BCDR Issued USD 4.1 Million Judgment in Favor of Bahrain Middle East Bank ("BMB") Against Former Shareholders

A First Step
But Still a Long Way to Go

8 April BMB announced (somewhat belatedly) that on 1 February the BCDR had issued a judgment in its favor in its case against former shareholder AlFawares Group apparently over a loan made to Al Sawari Holding Company guaranteed by companies associated with AlFawares.

BMB has instructed its lawyers to initiate steps to enforce the judgment.

Since it appears that the AlF has fallen on very hard times, it's probable that collection will be very difficult.

Even if successful, BMB still has a "long" way to go to remedy its more than USD 116.6 million negative equity. 

Bahrain Middle East Bank - 2020 Financials and 1Q2021 Financials Still in "Limbo"

24 March BMB announced that no date had been set by its Board of Directors to review and approve the bank’s financial statements for the period ending 30 June 2020, 30 September 2020, or 31 December 2020. 

As well it announced no date had been set for Board review and approval of its 31 March 2021 financials. These cannot be approved until 2020 financials are “set”.

Clearly, there is no “good” news to report. Which suggests that the news is bad.

Not a big surprise the bank is in dire straits.

But the continued delay on the financials probably indicates that things are heading further "south".

The Even More Curious Case of Bahrain Middle East Bank - Who Owns the Bank?

Another curiosity regarding BMB.

According to the information at the Bahrain Bourse, BMB has two major shareholders:

1. AN Investment WLL Bahrain (ANI) holding some 80.77%
2. Al Fawares Construction and Development Kuwait (ALF) holding some 14.48%

According to the online commercial register of Bahrain’s Ministry of Commerce, Industry and Tourism (www.sijilat.bh), BMB is owned 100% by a “group of shareholders” who are all Bahraini.

You can look this up at Sijilat using BMB’s CR 12266-1.

Even more curious, according to Sijilat, ANI (CR 86835-1) was struck from the Commercial Register with the notation “deleted by law” on 15 September 2019. That is, by AA’s reckoning over one year ago.  

So here is the conundrum. 

1. Assuming that the MOICT information is correct and that ALF has not acquired “Bahraini corporate citizenship” which Bahraini entity or Bahraini individuals own the shares previously owned by ALF?
2. Assuming that the Bahrain Bourse information is correct, how can AN Investments WLL be a shareholder in BMB, if it no longer has a valid commercial registry? If ANI is no longer the shareholder, then who or which Bahraini entity holds the 80.77% of BMB’s shares previously owned by it?
3. Given that over one year has passed since ANI’s forced de-registration, it would seem there would be sufficient time for the MOICT and Bahrain Bourse to agree and “conform” their data.
4. Beyond that, surely BMB itself has an obligation to advise the Central Bank of Bahrain and the Bahrain Bourse of changes in its shareholding.

Is this a failure of communication? 

Or something else?  For example, a change in ownership due to a legal proceeding?

BMB Wins Judgment in BCDR: Financial Impact, if any, Likely to be Negligible

A First Step May be Important Even if It is Small

11 October BMB announced that the Bahrain Chamber for Dispute Resolution (BCDR) had ruled in its favor in a case the Bank brought against 3 of its former executive officers. English version of press release here. 

The BCDR ordered the three unnamed defendants to pay BMB USD 13,198,309 plus BHD 100 for attorney’s fees.

As per the October press release, BMB initially brought the case in 2014 but suspended it while Bahraini authorities pursued a criminal case which resulted in a November 2018 judgment of prison terms of 3 years for the defendants.

From the original date of the case, we know this case related to the 2013 scandal previously discussed here.

Recall that BMB has another BCDR case relating to its 2018-2019 scandal discussed here (suit) and here (scandal). Interestingly, in this latter case the Bank indirectly confirmed the defendants’ names by confirming the accuracy of an AlAyyam press report.

As to this case (2013 scandal), we don’t have the names of the defendants However, in early discussion of the 2013 scandal, the Bank said that it had fired the then CEO, CFO, and other senior officers. 

From a July press release dated 20 July but published on the Bahrain Bourse 21 July we know that the Bank originally filed suit at the BCDR against seven individuals including some of its former officers. The fate of the remaining four is unknown.

How do we know this? Or think that we do?

Because the October press release cited above references a 20 July 2020 disclosure.

Note that BMB also issued a press release dated 20 July published that day regarding BCDR case related to the 2018-2019 scandal.

As noted by the Bank, none of the 2013 scandal defendants currently lives in Bahrain and that uncertainly relating to enforcement of this judgment by a foreign court means the Bank is unable to estimate the ultimate financial effect.

Three comments.

First, given the “hole” that BMB is in, 100% collection is not going to materially change the Bank’s dire position. Nor would 100% of the other case. Together both total roughly 10% of BMB’s negative equity. 

But the directors are to be commended for pursuing this action. Rather then let it languish as the earlier board appears to have because every dollar does count and fraud cases need to be pursued with vigour. 

One--well at least AA--might wonder if there were reasons why some directors would have preferred to let sleeping dogs lie. 

Second, the defendants have had ample time to arrange their financial affairs to limit the Bank’s ability to collect even if a foreign court enforces the BCDR judgment.

Third, also unless the defendants were guests of the Bahrain state during the criminal proceeding with “time served” counted against their three year sentences, it’s likely they did not serve any time.

BMB Launches Suit Against Related Parties to Recover US$ 6.6 Million

Last Monday Bahrain Middle East Bank (BMB) confirmed the accuracy of Al Ayam newspaper report that the bank had instituted legal proceedings against 6 Kuwaitis and 2 Egyptian Companies in the Bahrain Center for Dispute Resolution.

The confirmation came via a public disclosure on the Bahrain Bourse website.

The bank seeks to recover US$ 6.6 million for a “financing loan” plus 10% interest from 4 June 2016 to the date of payment plus its other costs.

The defendants are the bank’s former Chairman, Mr. Wilson S. Benjamin; prior Vice Chairman Abdullah Ali Khalifa Al-Sabah; Tariq Ibrahim Al-Faris; Majeed Mansour Al-Sarraf; Al-Sawari Holding Company, and Al-Fawares Holding Company all of Kuwait. And Egyptian companies Lotus Investment and Real Estate Development , And Lotus Marketing Centers.

From what I’ve been told in addition to the Mr. Benjamin and Sh. Abdullah A.K. Al-Sabah—both of whom represented Al-F on the board, the other defendants are also associated with AlFawares.

That fact and the amount suggests that this “case” may well have to do with the Installment Sales Receivable Loan. That loan was a long standing related party transaction by virtue of the guarantee given by AlF.

And perhaps as well by other “virtues”. 

You’ll recall that in earlier posts I questioned why the guarantees hadn’t been called on the ISRL as well as how the 2017 write off in the loan of a major shareholder of the bank passed through auditor sign off and CBB approval.

In cases with Kuwaiti individuals and entities, savvy litigants know the value of locking down assets as soon as possible.  

Bahrain Middle East Bank - Successful AGM, No EGM = Future Remains Bleak

At the Third AGM, a Quorum Can Be Rather Small

BMB “successfully” held its FY 2019 AGM on 9 April after two previous unsuccessful tries. Minutes here.

But just barely.

Only one shareholder holding one share was in attendance.

That’s 0.00000025% of outstanding shares according to the AGM Minutes.

As per Bahrain’s Commercial Companies Law, there is no required minimum quorum for a third meeting.

All AGM agenda items were approved.

The EGM – which is needed to address the critical issue of continuity of BMB – failed for lack of a quorum. 

See below for the main focus of the AGM:  a discussion of the implications of failure to hold an EGM on BMB's ability to legally continue as a "going concern".

As noted in an earlier post, because AN Investments was excluded from voting in the EGM, if their shares are excluded from the total number of BMB shares, only 4.81% of shares would constitute a quorum for the EGM.

As also noted in that post, that would require AlFawares (ALF) to be present to vote its shares because in the event that AN Investments' shares are excluded a minimum of 4.81% of total outstanding BMB shares would have to be present and all other shareholders own only 4.51% of BMB. 

ALF was not in attendance for the EGM.

It’s unclear what the reason is for their failure to participate.

Earlier the Board noted that certain members of senior management and the Vice Chairman were under investigation for an alleged fraud. None of these individuals were directly associated with ALF.

Also, ALF’s two directors on the Board resigned "just before" the CBB ordered that the Board resign.

I have interpreted the timing of these events as an early warning from the CBB to the ALF directors to exit before being forced to resign.

In which case ALF should have nothing to fear from attending the EGM unless it fears (a) other legal exposure of some sort, (b) being forced to participate with new equity, or (c) the "sting" of unpleasant comments from other shareholders.

Re the first point, it would seem that the CBB’s actions—if my assessment is correct—indicate that ALF’s hands are “clean”, though see the potentially troubling reference to the difficult situation with “majority shareholders” below.

What might be the "sticking point" is ALF's own obligation to the Bank for the Installment Sale Receivable (ISR) loan which BMB has provisioned in full.

Re the second point, I don’t think Bahraini law gives the CBB or another Bahraini authority the power to compel a shareholder to invest additional equity. Participation in rights issues is voluntary and rights entitlements may be waived and in some cases traded.

And if the good sheikhs at ALF are sensitive to criticism, they can always give a party with thicker skin their proxy. The proxy holder can turn away questions regarding new capital or any other matter, including the ISR, with a simple “I don’t know”.

Given ALF’s own financial “difficulties”, their absence seems strange as restoring value to BMB increases the assets they need to meet their own obligations.

Given that the CBB appears to have given ALF's directors advance warning so they could keep their "thoubs" clean, it seems downright ungrateful of ALF not to cooperate.

Beyond that, Kuwaiti investors often use OPM to fund their investments as a tried and true method of limiting their downside risk.

If the investment goes bad, they hand the "keys" to the investment to the lender with a smile.

One might therefore expect there could well be a lender holding the BMB shares as collateral. 

An institution one would hope would be motivated to see the value of those shares preserved, or, in this case, increased from zero.

In such a case it would seem that at a minimum that lender would demand that ALF give it a proxy,  assuming it does not already “own” the shares through realization of its collateral.

The main focus of the meeting was a discussion of the implications of the failure to hold the EGM this year, following a similar failure earlier.

Mr. Yusuf Taqi a member of the Board asked the “regulators to provide directive on this issue {continuity of the bank} given that it may not be possible to hold at EGM in the future”.

BMB’s counsel opined that failure to convene an EGM and take the legal steps to maintain continuity of the Bank could lead to the bank being wound up or placed under administration.

Mr. Isa al-Motawaj, Director of Wholesale Banking at the CBB, noted that the CBB understands that BMB is in an “abnormal situation’ vis-a-vis its majority shareholders. (Note the plural in the minutes).

Is ALF included in the phrase “majority shareholders”? 

And, if so, is their inclusion a reference to their own significant financial difficulties? 

Or is there something more here?

Or is it an inadvertent slip? A reference to the fact that AN Investments is owned by the three Turkish “amigos”?

Mr. al-Motawaj stated that the CBB had evaluated that directing the bank to liquidate or be put under administration “would not be in the best interest of the stakeholders” particularly as there are other financial institutions exposed to the same defaulted parties as BMB is trying to recover funds from.

He also went on to assure the Board that they were duly constituted and operating in line with legal requirements, noting the importance of the asset recovery efforts underway.

He also responded to a board question about the legality of the AGM, noting that the representative of the MOIC&T had vouched for compliance wiht Bahrain's Commercial Companies Law, even though only one share was in attendance.

The CBB has gone on the record that it is willing to give BMB some leeway given its unique situation.

That being said, even with a successful EGM, BMB’s future is bleak.  

Recovery is highly unlikely to be in full.  

Additional capital will be required.  

Hard to see investors rushing to commit equity.

As a wholesale bank, BMB is unlikely to benefit from rescues afforded retail banks in the Kingdom.

Finally, kudos to the one shareholder who apparently believes in exercising his or her corporate governance responsibilities.

All markets, not just those in the GCC, need more shareholders like this individual.

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.

The Curious Case of Bahrain Middle East Bank (BMB) Bahrain

Perhaps Somewhat Less Currently

Read the update here.  Massive losses at BMB, the bank is likely fatally wounded barring a miracle. 

An introductory note.  There is a financial group from Brunei that uses the acronym "BMB". This post is not about that group, but about the Bahrain Middle East Bank in Bahrain.

AA generally follows the bigger fish (admittedly a relative term) in the GCC.  But BMB caught my eye.

BMB is small bank not a financial force of any measure and has been “limping along” for years.

What’s interesting about it are two scandals, the last of which caused the Central Bank of Bahrain to come down with “both boots” on the Bank.

As well there appear to be some hints as the fate of the AlFawares Group of Kuwait which dropped from sight roughly two years ago.

2013 “Scandal”

In April 2013 BMB’s Board suddenly fired the bank’s CEO and CFO as well as some other officers.

For the first official word on the cause, let’s turn to note 5 from BMB’s 1Q13 interim financial statement.  Unfortunately, the copy online is a picture and so AA can’t cut and paste the text, but has laboriously copied it.

“Subsequent to the approval of the 31 December 2012 consolidated financial statements (the “consolidated financial statements”) by the Shareholders on 28 March 2013, the Board and new management team of the Bank have discovered certain transactions and balances which were not reported in the Bank’s consolidated financial statements. As the Board of Directors was not provided with complete information and documentation relevant to these transactions and balances; based on review of the underlying documentation for the transactions and balances and extensive evaluation, the Bank has concluded that assets and liabilities arising from these transactions, along with certain other assets and liabilities which were previously reported and accounted for as customer deposits under discretionary portfolio management program, should now be reported and accounted for as Bank’s assets and liabilities.  Furthermore, in line with the International Financial Reporting Standards, the Board and new management team have concluded that since key information was not available at the date of approval of the consolidated financial statements, the corresponding figures are not required to be restated.  As a result, the assets and liabilities of US$ 138,383 thousands and US$ 143,093 thousands respectively have been reported in the consolidated financial position of the Bank as at 31 March 2013."

Recognition of these assets and liabilities increased BMB’s balance sheet from USD 55.3 million to USD 190.5 million.

The major change on the liability side was in Deposits from Financial Institutions. As per note 10, some USD 124.078 million of that category was from “quasi-government interbank placements”.

The other increase USD 18.644 million in Borrowings was described as “a secured loan from financial institutions”.  That loan does not appear in the 2Q13 financials nor do some USD 25.7 million in Trading Securities.  AA presumes it was a “repo” like transaction.

In a statement dated 12 June 2013, BMB’s new CEO stated that based on the work of an “independent team of forensic experts” “it was discovered that during 2011, 2012, and Q1 2013 BMB was the subject of various unauthorized transactions, potentially involving fraudulent activities”.

So this was a multiyear activity, roughly coinciding with the tenure of the previous CEO.

BMB’s FY 2013 Annual Report provides additional details.

“2013 was a challenging year for BMB. In April 2013, the Board of Directors became aware that the Bank had potentially been the subject of a major fraud. The then Chief Executive Officer, Chief Financial Officer and a number of other senior staff at BMB were immediately suspended and the Board of Directors commissioned urgent internal and external investigations into the activities of the Bank and the then management team. These investigations uncovered a number of serious potentially criminal activities including the apparent misappropriation of significant funds. As a result a number of senior executives, including the then Chief Executive Officer and Chief Financial Officer, were dismissed. Official investigations relevant to these executives remain ongoing. As a result of prompt and decisive action substantially all misappropriated funds have been recovered by BMB. However, given the serious nature and magnitude of what took place, BMB has instigated criminal and civil legal proceedings against a number of parties. These matters are currently being investigated by the appropriate legal authorities in the Kingdom of Bahrain.  Throughout 2013 the Board and management carried out a full review of all external contractors, legal and professional advisers to the Bank. This has led to a number of changes and corrective measures and the application of a more rigorous approach to selecting and measuring the performance of third party contractors. BDO’s contract to act as Internal Auditor of BMB was terminated in May 2013. In September 2013, EY was appointed to replace KPMG as External Auditor of the Bank."

AA’s first thought when he read all this, particularly the bit about “quasi-governmental interbank placements”, was that a friendly government decided to help out BMB. Best guesses for that would be Kuwait (given the apparent shareholding by/related to Sh. Ali Khalifah Al Sabah) or Oman (given the then CEO’s prior roles with government institutions in Oman).

As a small bank with USD 30 million in equity, it would be very risky to place USD 140 million or so with the Bank.  However, by using a trust structure, all assets placed would be legally immune to any financial distress at BMB.

The Bank would enjoy the earnings from managing the discretionary account to increase its small income as well as develop a reputation in asset management as a potential new line of business.

So it appeared that the fraud was that certain members of senior management then appropriated these funds for their own use.

But there are some loose threads:

1. Once the assets were recovered why wasn’t the trust or discretionary account structure maintained/reinstated? If the documentation was deficient, then that could be corrected.
2. That suggests some sort of “problem” with the owner of the funds. What that is isn’t clear.
3. This would seem to pretty decisively counter AA’s initial thought that the provider of the funds was a Kuwaiti or Omani quasi-governmental body trying to help out either the major shareholder or the then CEO.
4. Also, as per point 3 in the “Key Audit Matters” section of the auditors’ report in BMB’s 2017 financials, it’s noted that in the category Due to Financial Institutions a “single bank in the region” is owed USD 127.4 million and “has been a depositor since September 2010.”
5. That certainly seems like a long time to keep one's funds with a bank. Why would that be?
6. Note that the descriptor does not include the phrase “quasi-governmental” as in the 1Q13 interim report.  Now it’s just a “single bank in the region.”  And the region is potentially very large, depending on the definition used.
7. You will no doubt note as AA did that this amount is some USD 3.3 million greater than the original amount recorded in 1Q2013. It seems strange that the regional financial institution would add such a small amount to the deposit.
8. Two possible explanations.  The deposit is not in USD but in another currency and the change is due to changes in the FX rate.  Or interest has been capitalized. Or both factors are present.  There's not enough information in the financials to determine the answer.

2018 - 2019 "Scandal"

A bit of history to set the stage.

Back in February 2014, AlFawares transferred 42.97% of its ownership stake in the bank to AN Investment W.L.L. a Bahraini company “controlled by the same shareholder as AlFawares Holding Company” as per page 22 of BMB’s 2013 FY AR.

As per records at the Bahraini MOICT (www.sijilat.bh) AN Investments CR 86835 was owned at least in 2016  by two sons of Sh. Ali AlKhalifah Al Sabah, former Minister of Finance and Oil Minister of the State of Kuwait. 

According to the MOICT website, on 26 December 2016, a request was filed to change the ownership of ANI to the names of three Turkish nationals: Huseyin Basaran (70%), Murat Solak (15%) and Ardases Saro Kavafyan (15%). This provides an indication that the sale of ANI to the Turkish three "amigos" probably took place in December 2016.

After a 26 March 2017 voluntary purchase of BMB shares and a subsequent rights offering later that year, ANI wound up owning some 81% of the bank.

Fast forward to 15 November 2018, BMB announced that its Board had met to approve September financials on 7 November but did not approve them due to the Central Bank of Bahrain putting forward “some observations that require resolution”.

In that same announcement, BMB noted that on 8 November 2018 the Central Bank of Bahrain issued a directive to the bank “restricting” the following:

1. Dealing with “specific Trade Finance related parties”.  From the Arabic we learn this means dealing with related parties to the bank in trade finance.
2. Interbank dealings with banks that are not licensed by the CBB.  The Arabic uses the term (مرخصة).  While this term is often used to mean “licensed”, AA suspects that BMB is not dealing with unlicensed banks in Bahrain, but this refers to banks elsewhere.  The CBB doesn’t license  banks in foreign jurisdictions, their own regulators, if any, do. Think of Citibank or NBAD.  However, it is likely that the CBB has set some guidelines as to which non-resident foreign banks Bahraini banks may deal with.  For example, it may forbid dealing with so-called “shell” banks, banks not licensed at all, or banks subject to international sanctions, etc.  So AA is reading (مرخصة) to mean banks outside Bahrain that the CBB does not allow Bahraini banks to deal with.
3. Making any new investments or credit.

11 minutes later that same day a second announcement from BMB was published by the Bahrain Bourse that advised that the two directors representing AlFawares one of whom was Chairman of the Board had resigned on  7 November.

On November 22, BMB published another announcement stating that the CBB had issued “additional formal directions” on 15 November as follows:

1. The Board must resign immediately
2. The CEO and CFO must step down from their positions as the CBB does not consider them “fit and proper”.
3. The Bank must raise capital before year end
4. The Bank must stop dealing with specified related parties for trade finance
5. Further, as a result of identified violations and irregularities, the CBB is unable to comment on the bank’s 30 September financials.

Now you may be wondering as initially AA did why BMB’s announcements seem to be tardy.  On November 8, the Bahrain Bourse suspended trading pending release of the September financials. So timeliness of announcements wasn’t as critical as it would have been if BMB were still trading.

BMB’s AGM was held on 30 December.  According to the published minutes, shareholders holding 80.81% of shares were present.  This means that AN Investments was there.  Mr. Taqi al Alawi from the MOICT acted as Chairman.  A new slate of directors was elected.  None of them seem to have any relationship to ANI.  

The representative of ANI complained that the CBB had not approved Mr. Solak to serve as a director and demanded that the CBB should give this approval and that he should be elected as a director.  Mr. al Alawi noted the comment and proceeded.

To date BMB has not published its 3Q18 financials. And there has been complete radio silence from the Bank both on its website and the Bahrain Bourse.

So what are we to make of this?

From where AA sits, it appears that the CBB thinks this episode is more egregious than 2013. Or it has a "two strikes" rule:

1. The entire board was forced to resign. This indicates that the CBB believes that either (a) the Board was complicit in whatever irregularities occurred or (b) manifestly derelict in carrying out its functions.
2. The two AlFawares directors luckily resigned before the CBB’s directive requiring resignation of the board, thus avoiding the ignominy of being forced to resign by the CBB and possible impact on their eligibility for other board positions in Bahrain and elsewhere.  
3. Or perhaps it was more than luck.  Back when Iraq invaded Kuwait, foreign correspondents pulled their funding to Kuwaiti-owned banks in Bahrain.  Bahrain did not have the financial resources to support these banks.  A full-fledged banking crisis was on the offing.  Sh. Ali Al Khalifah then Minister of Finance of the State of Kuwait (in exile) provided the funding directly.  AA was told by his mentor that Bahrain never forgot that act.
4. The fact that the new board appears to have been chosen by the CBB with no apparent input from ANI investments also suggests (at least to AA) that the CBB assesses that the problem is not one of individual board members but an “institutional” one at the ANI level.
5. For the CBB to declare an officer of a bank as “not fit and proper” is a pretty damning assessment.
6. For the CBB to "fire" a board of directors as well.
7. For the CBB to not accept a person as a suitable candidate for the board of directors is a similar judgment.

At this point you’re probably thinking, AA what about AlFawares?  What have these scandals to do with AlFawares?  Probably nothing.

But BMB is entwined with AlFawares.  As mentioned at the beginning of this post, roughly two or so years ago, AlFawares’ star began to dim. 

Part of the problem seems to be that the members of the AlSabah family branch associated with AlFawares wound up on the wrong side of a family dispute in Kuwait -- not the Amir's side.

AA suspects there were also financial problems.  

AA has no doubt that like any typical Kuwaiti punter, AlFawares built its empire on OPM piled upon other OPM.   AA recalls reading in al Qabas that Gulf Bank was pursuing legal action against the group for unpaid debts.

As to concrete examples of financial difficulty we don’t have to look beyond BMB’s 2017 annual report.  In note 7 we see that BMB has fully provided the USD 3.533 million installment sales receivable which is guaranteed by AlFawares and two associated companies of AlFawares.

Clearly, if the guarantees were worth anything the Bank would have called them.

Additionally, it’s hard for AA to imagine that the CBB would tolerate provisioning if the guarantees had value. That the Bank has not called on the guarantees suggests they have very little value. 

The amount here is small. It is not a loan for USD 300 million but just USD 3 million.  That suggests that the three entities are in dire straits indeed.

The sale of ANI to the three Turkish “amigos” is perhaps another sign of financial distress. Giving up one’s bank is a hard move.

Other indications that AlFawares is inactive or defunct are the disappearance of AlFawares Kuwait’s website.  On AlFawares Egypt’s website all the links are to pages under construction or dead-ends. You can’t really conduct business if the first thing a prospective client sees is that your website looks untended and untethered.

Does this mean that the good shaykhs from AlFawares are sleeping rough under an underpass on the First Ring Road somewhere?  

Not bloody likely.  Any Kuwaiti punter worth his salt has salted away money somewhere "safe" and "discreet" as Mubarak al-H is reported to have done.