Headline edited based on subsequent information. See post here.
A story highly relevant here to Suq Al Mal - given our masthead and "mascot" picture.
Today's AlQabas
reports that banks in Kuwait have received formal notification from the Office for the Clearance (Settlement) of Deferred Sales Shares Transactions informing them that judgment against Mr. Bu Khamseen in favor of the Office had been issued by the Court that he was to pay KD14,707,833.208 plus legal interest of 7% p.a. from 26 December 2002 to date of payment.
The Court order is final and there is no appeal. In the subsequent post you will see that Mr. Bu Khamseen's lawyer challenges that assertion.
Accordingly, the banks were instructed to inform the Office of any of his assets in their possession, not to release any of these to him, but rather to pay any amounts immediately to the Office's account at Burgan Bank.
Jawad is one of the major punters in Kuwait. He was one of the four or five "Fursan Al Manakh" ("Knights of the Manakh") responsible for the majority of the postdated check issuance during the Suq Al Manakh ("SAM") scandal.
The SAM was a "curb" or parallel market to the Kuwaiti Stock Exchange. Most of the companies traded therein were not Kuwaiti. And many if not all were paper companies with no assets or real businesses. Transactions were settled with post dated checks. Investor A would buy stock from Investor B against a check to be cashed in the future. Investor A hoped to sell the shares to Investor C and cover his original check before "maturity".
As is common in many GCC countries, writing a check without cover is an offense punishable by imprisonment. Hence the use of the post dating. However, there was no legal bar to a holder submitting a check prior to its date. The market took off. In late 1982 investors started to get nervous and one or more post dated checks were cashed. Punters couldn't cover them which led to more checks being presented. The market collapsed in a tremendous implosion in 1982 (1983?). The wreckage was much more than the current declared debt of the Emirate of Dubai. US$98 billion. As noted above, 4 or 5 "investors" were responsible for most of the checks.
Many of the banks in Kuwait - save for the flinty eyed bankers at National Bank of Kuwait - were involved in financing transactions in the SAM. Loans based on the collateral value of the SAM shares. That is, loans made against paper profits (where the underlying companies were paper shells). No focus on cashflow. A familiar story. And one that has repeated itself since the SAM.
All the Kuwaiti banks save - NBK - were bankrupt and rescued by the Kuwaiti Government who bought their duff debts after the ejection of Saddam Hussein. Take a look at Note #8 in the 2003 Gulf Bank
annual report. Or Note #7 in the 2003 Burgan Bank
annual report. You'll see that Burgan Bank was a major player. Banks in other countries were hammered as well. There was a region wide stock market mania - with IPOs being massively oversubscribed.
Overnight I'll be approaching one of my early bosses to ask for a bit more color as the SAM crisis took place on his watch. If I get anything interesting I'll post it.
It's the least we can do for those who inspired this website. They were of course not the first temporally, but they were the first in terms of amounts of wealth destruction in the area. And still hold that distinction though I believe that currently there is a strong challenger.
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