Wegagen Capital's Debut-Year Loss Masks Strategic Foundations

Oct 12 , 2025. By BEZAWIT HULUAGER ( FORTUNE STAFF WRITER )

Wegagen Capital Investment Bank has emerged as the first private investment firm, closing its inaugural year with a net loss of 10.18 million Br. The figure, while sobering, was 4.22 million Br less than what executives had projected at the firm’s founding. The financial statement pulls back the curtain on the high costs and calculated risks of entering a nascent capital market.

Wegagen Capital Investment Bank (WCIB), the pioneering private investment firm to enter the nascent capital market, has posted a net loss in its first year of operations. However, beneath the surface of red ink lies a deliberate strategy, signalling a cautious but resolute bet on long-term market growth.

Early traction was evident with 15 proposals, six signed contracts, and 37 investment accounts opened. The firm’s investment in human capital (34 employees, all with CISI training) complements a documented governance structure that includes an internal audit manual, board oversight, and clear management roles.

However, WCIB closed its first year in business with a net loss of 10.18 million Br, but executives and market analysts argue the young firm is positioned on promising ground.

The firm's Board Chairperson, Aklilu Wubet (PhD), also president of Wegagen Bank, its primary shareholder, downplayed the loss, framing it as an “investment cost” rather than a setback. The reported loss was 4.22 million Br, lower than projected, and was further softened by a 4.21 million Br tax credit under IFRS adjustments. These figures demonstrated WCIB's accounting discipline and its deliberate positioning for future compliance with global standards, according to the firm’s Chief Risk & Compliance Officer, Debes Tukue.

He attributed the result to deferred startup costs and international alignment.

“These adjustments optimise our position while aligning with international benchmarks,” he told Fortune.

The income side of the ledger reveals the typical struggles of a financial startup. From March to June 2025, WCIB generated nearly eight million Birr in revenue from advisory and trading services. However, expenses during the same period exceeded 22 million Br, producing an operating shortfall of over 14 million Br. For the full year, service charges made up the bulk of income at 7.7 million Br, while brokerage commissions registered a meagre 600 Br. Most of the loss came from spending required to launch operations and comply with regulatory mandates.

Attributing his assertions to a Deloitte study, Aklilu told shareholders the investment firm is not expected to turn a profit for the next three years, but he promised to move into the black ahead of schedule.

“We're not merely establishing an investment bank," he told shareholders of Wegagen Bank who met at the Addis Abeba Hilton, on Menelik II Avenue, last week. "We're helping to shape a transparent, inclusive, and forward-looking financial market that will serve generations to come.”

However, Aklilu's optimism did not fully ease shareholder concerns. A group of Wegagen Bank shareholders voiced dissatisfaction and urged the Board to reconsider its approach.

“We can profit just by dealing in Wegagen Bank shares through the investment bank,” Aklilu said during the meeting, a comment that underlined anxiety about the risks and the pace of returns.

However, executives are undeterred. WCIB is staking its future on the expansion of the capital market, a market projected to grow from 537 billion Br to more than 959 billion Br by 2028. In parallel, the rapid rise of green finance is reshaping the financial sector, with more than half a billion Birr mobilised for climate-related investment in 2024 alone. These broad trends, executives urge, will create opportunities for the investment firm to thrive.

Some shareholders see the evolving regulatory environment as an opportunity.

According to Kiros Jirane, CEO of Africa Insurance and a WCIB shareholder, the investment firm is well placed to benefit from the Ethiopian Capital Market Authority (ECMA) rules, especially a deadline for share registration that is forcing companies to seek out advisory and listing services.

“We expect WCIB to seize the opportunity,” Kiros told Fortune.

After raising additional capital, preparing for initial public offerings (IPOs), and preparing for share listings, Kiros remains hopeful that WCIB will become profitable.

“We're planning to contribute to the paid-up capital raise based on proportion,” he said.

Not all observers are alarmed. Tewodros Endale, a consultant with two decades of experience in African markets and a principal at MATED Consulting & Training Plc, believes the balance sheet shows resilience.

“Early deficits are par for the course,” he said. “To break even, WCIB must double or triple its revenue.”

Liquid assets were 341 million Br, making up 88pc of total assets, which were close to 388 million Br. Fixed assets accounted for 26 million Br, about seven percent, and other holdings were 20 million Br, roughly five percent. Equity was substantial at 374.8 million Br, constituting 97pc of the asset base, while liabilities remained low under 13 million Br, comprising a mere three percent. This produced a liquidity ratio of 88pc, more than twice the ECMA’s minimum requirement of 40pc. WCIB’s capital adequacy ratio also neared 97pc, reinforcing its financial strength.

According to Debes, the high liquidity is a deliberate choice at the founding stage, with much of the cash in fixed-time deposit accounts at competitive rates to safeguard value and maintain flexibility.

“We’re focusing on operational readiness, employee training, system integration, and regulatory compliance before setting internal quantitative thresholds,” he told Fortune. "The firm is using its strong liquidity position to invest in the systems and people it will need as it prepares to offer more diversified services, such as underwriting and wealth management."

However, the expense ratio told a tougher story. At 281pc, the ratio revealed the heavy drag of outflows, especially in the early months. Yet, Tewodros estimated that with monthly outflows averaging 5.5 million Br, the firm has a cash runway of 61 months, ample time to adjust and capitalise on opportunities. WCIB submitted 15 advisory proposals by year’s end, securing six mandates, a conversion rate executives described as "promising."

The ECMA’s latest mandates for public company registration have also accelerated the dematerialisation of shares, fueling hopes that WCIB can break even this year, ahead of the initial second-year projection. To get there, according to Tewodros, management under Brutawit Dawit, should move quickly to convert mandates into revenue, get at least two initial public offerings to market, and rein in costs by pausing non-essential hiring and monitoring cash flow closely. He urged shifting 40pc to 50pc of liquidity into short-term Treasury Bills (T-bills) for better returns and reconciling different loss figures in financial disclosures.

Analysts observed that 88pc of the liquid assets were held in time deposits, but interest income was low at 279,000 Br. Service charges accounted for most of the income, while brokerage commissions remain negligible.

Technology remains a work in progress, as WCIB’s IT infrastructure currently relies on a co-located system and leased back-office services for brokerage operations. Debes outlined a roadmap for building a proprietary brokerage system and establishing a dedicated data centre, with feasibility studies and vendor selection already underway. According to him, the goal is to create infrastructure that scales with the market and meets evolving regulatory standards.

The National Bank of Ethiopia’s (NBE) directive regulating foreign exchange markets restricts foreign portfolio investment to ECMA-licensed markets, such as the Ethiopian Securities Exchange (ESX), keeping foreign capital at bay until eligibility and ownership rules are clarified. Even so, Tewodros described WCIB as financially steadfast, with enough liquidity and capital reserves to reach equilibrium within 12 to 15 months.

Nonetheless, the quality of earnings is a source of debate.

Satta Abraham, an independent analyst who was a chief of staff at Kazan Group, responsible for portfolio managment and strategic growth, argued that while WCIB's liquidity position is robust, much of it is idle. He cautioned that it could erode from inflation, estimating a potential annual loss of 45 million Br at current rates. He called for a “loss control plan” to keep losses in check for the next 12 to 24 months, or until the firm reaches break-even.

Satta observed a “visible commercial banking mindset” in WCIB’s approach and said its annual report reads more like a conventional bank's than an investment bank's. Analysts called for greater transparency in segment profitability, particularly on income from advisory and brokerage activities. Related-party transactions, apart from rent, received little disclosure. WCIB depended heavily on Wegagen Bank for technological equipment, a reliance that Satta and others believe requires more detailed reporting.

The analyst recommended WCIB to differentiate its brand and raise its public profile, not only through advertising but by empowering its analysts and deal leads to become public voices.

“Infuse the brand with intellectual capital and bold insight,” Satta said, pointing to high-quality content, whitepapers, infographics, and webinars as ways to build market credibility.

PUBLISHED ON Oct 12,2025 [ VOL 26 , NO 1328]