness indicators – Capital Adequacy, Asset Quality, Liquidity and Profitability ratios – were normalized. As a result of the work by the Bank, not a single depositor or creditor lost money in any Nigerian bank during or after the financial crisis.

In addition to the quantitative measures, we broke up universal banks and encouraged the setting up of specialized banks (including the first Non – interest Bank in the Country’s history), pushed for the adoption of IFRS and Basel 3, enhanced risk-based supervision, issued Competency Guidelines for the staff in the banking industry, established a Consumer Protection Department and developed a Financial Inclusion Strategy and Roadmap, among others for the CBN.

The Bank implemented policies aimed at reducing the excessive use of cash in the system to ensure safety, improve efficiency and curb money laundering. The transformation of NIBSS, the insistence on interoperability of channels, encouragement of electronic banking, the licensing of Mobile Money Operators, the Agent Banking and tiered-KYC frameworks have all led to rapid growth in volume and value of non-cash transaction and enhanced financial inclusion.

The Bank has played its leadership role in ensuring industry compliance with environmental sustainability and governance standards, including a strong focus on women and the handicapped.
The CBN in the last five years has taken a leading role in providing long-term low-cost funding to priority sectors of the Nigerian economy in a bid to help in bringing to reality the Transformation Agenda of the government of your Excellency. We have provided these funds at single-digit interest rates to micro, small and medium enterprises, as well as to companies operating in the power, aviation, and agricultural sectors of the economy, and also to large industrial enterprises with potential for structural transformation.

The Bank has invested in human capital, improved staff welfare and attracted and retained specialized skills in the areas of Banking Supervision, Information Technology, Shared Services and Risk Management.

On Financial Performance, the Bank has in the last five years kept a lid on overheads and cost of currency management. As a result, the Bank has continued to produce sterling results and contributed substantially to the Federal Budget. In the five years, 2009 – 2013, the Bank contributed N376 billion to the Federal Budget as Internally Generated Revenue (IGR).Based on 2012 financials alone, we paid N80 billion to the Ministry of Finance. On the basis of the 2013 results and at the request of the Coordinating Minister of the Economy (CME), we paid N159 billion to the Ministry of Finance in February this year; the same month the audited accounts of the CBN were approved by the Committee of Governors (COG). Indeed, due to the precarious position of Government finances, the CBN in February 2014, upon the request of the CME, gave the Ministry a further ‘Advance IGR’ of N70 billion in anticipation of 2014 profits.

May I add that, in 2008, the year before my appointment, the CBN contributed N8 billion to the Federation Account. Although the Bank is not a profit-centre, in the first four years of my term, the Bank alone contributed 75 percent of the total IGR paid by MDAs leading to commendation by the House Committee on Finance at several Public Hearings.

Recognitions

As a result of these achievements of my colleagues and staff, we received numerous recognitions consistently throughout my tenure from highly-regarded publications. These awards are based on a competitive process where analysts and economists rank Central Bank Governors across regions and the globe.

In 2010, The Banker Magazine, a publication of Financial Times in London, named me Best Central Bank Governor in the World and Best in Africa. At the Annual World Bank/IMF Meetings, Emerging Markets, a publication of Euromoney Institutional Investor named me Best Central Bank Governor in Sub-Saharan Africa for 2009, 2010 and 2012. The African Banker Magazine named me Best Central Bank Governor in Africa, 2012. This is in addition to being named Forbes Africa Person of the year 2011 and listed by TIME as one of the 100 most influential people in the world, 2011.
I have always regarded these honours not as personal accolades, but as a tribute to our nation and the committed and resourceful women and men of CBN.
Response to the allegations in relation to my suspension

On Wednesday 10th March 2014, I submitted a Memorandum to His Excellency, Mr President, with supporting documentation,effectively addressing all the allegations contained in the FRCN Briefing Note, the Letter of Suspension and the Akingbola Petition.

Having submitted my response to the President, I am further compelled, following the recent press briefing and comments by the Senior Special Adviser to the President on Media, as well as numerous other references to the allegations in both local, international and online media, to put to the public my responses, in the interest of transparency, accountability and my responsibility to the Nigerian people.Let me also state that I saw the FRCN “Briefing Note” for the first time when it was attached to the suspension letter. At no time was this report sent to the CBN either by the President or the FRCN for comments or explanations. As for the Akingbola petition, it is a rehash of baseless allegations he has been making since 2010 which apparently he must have been asked to reproduce on February 9, ten days before the suspension. It is indeed strange that the CBN Governor can be suspended based on allegations written by a man who ran his bank into the ground and against whom judgement has been obtained in a London court, and who furthermore is facing criminal prosecution at home for offences including criminal Theft.

A careful examination of the allegations contained in the FRCN Briefing Note to Mr President, will show that each of the allegations could easily have been resolved by a simple request for clarification or more careful review. There is no doubt that if the CBN had received the Briefing Note, which was prepared in June 2013, all the misconceptions, misrepresentations and erroneous inferences contained therein would have been cleared.

I am publishing these responses to enable the general public see that each and every allegation levelled against the CBN under my leadership is false and unfounded, and that many of the allegations were malicious and fabricated, having been designed to mislead the President into believing that the Management of the Central Bank was guilty of misconduct and recklessness.
Having provided detailed explanations, backed by verifiable documents, it is my sincere wish that His Excellency, Mr President, in line with his adherence to fairness and justice, will apply the same rationale and rigour to other agencies of the Federal Government that have had serious allegations and queries levied against them, and prevail upon them to provide responses and explanations with the same level of clarity and transparency.

In closing, I would like to place on record the dogged professionalism and patriotism of the staff of the CBN. They have, over the years, conducted themselves very creditably, and discharged their duties with the highest integrity.

Memorandum Responding to THE FRCN ALLEGATIONS

1. Corporate Governance

Briefing Note Allegation 1:that there is weak corporate governance at the CBN on account of the fact that the office of the Governor is fused with that of the Chairman of CBN’s Board of Directors.

Response:
i.This allegation ignores the fact that global best practice is that the Governor of the central bank is the Chairman of the Board of Directors of the central bank. See Annexure A, which shows the composition of the Board of Directors of central banks in over 55 different countries.

2. Alleged Fraudulent Activities / Payments to NSPMP

Briefing Note Allegation 2: that the CBN’s breakdown of “Currency Issue Expenses” for 2011 and 2012 indicated that it paid the Nigerian Security Printing and Minting Plc(NSPMP) N38.233 Billion in 2011 for printing of banknotes, whereas the entire turnover of NSPMP was N 29.370 Billion.

Response:
i. The expense item of N38.233 Billion to NSPMPwas made up as follows:
a. N28.738Billion payment to NSPMP in 2011;
b. N6.587Billion accrued liability in 2011 but paid in 2012 when deliveries were received; and
c. N2.829Billion audit adjustment journal entry into the account at the end of 2011 in respect of prepayments to NSPMP.
ii. See Annexure Bfor the evidence of payment to the NSPMP. Evidently, the difference between the numbers in the financial statements of CBN and NSPMP is a simple reflection of timing differences between recognition of expenses by the CBN and income recognition by the NSPMP, with both entities applying conservative accounting policies.

3. Charter Fees

Briefing Note Allegation 3: That the CBN made fictitious payments to (a) Emirate Airlines: N0.511 Billion which allegedly does not fly local charter in Nigeria; (b) Wing Airline: N0.425 Billion which allegedly is not registered with the Nigerian Civil Aviation Authority (NCAA); and (c) Associated Airline: N1.025 Billion which allegedly did not have a turnover of up to a billion naira in 2011.

Response:

i. The CBNneither engaged, paid nor claimed to have paid Emirates Airlines. Rather, the CBN engaged andentered intoan Air Charter Services Agreementwith Emirate Touch Aviation ServicesLimited, which is a local Nigerian charter service company.A simple enquiry by FRCN would have clarified and avoided this misrepresentation.
ii. With respect to Wings Aviation Limited,the CBN contracted Wings Aviation Limited,which changedits name to Jedidiah Air Limited on 21August 2009 but only notified the CBN of the change on 28 February 2012.Please, see Annexure C for the letter from Jedidiah Air Limited notifying the CBN of the change of name.Here also, a simple enquiry by FRCN would have made this clear.
iii. With respect to Associated Air Limited,the CBN did in fact pay a total of N1.025 Billion to Associated Airline Limited.See Annexure D for the schedule of payments made to Associated Airline Limited.It is worth stating that the CBN is not responsible for how the company reports its turnover.

4. Deposit for Shares in Bank of Industry (BoI)

Briefing Note Allegation 4: that the CBN is yet to receive the share certificate for investments made in the Bank of Industry (BoI) since September 2007 and that the leadership of the CBN was not worried about the delay.

Response:
i. On 20 August 2009, shortly after I assumed office, I directed that a reconciliation exercise be carried out by the CBN on all its investments in parastatals and companies. Thereafter, the CBN wrote various letters to the Bank of Industry requesting for its share certificates. See AnnexureE for the letters from the CBN requesting for the certificate.
ii. On 20 September 2009, the BoI wrote to the CBN explaining that the delay in the issuance of the share certificates was as a result of the BoI seeking a concession on the payment of stamp duty and other statutory fees from the Corporate Affairs Commission and the Federal Inland Revenue Service (FIRS) with respect to the investment by the CBN and the FMF. See Annexure F for the letter from the BoI.Also find attached the letter dated 21 February 2013 forwarding the Share Certificate asAnnexure G as well as the certificate for the Debenture as Annexure H.
iii. It is evident that as at the time theFRCN Briefing Note was written, the share certificate and debenture certificate were already in the possession of the CBN. A simple check by the FRCN would have answered the query.

5. Currency Issue Expenses

Briefing Note Allegation 5:that the expenses made by the CBN on account of currency issues and sundry currency charges for the years 2011 and 2012 were identical and therefore difficult to understand.

Response:
i. It is incorrect to say that the expenses in 2011 and 2012 were identical. The sundry currency charges amounted to N1.68 Billion in 2011 and N1.87 Billion in 2012. This expense related to amounts paid to Travelex under an agreement to import foreign exchange for licensed BDCs. On the other hand, Currency Issue Expenses totalled N1.15 Billion in 2011 and N1.28 Billion in 2012, relating to expenses borne by the different branches and currency centres of the CBN in the movement and handling of cash.

6. Facilities Management

Briefing Note Allegation 6: that the CBN’s leadership uses this head of expense (Facilities Management) to capture what ordinarily should have been accounted for as their benefits-in-kind for tax purposes. It also alleges that this head of expense is used for ‘fraudulent activities’ based on the inclusion of items such as “Profit from sale of Diesel”.

Response:
i. The CBN outsources the management and maintenance of its landed properties across the 36 States of the Federation and the FCT. This involves three service areas: engineering services, building services and environmental services. These are operational costs relating principally to head offices, branches, currency centres and training institutes.
ii. On the specific allegation of ‘fraudulent activities’, based on profits from the sale of diesel,it should be noted that the CBN’s Facilities Management Agreements clearly include the supply of diesel for the operation of generators to power CBN offices in 51 locations across the 36 States and the FCT. The Diesel is paid for at pump price, while overhead and profit at 10% is paid to the service providers. This overhead and profit is presumably what the FRCN erroneously regarded as “profits from the sale of diesel”. These profits do not go to the CBN but to the service providers, which is why they are an “expense item”. The CBN does not operate in any sector of the petroleum industry.

7. Fixed Assets Clearing Account

Briefing Note Allegation 7:that the expenses under the Fixed Assets Clearing Account comprise properties acquired by the CBN without any expectation to derive future economic benefits and are written off by the CBN on a yearly basis.

Response:
i. Fixed Assets Clearing Account is used by the CBN to record the procurement of fixed assets, physical items and projects-related expenditure for the CBN, using the IT application Oracle ERP. However, some items, which do not qualify as fixed assets under the capitalisation policy of the CBN, are sometimes posted into this account.
ii. The transactions are periodically reviewed for the purpose of capitalizing those which qualify under the Capitalization Policy and posting such to the respective Fixed Asset Account and Fixed Asset Register with tag numbers. All other assets which do not qualify are expensed through income and expenditure accounts at the end of the year.

8. Operation of Foreign Bank Accounts

Briefing Note Allegation 8: that foreign bank accounts that were closed down were still operational in the General Ledger for over six months after the accounts had been confirmed closed by the offshore banks.

Response:
i. The balances on these accounts simply reflected the fact that the process of the transfer of gains and losses on them had not been concluded, hence their existence in the General Ledger. The process of closing the accounts has since been concluded and the journals evidencing closure are available in the CBN.

9. Unreconciled Real Time Gross Settlement Clearing Account

Briefing Note Allegation 9:that the Real Time Gross Settlement (RTGS) Account had longstanding unreconciled items which could not be substantiated.

Response:
i. These items resulted fromepileptic operations of the RTGS system due to frequent system downtime, which in turn resulted in failure to seamlessly effect funds transfer. These items have since been reconciled and we have put in place an upgraded and more robust RTGS system, which would minimise reoccurrence.

10. Missing Stockpiles of Foreign Currency

Briefing Note Allegation 10:that the external audit revealed debit/credit balances of sundry foreign currencies without the physical stock of foreign currencies at the CBN Head Office.

Response:
i. Generally, losses or gains may arise out of the account balances, which in turn, may be occasioned by exchange rate differentials. In either event, once crystalized, the net position is then posted to the Foreign Assets Revaluation Account. As such, as at 20 February 2014, there was no physical stock of currency missing at the CBN.

11. Alleged Wastefulness

Briefing Note Allegation 11:that the CBN has been wasteful in its expenditure incurred in the course of 2012.

Response:
i. This allegation is clearly at variance with the reality of the financial performance of the CBN under my leadership. For example, in the year 2008, just before I took over office at the CBN, the contribution of the CBN to the Federation Account was N8Billion. Based on the 2012 annual accounts, our contribution rose tenfoldto N80Billion,while in 2013, our contribution, based on the audited accounts, was N159Billion.
ii. It is noteworthy that inthe 5 yearsof my tenure as CBN Governor (2009 – 2013), the CBN has contributed N376Billion to the Federal Budget as IGR (Internally-Generated Revenue). Indeed in 2012, the House of Representatives Committee on Finance publicly commended the CBN for being the highest contributor of revenues to the FGN among MDAs – accounting for 75% of the total IGR contributed by MDAs between 2009 and 2012. The CBN has been able to achieve this through prudent management of costs, including currency expenses and overheads. For example, we brought down currency expenses from N50.8 Billion in 2009 to N29.08 Billion in 2012.
iii. It is worthy noting that the Ministry of Finance has already receivedits IGR from the CBN in full, based on our 2013 accounts and the Ministry even requested and received an advance of N70Billion in anticipation of surplus that is yet to be earned for 2014. With this level of prudent financial performance, it is puzzling to imagine the basis for the levied allegation of “Wastefulness”. It must be underscored that central banks all over the world are not considered as profit centres. The primary task of the CBN is the attainment of price stability rather than revenue generation. However, the CBN under my leadership has strived to deliver on its key mandate, while also maximising revenues for government.

12. Promotional Activities

Briefing Note Allegation 12:that the sums expended on promotional efforts of the CBN in 2012 were too high.

Response:
i. The allegations do not suggest that proper procedure was not complied with in making the referenced expenditure. The Board of the CBN approved all the promotional expenses.
ii. In the year under review, 2012, the CBN initiated several reforms and policies in the execution of its statutory mandate of promoting a sound financial system in Nigeria. Some of these policies included:
iii. the introduction of the Cashless Lagos Initiative and mobile banking;
iv. thePower and Aviation Intervention Fund (PAIF) campaign, for which the FG took credit. The PAIF campaign helped to stimulate growth in the power sector and raise investor confidence generally;
v. the National Microfinance Development Strategy; and
vi. theNigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) and the Commercial Agriculture Credit Scheme (CACS), which supported the FG’s renewed focus on the development of agriculture as a major income earner for the country.
vii. Essentially, what are characterized as ‘promotional’ were actually necessary education, enlightenment and awareness campaigns and conferences on initiatives which were, and remain,essential to economic growth, expansion of financial inclusion and the achievement of the policy objectives of the CBN and the FG.

13. Training &Travel Expenses

Briefing Note Allegation 3: that CBN’s expenses in relation to training and travel went up from N7.65 Billion to N9.24 Billion.

Response:
i. In 2012, the Board of the CBN took the strategic decision to invest in the development and training of CBN staff across all departments. We trained our staff in the most prudent manner possible and this led to the outstanding achievements recorded by the CBN during my tenure. We had to send CBN staff to international finance and regulatory institutions for training; and overseas training comes at a steep cost.
ii. Furthermore, in 2012, to match the increased need for bank supervision, CBN staff strength was increased. Thisfurther necessitated orientation and other training programmes to bring the new entrants up to speed with the CBN policies and practices.

14. Expenses on ATM Offsite Policy Change

Briefing Note Allegation 14:that expenses on the ATM offsite policy change came to N1.045 Billion.

Response:
i. Prior to my appointment as the CBN Governor, the CBN had initiated a policy of increasing accessibility to financial services through the use of ATMs. This was geared towards ensuring financial inclusion for all Nigerians. To achieve this, the CBN licensed independent ATM deployers (IADs).
ii. However, it soon became apparent that these IADs had neither the capital nor the capacity to roll out ATMs and manage them at a rate consistent with our cashless Nigeria ambitions, and that a roll-out on the scale envisaged would require allowing banks to deploy ATMs outside their branches. As a result of this change in policy, the IADs incurred losses due to prior investments made based on the previous policy.
iii. It was therefore in the interest of equity and fairness that the CBN agreed to negotiate some compensation payable to the IADs after verification of claims of the IADs by the CBN. The verification process resulted in the CBN paying only about 40% of the original claims of the IADs.
iv. The implementation of the policy of increasing accessibility to financial serviceshas been very successful with immense benefits to the country. It has led to an increase in ATM penetration and efficiency of the payment system along with all other benefits associated with this channel.

15. Expenses on Non-Interest Banking

Briefing Note Allegation 15: that the expenses on Non-Interest Banking went up from N0.977 Billion in 2011 to N1.359 Billion in 2012 and speculation was made as to whether this had any relationship with the CBN’s investment in the International Islamic Liquidity Management Corporation (IILMC).

Response:
i. For the record, this expense item is not connected with the investment of the CBN in the IILMC. As such, there is no basis to make such an assumption. Rather, the item relates partially to the CBN’s specialised and non-interest banking policies and includes other expenses of the Financial Policy and Regulation Department such as (a) consolidated supervision; and (b) Consultancy fees for the adoption of IFRS & Basel II/III.

16. Expenses on Private Guards and Policemen

Briefing Note Allegation 16:that the CBN’s expenses on Private Guards and Lunch for Policemen went up from N0.919 Billion in 2011 to N1.257Billion in 2012.

Response:
i. In 2007 (before my tenure), the CBN adopted a policy to outsource non-core functions, including security services. This decision enabled the Bank to focus on its statutory mandate and to reduce its overheads. Accordingly, the CBN retained the services of about thirteen (13) private security companies to provide access control and security check services. In 2012, the CBN budgeted N600 Million for security services but spent N582.2 Million on private guards. See AnnexureI (A-B) for the breakdown of the costs incurred in this regard.
ii. To complement the efforts of private guards, the CBN also requested the services of security agencies, in light of the increased security challenges, especially the activities of the Boko Haram terrorist group. These security personnel were engaged on a daily basis; and were attached to (x) senior CBN officials; (y) special assignments such as security coverage for currency movements; (z) static guard duties at the bank’s premises nationwide, and other sundry engagements. About 2,406 Policemen are currently deployed on a daily basis to various branches and other locations of the CBN. These security personnel were paid a daily lunch and transport allowances totalling N675.02 Million in the year under review.

17. Project Eagles

The Briefing Note Allegation 17: that the expenses of the CBN on Project Eagles went up from N63 Million in 2011 to N606 Million in 2012.

Response:
i. Under Project Eagles, the CBN caters for all expenses incurred in the course of an internal restructuring of the CBN on the understanding that central banking, by global standards and best practice measures, is an ever-evolving enterprise, with constantly changing requirements and frameworks that require adaptation.
ii. In 2012, the expenses on Project Eagles included the following internal restructuring initiatives: Strategy Execution Framework Project, Transformation of the Procurement and Support Services Department, Transformation of the Finance Department and the NIPOST PPP Project in collaboration with the Ministry of Communication for the purpose of using NIPOST locations as outlets for our Financial Inclusion Strategy.
iii. Project Eagles was carefully designed, well budgeted for and wasapproved by the Board. The objectives are being achieved in light of the improved efficiency of the CBN.

18. Newspapers, Books &Periodicals

Briefing Note Allegation 18: that the expenses of the CBN on newspapers, books and periodicals (excluding CBN’s publications) went up from N1.670Billion in 2011 to N1.678Billion in 2012.

Response:
i. The CBN’s peculiar status as a regulator underscores the need for its staff to be informed as to every development that has a bearing, however tangential, on the object and functions of the CBN in the economy. The expenses incurred were made in subscriptions for, and acquiring, local and foreign journals, magazines and periodicals for the CBN. These educational and information material are directly useful for the operations of the CBN.The CBNincreased the number of employees entitled to access to newspapers, Books and periodicals.

19. Legal &Professional Fees

Briefing Note Allegation 19: that the CBN paid excessive legal and professional fees of N20.202 Billion in 2011.

Response:
i. The CBN, like any other public entity, is not immune from liabilities that arise from judgments and orders of the Nigerian courts. The referenced N20.202Billion spent under this head covered the CBN’s judgment debt liabilities in the year under review.
ii. Of particular reference is the judgment of the Supreme Court in the case of Amao v the Central Bank of Nigeria, [SC 168/2007]delivered on 21 May, 2010, wherein the apex Court directed that the CBN pay employees of the Bank who had retired prior to 2000, pension under the harmonised structure introduced by the FG. Note that the negotiated litigation liability that arose from the above-specified matter was approximately N19.8Billion. SeeAnnexure J for the judgment of the Supreme Court in question.

20. Reduced Expenses on Ethics &Anti-Corruption

Briefing Note Allegation 20: that the CBN, under my watch, reduced its expenditure on Ethics and Anti-corruption and this reduction is purportedly an instance of ‘financial recklessness and wastefulness’.

Response:
i. In response to the need to improve ethical and best practice standards in its operations to bring it at par with international standards and the code of conduct requirements, the CBN expended N34Million in 2011 to develop the Code of Business Ethics and Compliance (COBEC) as well as the Code of Conduct for staff, the implementation of which spilled over into 2012. This explains why the expenditure dropped from N34 Million to N18 Million.

21. Auditor’s Fees

Briefing Note Allegation 21: that the CBN paid an additional N140 Million over and above the agreed fees for the external auditors.

Response:
i. The 2012 financial statements of the CBN stated that the amount paid to the two firms of external auditors for the 2012 financial year was N200Million. The subsequent graduating revision of the fee was to the sum of N230Million effective from 2013.
ii. The N140Million purportedly paid to the external auditors as “additional fees”, was paid as reimbursement of the expenses incurred by these firms in the execution of their mandate as external auditors of the Bank for previous audit exercises. See Annexure K for evidence of payments made to the auditors. Payment of reimbursables is a standard contractual practice when dealing with professional service firms.

22. Alleged Abuse of Due Process

The MoU for the Banking Sector Resolution Cost Sinking Fund
Briefing Note Allegation 22: that the CBN issued treasury bills using themoney in the Banking Resolution Costs Sinking fund (Sinking Fund) without the constitution and approval of the Board of Trustees as required under the MOU signed by the CBN and all the deposit moneybanks operating in Nigeria.

Response:
i. The contributors to the Sinking Fund are the CBN and all deposit money banks in the country. All the parties agreed at Bankers Committee that the monies contributed should be invested in treasury bills for safety. The CBN, as custodian, simply implemented that agreement. The board of trustees for Sinking Fund has not been constituted as the legal framework for the Sinking Fund i.e. the Banking Sector Resolution Cost Fund Bill is still pending before the National Assembly.
ii. It should be noted that AMCON redeemed its due bonds on 27 December, 2013 from this account.

23. Write off of N3.85 Billion Loan

Briefing Note Allegation 23: that the leadership of the CBN wrote-off loans supposedly made to staff members to the tune of N3.85 Billion in 2012.

Response:
i. The write-off above was not made in favour of CBN staff. Rather the Board of the CBN approved the write-off of the loan as forbearance to Heritage Bank on 17 December, 2010 as part of the process of facilitating its resumption of business as a regional bank. See Annexure L for the board approval given on 17 December 2010.

24. Overdrawn Accounts by Ministries, Departments &Parastatals

Briefing Note Allegation 24: that the deposit accounts of parastatals have debit and overdrawn positions and that this is contrary to government policy.

Response:
i. MDAs generally maintain bank accounts with the CBN. Overdrawing of banks accounts is an incidence of banker–customer relationship. However, the CBN experienced some technical problems prior to mid-2012, which affected about 6 of the over 1000 bank accounts maintained by MDAs at the CBN, but the error has been rectified since the middle of 2012. There were some insignificant over drawings on about six (6) of the accounts and the attention of the Office of the Accountant-General of the Federation has been drawn to the matter. See Annexure Mfor the letter to the Accountant-General and the Accountant-General’s response of January 29th, 2014.

25. Investment in International Islamic Liquidity Management Corporation (IILMC)

Briefing Note Allegation 25:that the investment in the IILMC was not brought to the attention of His Excellency, Mr President, and was not within the exception in Section 31 of the CBN Act.

Response:
i. Nigeria, through the CBN, is signatory to the establishment agreement of the IILMC. Before proceeding with the investment, I requested for and obtained the written approval of His Excellency, Mr President,via a letter dated 8 December, 2010. His Excellency, Mr President would recall that he approved this request on 22.12.10. See Annexure N.
ii. The investment in question is permitted by Section 24 of the CBN Act, in pursuance of which it was made as investment of Reserves By the Reserve Management Department of the CBN. If at any point, the CBN wishes to divest from the IILMC, one or more of the member central banks will purchase this investment.
iii. It is worthy of note that in the letter seeking Mr President’s approval for the investment, it was stated explicitly that all the member central banks were treating their investment as part of their external reserves.
iv. It was also alleged that, till the date of the issuance of the Briefing Note (7th June, 2013), the CBN had not received its share certificate for the apex Bank’s investment in the IILMC. However, the said share certificate, dated 6th April, 2013, has indeed been received and is hereby annexed as Annexure O.

26. Non-adoption of IFRS Standards

Briefing Note Allegation 26: that the CBN did not comply with the IFRS accounting standards in preparing its 2012 financial statements.

Response:
i. It has been and remains a cardinal policy of the CBN to comply with statutory requirements and policy guidelines of regulators. In recognition of the peculiar nature of the CBN as a central bank and its peculiar responsibilities, its migration to the IFRS would require extended time to comply with the Act.
ii. In view of this reality, I wrote the FRCN via a letter dated 14thFebruary 2013, requesting for a temporary exemption to allow the CBN prepare the 2012 financial statements based on the existing financial reporting framework.
iii. The FRCN waived the requirement for the CBN to comply with the IFRS standards in preparing its 2012 financial statements by its letter of exemption dated 26 February 2013. See Annexure Pfor the FRCN’s letter.
iv. In January 2010, the published Report of the Committee on the Roadmap for the adoption of IFRS in Nigeria (the Roadmap), allowed Public Interest Entities, in the nature of CBN,to delay the adoption of the IFRS financial statements until 31 December 2013. See Annexure Q for the Roadmap.It is probably for the same reason the FRCN itself did not prepare its audited financial statements in accordance with IFRS for the year ended 2012.
v. It is worth noting that very few Central Banks in the world are able to comply with IFRS due to a number of factors peculiar to the nature of central banking, especially in the following areas:
a. Accounting for Change in the value of Gold reserves.
b. Management of government foreign exchange reserves and exchange rate fluctuations.
c. Disclosure challenges around monetary policy interventions and its activities as lender of last resort to financial institutions, and guarantor to government borrowing.
d. Valuation of assets held in foreign currencies.
e. Challenges around weekly Treasury Bill sales.
f. Management of years of deficit after surplus has been transferred to the government in the year of surplus.
g. Funding government deficit financing as enshrined in section 38 of the CBN Act 2007.

27. Non-Compliance with ITF Act

Briefing Note Allegation 27: that the CBN failed to comply with the ITF Act by not paying the mandatory one per centum of the amount of its annual payroll to the ITF.

Response:
i. The CBN, at the time, contested in court its obligation to pay one per centum of its payroll to the ITF on the ground that the CBN is not engaged in commerce or industry, which under the ITF Act is the basis for an employer to make payments under the ITF Act.
ii. However, upon further considerations, the matter was amicably settled by the CBN and ITF. The CBN has duly complied with the ITF Act and has paid all levies up to the 2012 financial year. See Annexure R, which bears this out.

28. AUDITING

Briefing Note Allegation 28: that the joint auditors of the CBN’s financial statement did not certify that the accounts give a true and fair view of the financial position of the CBN as at 31 December 2012.

Response:
i. Without any iota of evidential proof, and in a most sweeping statement,the FRCN Briefing Note alleged that the joint auditors’ opinion was a technical qualification; that the accounts should not be relied upon for decision-making.
ii. To set the records straight, auditors do not certify accounts but only express opinions on the financial statements.
iii. The joint auditors stated that the CBN’s 2012 financial statements were properly prepared and accorded with accounting policies and the provisions of the CBN Act 2007 and other applicable regulations.
iv. The opinion, as expressed by our auditors, is consistent with what obtains in respect of central banks in a number of other jurisdictions. We enclose by way of example, a sample of opinions relating to the central banks of the United States of America, South Africa and Ghana. See Annexure S. The allegation made by the FRCN in relation to this aspect of the auditors’ report is troubling when viewed in this light.

29. Non-consolidation of accounts with Subsidiaries

Briefing Note Allegation 29: that the CBN did not consolidate its account with those of its subsidiaries.

Response:
i. The CBN does not have subsidiaries and the assumption that AMCON is a subsidiary of the CBN is wrong. The shares in AMCON are held by the Federal Government as borne out by Section 2 of the AMCON Act. Furthermore, the accounting reporting period of the CBN is statutoryand does not coincide with that of AMCON.

30. Abridgement of Financial Statements

Briefing Note Allegation 30:that the financial statement was highly abridged, with poor disclosures of transactions and events of a financial nature.

Response:
ii. The financial statement cannot by any stretch of the imagination be described as “highly abridged”. Rather, all transactions in the financial statement were substantiated and were prepared in line with the CBN’s framework with all relevant notes, schedules and disclosures copiously made for clarity.

31. Non- Challance and AMCON’s Operations

Briefing Note Allegation 31: that AMCON made a loss (after taxation) of N 2,439,701,422,000 (over N 2.4 Trillion) and also had a negative total equity ofN2,345,620,364,000 (over N 2.3 Trillion) at the end of 2011. The FRCN alleges that I should have brought it to the attention of His Excellency, Mr President, that a large portion of the AMCON bonds would be due for redemption by 31 December 2013 and that the inability of the Federal Government to fulfil the guarantee may affect the credit rating of Nigeria negatively. In other words, the CBN breached its statutory objects under Section 2(e) of the CBN Act by not drawing His Excellency’s attention to the matter.

Response:
i. A major achievement of the Central Bank was that the AMCON bonds in question that matured at the end of 2013 were successfully redeemed without any budgetary appropriation or call on the Federal Government to guarantee the repayment as referenced above.
ii. It must be emphasized that AMCON bonds are not instruments issued by the CBN. On that score, it would be most inappropriate and against every known principle of standard accounting convention for the CBN to incorporate full disclosures on the maturity profile of AMCON’s bonds in its audited financial statements (balance sheet and notes).
iii. Rather, in accordance with international best practice, the CBN is only required to disclose in its accounts, the portion of the bonds held by it (the CBN). To this extent, the CBN made appropriate disclosures in the financial statements on the bonds it held as at 31 December 2012. See Annexure T – which is note 6 to the CBN’s 2012 financial statements showing the amount CBN has invested in AMCON bonds.

32. Non-approval of 2012 financial statement by CBN Board

Briefing Note Allegation 32:that the date of the Board’s approval of the financial statements was not indicated or disclosed and accordingly, the response provided to the President’s request for clarifications indicated that the management letter on the financial statements was yet to be discussed by the Board Audit and Risk Management Committee.

Response:
i. The financial statements were presented to the board and approved on 26 February 2013. The date of approval was stated clearly on the balance sheet page behind the signature of each of the directors. (See Annexure Ufor a board approval dated 26 February 2013 approving financial statements).Issues of a material nature requiring adjustments had been fully incorporated into the Financial Statement prior to presentation to the Board.
ii. The items in the Management Letter were suggestions for improvement made by external auditors and these were subsequently considered by the Board Audit and Risk Management Committee and are being implemented by Management on an on-going basis.

33. Compliance with the PPA

Briefing Note Allegation 33:non-compliance with the provisions of the Public Procurement Act (PPA).

Response:
i. The only issue that has been raised to the knowledge of the CBN, is that the CBN,over a period in the past,did not obtain ‘Certificate of No Objection’ from the BPP before awarding contracts.
ii. On 11 August 2008 (before my tenure), the CBN wrote to His Excellency, President Yar’adua, requesting for certain exemptions in CBN’s procurement process.See Annexure V.On 20 August 2008, the President gave his approval to the CBN’s application. See Annexure W.
iii. In line with this approval, the CBN continued to approve its contracts in full compliance with the Public Procurement Guidelines, with the only exception that it did not apply for a ‘Certificate of No Objection’ based on the Presidential waiver.
iv. It should be noted that the CBN’s own procurement process is more or less identical to the procurement process under the Public Procurement Act(PPA). Indeed, the BPP has had occasion to write in the past commending the CBN’s commitment to transparency and making recommendations for further improving the process. See Annexure X.
v. In the course of the CBN interaction with the BPP on this subject, we provided an explanation by way by a letter of 11 August 2013, informing the BPP of the Presidential waiver. After an exchange of correspondences between the CBN and the BPP on this issue, the BPP disagreed that the Presidential waiver constituted an exemption from the requirement to obtain a Certificate of No Objection and insisted that the CBN should start doing so.
vi. The CBN, out of an abundance of caution, immediately began to obtain Certificates of No Objection in respect of subsequent procurements within the stipulated threshold. In this regard, the CBN did obtain Certificates of No Objection dated 17 December 2013, 31 December 2013 and 14 February 2014. See Annexure Y [A-D] for these.It is important to note that the contracts for which these Certificate of No Objections were issued were approved based on the same process that apply to all the other contracts approved by the Bank. This, in itself, is testimony that the Bank has always complied with the provisions of the Act.
vii. It is also important to note that in October 2013, the BPP-appointed consultant (Messrs SadaIdris& Co) also gave the CBN a good bill of health after reviewing the bank’s procurement processesfor 2010and2011.See Annexure Z. In its final report, the consultant in fact mentioned that the CBN satisfactorily complied with the provisions of the PPA.
viii. Furthermore, the CBN has facilitated compliance with the provisions of the PPA by making it a requirement for entities seeking to access the CBN Intervention Projects Fund, to comply with the PPA and to obtain a Certificate of No Objection to Contract Award, where required. See Annexure AA for the BPP Letter of No Objection of 12 October 2010in relation to procurements by the Nigeria Police Force.

34. Unlawful Expenditure on CBN Intervention Projects

Briefing Note Allegation 34: that CBN Interventions in areas like Education,Community, etc. are unlawful.

Response:
i. A principal focus of the CBN Corporate Social Responsibility (CSR) policy in the last decade (even before my tenure) has been the Educational sector in Nigeria. The CBN Act lists its objects, functions and prohibited activities, and the Board is empowered to approve the budget and formulate policies of the CBN. The Intervention Projects mentioned are CSR interventions that fully comply with the CBN Act and were duly approved by the Board.
ii. It is worth noting that the CSR policy of the CBN is consistent with the activities of many other central banks of developing countries including, Bank Negara Malaysia, the Bank of Namibia, the Bank of Botswana and the Bank of Indonesia.
iii. The Federal Governmentof Nigeria has been aware, supported and encouraged the CBN intervention projects, in recognition of their positive contribution to development.
iv. During the recent strike by the Academic Staff Union of Universities(ASUU), the CBN intervention projects in universities were an important fulcrum in the settlement negotiations between the FG and ASUU as borne out in the Memorandum of Understanding between the FG and ASUU, where the Intervention Projects were recognised as part of the contributions of the FG to Education in tertiary institutions.
v. Furthermore, the FG standing committee on the Implementation of Needs Assessment of Nigerian Public Universities requested that the CBN channel a portion of its annual budget to the identified projects. See Annexure BB- TheInterim Report of the Technical Sub-committee of the Committee on the Implementation on Needs Assessment of Nigerian Public Universities.
vi. A major aspect of the CBN intervention projects is the Centre for Excellence, which are not merely physical structures. The CBN entered into Memoranda of Understanding with partner Universities to develop a holistic and multi-faceted scheme which includes the establishment of Centres for Excellence under which the CBN would, in the principal areas of Economics andFinance, fund the endowment of Professorial Chairs, create access for Nigerian students to participate in virtual and remote learning with foreign tertiary institutions like Harvard, Princeton, Oxford Universities, and special programs for students of Business and Economics. In this regard, the CBN is in the process of establishing Centres for Excellence across the geo-political zones of the country including:
Ahmadu Bello University, Zaria
· University of Nigeria, Enugu
· University of Ibadan, Ibadan
· Nigeria Defense Academy, Kaduna
· University of Lagos, Lagos
· University of Maiduguri, Borno
· University of Port Harcourt, Rivers
· University of Jos, Plateau
· Bayero University, Kano
vii. Consistent with our policy of development, upon the instruction of His Excellency, the President, the CBN intervened by paying N19.7 Billion to the Ministry of Police Affairs for the purchase of armoured helicopters and other security equipment.
viii. Also, upon the application of the Secretary to the Government of the Federation, the CBN paid N2.1 Billion for the automation and renovation of the Federal Executive Council Chamber. See Annexure CC.
ix. The CBN also initiated, with His Excellency, the President’s approval, the construction of the International Conference Centre for Nigeria. See Annexure DD.
x. His Excellency, the President, also requested that the CBN pay N3.2 Billion for the construction of a new counter terrorism centre for the office of the National Security Adviser.See Annexure EE.
xi. The FRCN itself is a beneficiary of the CBN’s intervention policy as the CBN paid the sum of N220 Million to the FRCN and also organised the banking sector, through the Banker’s Committee, to payN280 Million, totalling a sum of N500 Million, for the construction of the IFRS Academy. See Annexure FF.
xii. All of these requests were duly submitted to the CBN Board of Directors and were duly approved.
xiii. It is also important to emphasise that the grants under the Intervention Program were duly budgeted for, and made on a limited and selected basis.
xiv. Intervention in National Security: At the height of security uncertainties in Nigeria, the Ministry of Police Affairs petitioned His Excellency, the President, for access to the CBN Intervention Fund. His Excellency approved that this be done in his letter of 6 October 2010 referenced MPA/PSD/S/0243. See Annexure GG. The CBN Board of Directors then reviewed and approved this request. See Annexure HHfor the issuance of a grant by the CBN from the Intervention Fund to the Nigerian Police Force, for the procurement of:
o Armoured Helicopters,
o Armoured Patrol Vans,
o Anti-Riot Equipment;
o Hand held Communication Equipment.

35. Akingbola Petition &the N40 Billion Loan Waiver
Allegation 35: attached to the my letter of suspension was a petition written by the former Managing Director of the defunct Intercontinental Bank Plc (ICB now Access Bank Plc)- Erastus Akingbola (MrAkingbola), on an alleged waiver of a N40 Billion loan to a Nigerian bank.

Response:
Before responding to the allegation, it should be stated that the said MrAkingbola is a man found by a final judgment of the Courts in England to have been liable for financial improprieties in the management of the affairs of ICB.
i. In his self-serving petition, MrAkingbola alleged that the CBN, on my watch, wrote-off a loan in favour of Dr. BukolaSaraki. This is untrue.
ii. The CBN was at no time involved in the decision of ICB (or any other bank for that matter) to write-off its loans. The CBN never gave prior approval to the Management and Board of ICB to write-off any particular loan. It is important to state up-front that all the non executive directors on the Board of ICB were appointed by its shareholders while Akingbola was CEO and they were the majority on the Board that approved the write-offs.
iii. From the submissions of ICB to the CBN, the said loan write-off, involved over 1000 customers accounts, totalling N49.07 billion – including accounts held by companies related to Dr. BukolaSaraki.
iv. It is well known that decisions on loan write-offs in the process of recovering non-performing loans are taken by the management and board of banks in line with their internal credit policies. The outstanding amounts are then written off the books of banks after receiving approval of the CBN. ICB therefore only approached the CBN, after it has completed all its negotiations and agreements with its customers, to seek CBN ‘ No Objection’ approval to write-off the loans. Indeed, after a careful review of the submission by ICB, the CBN initially raised objections to the justifications provided for the write-off of the debts on the accounts related to Dr. BukolaSaraki. See Annexure II.
v. In response to these objections, the Management of ICB wrote explaining the rationale for the Board decision. (This is also contained in Annexure II). It is important to note that decisions on loan write-offs involve significant exercise of judgement by those involved. Usually a number of factors come into play including whether or not the loan is secured, the value of collateral and if the bank is in a legal position to realise same, the general liquidity in the secondary market and the liquidity position of the bank itself which determines if it is negotiating from a position of strength or weakness. Ultimately, while we may debate these issues, the judgement has to be exercised by those actually managing the bank in the best interest of shareholders and the responsibility lies with them.
vi. In the case of ICB it is well known that the bank was in a grave situation as a result of years of mismanagement by Akingbola. The loans in question were largely loans secured by shares in the capital market and therefore were vulnerable to what is called Market risk. The collapse of the Nigerian capital market following the Global Financial Crisis in 2008 meant that the collateral for these loans had been totally wiped out. The losses suffered by the bank were therefore a result of very bad credit decisions taken by Mr. Akingbolahimself which led to the bank taking on huge amounts of risk that crystallised. In this situation all that was left for Management was to minimise its losses and recover as much as it could before the situation got worse.
vii. With specific reference to the ICB loans to companies related to Dr Saraki, the bank’s Management explained that there were four loans totalling N9.489 billion, of which three were margin loans secured by shares and the fourth was secured by real estate. The value of the collateral underlying the Margin loans had been eroded and the bank was compelled to give waivers to make some recovery while still retaining the shares for sale at a future date. It should also be added that the real estate used to secure the non-margin loan were not perfected by the management under Mr. Akingbola – which is another indication of bad credit policies under Mr. Akingbola.
viii. There was no waiver granted to Dr Saraki on the fourth loan as it was paid in full (plus accumulated interest). Of the N9.4 billion, a total of N4.04 billion was repaid, representing a waiver of 57.42 %. Losses on Margin loans were common at this time in the entire industry. To illustrate this, when AMCON purchased margin loans from Intervened banks on December 30, 2010 it offered a premium of 60% above the average price of the shares in the preceding 60 days. In spiteof these generous terms AMCON paid an average of only 24.27% of the value of margin loans purchased. Without the premium AMCON would have purchased the loans at 15.17% of their book value. This actually would suggest that the Management of ICB did get a reasonably fair deal for the bank in these circumstances. The best construction we can place on Mr Akingbola’s petition is that he is complaining that the Management that succeeded him could have done a better job of cleaning up the mess he created and left behind.
ix. As for Akingbola’s allegation of fraud, conspiracy, forgery and stealing against Dr. Saraki in connection with Joy Petroleum Ltd, the Central Bank was in the process of collaborating with law enforcement agents involved in the investigations when we received a copy of a letter written by the Honourable Attorney-General and Minister of Justice declaring that these allegations were unfounded and there was no basis in law for any criminal investigation in respect thereof. See Annexure HH. The Central Bank therefore cannot be held in any manner responsible for this decision as this was a position taken by the nation’s chief law officer.
36. Conclusion
i. It is now clear that each of the allegations made by the FRCN in the Briefing Note could easily have been resolved upon a simple request to the CBN for clarification or a little more careful review. There is no doubt that if the CBN had received the Briefing Note, which was prepared in June 2013, all the misconceptions, misrepresentations and erroneous inferences contained therein would have been cleared, and the misleading of His Excellency would have been avoided.
ii. It is now my sincere hope that, having painstakingly provided detailed explanations, backed by verifiable documents, His Excellency, Mr President will find the response satisfactory, and in line with his adherence to fairness and justice, revisit and redress the issue of my suspension.
iii. Furthermore, it is my wish that His Excellency, Mr President, will apply the same rationale and rigour to other agencies of the Federal Government that have had serious allegations and queries levied against them, and presume upon them to provide responses and explanations with the same level of clarity and transparency.
iv. In closing, I would like to place on record the dogged professionalism and patriotism of the staff of the CBN. They have, over the years, served this country creditably, loyally and diligently.
I hereby restate my enduring passion for, and commitment to, our great country Nigeria.
Signed:
Sanusi Lamido Sanusi, CON
Governor, Central Bank of Nigeria

Letter To The Grandkids: 12 Essential Investing Guidelines

By Charles D. Ellis

One of the great joys of my life is seeing my four young grandchildren growing up: learning to crawl and then walk, learning to talk and read stories, learning to ride bikes and play computer games—learning in all directions how to do all sorts of things.


Of course, they want to do all these things well: It’s more fun and wins praise. It is way too early for my grandchildren, all under 10, to learn what they’ll need to know—and will want to know—about how to be successful at investing. But that time is surely coming, and being successful in investing will be very important.

After 50 fascinating years of working closely with nearly 100 investing organizations, knowing many of the world’s most effective and successful investment managers, teaching the advanced investment courses at both Yale and Harvard, writing over a dozen books and serving on 14 different investment committees, I’ve received a remarkable and treasured education in investing: theory and concepts, professional “best practices” and the realities of investing’s history.

Having enjoyed this remarkable learning opportunity, I’d certainly like to share my understanding of investing with my adorable grandchildren. But, by the time they’ll be really interested in learning about investing—in, say, 20 years—I may no longer be around. So what can I do?



I decided to write an investment letter to my grandchildren. I knew it should be brief so reading it would not be a chore. While “timeless” may sound a bit highfalutin, my message certainly should not be dated or too tied to one specific time or era. It should be appropriate for my grandchildren to use at any time and in any economy or any stock and bond market.

Since my grandchildren will probably open my letter when they are in their twenties—when they will have another 50 or 60 or even 70 years to live and invest—the letter should focus on truly long-term investing. Finally, since the chances are that they will not make their careers as professional investors, my letter should assume that my grandchildren will be consumers, not producers, of investment services.


Since most people don’t like getting advice unless they ask for it, each grandchild’s letter is in an envelope with his or her name on it and this sentence: “Please open only if and when you have decided you’d like to get some ideas about your investing from your loving grandfather.” Inside each envelope is my letter.

The Letter to My Grandchildren

Dear Jade (or Morgan or Ray or Charles),

You decided to open this letter hoping to get some ideas about investing that you’ll find useful and helpful. Naturally, in writing up these ideas for you, that’s my hope too. So in writing this letter, my rule has been KISS – Keep It Short ’n’ Simple.

You probably know that investing can be complicated, so this could have been a very long letter. (If you ever want a longer explanation of how to succeed in investing, you can always read my Elements of Investing: Easy Lessons for Every Investor (updated edition, John Wiley and Sons, 2013) or Winning the Loser’s Game (6th edition, McGraw-Hill, 2013, which has sold more than 500,000 copies.)

Two suggestions: If, after reading the letter, you decide you’re not yet all that interested in thinking seriously about saving and investing, put the letter back in the envelope and reopen it in about five years. If you’re still not very interested, retain the valuable services of a professional investment adviser to guide you as you make your own decisions.

If you decide you are seriously interested in learning about investing, keep a diary of your investment decisions: what you expect of each investment when you make it and, later on, how the results compare to your original expectations.

Like a videotape of tennis or skiing, this objective feedback will help you learn—both more and faster—how to do your best in investing. (As in driving, the secret to success is simply not making big mistakes.)

12 Investment Guidelines
Here are 12 investment guidelines to consider. Naturally, I hope you’ll find each of them useful.


1. Since you’ll be investing for many years—you’ll continue investing for at least 50 years—invest always for the very long term. Over the long term, the highest average returns are achieved with stocks. So, except for a modest “in case of emergencies” savings fund, concentrate your investing in stocks. (Before investing in bonds, give serious consideration to #11 below.)

2. Since nobody can know which companies and stocks will do “better,” always diversify your investments widely. An important reality explains why: “Better” in investing really means better than expected by the full-time professional investors who have superb information and now dominate the stock market and set all the prices. (As I write this in 2013, professional investors do more than 95% of all NYSE trading, up extraordinarily from less than 10% 50 years ago.)

As my friend Burt Malkiel—author of bestselling A Random Walk Down Wall Street (10th edition, W.W. Norton & Company, 2012) and co-author of Elements of Investing, a two-hour read that covers all the basics—so wisely says, “Diversification is the only free lunch in investing.”

3. When observing the short-term behavior of the stock market, ignore the day-to-day and the week-to-week price gyrations and news reports. Concentrate instead on longer-term averages or norms. Just as when buying a home, you would ignore thunderstorms or a heatwave—the daily weather—but would think carefully about the area’s overall climate, always take a long-term view.

Remember that when stock prices go down that’s actually good news for long-term investors, because you can buy more shares with the same dollars. Also remember that Mr. Market—a colorful, tricky rascal—is always trying to capture your attention and get you excited or upset so he can trick you into buying or selling by moving stock prices around. Don’t let him ever interfere with your steady focus on the discipline and serious work of building long-term investment value.

4. Minimize trading to minimize costs and taxes. Never make an investment you don’t expect to stay with for at least 10 years, and hope to stay with for 25 years. If you invest this way, you’ll not only save on taxes and trading costs, you’ll teach yourself to make better investment decisions before you act. That’s why Warren Buffett suggests we all limit our lifetime investment decisions to 10, so we’ll oblige ourselves to make more careful, thoughtful, long-term choices whenever we do take action.


5. Consider low-cost indexing very carefully. By reliably and consistently delivering the market rate of return with broad diversification and very low turnover (and so incurring low costs and taxes), index funds outperform a substantial objectives (i.e., growth, value, small cap, international, etc.) Those who know the most about investing agree that index funds are best for most investors. (Always check the fees to be sure you invest in low-cost funds.)

6. Beware of fees. They may look low, but they are actually very high when looked at realistically. Yes, most investors innocently describe mutual fund fees with one four-letter word and one number, but both word and number are wrong! Conventionally, we say mutual fund fees are “only” (the four-letter word) 1% (the number). But 1% of what? Your assets! Since you already have your assets, you are paying for something else: a return on your assets.

So, calculated as a percent of returns, that 1% of assets is closer to 15% of returns (if the consensus expectation of 7% returns holds). That 15% is a lot more than 1%—and nobody would say “only” 15%. But even 15% would be misleading.

As we all learned in Economics 101, every price should be compared to the price of every alternative good or service to reveal the incremental price of each alternative compared to its incremental value. (That’s what smart shoppers do at the grocery store and what savvy diners do when studying a menu or a wine list.)

So, the incremental fees for an actively managed mutual fund relative to its incremental returns should always be compared to the fees for a comparable index fund relative to its returns. When you do this, you’ll quickly see that that the incremental fees for active management are really, really high—on average, more than 100% of incremental returns!

7. While the past does not guarantee the future, understanding investment history is certainly the best way to understand how best to invest. So here are a few of the lessons of history:


Index funds achieve higher long-term returns than most actively managed funds, particularly after fees and taxes
Index fund fees are less than 1/10th as much as the fees of actively managed funds
Index funds incur much lower taxes
While index funds will never have “beat the market” results, they avoid the bane of active management: underperformance
Unlike active managers, index funds reliably and consistently achieve their investment objective—every day, every month, every year, and every decade
So please consider indexing carefully for all or most of your investments.

8. Active investment management is always “interesting,” and in the short run, can be exciting—or painful. But be careful, because so many brilliant, imaginative, hard-working, extraordinarily well-informed, full-time professionals have flooded into investing institutions all over the world and are now competing with all the others all the time.

So it cannot be surprising that their collective best judgments—while necessarily imperfect—have become so good that by the millennium, two major changes were evident to careful observers. It had become difficult for any active manager to beat the market over the longer term and, equally daunting, it had become virtually impossible to fi gure out in advance which individual active managers would be the lucky ones that would beat the market.

9. Fortunately for you, finding managers who would beat the market—which used to be many investors’ goal when markets and investing were so different back in the 1960s and 1970s—is not nearly as important for your long-term investing success as knowing yourself.

What really matters most is figuring out—often best done with a professional investment adviser—the long-term investment program that is best suited to you: your financial resources, your spending objectives, your time-horizon and your ability to stay the course.

Remember always that for long-term investment success, you are more important by far than the stock market and more important than active managers. So take the time to “know thyself ” financially. Once you have done this well, your other decisions will be much easier to make and your decisions will be better matched to your true objectives.


10. Most investors who do not succeed have made at least one—and sometimes all—of three “classic” mistakes. Please be sure to avoid all three.

Trying to beat the market. Some folks do beat the market each year, but usually only because they
got lucky. (While most patrons at gambling casinos lose, there are “lucky winners” every day, which keeps the gamblers coming.) Most investors who try to beat the market fail and, if honest with themselves, wish they had never tried. Besides, you’ll have many much better things to do with your time than chasing after will-of-the-wisp “investment opportunities”
Borrowing on margin to really beat the market—and then getting caught short. Leverage works both ways. So be careful
Buying after stocks have gone way up, particularly buying the stocks that are up the most, or selling at the bottom after stocks have gone way down and converting a temporary loss into a permanent loss
11. Try always to see the whole picture when you make financial decisions. For example, your salary or earned income—with its predictable cash payments for your knowledge capital—will be similar to interest income from owning bonds when you lend your financial capital, or savings. What this means in a whole picture view of your financial situation can be surprisingly important.

If interest rates are 5%, the equivalent market value of your knowledge capital would be 20 times what you get paid in salary. So, if you earn $100,000, that part of your knowledge capital financial whole picture would be a lot like the income from owning $2,000,000 in bonds.

Recognizing this reality, you may decide that also holding substantial investments in bonds—often recommended for portfolio balance—does not make much sense when you are less than 50. (When you’re approaching retirement, you may want to replace all or part of your salary income gradually with income from bonds, particularly if market price fluctuations cause you serious distress.)

12. Saving is always the first step toward investing. Time is important too. In combination, time and saving—compounding—can be very powerful.

Sensible investing lets money make money for you. Here’s an example. The amazing Rule of 72 tells you for any interest rate how many years it will take to double your money. At 8%, it takes nine years; at 10%, it takes 7.2 years; and at 3%, it takes 24 years to double—and the same number of years to double again, and so on. So if you save $5 today and invest it at 6%, in 12 years, it will be $10; in 24 years, $20; and in 36 years, $40. So when you save $5, try to remember that it wants to be $40 that you can spend in the future (after, of course, adjusting for inflation).


Indexing Is a Lot Like Flying
My father in-law was an expert U.S. Navy pilot. He was an Annapolis all-American athlete, commander of the USS John F. Kennedy when it was the world’s most powerful warship, a two star admiral and the world record-holder for one of the most dangerous actions in naval air: landing a fighter—bomber—on a carrier…at sea…at night!

In all his flying career, Admiral Koch never had an accident. I fly a lot too: 10 overseas trips a year and dozens of domestic flights. My record is perfect too: no accidents in over 60 years of flying. So, we both have been safe flyers.

But my flying is a lot like indexing: very deliberate, reliable, safe, no excitement (dull, really), no important skills required of me, and (on a cost per mile basis) low cost. All I need to do is decide where and when I want to go, make a reservation, get to the airport on time, check in, go to the right gate, sit in the right seat, and buckle the seatbelt.

While the highly skilled and welltrained pilot and crew are doing all the work, I’ve got better things to do with my time—like writing this letter to you with the hope that you’ll fi nd these ideas about investing useful to you as you decide how you will design and manage your investment program for success over the very long term.

Your loving grandfather,
Charley


Any grandmother or grandfather reading my letter will understand exactly how I chose my 12 investment guidelines, and they’d be right. The guidelines are what I most wish I’d been given when I started out 50 years ago. if I’d only known—and, of course, used—these guidelines, I’d have avoided some costly mistakes.

Fortunately for me, my fortunate education in investing taught me enough great lessons soon enough that I was able to enjoy many years of investing success.


Not everyone will be so lucky, so they will need professional help—not on beating the market, but on defining and sensibly solving their own unique investment problem.

Excerpted with permission from October issue of American Association of Individual Investors Journal.
Charles D. Ellis, Ph.D., CFA, founded Greenwich Associates international strategy consulting firm in 1972. He now serves as an investing consultant to large institutional investors, government organizations and wealthy families. His numerous books include “Winning the Loser’s Game: Timeless Strategies for Successful Investing” (6th edition, McGraw-Hill, 2013).

Nollywood Actor Arrested For Raping Daughter’s Friend (PICTURED)

Nollywood actor, Ganiyu Oyeyemi, popularly known as Ogunjimi was last week arrested for allegedly raping his daughter’s friend in Osogbo, Osun State.

The actor was arrested and detained on Tuesday by the Osun State Police Command after a 22-year-old lady (names withheld) laid a rape complaint at the police station.

The case has, however, been transferred to the State Criminal Investigation Department in Osun for further investigation.

Reports say doctors have confirmed that the victim was violated by Ogunjimi. The actor was said to have been responsible for the upkeep of the lady and her mother who until recently lived with him in his Osogbo residence. The victim’s mother had left her with Ogunjimi in Osogbo and relocated to Lagos before the incident occurred.

A senior police officer at the Oke Bale Police Division where Ogunjimi was taken after his arrest told reporters that the Divisional Police Officer (DPO), transferred the case to the SCID due to the overwhelming pressure mounted on him to release the suspect.

Osun Police Public Relations Officer, Folashade Odoro who confirmed that the case had been reported to the police, also confirmed that the popular Yoruba actor was being detained at the SCID, Osogbo.

Top 8 awkward moments while having SEX

Ouch! Sex doesn’t have to be classified as rough to lead to injury. Just think: accidental biting, scratching, a jagged toenail that cuts the skin, a pulled muscle, leg cramps, etc.

1: Poor Timing 

Chances are, no matter how good your husband is in bed, there has been a time when you wished he could have lasted a little longer. “Trust me,”  “when this happens, he’s more embarrassed than you are.” Instead of berating him, or acting hurt, Dr. Carle says to ask for a rain check. “You may also remind him of how women sometimes don’t climax, despite the heat of the moment,” she says. Bottom line: Acknowledge the awkward moment, and move on. This is no time for shame or blame.

2: Someone Passes Gas 

Whoops! If it’s happened to you, take heart. According to experts, the average person passes gas about 15 to 25 times per day, and the friction of sexual intercourse can sometimes increase gas. Next time it occurs, don’t let it kill the mood, says Dr. Carle. “Instead, shrug your shoulders, apologize for any foul smell and change the subject,” she says.

3: He Suggests Something You’re Uncomfortable With 

Just because you love each other doesn’t mean you’ll always have the same ideas about what you want in bed. And when he suggests something that you’re uncomfortable with, it can be a real buzz kill. Instead of shutting him down, try for common ground, says Stephanie Buehler, PsyD, a California-based psychologist and sex therapist. “If possible, see if you can ‘negotiate’ the fantasy so that it includes elements that turn you on, too,” she suggests. But, Dr. Buehler adds, if his fantasy is going into areas that make you uncomfortable, “you may need to nibble his ear and say, ‘You know, hon, you have a great imagination. Could we use it to find something that turns me on, too?’ That way you’re praising him as well as encouraging him instead of shutting him down.”

4: Accidental Injury

Ouch! Sex doesn’t have to be classified as rough to lead to injury. Just think: accidental biting, scratching, a jagged toenail that cuts the skin, a pulled muscle, leg cramps, etc. First rule of accidental injury in bed: Get up and deal with it (whether that means taking an aspirin or getting a bandage). Second rule: Laugh it off. According to Dr. Carle, interrupted sex can tell you a lot about your man. “You’ll see how he deals with interrupted pleasure, and not getting his way,” she says.

5: One of You Isn’t in the Mood 

Someone wants sex, the other doesn’t. It can often be a recipe for hurt feelings in the bedroom, and plenty of uncomfortable silence. But it’s important to learn that “no” doesn’t mean “I don’t love you,” says Dr. Buehler. “I think it’s best that the couple has an understanding that it’s always OK to say no to sex, no matter what,” she says, adding that the bedroom should be a no-guilt zone. “On the other hand, a woman can check in with herself and ask if she’s totally out of commission or could rally if needed. If she’s out of commission, she should give her partner a ‘soft no,’ that is, saying no but suggesting that they have sex in a day or two or on the weekend when she thinks she’ll be well or more rested.”

6: Someone Utters…the Wrong Name

You’ve been married forever, so why did you just call your husband the name of your high school crush? It doesn’t mean your love for him has been compromised, says Dr. Carle. “The brain is an amazing organ,” she says, “especially during sex, when you’re less apt to think before speaking.” If it happens to you, his (or your) feelings are bound to be hurt, but remind him of how much you love him and chalk up the flub to a rogue fantasy.

7: Your Kids Walk In

It’s the moment every parent dreads: You thought your 5-year-old was sound asleep, but then she comes in asking for a drink of water and catches you in the act. “Sometimes children find sex confusing and think that couples are fighting or hurting each other,” says Dr. Buehler. If you find yourself in this precarious situation, it’s best to address your child’s concerns immediately. “You can say that Mommy and Daddy are sometimes very affectionate with each other, and that what she saw is normal for married people to do,” she adds. And invest in a lock for your bedroom door—pronto.

8: Bodily Functions Gone Wrong

Sex isn’t always tidy and neat. Incontinence, embarrassing noises and ill-timed bowel movements can interfere with romantic moments. For example, at one point or another, almost every woman has experienced the infamous trapped air sensation in her vagina, which can lead to noises that sound a lot like gas. “It’s so common,” says Debra Laino, a sex therapist in private practice in Wilmington, Delaware. If (and when) it happens to you, she has this advice: “I think that women need to just own up to air in their vagina, and giggle about it. In the grand scheme of things it’s really not that big of a deal.” Plus, a loving and accepting relationship, says Texas-based sex therapist and marriage and family therapist Debby Wade, can weather it all. “Sex isn’t Hollywood-perfect,” she says. “The scenes in movies and on TV don’t ever deal with the awkwardness—or the messiness—of sex. It’s beneficial to get comfortable with both and learn to be playful.”

10 Stupid Interview Questions And How To Answer Them

I asked Chase to lay out a list of stupid questions and to share his wisdom about how job candidates can best answer them. Here are 10 questions that interviewers have asked and the answers he recommends. Three of them are negative questions and the rest are questions he calls just plain stupid.

1. What don’t you like about your work?
Try saying, “I don’t love it when I’m hit with a lot of unexpected assignments when I’m already feeling deluged.” Then talk about how you’ve developed time-management and prioritization skills and how that’s helped you handle assignment overload. You’ve learned how to keep yourself from panicking and how to prevent multiple deadlines from distracting you. You’ve also learned that it’s important to get on top of new work as quickly as possible before it’s had a chance to stymie you.

2. What do you dread about work?
The long, boring weekly staff meeting that will take you away from getting work done. But you’ve learned to grin and bear it and also to accept that this is the price you pay to work for a great organization. When it’s your turn to speak, you’ve learned to describe in concise detail the project you’re working on. You’ve found that when you make your presentation compelling and quick, others in the meeting follow suit. You’ve also learned that if you perform well in the meeting, it can help your department become more visible. And even though other people can be long-winded, you’ve discovered that you can glean valuable information about what’s going on in the rest of the company.


3. Describe a tough period in your career.
Talk about a time you were hit with a brand new technology at the office shortly after mastering the old one. At first you balked but then you realized that there was no going back and you’d better get up to speed quickly. You’ve learned whom to talk to, what to read and what resources to tap.

4.  If you had the opportunity, what historical figure would you invite to dinner?
Name legendary figures from your industry. If it’s financial services or anything related to investing, you can say, you know he’s still alive but you’d love to have dinner with Warren Buffett and talk to him about value investing. You could also say you wish you could have dined with David Rockefeller or Walter Wriston, the former CEO of Citicorp who helped save New York City from financial collapse in the 1970s. If you work in tech, say Bill Gates or Steve Jobs. These may seem like obvious answers but do stick to your field to show that’s where your passion lies. Don’t pick a historical figure from left field even if you really would be interested in meeting that person. Stay focused on the job you want.

5. What was your first love?
Chase swears this was a question one of his C-level clients fielded in a recent interview. She worked in consumer packaged goods so she talked about how, when she was in her 20s, she had a junior job on a marketing campaign and she realized she was absolutely thrilled with the challenge of coming up with a marketing concept and trying to make the product more appealing. She framed her first love as falling in love with her profession.

6. Do you think size really matters?
Again, Chase insists an interviewer asked this question. The context was a project where three universities of different sizes were working together and the job was on the joint project. Chase says his client handled the question beautifully, first laughing and then saying she would need to know more about the dynamics of the three people representing the universities, whether they were already working together well and how they were communicating. The consulting firm McKinsey is famed for asking what are known as “case study” questions like, “how many tennis balls can fit in a plane?” The best way to answer is by talking about what you would need to know in order to find the answer.

7. Are you planning to have children?
Employers should know better than to ask a question like this because it skates close to a federal law prohibiting job discrimination against pregnant women. But they still ask. Correct answer: “Not at the moment.” If you already have kids, make it clear that you have child care, including backup arrangements. If you are pregnant but not showing, Chase recommends being honest in a pre-emptive way by saying you plan to work until the very last second, you are in excellent health, you will take the minimum amount of time off and that you have already started to set up several layers of child care. (I wish the American workplace were set up in a more humane way for new parents, with extended paid leave and subsidized on-site childcare, but I concede Chase’s wisdom.)


8. Are you going to get married?
Yes, employers ask this question too, and they seem only to ask women. Correct answer: “If the right guy comes along.”

9. Where do you see yourself in five years?
Like the negative questions about what you hate about your job, Chase says that honestly eanswering this question can be a trap. Do not say you want to do this for two or three years and then become a consultant or that you’d like the interviewer’s job. Instead, says Chase, say “this job combines all the skills I’ve learned to date and I want to grow in it. I can see myself doing this for the rest of my life.”

10. What’s the color of success?
This is another hard-to-believe-they-ask-this question, but Ellis swears it has come up repeatedly. Correct answers: Green, the color of money, because it would mean our business is highly profitable. Or if you’re interviewing at a nonprofit or marketing firm you could say, red, because we want to make an impact