New Dubai Law on Financial Fraud

Shaykh Mohammed has issued a new law imposing prison sentences of between 5 to 20 years for financial fraud - involving both public and private entities.   Those convicted under the law can reduce their sentences by making full restitution.  The law provides that while in prison, convicts will be allowed to conduct external communications necessary to retrieve funds.

The timing of the issuance of this law suggests senior level recognition of the extent of the problem with financial crimes.

Those who know their UAE history know this is not a new story.  Two high powered Brits  hired to give credibility to the DIFC were abruptly fired in 2004 because they questioned  the letting of contracts for the construction of the "Gate". 

As a side note, the Torygraph indirectly focuses on what is apparently not only a keen interest of the British press but also what would appear to be an interest of national importance for the country:  "The centre is a key part of plans by the Maktoum brothers, the leading members of the Godolfin racing syndicate, to diversify the emirate's sources of income as its oil runs out. However, the sackings will raise serious questions about its credibility."

It's not immediately clear to me if the Torygraph is worried about the credibility of British racing or the DFSA.

Saudi Capital Markets Authority Regulatory Actions

The Saudi CMA announced the following:

1. Talal Abu Ghazaleh Financial Consulting Company – Revocation of license to arrange and advise on capital markets transactions for failure to comply with relevant requirements. (Arabic text here)
   
2. Alpha Team – Revocation of license to arrange and advise on capital markets transactions for failure to comply with relevant requirements. (Arabic text here)
   
3. Addax Securities Saudi Arabia – At Addax's request agreed to the cancellation of its license to act as a principal, underwriter, agent, manager, arranger, advisor and custodian on capital market transactions. (Arabic text here)
   
4. Saudi Pioneers Securities Company – At SPSC's request agreed to the cancellation of its license to act as a principal, underwriter, agent, manager, arranger, advisor and custodian on capital market transactions. (Arabic text here).
   
5. According to AlRiyadh newspaper, the CMA also fined National Company for Industrialization SR 50,000 (US$13,333) for failure to promptly report the resignation of its SVP for Investments and Finance. He resigned on 1 November 2008 but formal notice was only given on 15 September 2009.
   

The first two appear revocations are for violations of regulations, while the second two were at the request of the company.

Kuwait Ministry of Commerce and Industry Takes Action Against Abuse of Related Party Transactions

Earlier AlQabas had reported that the Kuwaiti Ministry of Commerce and Industry (MOIC) had discovered material violations in related party transactions undertaken by Kuwaiti companies. Earlier post here.

AlQabas now reports the Department of Shareholding Companies has written a general circular to a number of companies in which it requires that they return funds withdrawn from their companies for certain transactions described as related party transactions. Or that they provide a firm undertaking to do so. Both to be accomplished this year. The penalty for failure to comply is that the MOIC will refuse to allow these companies to found new companies.

The MOIC took this step after it discovered that companies were withdrawing funds under the pretext of related party transactions. An action described as "fraudulent" (tadlis) and hiding the true position of the companies from their shareholders. The financial crisis was offered as an explanation for companies abandoning sound principles for related party transactions.

One particular prominent set of violations were intercompany loans between parent and related companies. It was noted that many of these were now in the process of regularization through settlement via transfer of ownership of shares. Another violation mentioned was that by investment firms who extended loans from funds they managed for other parties. The article closes by noting that these excesses (literally exceeding proper bounds) give rise to suspicions that there was collusion for benefit among companies, members of boards of directors or members of executive management.

Taking the AlQabas story as accurate there are a few conclusions we can infer:

1. The pattern of "looting" companies to benefit another is sufficiently widespread and/or the amounts involved are sufficiently substantial. Otherwise the MOIC would deal with a small problem much more quietly.
   
2. Unspoken is if there will be recourse to the public prosecutor. Perhaps, the intent is to allow the companies an opportunity to put things right.  If they do so, no prosecution.  And if not, then ...
   
3. The reference to investment companies "raiding" funds they manage to lend to themselves is intriguing. There is only one public instance of this that I am aware of: the very substantial sums of money advanced by Global MENA Financial Assets to Global Investment House. And just recently the last remaining obligation was agreed to be settled by a share swap. Earlier posts here and here and here and here and here.

The Old Ways Die Hard – Though Perhaps Not as Frequently Following the Ban

Saudi Gazette marks the passing of a venerable tradition – celebratory machine gun fire at weddings.

"The north Najrani tribe of Al-Al-Qashaneen has imposed the ruling on all its members to stop machine gun fire at weddings in efforts to reduce the number of injuries and deaths at otherwise happy occasions. The tribe's sheikhs are to ensure that signs are put up at the relevant spots to ensure that guests also refrain from unloading their weapons above the heads of wedding crowds. Fines, a tribal member said, would go to a special tribal fund which provides assistance to needy tribal members in, for example, providing hospitality to guests or funeral expenses."

The fine for infractions of the rule is SR5,000 (US$1,333.33).

Public Service Message: Baldness in the Gulf

David Roberts over at the Gulf Blog has published this important bit of health related news  about one of the hazards to males of living in the GCC.

Consider yourself warned.

Bottled water may be an acceptable "solution" (in a manner of speaking).

UAE Extends Charitable Hospitality to Indigent Businessmen

With Gulf News redefining journalism in Dubai and providing important lessons for all of us in the media, including bloggers, it's time to begin spreading the word.  And thus hopefully the practice.

Here's a rather negative article from The National in Abu Dhabi.  "Debt Ridden Developers Face Prison or Flight".

How much better if the writer had stopped his Emirates bashing and looked at the positive side to this story.

Here's a more uplifting story based on the sound journalist principles in use at Gulf News, the newspaper of record in Dubai.

UAE Extends Charitable Hospitality to Indigent Businessmen

Abu 'Arqala

Last Updated: December 28. 2009 5:12PM UAE / December 28. 2009 1:12PM GMT

Despite heroic efforts, the wise political and economic leadership of the Emirates have been unable to shield the UAE fully from the global economic crisis caused by imprudent and unwise actions of foreign financial markets and financial firms.  If that foreign malfeasance weren't enough, there is sadly foreign perfidy.   Many local businesses have suffered financial reversals due to the foreign media spreading unfounded and unjustified rumors about the local economy.

In this atmosphere, where can a businessman - particularly a foreigner - turn in times of trouble?

The story of the Emirate's assistance and charity is truly remarkable and one hopes an inspiration to other countries around the world.

While there are many cases, this article will relate just a few - the most touching stories.

There's Dirk Sassen, a German citizen who had been a successful real estate developer.  His business suffered and he ran out of money, demonstrated by the fact that he was unable to settle several checks.  Is Dirk out on the street as he would be in New York, perhaps living in the subway?  Remember that the New York subway is not as clean or modern as Dubai's Metro!

No he's not living in the subway or washing car windshields in Manhattan with a dirty squeegee. Currently he's a guest of the Emirate of Sharjah, which is providing him accommodations.  But that's only part of the story.  While a guest of Sharjah, Dirk has seen a dramatic improvement in his health.  He's lost over 10 kg as part of the health regime offered by his hosts.  A new haircut and sartorial style - just the ticket to prepare for a job interview.  Access to the telephone for those all important calls to headhunters.  Not only that, but he's been made part of a twenty-seven strong support and networking group sponsored by the Emirate.   And no doubt making new friends and business contacts to help him get back on his feet.

With the global crisis being of such a magnitude that it may take decades for business to recover, who is providing businessmen with assurance of basic support during this period?  Certainly, not the UK where even the most sacred of institutions, bankers' compensation, seem to be under unrelenting attack.

But the story is different across the UAE.

The Emirate of Dubai has guaranteed Peter Margetts twenty years fully paid accommodations courtesy of Shaykh Mohammed.  Yes, you read that correctly, Peter need not worry about where he will rest his head for the next two decades!  And he too will be given opportunities similar to Dirk's to make new friends and contacts.

Ras Al Khaymah has ensured that Frank Khoie will have a place to stay for the next three years.  What a relief not to have to worry about housing when one's mind is pre-occupied with rescuing one's business!

These three accounts prove that the tradition of bedouin hospitality remains intact to this very day.  And one might say even flourishes in the United Arab Emirates since as you will notice three different Emirates have extended helping hands to those less fortunate.  What's remarkable here is that all three are foreigners.  What other country would show such solicitude to foreigners down on their luck?

Dubai Financial Market Provides Unrivaled Liquidity - Passes All Tests

Frankly, when I read this article in the Gulf News, I was more than a little dismayed.  It seems perhaps that not everyone has gotten the editor's memo yet.  I suppose one excuse is that this is a guest columnist .

Here's just one example of the unjustified negativism in this article:

"The most important thing to keep in mind at this time is that the market trend of both the Dubai Financial Market General Index (DFMGI) and Abu Dhabi Securities Exchange General Index (ADI) continues to be down. There is high risk of further declines both in the near and medium term."

Well, aware not only of the Gulf News editor's memo but possessed of a keen civic spirit, I've taken it upon myself to write the article as it should have been written.

Dubai Financial Market Provides Unrivaled Liquidity - Passes All Tests

Special to GulfNews:  Abu 'Arqala  December 28. 2009

"The most important thing to keep in mind at this time, particularly in the light of the unjustified negative campaign being waged against Dubai by the world press, is that the Dubai Financial Market  ("DFM") is thriving and reaching new pinnacles of success.

Under the wise political and financial leadership of the Emirate, the DFM has been providing unrivaled access to liquidity to investors wishing to rebalance their portfolios from equities to cash.  As part of this process, the DFM has repeatedly not only tested its lower support levels, but also in keeping with the spirit of Dubai has surpassed every test.  And thus broken through every barrier placed in its way.

At the present time we can expect this trend to continue, demonstrating yet again that the Emirate is motivated not only by a sound vision but excellence.  And while it may seem a bit self-centered, the DFM can truly claim to have set not only the tone but also the trading pattern for other regional markets as well.  This is after all Dubai - a model for the GCC.

As the Dubai market consolidates at these new levels, it is positioning itself for a renewed period of explosive growth."

The Investment Dar - Adnan Al-Musallam (Chairman/CEO) Interview

AlQabas published a summary of Mr.Al-Musallam's interview in Dubai with AlArabiyya.

Here are the main points:

1. TID never requested that a reduction ("haircut") in principal from its creditors. 
2. The restructuring agreement that 2/3 of the creditors have agreed to ensures them their full rights of repayment.
3. Full repayment is embodied in the transfer of assets to a creditors' committee whose agreement is required for the sale or any other dealing in the assets and as well their safe keeping/preservation.
4. TID's problems occured because at the onset of the crisis creditors refused to rollover/extend debts, shareholders were unwilling to provide more funds and asset sales were not possible.
5. He noted that these difficulties occurred even though TID had diversification in its sources of income - no one source was more than 8%.  TID also had a similar diversification in its use of funds.
6. Liabilities range between KD950 million and KD 1 billion.
7. The 1/3 of creditors who have not agreed are composed of those who are (a) waiting for board meetings to make a final decision or (b) those who refused completely.  And those (presumably the latter group) are very small not worthy of comment.
8. He called for all creditors to join the restructuring or those entities regulating those creditors to agree to the restructruing to achieve their rights because "every contract that TID entered into is subject to the Shari'ah".
9. Those who go to court will wait 3 to 5 years to obtain their rights and won't earn any profit.
10. Therefore, it's in everyone's interest to sign up.

Some comments in the article:

1. His comments indicate that TID does not have a binding restructuring agreement on all its creditors.  Those who have not agreed retain their rights to sue in court.   To the extent that they believe the restructuring fundamentally affects their rights they may sue to have it overturned.  And may be successful.  Certainly, the transfer of all of the company's assets to a segment of creditors would appear to be a preference of one group over another.  In other words, talk that "TID has struck a deal" is kalam faadi. (= empty talk)
   
2. It's unclear to me what is the full import of his comment about Islamic contracts and lack of profit for those who pursue legal means.   Is the Islamic rule that in a court case interest does not apply?  But that would contradict with International Investment Group's lawsuit with the Islamic Development Bank where interest was granted by a local court.  If there's anyone out there who  can explain this,  please post.
3. The comment about supervisory authorities is unclear.  Is this a reference to central banks?  To Shari'ah boards?  It seems to be an appeal over the heads of the creditors.
   
4. For a group not worthy of mention because it's so small, Mr. Musallam is making a fairly strong pitch - which again suggests to me that despite the brave talk of having struck a deal, TID has not.  And, thus, is trying to find a way out of  a difficult place.

As of today, it appears that TID has still not cleared its fiscal 2008 financials through the Central Bank of Kuwait.

And as a final note, if someone out there has a contact at TID, would you be so kind as to suggest they tidy up their website a bit.  The 25 December press release needs some editing attention.  And the 2007 earnings announcements are a bit out of place.

Nakheel Corruption Case: The Iceberg Just Got Bigger

Seems that six individuals have been accused of improriety not just one as mentioned in my earlier post.

I think though that we're still in the shallow end of the pool with the goldfish.

Follow-Up on Earlier Tie Your Camel Post - The Trusting Lawyer

Here's the latest news on an earlier post.

Wouldn't you expect an investor, particularly a lawyer, to check the Commercial Registry to learn a bit about the company before plunking down BD50,000?  In Bahrain the MOIC CR is just a mouse click away.

Dubacle: More Delusion

There's a commentary in The National on the relative negotiating positions of the banks and Dubai Inc which is to put it mildly a bit unbalanced.  It seems much of this is based on comments from the borrower.

It's unclear if this article is meant as propaganda to raise morale on the home front.  Or it reflects the  thinking of decision makers at Dubai Inc - that they really believe they are in the driver's seat.  If it does, a very dangerous delusion.

Certainly, Dubai Inc is not without leverage.  The sheer quantum of debt and the government connection give Dubai a good deal of negotiating power.  But that power is not unlimited.  It cannot serve up whatever dish it wants.  The Banks too have power.

Let's go through the article's contentions.

1. Unless The National is applying Gulf News' new reporting standards for the Dubacle or there is a relatively low local bar for competence, it's a bit of a stretch to think of Dubai's recent actions as being even remotely "shrewd".  Dubai's "clever" play here has caused a real setback not only in Dubai, but the wider world of the Emirates, the GCC and beyond.   A coach whose team has a propensity for "own goals"  should be very careful about imagining himself another Arsene Wenger, particularly if he's called those plays.   Equally such a team needs to be very careful, especially in front of its own "net".  There is a significant difference between the state of play at Emirates Stadium and in the Emirates.
   
2. The "set of incentives and penalties" is less the result of the work of "brilliant" advisors than the simple situation described above.  Dubai Inc owes the banks a shipload of money.  Many of them will be looking for a way to avoid taking a big hit (but note that incentive is not opened ended) and so will be inclined to "extend and pretend" on the loans if need be.  As well, since the borrower is government related, some of the banks (but not all) will want to maintain as good a relationship as possible on the presumption that there will be future profitable business.  
3. It's important to remember that lending is a very low margin business.  Gross interest margins are rarely over 2.5% - and that is before all other costs.  It doesn't take much of  loss of interest or a haircut on capital to undo many prior years' slim margins.  Thus, a "small loss" may be much larger than it appears.
   
4. The payment of interest is a major carrot, but the failure to pay interest also has four very negative impacts on Dubai.  First, it lessens the incentive of banks to play along.   Non accrual is  painful. Why play nice if you're going to take a hit?   Second, many local banks are significant lenders.  Non accrual will be at least as painful, if not more, for them.  Therefore, it is not just "foreign firms" who find interest "especially" important.  And many of the largest local lenders happen to be government owned banks in Abu Dhabi and Dubai.  So non payment of interest is not without some very direct and visible consequences.  Third, non payment of interest is not only going to set back efforts to repair the harm already done to the reputation/status of the DIFC, the local stock market, the good Shaykh himself, etc but also will aggravate it.  As well, it's likely to cause additional damage elsewhere in the region.  Fourth, non payment of interest is going to increase pricing on any new loans and dramatically diminish their volume  - not only to Dubai but to other regional borrowers.  Clearly, withholding interest is not without very serious risks for Dubai.
   
5. The imposition of the DIFC insolvency/reorganization law is a double edged sword.  Yes, it gives Dubai Inc a way to get a legally enforceable standstill in the UAE and probably other jurisdictions without bank agreement.  It also means that 100% creditor agreement isn't necessary to close a refinancing.  However, it takes the case out of the inadequate local legal system and gives the creditors important rights and a very visible "Western style" legal forum.   The borrower cannot hide behind local courts nor use the excuse that local law won't let it do something.  Or simply shrug its sholders and say "Well, that's the local court system for you".   With the case in the DIFC court and under the DIFC law, should Dubai Inc attempt to game this forum or ignore its decisions, then the very basis of the DIFC is profoundly undermined as is any pretension to a transparent fair system in the Emirate.  Thus, the banks can use or threaten to use this forum to upset those pretensions if Dubai does not play "nice".   If Dubai Inc fails to pay interest, the banks can make a case that the company is truly insolvent and should be wound up.  And filing such a case does not require that a majority of creditors agree.  Chapter 5 Paragraph 51 of the DIFC Insolvency Law states that one of the tests of insolvency is that a company be past due on an amount over US$2,000  for three weeks without agreement of creditors.  A standstill of course legally stays this route.  But how long could the DIFC Court allow a standstill to remain, if creditors cannot agree a rescheduling?  And at what point do creditors claim the court process is rigged if the court refuses to end the standstill? Could Shaykhly pride accept either of these two developments as both entail the very visible ending of the Dubai dream?  Wouldn't a disguised unwinding be more palatable just as an "extend and pretend" for the banks would be?  If, of course, such is needed.
   
6. The writer seems to presume that Aidan can decide "how big a haircut" he wants to give creditors, dictate the terms to them, and they will meekly accept.   Sadly, this is a typical regional debtor approach in many cases - to try to skin the banks for more than is needed.  But the writer's belief to the contrary, any haircut will have to be justified by economics.  A great deal of the incentive of the banks to play along is to minimize the amount of loss taken.  The first element is the  absolute amount.  Banks will not take whatever Aidan decides.  The second element is the timing.  Banks will want to minimize any immediate loss.  Many a rescheduling has shifted known problems into the future - hoping for a miracle.  And the personnel involved prefer that any serious damage occur on someone else's watch.  And even, if writer is correct and banks may have to sit still for Aidan's haircut, they do not have to come to the Dubai or UAE barbershop again. That is, they can withhold new loans.  Any haircut justified or not will have an impact on new extensions of credit.  A large  haircut or one that is seen as unjustified will act as a potent drug against bankers' anmesia (future loans and future pricing).  Since Dubai on its own cannot execute its economic plans without new loans., this seems a rather dangerous thought much less a strategy.  That is, unless Shaykh Khalifa is going to fund all new projects.
7. As well, while the old saying that it is easiest to forgive oneself is no doubt true.  A haircut for creditors also affects local banks.  Many of whom are owned by either Abu Dhabi or Dubai.  Both Emirates would have to provide additional capital to their banks.  One might argue that on a net basis Dubai would gain (the Emirate would benefit from a net reduction in loans), but that would be to ignore the very real negatives mentioned in Point #6.
   
8. It's likely that many original creditors have sold their positions.  The new creditors bought at a discount and are looking for a quick turn on their money.  They have no interest in a relationship with Dubai World, Dubai Inc, Dubai, the UAE, the GCC etc.  They will not go gentle into the night.  They are likely to play very hard ball as QVT did on the Nakheel Sukuk.
   
9. Failure to agree a debt rescheduling within an artificial deadline also harms Dubai and the region for the reasons mentioned above.   So Dubai has an incentive to work towards a deal as well.  Many a bank group has told a debtor that it has to make a concession because it's impossible to "herd the creditor cats".  In fact, that is a well known creditor strategy in a rescheduling.  There will numerous small "cats" among the creditors refusing to go along on the hopes that they can be bought out if they cause enough trouble.  The DIFC law requiring just over 75% of creditors' agreement to impose a refinancing is a bit of an antidote, but it's not a miracle cure.  QVT had no trouble assembling by some accounts 40% of the Nakheel bondholders to oppose any payment delay.
10. From a technical aspect, the creditor group involves a variety of diverse groups - traditional lenders, "Islamic" lenders, syndicated loans, bi-lateral loans, bonds, sukuks, etc.  All with different interests, legal positions, etc.  A large and very diverse group of cats to herd.  The thought that this will be all neatly packaged by April is a bit optimistic.  And the onus will be on Dubai to continue paying interest to avoid upsetting the banks.  And note that most syndicated loan agreements contain a clause that requires 100% creditor consent for an extension of maturity, change in interest rate or any serious change in creditor rights.   A "haircut" would certainly fall under these clauses.  And so one bank out of 100 in a syndicate can hold up the entire syndicate's agreement to a rescheduling as the DIFC law does not apply within syndicates.
    
11. Finally while it may come as a shock to the writer at The National, most rescheduling negotiations take place after a debtor has actually defaulted.  History would suggest that default does not convey any special power to the debtor.  It merely reflects the reality of the simple fact that the debtor cannot pay its debts.  The terms of the restructuring of Global Investment House and the failure of The Investment Dar to close its own restructuring should be ample caution to those who feel defaults place overwhelming power in the hands of borrowers.
    
12. Probably, the biggest omission in the article is the position of Abu Dhabi.  Abu Dhabi has "invested'' US$25 billion of its own funds in Dubai for debt support - US$10 billion through the Central Bank, US$5 billion through AlHilal and NBAD and US$10 billion itself.  Not to mention other charitable works it has undertaken in the Emirate.  A financial Armageddon in Dubai could cost it a pretty penny.  So it's unlikely that Shaykh Khalifa has given his "brother" Shaykh Mohammed a blank check to engage in silly power games with creditors - given the potential impact on those financial subventions as well as the larger interests of Abu Dhabi and the UAE.

While Dubai has a good hand in this card game, I think the creditors have a better hand.

For the foreign banks by and large Dubai is a samak saghir in the context of their overall business.  And regional titans of finance - both governmental and otherwise - should realize that in the context of these firms' global business, the region is no larger a fish.   A painful loss in Dubai will not be life threatening.

Local banks bear more risk though no doubt the government would lend a helping hand if need be. 

That is not the case for Dubai.  And Dubai has as well to deal with Shaykhly pride.  The Queen will not lose any face over a failure to resolve the Dubacle. The good Shaykh may. 

What is the critical issue now is that both sides put away any juvenile attitudes.  The rescheduling will require very hard work.  Both sides should approach it on that basis with decisions founded in economic reality.   This is not the time for bragging and schoolyard attitudes.  It is time for professionalism.

3-0 Again!

I'm beginning to like the repetition, though would not be adverse to increases in the first number.

The Bigger the Better: UAE Banks Capital Largest in Arab World

A report from WAM.

Capital is one measure of the health of the banking system.  The other would be the quality of assets.  And then capital adequacy ratios.

Tip of the Iceberg: Nakheel Consultant Charged with Accepting Bribes

This is just the tip of the iceberg.

As one of my local mates from another Gulf country said to me during a visit to Dubai,  "This is impressive, there's quite a lot of business potential".

When I objected that most of the building was speculative, he remarked, "No, not the construction.  The commissions".

Those who follow Dubai will recall a raft of court cases from early 2008. 

SR is just a samak saghir.

Hadith Qudsi #21

 

 
Greed knows no bounds.

For some people it's not enough to hire workers for starvation wages.  One has to figure a way to cheat them out of their dues.

There's pretty good authority that Hadith Qudsi #21 applies to both Muslims and non-Muslims.

Saudi Volcano ? !

Maybe it's my lack of familiarity with local geology but this is something I never would have expected:  the possibility of a volcanic eruption in Saudi.

The region is 150 km northeast of Yanbu.

Apparently this story began "heating up" around May or so this year.

Agility Confirms Merger of Qatar Subsidiary with Gulf Warehousing

Agility Kuwait announced on the KSE today that it was in the final stages of negotiations for the merger of its subsidiary Agility Qatar with Gulf Warehousing.   Agility Kuwait owns 49% of Agility Qatar.  Agility notes that it first announced merger plans last January.  So this merger is not related to the court case in the USA against Agility.

Below is the KSE announcement.

[8:38:2]  ِ.ايضاح من (اجيليتي) بخصوص اندماج "اجيليتي قطر" مع "الخليج للمخازن"‏
يعلن سوق الكويت للاوراق المالية ان شركة المخازن العمومية (اجيليتي) تود
ان توضح بخصوص ما نشر مؤخرا في الصحف حول ان الخليج للمخازن ‏
تقترب من الدمج مع اجيليتي ،تفيد الشركة وكما اعلنت في السابق في يناير2009‏
ان شركة اجيليتي قطر والمملوكة بنسبة 49% لشركة المخازن العمومية (اجيليتي)‏
دخلت في مفاوضات جدية مع شركة الخليج للمخازن، المدرجة في سوق الدوحة ‏
للاوراق المالية لدمج عملياتها، وانها حاليا في مرحلة وضع التفاصيل النهائية
لعملية الدمج .‏
وسوف تقوم الشركة باخطار ادارة السوق باي شيء جديد بخصوص عملية الدمج في ‏
حينها .‏

And here  is the announcement by Gulf Warehousing from January 2009 that it has signed an MOU with Agility Kuwait for the merger which is described as being designed to create the largest logistics company in Qatar.

Ahmad Muhammad AlMishary Resigns from Board of Commercial Bank of Kuwait

KSE announcement below.

You'll recall that Fuad Dashti resigned earlier this month.

[13:41:56]  ِ.استقالة عضو من البنك التجاري الكويتي ‏
يعلن سوق الكويت للأوراق المالية بأن البنك التجاري الكويتي ‏
أفاده بأن السيد / احمد محمد المشاري قد قدم استقالته من عضوية ‏
مجلس إدارة البنك التجاري الكويتي وان مجلس الإدارة اعتمد ‏
استقالته في اجتماعة المؤرخ في 23-12-2009 .‏

Merry Christmas

Holy Family Cathedral Kuwait City - Picture Copyright Arab Times Newspaper Kuwait

And here is the newspaper article.

Kuwaiti Banking Sector Review

Al Joman Center for Economic Consulting has issued a report on the Kuwaiti banking sector through the first three quarters of 2009.

Here's the text, which I found, on one of their interactive blogs. Note that the bank labels in the penultimate chart appear to be wrong. I'm presuming this is an early draft.

First, a summary of the data from the report. All amounts in the below tables are KD millions.

A market share summary.  Net loans are after provisions, which are discussed in the next table.

Bank	Gross Loans	Market Share	Net Loans	Net Market Share
Natl Bk Kuwait	7,823	28.4%	7,532	29.3%
Gulf Bank	3,877	14.0%	3,418	13.3%
Commercial Bank	2,676	9.7%	2.402	9.4%
Ahli	2,149	7.8%	2,003	7.8%
BKME	1,637	5.9%	1,544	6.0%
KIB	821	3.0%	761	3.0%
Burgan	2,388	8.7%	2,276	8.9%
KFH	5,472	19.9%	5,036	19.6%
Boubyan	715	2.6%	690	2.7%
TOTAL	27,558	100%	25,662	100%

Analysis of loan loss provisions for total provisions as of 30 September 2009.

Bank	Total Provisions	% of Gross Loans	% of Total Provisions
Natl Bk Kuwait	291	3.7%	15.3%
Gulf Bank	459	11.8%	24.2%
Commercial Bank	274	10.2%	14.5%
Ahli	146	6.8%	7.7%
BKME	93	5.7%	4.9%
KIB	60	7.3%	3.2%
Burgan	112	4.7%	5.9%
KFH	436	8.0%	23.0%
Boubyan	25	3.5%	1.3%
TOTAL	1,896	6.9%	100%

Analysis of loan loss provisions taken during the first three Quarters of 2009.

Bank	2009 Provisions	% Gross Loans	% of Total
Natl Bk Kuwait	35	.5%	7.1%
Gulf Bank	101	2.6%	20.4%
Commercial Bank	74	2.8%	14.9%
Ahli	30	1.4%	6.1%
BKME	34	2.1%	6.9%
KIB	19	2.3%	3.8%
Burgan	50	2.1%	10.1%
KFH	137	2.5%	27.7%
Boubyan	15	2.1%	3.0%
TOTAL	495	1.8%	100%

Now for some introductory comments:

First, individual banks' portfolios differ and therefore the level of provisioning should as well. A bank with a higher percentage of consumer loans would on average by expected to have a lower loan loss reserve than one dealing with below investment grade companies. For example, National Bank of Kuwait has a more international portfolio than the other Kuwaiti banks, though that is only one factor affecting NBK's loan loss reserve.

Second, the management of each institution makes a determination as to the appropriate level of provisions using a variety of assumptions and estimates. Conceivably banks could rate the same loan as requiring different provision levels.

Third, while external auditors review financials including provisions, they have to rely on their assessment of a management's estimates and assumptions and how these are applied to the loan portfolio. It's likely that two different audit firms might hold different views on the required provisions for the same loans. Additionally, in Kuwait the Central Bank must approve the financials of each firm it regulates before publication. Often the Central Bank requires changes as a condition for approval.  You will recall that in November the KSE had warned Burgan and Commercial Bank that they would be suspended from trading if they did not provide their financials by the next Monday.  Both banks made the deadline. But it's a reasonable guess that the financials were delayed due to discussions with the Central Bank about the adequacy of provisions, though this is not the only possible explanation. If provisions were an issue, the discussion was probably not a criticism of excessive provisions.

And now some conclusions:

1. On a macro level, the deterioration in loan portfolios is clear.  As Al Joman notes, 26% percent of the aggregate outstanding provisions were taken in the first 9 months of 2009.  Problematical sectors are real estate and investment firms as well as specific exposure to AlGosaibi and Saad.  Kuwait banks do not seem to have any significant exposure to Dubai Inc.
   
2. Among Kuwaiti banks, NBK appears to have the "best" portfolio. This is no surprise to anyone who knows NBK and Abu Shukry. They've dodged  previous lending problems (e.g., the Suq Al Manakh) due to their generally sound underwriting standards and business prudence.
   
3. Gulf Bank  and Commercial Bank have the highest ratio of provisions to gross loans which is probably a good indication of the riskiness of their portfolios.
   
4. KFH and KIB (the old Kuwat Real Estate Bank), and Boubyan are "Islamic" banks representing some 22.5% of the financing market. BKME sees a growth opportunity here as that is the reason for its decision to switch to Shari'ah compliant banking. NBK, the clear market leader, also is interested in this segment as evidenced by its acquisition of 40% of Boubyan.