Bahrain Middle East Bank FY 2019 Review and Suggested Shareholder Questions for the AGM

Lots of Tunnel Little Evidence of Light

A quick review of BMB’s FY 2019 financials provide no real reason for optimism.  

Based on that review, I’ve included some suggested questions for shareholders attending the upcoming AGM.

FY 2019 Performance Review

As might be expected given the problems BMB is facing, its business activities were adversely affected. For the year net income was a loss of USD 3.6 million.

Other information of note.

1. Non performing bank obligation: BMB identified a USD 13.1 million non performing obligation from a “locally incorporated” financial institution. I did not see an explicit reference to this in the FY 2018 report. 
2. Non performing Assets Under Management: As per Note 28 some USD 32.897 million of Assets Under Management as of FYE 2019 (91.5% of total AUM) are placed with related parties. These assets are non-performing. I missed this in the FY 2018 report which shows it pays to read all the notes.
3. Focus on recovery means little to no focus on income generation: The Board has identified recovery of related party exposures as its primary mission. The Central Bank of Bahrain has also placed restrictions on the bank’s activities. A sensible step given its financial condition.

Questions for the AGM

Shareholders will rightly be focused on the progress and prospects for recovery of related party exposure.

Below are some suggested additional questions.

Recapitalization

1. The long term future of BMB depends on getting new capital. Otherwise the bank will be liquidated. 
2. Liquidations generally result in less recovery than ongoing concerns. 
3. Recapitalization is key to a long term future for BMB.
4. As per BMB’s Articles of Association-which mirror the Bahrain Commercial Companies Law-, the minimum acceptable quorum for an Extraordinary General Meeting requires attendance by shareholders holding 25% of the bank’s shares.
5. Since ANI owns just under 81% of the bank, it appears that an EGM cannot be held without their active participation. That seems unlikely given the risks such participation would expose them to.
6. How, if at all, can a recapitalization take place if an EGM can’t be held?

USD 32.897 Million in Non Performing Assets Under Management

1. Are the assets non-performing because of underlying economics of the investments?
2. Or was there fraud?
3. Are the related parties the same entities as with the credit exposure, i.e., the Turkish Three Amigos?
4. Does the bank have any legal liability to make its customers whole? Note this particular question is likely to be one that the bank may prefer not to answer.

USD 13.1 Million Non Performing Bank Obligation

1. Is the bank unable to pay BMB?
2. Or is the bank unwilling to pay BMB perhaps because this is entwined with related party transactions?
3. The bank appears to be located in Bahrain. Is the Central Bank helping BMB with collection, assuming this is not a case of general insolvency of that bank.

If AA were to attend, you can bet he’d have questions about the single regional financial institution to which BMB owes some USD 127.6 million.

As per the financials (Note 2 and Note 12), it seems clear that that bank is constrained from removing its deposits from BMB.

AA would want to know why this is the case? And of course the identity.  Another question that the bank and its regulator may prefer to avoid.  

Link to earlier post here.