Two articles in AlQabas for 12 May.
- On the Board: Badr AlAhmad as Chairman and Ali Al Awadhi as Vice Chairman.
- On 1Q10 earnings and strategy.
Frankly, both of these stories are hard to believe.
In the first we're told about the election of Badr and Ali with a side note that Mr. Ali AlMoussa (You'll remember him as the hero in the corporate governance charade at CBK's April OGM) wasn't able to join the Board because the "authorities" (the MOIC and the KSE) are cracking down on standby directors requiring that they hold qualifying shares. And Brother Ali hadn't bought his. You'll recall he'd been mooted to take Dherar Al Rabah's place as Chairman. Wonder if Ali owns any KIB shares? Dr. Mahdi AlJazzaf, another director, also had to resign. given "other commitments" which necessitated his resignation. It's unclear if these pre-dated his election. Or recently developed. Some how I'm guessing the latter. It seems that directors' flu is not only quite virulent but also highly contagious.
Anyways to make an unbelievable story short, with AlJazzaf's resignation, another reserve director's no doubt reluctant excuse not to serve (Abdul Rahman Al Ali), and Ali Al Moussa's slip of the mind about buying qualifying shares, it seems the Board has decided to have an OGM for shareholders to elect a new Board. Shareholders will be asked to submit candidates whose names will be submitted to the Central Bank for approval. Then the OGM will vote.
I hope your credulity isn't strained yet, because we haven't yet come to the "tafsir" on the 1Q10 financials. And there is still some very heavy lifting to be done in the "Believe It or Not" Department.
First some comparative data. 1Q10 Operating Profit was KD22 million versus KD25 a year ago. In 1Q10, CBK decided to take all Operating Profit to its reserves for loans and investments. This led to a KD1.4 million loss versus a net profit of KD3.3 million in 1Q09. CBK's CAR is now 19% versus 18.22% at 31 December 2009. Expenses are down due to a rigorous expense control program - some 10% from 1Q09.
Explaining the decision, the article (which I suspect is based on a press release) states that this heavy provisioning was done to strengthen the bank's financial condition. Here one is reminded of Jamie Dimon at JP Morgan Chase and his famous fixation on the "Fortress Balance Sheet".
All well and good, but it seems to me that it is highly unlikely that a bank would deliberately incur a loss to strengthen its balance sheet since by incurring a loss it was depleting capital. And preserving capital is a great way to have a strong balance sheet. Rather I suspect that the Central Bank leaned on CBK to provision a certain amount to deal with known problems.
Other tidbits from the report are that CBK has hired an international consulting firm to help it with its strategy. A presentation to the Board elected this month is expected shortly. Since CBK is likely to have a new board as outlined above, I'm not sure if this makes a whole lot of sense. Note: I'm not referring to the strategy but to its presentation. More on the strategy in the next paragraph.
While the strategy isn't yet finalized, it seems that will be built on a focus on Kuwait.
Kuwaiti banks face a real strategic conundrum. The Kuwaiti market is relatively small with not much scope for expansion of really productive business - which explains why there is a lot of speculation and a plethora of bone-headed business ventures. Some would say that the construction of the Kuwaiti economy actually forces businessmen into this sort of activity because other areas are closed to them. And no doubt there is a lot of truth to this. Also there are too many banks fighting over this limited pie. - which leads to all sorts of silly competition. Another real problem is that what pass for acceptable business practices in Kuwait make the practice of prudent banking difficult.
Perhaps, a kindly paternal figure can help sort out this mess. Or at least hire better script writers.
Hopefully, some of our readers will comment to expand the story and correct any errors in this post.
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