Economist: The Collapse of TIBC - A Mystery in the Gulf

In case you missed it, an interesting post over at The Economist with some details about the alleged mechanics of the collapse of TIBC.

One question occurs to me whenever I read accounts like these.  What were the AlGosaibis doing?  Were they having Board meetings that weren't recorded?  Didn't they think that as directors they should be attending board and executive committee meetings?  That the Chairman should be signing the annual accounts?

I also love the use of the term "Potemkin Bank" - which I believe I've read somewhere else.

Finally, if anyone can make available a copy of the Ernst and Young report, I'd be most grateful.  I still haven't been able to get one.

Public Service Announcement: Maan Al Sanea NOT Arrested

19 February Update:  I was advised that it is highly likely that Mr. AlSanea may be prohibited from traveling outside of the Kingdom of Saudi Arabia.  And that this may be considered a form of "arrest".

I've gotten a couple of hits from readers using the search term "Al Sanea + Arrest".  So it seems there are rumors floating around out there.

I have seen nothing in the press (Arabic or English) about any arrest.  I have checked with someone in the area who advises that as far as he knows Mr. Al Sanea appears to be moving about as he did in the past.

Where I think this is coming from are one or more Arabic language blogs which have recently  run commentaries on Mr. Al Sanea's career. 

This one here  has the headline "Arrest of Maan AlSanea for Money Laundering" in very large letters.  Then in the second line of the headline in much smaller type is the word "previously" (سبق).  It's easy to miss this if you're reading quickly.  Here's a second - again with a headline that might be misinterpreted.

When you read the entire second article you'll see this refers to unsubstantiated allegations that he was arrested in 2007.  The blog also notes that despite the news of his being jailed  then then he turned up at a Chamber of Commerce meeting a day or so after the report and threatened to sue the newspaper for printing defamatory remarks about him.  Again just to hit the nail on the head one more time - these are unsubstantiated allegations from 2007.

It would therefore seem there's nothing to the current rumor.

TIBC Former CEO A Movie Producer

This from The National Abu Dhabi. 

I'm thinking that the restructuring saga of AlGosaibi, Saad Group, Awal Bank and TIBC would make a great mini series.  Now that Jay Leno's time slot at 10:00PM is opening, I think 30 Rock should place a call to Sherezade Films. 

 

AlGosaibis File New Fraud Claim Against Maan AlSanea

  

The National reports that the AlGosaibis' attorneys have filed papers with the Supreme Court of New York arguing that the case be heard in NY and not Saudi Arabia.  More importantly the filing is reported to contain a variety of third party reports which seem intended to support the AlGosaibis' contention that they were the victims of a fraud perpetrated by Mr. Al Sanea.

This goes back to the comments by a reader on one of my earlier posts.

There are three cases before the Supreme Court of the State of New York.

1. Mashreqbank psc v Ahmad Hamad AlGosaibi and Brothers  #601650/2009
2. Mashreqbank v Yousef AlGosaibi and Partners #602171/2009 and
3. Ahmad Hamad AlGosaibi and Brothers v Maan al-Sanea 590643/2009.

The International Banking Corporation - Just A "Potemkin" Bank?

Update:  I've managed to secure copies of the Ernst and Young Report on TIBC and the Hibis Europe Report on Awal Bank.  You can find the relevant posts here and here.

In case you've missed it a reader has posted an interesting comment to my post about the arrest of the former CEO.  He noted that the AlGosaibis are asserting that The International Banking Corporation had no real business but was merely a front for embezzlement.

That of course would explain then why a zero or near zero return is expected on the outstanding debt.  

However, tt does raise some very serious questions since such a scheme would require a lot of work.

Assuming normal auditing procedures, TIBC's auditors would verify the existence and terms of major assets and liabilities through "confirmations" written requests sent to counterparties in which they are requested to reply in writing confirming the existence of an asset or liability and its terms.  While no auditor confirms 100% of assets and liabilities (unless it is an extraordinary situation), it should confirm  a large enough number, a number sufficient for it to come to the conclusion that the financials fairly represent the company's condition.

Taking AlGosaibis' allegations at face value, this would imply a rather extensive conspiracy.  TIBC's records would have to contain addresses where the conspirators could take delivery of or intercept the  confirmations.  The individual confirmations would then have to be sent back to the auditing firm and the signatures on them would have to match those in TIBC's records.  Similarly, as part of the Kingdom of Bahrain's financial crimes legislation, TIBC should have due diligence files on each of its customers (even those receiving loans) which contain documents substantiating the existence of the customer.   TIBC's auditing firm has a reputation of being fairly conservative in its approach and by some accounts is the most conservative of the big three firms on the island - at least in relation to its interpretation of IFRS standards.  

It will be interesting to learn more.  

Hopefully, the individual who posted the comment will follow up with more comments.  

Anyone else out there with an opinion or insight is encouraged to add his or her voice to the discussion.

And, finally, just a note that the statements attributed to AlGosaibi are at this point their charges in  ongoing legal cases, which have not yet been judicially determined.

The International Banking Corporation - Arrest of CEO

Rupert Bumfrey had a post today that AlBilad Newspaper in Bahrain reported that the former CEO of The International Banking Corporation had been arrested after being charged with fraudulent transactions in excess of US$ 2 billion.

That really caught my eye so I decided to take a look at AlBilad's account, figuring it might have additional interesting details.  It does.  As well, it suggests some potential answers to the question as to why the recovery rate on TIBC debt is expected to be so low.

First, a look at the article and then the usual comments.

Here's a quick translation of AlBilad's article.

Nawaz Hamza, Head of Public Prosecution Department, ordered the detention of the (former) Chief Executive of TIBC for a period of six days or the payment of a bond of BD10,000 (US$26,500).  The charge is breach of trust and misappropriation of funds/embezzlement.

Reportedly, the accused chose prison and after a two day investigation, was charged with fraud  involving in excess of US$2 billion. 

Earlier the Prosecutor had determined that the signature of Sulyaman Ahmad AlGosaibi on numerous documents connected with loans and money transfers had been forged through computer imaging of Sulayman's signature.  Once scanned, the signature's appearance had been enhanced by using blue color to make it appear to be an original signature.  And presumably the discovery of forgery prompted the investigation of the CEO.

(An earlier AlBilad article here from 17 January has a bit more detail on the forsensic investigation that determined that Sulayman's signature had been forged on various agreements - presumably loan and similar agreements - as well as certificates of board decisions.  Interestingly, this article asserts that TIBC was under the administration of Mr. Al Sanea.  In fact it makes that statement twice.  It's unclear what the basis for this statement is,  that is, how Al Bilad knows this to be the case.  As you'll recall if you've been following this case,  this is AlGosaibi's complaint: that Mr. AlSanea not they are responsible for the financial distress in their companies).

The article notes that in a meeting  last year in August with regional, Arab and international creditors AlGosaibi had presented a number of documents which it asserted were forged and which established that there had been a widespread forgery of documents and certificates used to obtain loans, bank guarantees, and to make transfers of funds in the name of TIBC and AlGosaibi entities.  As the article notes, this was an attempt by AlGosaibi to prove its innocence from involvement in these transactions.  As well, it  requested creditors to submit documents for transactions with TIBC and the money exchange firm in Saudi so that it could reply on them - presumably whether they were genuine or forged.

Now to the analysis.

1. First a bit of context, TIBC's 31 December 2008 financials (the last issued) showed total assets of roughly US$3.8 billion.  So in excess of US$2 billion is quite a large sum even when considering that some of the transactions also involved AlGosaibi entities in Saudi Arabia, such as the money exchange firm.
   
2. The assertion of widespread fraud suggests some possible reasons for the very low anticipated recovery rates on TIBC.  On that topic, the Governor of the Central Bank of the UAE is on record as telling his banks to provision 100%.   Earlier I had analyzed TIBC's financials and was left scratching my head about the decline in asset values that would be required to cause the apparent loss.  I was focused on duff investments and loans resulting from poor business judgment not fraud. Two potential explanations surface from this assertion of fraud. First, that not all liabilities are recorded.  Thus, assets may be roughly close to the US$3.8 billion in TIBC's financials but real liabilities may be US$2 billion  or so more.   Second, if one is going to forge documents to secure funds, then one is probably not going to have  any scruples about forging documents for assets, though this involves a bit more than scanning one person's signature and changing its color. Just to be clear:  the article does not explicitly state that there are unrecorded liabilities or fraudulent assets.  But that seems a logical conclusion.
   
3. It's important to note that the former CEO has not been convicted. And all we have is a press report that he has been accused.  It's important to note that under Bahrain's Law #47 of 2002 ("Press Law") disclosure of the identity of those accused and press reports on trials are limited so this is at present an uncomfirmed press report.
   
4. It's hard to understand how BD10,000 in bail is adequate security in a case allegedly involving over US$2 billion.  But then again the courts of Bahrain move in the most mysterious of ways.  One can be fined BD1,000 for hitting someone with a fish.  And BD50 for sexual assault.  
   

The International Banking Corporation Bahrain Files For Chapter 15 Protection in Manhattan

Bloomberg reports that TIBC has filed under  Chapter 15 of Title 11 (Bankruptcy) of the US Code seeking protection from creditors.

As pointed out in the article, Deutsche Bank and Mashreqbank had obtained orders of attachment against TIBC assets in the USA.

Through this filing, TIBC seeks to provide legal protection against those two banks and any other creditors who might try to seize its US based assets.

Not surprising.

Two bits of news in the article.

1. First, for those who may have missed the news earlier: Ernst and Young has been engaged to investigate the business of the bank.  This relates to the allegations by AlGosaibi that Mr. AlSanea was engaged in improper transactions with the assets and companies of the AlGosaibi Group.TIBC's auditors are PwC.  Also Awal's.
2. The filing also reported assets of US$ 4 billion and liabilities of US$2.6 billion as of 31 July 2009.  At FYE 2008 (the last officially issued financials) the comparative numbers were US$3.8 billion and US$2.5 billion.  One would expect that financials would have been updated for any dimunition in value unless the nominal value of assets is being reported.
   

Kuwaiti Banks Exposure to Saad and AlGosaibi - Update

AlQabas has an article 8 December noting that despite all the other issues in the market - Dubai, the world economic crisis - this one remains a major issue for Kuwaiti banks.

Here are the main points from the article along with my commentary in blue italics.

1.  Total exposure is not less than US$1.5 billion.  AA: Maan AlSanea is Kuwaiti by birth, former KAF pilot.  He would have the sort of connections that would overcome the general "silo focus" of local banks on their home markets.
2. Roughly 50% has been reserved to date according to sources at the Central Bank of Kuwait.  AA:  You'll recall this is the general level of provisions that the Central Bank of the UAE mandated for the non bank exposure to the two Groups - saying that it represented a consensus view of both local and international regulators.
   
3. Kuwaiti banks with exposure - save one it appears -  have formed a committee which reportedly includes Gulf Bank, Kuwait Finance House, Commercial Bank, Burgan Bank to conduct negotiations with Saad and AlGosaibi.  Efforts are said to be well co-ordinated.  The banks are speaking with one voice.
4. With respect to Saad, they have written to Saudi banks asking if a separate deal has been signed with Saad.  The existence of a deal has been mooted in the press several times.  The Kuwaiti banks reportedly are threatening legal action which they note in their letter they could direct at the branches and offices of Saudi banks in the West, e.g., London or New York.   This is similar to a letter that international banks have written to Saudi banks.  The Governor of SAMA has denied any side deal.  AA:  The fact that the letter was written even after the denial is an indication of lingering concern that there is some side deal for the Saudi banks.  As I've noted before, I was told there was a  similar side deal for Saudi banks in Redec rescheduling.  Certain government receivables were reportedly assigned to Saudi banks.  The foreign banks complained to no avail and eventually quieted down. So a similar fear that history will repeat itself.   As to the basis for the lawsuit, generally each creditor is on his own.  If he can get repaid, he doesn't have to worry about others.  The one exception to that rule is syndicated loans where banks pledge to share payments pro-ratably among themselves.  The only other avenue would be a general liquidation scenario where creditors should be treated on an equal basis.  I don't think most of the local jurisdictions have a well-defined concept of fradulent conveyance - preferring one creditor over another in some set period prior to a bankruptcy.  And even if they do, there has to be bankruptcy.  If the company keeps going, then it is merely negotiating individual deals with creditors about existing loans, just as it did when it took the loans out.
   
5. With respect to AlGosaibi, the Kuwaiti banks - along with others -  rejected the Group's offer to pay 9% with the rest of the debt forgiven as "sakhiif" - ridiculous/inferior. Apparently, some dismay that AlGosaibi didn't acknowledge the debts as a first step in the negotiations.   Also an assessment that negotiations - with both AlGosaibi and Saad - would be very difficult and might take three years.  AA:  I'm told in the previous great debt crisis of the mid 80's many Saudi borrowers did not earn high marks for ethics and fair dealing in their negotiations with lenders.  One of my mentors could be set into a tirade by the mere mention of the names of Shobokshi, Baroom, and AAA - where recoveries were pennies on the dollar while the obligors managed to protect their wealth.  Some of the assets were quite well protected from creditors.  The three year timeframe may be predicated on the time taken for the "oxygen strategy" described below to take effect.  Recall that Maan AlSanea is allowed a living expense by one Western court from his blocked assets.
   
6. Ahli Bank of Kuwait has chosen to pursue legal action against Saad in New York.  AA:  A court judgment is most easily used to attach assets in the jurisdiction of the court.   Otherwise the lender marches into a foreign court with his judgment and asks the local court to enforce it.   That doesn't work particularly well with the GCC.  Back in the USA, probably all of Saad's  major assets have been  identified and many banks are pursuing them.  The court appointed "administrator" for SICL (Caymans) has already been active in US courts blocking Saad assets.  Unless Ahli knows of something that others don't and can prove it belongs to Saad, it will be in a very long line.  Perhaps the suit is an attempt to pressure Saad for a settlement.
   
7. That the Central Bank of Kuwait is providing "every support" to the Kuwaiti banks.
   
8. The target will be to block the two Group's assets in Saudi Arabia first and then around the world.  An effort that is expected to be very complicated.  AA:  The idea is to cut off the borrowers' oxygen and force them to do a deal to unblock some of their assets and to be able to conduct their operations.
   

Assuming regulators are basically right about the level of provisions, creditors are in for a long and difficult process.  And probably substantial losses on these two names.

If you use the labels Maan AlSanea, AlGosaibi, Awal Bank and The International Banking Corporation, you'll be able to track back previous articles to get a more detailed picture.

Carlyle Guarantee Watch - Third and Final Day

If you've been reading this blog over the past few days, you're not only a member of a rather select group, but you've also noticed that I've been musing on why the Financial Times  hasn't called on Carlyle to provide a guarantee to holders of investments in Carlyle Capital Group as it did to Dubai and Abu Dhabi for Dubai World.  Earlier posts here and here.

Suddenly last night I had a flash of insight and realized I had overlooked two critical things. 

First, from the "free market" (yes the quotes mean the same as they when around "banker" here) doctrinal perspective it would be a direct violation of the teachings of Adam Smith for Calyle to provide a guarantee.  Market participants are supposed to exercise careful due diligence and then bear responsibility for their actions.  Interference with this sacred principle would of course undermine the very workings of the "free market" and in so doing undermine our very way of life. 

This clearly explains why Carlyle isn't going to be asked to provide a guarantee.

But what about Dubai or Abu Dhabi in the case of Dubai World?  How do we explain this apparent inconsistency?

Darwin's observation about the need for organisms to adapt to their natural environment or become extinct is also applicable to the financial world.   UK banks (home of the FT by the way) are owed some US$ 5 billion by Dubai Inc.   These banks constitute the largest foreign creditor group.  If not a potentially existential threat, at least an existential inconvenience.  Thus, the necessity - as with the BBA letter to Lord Davies in re Saad and AlGosaibi -  to adapt certain elements of Adam Smith's teaching to the new environment. 

But it would be wrong of course to ascribe purely mercenary motives.  Both initiatives would also protect the reputation of the borrowers.  One's good name is treasure.  And this kind solicitude  of lenders for the borrower is certainly evidence of purity of motives.  Isn't it?

The International Banking Corporation - Comments on 2008 Financials

Not so long ago I took a look at Awal Bank's financials, today it's TIBC's turn.

From a review of TIBC's financials, it's clear that the bank was exposed to significant risks  arising from certain legal arrangements with its holding company, Ahmad Hamad AlGosaibi and Brothers ("AHAB").   AHAB held legal title to TIBC's investment portfolio and to the collateral on its loans.  And this may be a large part of the reason for the collapse of this apparently well capitalized bank.

In both cases, under the legal agreements between AHAB and TIBC, AHAB held these assets in "trust" for the bank.   But the critical legal issue is whether such a trust structure would be recognized by a Saudi Court.  That is, would the Saudi Court look through AHAB's legal title to ascribe direct ownership of the assets to TIBC?  If it did, then these assets would be outside of AHAB's "estate" and would not be subject to  an AHAB bankruptcy, insolvency or administration.  If it did not,  then  these are AHAB's assets to be divided among  AHAB's creditors - not just TIBC.   

Update:  From the Golden Belt 1 Sukuk (Saad Group):  ""The concept of trust as deemed in common law jurisdictions does not exist in Saudi Arabian law."  Here's the link to that post.


I'm guessing as with Awal that TIBC's problem is solvency not liquidity.  With  TIBC's relatively high equity to total assets ratio, there would have had to been a substantial erosion in asset values to trigger insolvency.  From the structure of TIBC's balance sheet the two areas  where this is most likely to have occurred in are loans and investments.   The loss of the assets themselves would have the most impact on the  bank's equity.

Now to the detail.

Unlike Awal, TIBC posts more financial info on its website.   At the "Publication" drop down menu, you'll find quarterly financials for 2008 and audited annual financials for 2005 through 2008.

As with Awal, let's focus on the changes from 3Q08 to 4Q08.

Total Assets declined US$498.5 million from US$4.3 billion to US$3.8 billion - roughly 11.6%.  Compared to 4Q07 the decline was a more modest 6.6%.

On the liability side, the major declines were US$268 million in due to banks, US$70.5 million in due to customers, US$30.9 million in due to related parties, and US$12 million in other liabilities.  A total of  US$381.5 million. A decline of US$117 million in equity accounted the remainder.  Declines are all fairly reasonably spread and there is no one group with a major cashflow in its favor as with Awal.

It's difficult to use TIBC's 2008 quarterly financials to analyze term loans because the bank and its auditors appear not to have been able to make their minds up about a consistent presentation of term loans on the balance sheet during 2008.  After appearing earlier in the year, these completely disappeared in 3Q08 only to re-emerge in 4Q08.  Looking at Note 10 in the fiscal year end ("FYE") 2007 financials, TIBC had US$375 million of outstanding term loans.  US$100 million was due in the next twelve months.  In  the 2Q08 financials  term loans had decreased by $100 million and US$75 million was shown as due in the next twelve months (Note 8).  This suggests that there was no prepayment of term loans.  However, if there were, it would appear to be only for US$75 million - though this amount may be included in Due to Banks as a current payment.  The presentation in TIBC's financials is confusing on this score and so it's difficult to be definitive.

On the asset side,  cash and banks were down US$429.4 million.  This funded the  reduction of US$381.5 million in liabilities plus increases in loans of US$77.2 million and other assets of $24.5 million.  The US$171 million drop in investments was largely due to  US$117 million in  (non cash)  fair value adjustments  (reflected directly in equity) plus an apparent US$54 million of cash realizations.

At 31 December 2008, equity was US$1.3 billion and total assets US$3.8 billion.  Like Awal, rather  sharp declines in asset values would have to have occurred to significantly erode capital to zero or near zero.

Let's take a closer look at the balance sheet.

1. Cash and Banks was US$1.1 billion.  Three key items from Note 4.  (a) 86% of these deposits were with banks and financial institutions in Europe. (b) 76% of deposits were with A rated counterparties.  (c) TIBC claimed a strict risk concentration limit of 10% of capital.  Also there are no related party deposits of any significance disclosed in Note 25.  Taking these comments at face value, one would not expect a major loss in this asset category.
   
2. Investments were carried at US418.1 million with negative fair value adjustments of US$426.6 million.  Earlier in the year TIBC carried its investments at fair value through profit and loss ("FVTPL").  At 31 March 2008, TIBC had recorded a net loss of US$204 million. due to investment losses taken through the income statement.  After 1Q08 TIBC engaged in an asset sale and asset purchase with related parties (presumably its parent AHAB).  Sales of US$867.2 million and purchases of US$839.1 million.  The sales would allow TIBC to dispose of the FVTPL assets - transferring them to available for sale ("AFS") would not have been possible.   However, the new investments could be booked as  AFS with no problem.  Why AFS?  Because any changes in fair value could be taken directly to equity by passing the income statement.   Through the miracle of accounting principles, TIBC was able to report a net profit of US$156.1 million for fiscal 2008.   The US$426.6 million loss on investments was recorded directly in equity.  However,  when we look at comprehensive income, we see that the bank actually had a loss for the year of US$270 million (US$156.1 million in net income minus the US$426.6 million in  negative fair value adjustments).  Another key piece of information is in Note 7 where it states that the bank's investment securities are registered in the name of the holding company (AHAB).  Use of a Saudi registered company to act as shareholder would facilitate TIBC making investments in the Kingdom.  There is no obvious legal reason/advantage to have AHAB hold shares in  the UAE, Kuwait or other GCC stockmarkets.  However, as outlined above, this arrangement could also present a danger to the bank if there were a problem at AHAB and a Saudi Court did not recognize TIBC's title.  Then the bank would be one of AHAB's creditors with a claim on AHAB's estate rather than as the legal owner of the investments.  This could be a potential area where asset values were lost.  Bolstering this view is that it appears the investments were shares traded on the Tadawwul (Saudi market).  There has not been a complete collapse in share prices on that market.
   
3. TIBC's main business is commercial lending with US$2.3 billion out of the bank's US$3.8 billion of assets at FYE 08.  Again from Note 4, 99.9% of the loan portfolio was in the GCC/Middle East region.  TIBC also discloses that the majority of loans and advances are secured with a minimum coverage of 110%.  Describing the collateral later in the Note, TIBC says that it is land deeds, plant and machinery or cash collateral.  From the liability side of the balance sheet (customer deposits), it's clear that cash collateral is de minimis.   Usually with land or plant and machinery, most banks use a much lower borrowing base.  That is, they will lend maybe 50% or so against such assets given their illiquidity and high discounts required to sell.  If Borrower A didn't make a go with his factory, why would Buyer B believe he could unless he could get them at a steep discount a la Irridium?  And again there is the same note as with investments.  The holding company is the legal holder of the lien on a trust basis for the bank.  That implies that most of the loans were in Saudi Arabia - as there would be no advantage to using AHAB to hold collateral in another country.   There is the same problem as with the investments: if the holding company gets into trouble, all the collateral may be blocked in its estate, leaving the bank as a creditor of the holding company and with uncollateralized loans.
   

Finally, one parting comment on a recent report that creditors had tracked down some gold shipments involving AlGosaibi and Saad.

TIBC began gold trading in 2006 with sales volumes of some US$1.2 billion, followed by US$2.3 billion in 2007 and US$2.5 billion in 2008.  Profit margins were roughly 1.4% of sales.  It's unclear if TIBC were matching spot trades or whether it was taking actual possession of the gold.  The news articles suggest it was taking possession - at least for the sums mentioned in those articles.   It will be interesting to follow developments on this topic.

Saud AlGosaibi Resigns from Board of Saudi Re

25 November 2009 the Saudi Company for Reinsurance (Saudi Re) informed the Saudi Stock Exchange (Tadawwul) that Saud Abdul Aziz AlGosaibi had resigned as a director in view of his existing commitments.

He was one of the members of the founding committee of the company and one of the original members of the board.  The company was founded on 17 May 2008

Presumably related to the ongoing debt restructuring.

Saud is a board member of The International Banking Corporation (though since the bank is under Central Bank of Bahrain Administration, the Board no longer has any legal powers to commit TIBC).

AlGosaibi/Saad: Gold Shipments

A couple of interesting reports on gold shipments involving the Saad and AlGosaibi Groups as well as their banks. 

Here and here.

This may be the start of the explanation where the missing money went.

Bahrain Islamic Bank Denies Market Rumor That Investment Dar Intends to Sell Its Shares to Repay Debts

Today Bahrain Islamic Bank issued a statement to the Bahrain Stock Exchange regarding a market rumor that The Investment Dar intended to sell its shareholding interests in Bahrain Islamic as part of its settlement of existing debts.

BIsB stated it had contacted TID and TID had denied.

BSE announcement here in Arabic.

Aref Announces KD12.6 Million Judgement in Its Favor Against The Investment Dar - Investment Dar Replies

Aref Investment Company issued an announcement on the Kuwait Stock Exchange that the court had ruled in its favor in its case against TID and awarded it KD12,644,771 (US$44,256,699).

[9:33:4]  ِ.صدور حكم لصالح مجموعة عارف الاستثمارية ‏

يعلن سوق الكويت للاوراق المالية بانه ورد الينا الان من شركة مجموعة ‏

عارف الاستثمارية بانه تم صدور حكم لصالح الشركة فى الدعوى رقم ‏

ِ2009/47000 تجاري كلي 9 ،ويفيد الحكم بالزام المدعي عليها (دار الاستثمار)‏

بان تؤدي للمدعية (مجموعة عارف الاستثمارية) مبلغ وقدره 12,644,771 د.ك ‏

والزمتها بالمصاريف .‏

وعليه سوف تعاد الشركة الى التداول بعد عشر دقائق من نزول الاعلان .‏

And TID issued its own KSE announcement in reply:  this is only the first round (first level court) and that they will lodge an appeal with the Court of Appeals.  By lodging an appeal, TID will stay enforcement.

[12:25:40]  ِ.ايضاح من دار الاستثمار بخصوص الحكم الصادر ضد الشركة ‏

يعلن سوق الكويت للاوراق المالية ،بان شركة دار الاستثمار افادت بخصوص ‏

الاعلان المتعلق بالحكم الصادر فى الدعوى رقم 2900/4700 ت.ك/ 9 ‏

المقامة من شركة مجموعة عارف الاستثمارية ضد شركة دار الاستثمار ،

افادت الشركة بان ذلك الحكم هو مجرد حكم ابتدائي صادر من محكمة اول ‏

درجة وغير قابل للتنفيذ اذ ان حجيته مؤقتة وتزول بمجرد الطعن عليه ‏

بالاسئناف ،حيث ستقوم شركة دار الاستثمار باسئناف الحكم سيما وان ذلك ‏

الحكم لم ينظر دعواها الفرعية المرتبطة بهذه الدعوى .‏

وافادت الشركة بانها سوف تقوم بموافاة ادارة السوق باى مستجدات مستقبلية ‏

بهذا الخصوص .‏

Coming on the heels of the report of less than a brilliant meeting Tuesday by the Creditors' Co-Ordinating Committee, this is another bit of bad news for TID as it will embolden other creditors in the "no" camp.

British Bankers Ask UK Govt for Help on Saad and AlGosaibi

You've probably seen today's Financial Times.  

Thomas Harris, Chairman of the British Bankers Association Trade Policy Committee, reportedly wrote to the UK Minister for Trade, Lord Davies, urging him to push the Saudi authorities to help foreign banks (read "British banks".  This is the BBA after all)  resolve their problems with both Saad and AHAB.

Frank Kane has more details on the letter in Abu Dhabi's The National.  And he is a bit less gentle.  The FT has more to protect that The National.

Clearly, the leak of this letter is designed to put pressure on the Saudi Government.

First reaction.

It's fairly typical for bankers who have gotten themselves into trouble to seek  to identify those responsible for their predicament.  For some strange reason, they rarely look close to home.  Rather they blame regulators, accountants, the weatherman, and the chap standing on the corner for their misfortune.   Equally, it's typical for them to look for governments, central banks, and regulators to extricate them  - usually justified as needed to protect the good name of the country and future business. We're seeing a bit of the latter in this letter:  a  not so subtle threat that if the authorities fail to "assume responsibility", then future business will suffer.   Not a highly credible threat  as bankers  are known as a group to be congenitally pre-disposed to ADD.

But added to that normal pattern of behavior are a few other complicating factors:

1. The side deal cut to favor local banks.  A Saudi preferential tradition so it seems if the stories about Redec are correct.
2. Lenders' knowledge that the Saudi legal system presents formidable obstacles to redress through the courts, particularly for foreign lenders.  It's remarkable how laser-like the focus is on legal matters after the problem has occurred.  It's not just punters in the equity market who are  often irrationally exuberant.  Many times it's those presumedly sober pin-striped bankers.
   
3. As well, their knowledge that securing full and frank information will be difficult.
4. Both borrowers' apparent attempts to use the above and their financial difficulties to settle their obligations for pennies on the dollar.  
   

Certainly, a difficult situation, particularly when the sums involved are large.  And clearly they are.  The BBA is not writing letters to Lord Davies because the sums are modest.

One wonders (or at least AA does) how many times a person or a banker has to get hit in the head before he or she catches on.

Commercial banking is a fairly simple business.  A key element is understanding the market one is doing business or proposes to do business in - well before one looks at the credit of an individual obligor.  If there are  fundamental problems with the law itself, the enforcement mechanism, business practices, transparency etc,   there is a problem with the market.  If that is the case, one adjusts one's lending strategy - amounts, terms, collateral (offshore of course) - or simply does not lend. 

UAE Central Bank: US$2.9 Billion in Exposure by UAE Banks to Saad and AlGosaibi

The Gulf News (Dubai) reports that CB UAE has disclosed that 13 national banks and 7 foreign bank branches in the UAE (20 banks in total) have exposure of US$2.9 billion to the AHAB and Saad Groups.

The article also reveals the identity of the bank that asked for and received a court freeze on Saad Group assets in the UAE:  Abu Dhabi Commercial Bank, which has reported exposure to both AHAB and Saad at some US$609 million.

Central Bank of UAE Weighs in on Al Gosaibi and Saad Restructurings - Establishes Mandatory 50% & 100% Provisions

The Board of Directors the Central Bank of the UAE officially mandated that all local banks and branches of foreign banks operating in the UAE  take certain prescribed provisions against their exposure to the Saad Group and to Ahmad Hamad AlGosaibi and Brothers ("AHAB") Group.  Provisions apply to both funded and unfunded exposure (e.g., letters of credit, etc) - that is to all exposure to the two Groups.

Yesterday, the Governor of the Central Bank issued an official circular setting forth the provision requirements which are to be implemented no later than 31 December 2009:

1. 100% of all exposure to Awal Bank Bahrain (owned by Maan AlSanea)
2. 100% of all exposure to The International Banking Corporation Bahrain (owned by AHAB and partially by Maan AlSanea)
3. 50% of all other exposure to AHAB 
4. 50% of all other exposure to Saad Group companies.

Governor AlSuwaidi emphasized in his circular two further points:

1. The level of provisions is consistent with that deemed appropriate by regional and international supervisors.  The reference to other supervisors' assessment is particularly telling.  This is not simply the CB UAE's view.  Nor apparently is it only a regional view.
   
2. The CB UAE will revert in 2010 if additional provisions are required.

This announcement is noteworthy because Central Banks generally do not get involved in publicly  mandating specific loan loss provisions.  This is only done exceptionally for cases  involving large amounts where the Central Bank has made a determination that the prospects for recovery are low.

As such then, this announcement represents a highly negative assessment of both Groups' prospects.

1. Failure of and no recovery at all on the two banks, Awal and The International Banking Corporation.
   
2. At least a 50% loss on other exposure to the AHAB Group and Saad Group - though there is a hint that additional provisions may be required.

For those who don't read Arabic, a much shorter English language press account.

UAE Court Freezes Saad Assets (Maan Al Sanea)

12 November was not a good day for Maan Al Sanea.

Not in the UAE where a court place a protective order on the assets of Saad Group and Saad Trading Contracting and Financial Services in an amount of US$151 million at the request of an unnamed Abu Dhabi Bank.  Article here.   More coverage here and here.

Nor in the USA where the court-appointed liquidator for Saad Investments Company Ltd (Caymans)  ("SICL") made a Chapter 15 filing in Delaware to protect the assets of Saad Investments Finance  (owned by SICL) against third party attachments as per this  report.    

Some details on exposure disclosed so far to Gulf Banks.

Some links to previous SAM posts here and here.

Ahmad Hamad AlGosaibi and Brothers / Saad Restructurings

A very interesting news article at The National newspaper in Abu Dhabi on work being done by investigative accountants at Grant Thorton who have been appointed liquidator for Saad Investment Company Ltd. ("SICL") Cayman Islands.

It's important to note up front that this is a newspaper's account of the contents of Grant Thorton's report and not the report itself.  And equally the Grant Thorton report is a report not a judicial finding. So at this point, this is speculation.

Some "technical" comments on the article.

1. Awal Bank is owned 100% by Maan AlSanea.  48% through SICL.  47% directly in his name.  And 5% by Saad Trading Contracting and Financial Services.
2. The name of the AlGosaibi-owned bank in Bahrain is The International Banking Corporation.
3. Assets that are unlikely to be realized are not a "cash pile".   From the article it sounds like the cash may be in Swiss banks.   And the "pile" in the Caymans or at least owned by entities in the Caymans.
   
4. The Saudi Arabian Monetary Agency ("SAMA") froze Mr. AlSanea's accounts in the Kingdom earlier this year.  If the account that received the $60 million is known to be his and the funds  are still in it, the $60 million may be recoverable by creditors. 
   
5. A Cayman Islands court has frozen his assets in that country.  
6. To the extent that entities in either Saudi or the Caymans have effective control of assets registered in their names but located in other reputable jurisdictions those assets are also frozen.

If indeed records are missing and there is a complex web of intercompany transactions, cross financings and cross guarantees, it is going to take quite a long time to sort all this out. The fact that there is inter linkage between Saad Group and AlGosaibi is going to exponentially complicate the resolution of each of these cases.

Bankers don't like uncertainty.  Bankers also don't like to take losses.  A very tricky situation.

Painful But Manageable Stress in the Saudi Banking System

All eleven Saudi banks have  now issued financials for 3Q09 so it's possible to get an insight into  the state of the banking market.

For the first nine months of 2009, Saudi banks' provisions were SAR 5.78 billion (US$1.54 billion) versus SAR 1.51 billion (US$403 million) in the comparable period in 2008.

Most of the provisions are believed to be related to exposure to  two Saudi borrowers:  Ahmad Hamad AlGosaibi Brothers ("AHAB") and the Saad Group.   Estimates are that Saudi banks hold approximately US$5 billion out of the aggregate US$22 billion to these two groups.

A closer look at individual banks may give some idea where the problems are.

On that topic, it's important to note that SAMA (the central bank) does not set mandatory provisioning guidelines.  Individual banks make their own determination.  Banks may  therefore have different provisioning percentages for the same credit.     

Two banks accounted for 54% of the provisions:

1. National Commercial Bank ("NCB"), the largest in the country, with SAR 1.876 billion 
   
2. AlRajhi Bank ("ARB"), the third largest, with SAR 1.237 billion.  

NCB's provisions were 9x those in 2008.  ARB's a more modest 1.9x. 

Among the other majors:

1. Samba,  the old Citibank joint venture and the second largest,with SAR 377 million - just shy of 3x. 
   
2. Riyad Bank, the fourth largest, SAR 434 million - 3.7x 2008.

Two banks had larger percentage increases than NCB:

1. Banque Saudi Fransi, the sixth largest, at 15x with SAR 224 million and 
2. Saudi Hollandi (the eighth largest) at 10.7X  with SAR 415 million.

Both reflect rather rapid buildups and are due either to provisioning for Saad and AHAB (more likely) or severe deterioration in other borrowers.

No one expects Saudi bank failures.

Even with the dramatic rise in provisions, NCB's profit was only down 28% from 2008.

The banks are relatively well capitalized.

The Saudi Arabian Monetary Agency has a tradition of engineering bank rescues when needed.

But the increase in provisions says something about the pain being felt.

More details for those who read Arabic from AlRiyadh newspaper. 

(Exchange rate:  SAR 3.75 = US$1.00)