Kuwait International Bank - Board Accepts Resignation of Ra'id Jawad Bu Khamseen

Today AlWatan reported that the Chairman of KIB, Shaykh Muhammad Jarrah Al Sabah, announced that the Board had accepted the resignation of Ra'id Jawad Bu Khamseen.  The reason given was the same as with the two previous resignations - that Ra'id did not hold enough qualifying shares.  And Shaykh Muhammad personally assured that this was the only reason that Ra'id is leaving the Board.

And, if you're willing to believe that the son of Jawad BuKhamseen could not come up with  qualifying shares in what was his dad's bank, please post and leave your contact details.  I have some lake-front property in the International City development in Dubai.  It's almost as fragrant as Tubli Bay.   

The article also notes that Ms. Najah Al Suwaydi respectfully declined to take up her position for personal reasons.

The Board will call an ordinary general shareholders meeting in the near term so that shareholders can vote to fill the "gap" in the Board.

Looks like the new owners are moving smartly to put their personnel in the key positions.   Yes, I know there hasn't been any material change in ownership posted on the KSE.   "Family Values" as we say out in the West here.  And apparently in Kuwait as well.  There are no better values or so I am told.  And what better place to read about them than a family friendly newspaper like AlWatan.

Drill, Baby, Drill

CAUSE #1  - Simple Minded Politics

CAUSE #2 - Simple Minded Regulation

By 2003, U.S. regulators decided remote-controlled safeguards needed more study. A report commissioned by the Minerals Management Service said "acoustic systems are not recommended because they tend to be very costly." 

An acoustic trigger costs about $500,000, industry officials said. The Deepwater Horizon had a replacement cost of about $560 million, and BP says it is spending $6 million a day to battle the oil spill. On Wednesday, crews set fire to part of the oil spill in an attempt to limit environmental damage.

That's right an acoustic trigger would have cost BP US$500,000!  Not only did BP not install one, it apparently didn't buy any oil spill insurance.  Perhaps two very strong arguments why one shouldn't rely on the "free market" to provide protection.

EFFECT

Kuwait International Bank - Board Resignations for Legal Reasons

Today both AlWatan and AlQabas carry a KUNA news report attributed to Shayh Muhammad AlJarrah AlSabah from 29 April.  He explained that the resignations of Fahad Al Ibrahim and Sanaa  Al Juma from the Board of KIB were purely for legal reasons.

He noted that within one month of election Board members must deposit their entire "qualifying shares" with an accredited bank.  The amount required is the lesser of 1% of the total number of shares of the firm or KD7,500 - whichever is less.

Neither Al Ibrahim nor Al Juma managed to do this and so "voluntarily and out of respect for the law" they resigned.  Shaykh Muhammad will be calling upon the "reserve directors" to serve in their place.

This is quite a remarkable story.  And I'm not sure what to make of it.  It's sort of like the old Ripley's "Believe It or Not".

1. Did they buy the shares but the maid knocked the "post it" note  "Deposit shares before 27 April" off the talaja and they missed the deadline?
2. Did the two newly minted directors not know of this requirement?  In which case one might ask about KIB's selection procedures for candidates.  And its post election counseling of newly elected directors.
3. Did the two directors know but just forgot?  Again might this suggest slightly more stringent selection criteria? 
4. Did the two directors know but after sitting in on their first board meeting, decide that even such a modest purchase was an unwise investment? 
5. Did they want to purchase the shares but like many Kuwaitis find they are tapped out with the local bank to finance another purchase?  Perhaps, the Majlis Al Umma's unceasing efforts to relieve the personal loan burden of Kuwaiti citizens have received yet another compelling reason to go forward.

And think of the embarrassment that this notice must be causing the two directors.  I think that officially it should have been said that they wanted to spend more time with their families.  As we all know or should, one's family is quite important in Kuwait.  And then of course there's The Family which some say may be even more important in some cases.  I'm sure there's a family or a Family involved here.

Dubai Holding Not In Financial Trouble - Will Restructure Debt

As the GulfNews reports.

Dubai: Shaikh Ahmad Bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee, yesterday said government-owned Dubai Holding does not have financial troubles.

"Dubai Holding doesn't have any problem," he told reporters after the annual general meeting of Alliance Insurance.

 And as it further reports.

The real estate, hospitality and financial investments company last month said it would be restructuring $20 billion (Dh73 billion) worth of debt, according to a Financial Times report.

Hmm.. 

It seems to me if you can't pay your debts as they mature, you have some sort of a problem.  It could be an operating problem with your business, you just aren't generating enough cash to pay your debts.  It could be poor financial planning.  You took on too much short term debt maturing around the same time.  Or it could be a market issue.  Due to the market structure or conditions, you couldn't properly manage your liabilities.   Whatever the case, it seems you've got a problem.

Once I didn't have a problem with my home.  Strange thing.  Whenever it rained, there was water in the house.  Now I surely didn't have any problem at all mind you.  But I did replace the roof.  I like to think of it as my way of contributing to the development of the local construction sector.

You Said What?: The "War Chest" of Bad Debts

GulfNews Dubai reports on some radical thinking at the NBP, which is described as having the highest level of non performing loans in Pakistan.  Now you'd expect a bank like NBP to have a large absolute number of non performing loans ("NPLs") if for no other reason than its size relative to other banks in the country.  But according to this somewhat dated KPMG study NBP also leads the pack in terms of percentage of loans. 
 

When life gives you lemons, make lemonade is the applicable guidance.  I can think of no other good reason for this remarkable quote. Not that it's a particularly good reason.

"Our non-performing loans are a war chest for our investors," Chief Executive Officer Syed Ali Raza, 59, said in an interview at his Karachi head office.
"We always had a very passive approach to recoveries, of depending only on the courts; now we have a menu of solutions. Recoveries are our No. 1 priority."

AA always considered Non Performing Loans less a "war chest" than "war damage" so it's nice to get a different perspective.

A great way to enhance shareholder value is tighten up underwriting practices to avoid making bad loans in the first place.  Even with a 100% recovery of principal (and somehow I'm guessing that doesn't always occur in Pakistan) the time and effort spent on recovery is a dead drag on return.

Of course, banks can't control external factors - the overall path of the economy, terrorism, foreign competition -- but prudent underwriting can mitigate problems.  The KPMG study suggests some banks have done reasonably well on this front.  And when a bank has a reputation of not collecting its bad debts, it usually attracts the wrong sorts of borrowers.