Databank clients get 20% haircut on principal investments, say SEC’s mark-to-market directive ‘unfair

One client complained to Accra-based Joy News: “I was at Databank yesterday to withdraw my MFund investment. Now, they are telling me that, according to the Securities and Exchange Commission (SEC), they have re-evaluated the money I deposited, which is GHS10,000 and, so, the GHS10,000 plus the interest was about GHS10,600-something; now, per the re-evaluation, they are going to give me GHS8,600”.

“This is so unfair”, she said, adding: “I have told them that all I need is my money. I don’t need the interest, I need GHS10,000 flat”.

“They cannot convince me with any explanation that they are not going to give me my money. I brought GHS10,000, I need the GHS10,000. You cannot re-evaluate for the re-evaluation to take more than the interest on it. I don’t need it, I need my money”, she insisted.

“Databank, Adabraka branch, that is where I invest; that is what they are telling me. There were some customers there also frustrated. They are telling me that if I want to withdraw it now, that is the policy and there is no way they will give me the money”, she continued.

“This is so unfair and I’m going to push it”.

“Now, they are telling me they want to protect me as an investor. What kind of protection? When things are hard and I need my money to spend on urgent things, you are telling me that you are protecting me, so, you are taking part of my money? That’s about 20 per cent. I won’t accept it. I need my money and they cannot convince me. Please investigate this because that will never be fair to customers. I saw police cars parked there because I know they know what they are doing, that’s why they sent the police to come and protect them”.

A few weeks ago, SEC issued a directive to investment firms to implement a mark-to-market policy.

It said: “This public notice is to alert the investing and general public that the Securities and Exchange Commission (SEC) has directed all market operators to use the mark-to-market valuation method in the valuation of investment assets/securities and portfolios in the securities sector.

The directive was issued on Thursday, 20 October 2022, with reference number SEC/DIR/002/10/2022.

It aims to provide consistency in the valuation of assets and portfolios in the securities industry, ensure that the portfolios reflect market values, as well as protect investors, especially of collective investment schemes.

In a subsequent notice to its clients, Databank said: “To comply with the directive by the Securities and Exchange Commission (SEC) on October 20, 2022, to market operators (SEC/DIR/002/10/2022) and a notice to the general public (SEC/PN/005/11/2022), we would like to update you on the changes that we will be making to comply and the impact on our mutual fund clients”.

Databank explained the mark-to-market directive thus: “Mark-to-market is a valuation approach where the value of a security in a portfolio reflects its current market price, and not the purchase price or face value”.

“It, therefore, indicates how much you would receive if you sold the security on the market today. A portfolio that is marking-to-market could see its price go up and down (i.e., experience volatility) based on market conditions”, the investment bank noted.

“For example, a client bought 50 shares in a mutual fund at a share price of GHC 2 – translating into GHC 100. If the client decides to withdraw today, she would receive an amount based on the share price for the day, and not the initial price she paid. If the current share price is GHC 1.50, she would get GHC 75. If the price, on the other hand, had rather increased to GHC 3, she would have gotten GHC 150”.

Impact on your investments at Databank

Effective immediately, Databank will be taking the following steps in compliance with the directive:

Withdrawals: All withdrawals will be calculated and processed using the mark-to-market price.

Deposits: All new deposits will be invested at the current market price.