The Investment Dar – Review of 2008 Financials

Further to my earlier post, in which I discussed primarily the auditors' report on TID's financials, here are some additional comments.

Treasury Shares

The Consolidated Statement of Changes in Equity and Note 18 (Page 30) shows that TID and its associates owned 60,708,612 in Treasury Shares with a cost of KD45.224 million and a market value of KD6.192 million (13.7% of cost!). 

This is significantly larger than the holdings disclosed in TID's 3Q08 financials of KD9.820 million or 14,097,720 shares. 

Two reasons for the change. 

1. First, the inclusion of holdings of associates. 
2. Second, some minor 4Q08 buying by TID itself. 

Of the two, the associates' holdings were the most important factor. 

1. As at 31 December 2007, they held 35,019,092 shares at a cost of KD21.630 million and at 31 December 2008, 45,135,892 shares at a cost of KD34.993 million. 
2. As of the end of 2008, TID itself held "only" 15,572,720 shares.
   

Let's take a look at trading activity. Unfortunately, TID has not restated its interim financial reports for 2008 so we cannot determine quarterly trading patterns for the associates. 

1. In 4Q08 TID purchased net KD0.411 million. And for the entire year actually sold some KD1.2 million worth of Treasury Shares.  
2. For all of 2008, TID's associates purchased 10,296,800 shares for KD13.363 million. That would mean an average purchase price of KD1.321 per share. When I look at the KSE records for 2008, it seems that March 16 and 17 are the only two trading days with a price of KD1.320 when some 12 million or so shares traded.

Assuming that TID's associates bought their 2008 shares at market and looking at TID's own trading position, it seems there were no significant 4Q08 share transactions by the Group to influence its price – a time when one might have expected an effort to prop up the market value. 

Notable high volume days were 25, 26, and 27 November when 31.4 million, 14.4 million and 15.2 million shares traded roughly in the KD0.220 range. And then again on 17 December when 31.4 million shares traded at KD0.203. And finally on 23 December when 42.3 million shares traded at KD0.157.

Investments at Fair Value through Profit or Loss

In Note 5, Page 19 we learn that "Unquoted local funds with a fair value of KD55,575,647 as of 31 December 2008 (200&7: KD60,710,023) are in funds managed by the Group. Approximately, 52% of the assets of these funds of KD65,287,835 are held by the Group under Murabaha and Wakala payables."

Murabaha and Wakala Placements

Note 7 Page 20. A couple of points here. 

First, as you'll see M&WP with non financial institutions jumped from KD12.7 million in 2007 (7.3% of all M&WP) to KD43.3 million in 2008 (37.6%). From the Note these do not appear to be with related parties. However, TID has some KD51.2 million placed with a related party as of FYE2008. 

We also learn that as of 31 December 2008, it did not hold any collateral on these placements but subsequently acquired KD33.9 million of collateral (exact nature unspecified). 

KD51.2 million represents 44.4% of M&WP which seems a "bit" excessive in terms of risk concentration, especially since collateral seems to have been an afterthought. This amount is roughly 25.4% of FYE08 equity, though year end equity has been depressed by losses and fair value declines so it may be fairer to look at 30 September 2008 equity when the ratio was 11.3%. This analysis assumes of course that TID had no other exposure to this same related counterparty.

Financing Receivables

Note 8 Page 21. TID advises that subsequent to 31 December 2008, it acquired 8.7% of the equity in Bahrain Islamic Bank (an associated company) as settlement of a finance receivable of KD21,237,253. The market value of the shares was KD12,256,833. 

Somehow TID determined that it should recognize KD10,706,237 in goodwill on the transaction. 

And somehow TID's auditors signed off on this. When AA learned his accounting, a transaction was valued by the "boot" received. When there was a market price, that was the "boot" (value). So it's unclear what the basis was for recognizing this rather substantial amount of goodwill.  I guess it's a stark lesson of the need to stay current.  Back to the books for AA!

Investment Properties

Note 10 Page 22. TID advises the subsequent to 31 December 2008, it settled an outstanding Murabaha of KD16,763,386 by transferring property worth KD15,797,730. As a result it recognized a profit of KD965,656 on the transaction! The identity of the "wise" lender in this exchange was not disclosed. Perhaps, the "discount" was the price of an early exit and an excuse from the restructuring. It's unclear how the property was valued.

Investments in Associates

Note 12 Pages 23 -26.

Stehwaz Holding and Rehal Logistics

Page 23. During the year, TID reclassified investments in Rehal Logistics and Stehwaz Holding from investments available for sale to investments in associates where it could use the equity method of accounting instead of the previously used fair value (market price in this case). This reclassification magically created provision goodwill of some KD73.5 million which TID notes it wrote down to KD23.0 million. You may recall from an earlier post of mine that 47 shareholders in Stehwaz had raised some serious charges against TID and the management/board of Stehwaz.  Related to, if I remember  correctly, allegations of manipulation of fair values.  Allegations I'd hasten to note are not judicially proven. Also if I haven't mentioned it before Mr. AlRabah - the peripatetic director at Commercial Bank of Kuwait elected in what was portrayed at the time as a successful campaign to enhance corporate governance was Chairman at Stehwaz during this period.

Boubyan Bank Shares

Page 24. The Note also contains TID's side of the Boubyan Bank share dispute with Commercial Bank of Kuwait. 

Let's let TID speak for itself here.

"The Group's investment in Boubyan Bank (KSC) was transferred to a local bank under a repurchase agreement as part of an agreement with that bank to act as an advisor for restructuring of the Group's debts. The Group revoked the repo agreement when the local bank terminates the advisory agreement. However, the bank did not transfer title of these shares back to the Group but set off its value of KD94,103,965 against amounts due from the Parent Company of KD74,616,098 which is included in Murabaha and Wakala Payables as of 31 December 2008. The Group is pursuing legal action for recovering ownership of these equity shares. The Group carries the investment at its adjusted acquisition cost under equity method of accounting. The fair value of this investment as of 31 December 2008 was KD88,311,406. Subsequently, the Group ceased to have significant influence over Boubyan Bank since it is no longer represented on its Board of Directors when it was reconstituted in April 2009, and has reclassified it as investment available for sale from that date. On 16 June 2009 the court issued a verdict to suspend dealing on those shares temporarily, pending a ruling on the dispute."

This particular disclosure is intriguing, though its wording is obscure. My understanding was that that repo was a new transaction. In 4Q08 CBK bought the shares and gave TID some US$250 million. TID was supposed to buy the shares back in early 2009. On that basis, it's unclear to me how this transaction is related to the restructuring assignment. TID could retrieve the shares (at least theoretically) by giving CBK the cash on maturity. It did not. To be fair, it could not due to lack of funds. 

One other potential reading of this paragraph is that TID gave the shares to CBK in a non cash transaction. That is, it made CBK a secured creditor so it would lead the restructuring. That would seem to be what I'd call a preference (though careful readers aware from my above comment that I lack familiarity with the intricacies of Kuwaiti accounting standards may have drawn a similar conclusion about my knowledge of Kuwaiti laws).   Since this has not mentioned in anything I've seen, I am discounting this second explanation and not as TID did using a 3% perpetual growth rate in my valuation.

Taking the relative share prices of BB at 31 December 2008 of KD0.400 per share and the current price of KD0.540, the shares should be worth roughly KD127 million. If we assume CBK and TID settle for CBK's principal plus additional interest since the setoff, TID should get roughly KD49 million or so in return.

Prodrive

Page 24. During 2008, TID exercised an option to acquire 40% of Prodrive for KD11.2 million of which KD7.1 million is payable and the remaining KD4.1 million is a liability. TID has provisionally recognized some KD8.7 million in goodwill on the transaction. It's unclear what the timing is for TID's payment of these amounts is. Presumably, failure to pay might affect its ownership rights or the acquisition price.

Various "Investment Properties"

Page 25. Again another quote from TID. 

"The underlying assets of certain associates carried at KD237,502,699 in these consolidated financial statements are investment properties in Bahrain and Dubai carried at fair value. The Group's share in associates' results, includes gains on revaluation of these investment properties of KD60,657,096 based on the average of the range of values of independent valuation experts. Subsequent to the balance sheet date, these associates have reported a significant decline in the carrying value of these investment properties. Consequently, the carrying value of the investment in these associates has declined by KD60,622,492 as of 30 September 2009. The associates have not yet determined the impact of change in market values after that date and up to the date of these financial statements."

Impairment Testing

TID has recognized some KD61,560,335 for impairment in associates. It is unclear to me if this amount includes the KD60.6 million related to Various Investment Properties referred to above. Or whether it is before this number? Meaning that additional fair value decreases may be required.

Murabaha and Wakala Payables

Note 16 Page 28-29. This note is interesting for what it tells us about The Investment Dar Bank Bahrain (in which TID has roughly 79% shareholding and so therefore effective control). It seems TIDBB placed some KD253 million with TID on an unsecured basis. This seems a rather large amount / risk concentration by TIDBB with TID. 

Earlier press reports suggest to me (but don't prove) that some of these funds may have been customer investment accounts – in effect Islamic "trust" accounts either RIA (Restricted Investment Accounts where the client designates the investment) or URIA (Unrestricted Investment Account the client does not).

If I'm not mistaken the Central Bank of Bahrain amended one of its regulations for Islamic Banks to limit exposure to a single counterparty of the Islamic Banks own funds, RIA and URIA to 35% of regulatory capital. Often (but not always) when a Central Bank amends a regulation it is dealing with a problem that has occurred. No way to know for sure here. Post hoc does not necessarily mean propter hoc.

Final Comments

After reading TID's 2008 financials, I have some questions about he valuation of  some assets. As later financials are released, this topic will hopefully become clearer.

Global Investment House –Commentary on 2009 Financials & Rescheduling

Earlier yesterday when I saw that GIH had posted summary 1Q10 financials, I decided to do a quick comment while waiting for the full report. 

That reminded me that I had not taken a close look at their audited 2009 annual report. So as a way of preparing to comment on 1Q10 I did. 

Now instead of commenting on 1Q10, I've decided it's preferable to first make some comments about 2009 FYE as a way of providing a basis for later comments. And, as you quickly see, spouting off on a topic or two along the way.

Cash and Banks  - Less Than Appears

Note 12 Page 48: At year end, Cash and Banks was a robust KD101.2 million. A closer look at Note 12 discloses that KD55.1 million was cash at subsidiaries. That is, this cash is in separate legal entities (at least KD28 million at Al Thouraia) and not necessarily at the disposal of GIH. 

AlThouraia -A Strange Saga

Note 24 Page 57: It seems that a KD43.3 million deposit that AlThouraia Properties placed with a local bank was offset by that bank against a loan made by that bank to the Parent, GIH. It's unclear to me what the legal basis for this offset is. Did AlThouraia guarantee the loan made by the bank to GIH? If not, how does the bank cross legal entity lines? 

Particularly, when GIH only owns about 83.36% of AlThouraia, what is the basis for stiffing the minority shareholders on the offset? By the way GIH "recognized" the offset in its financials.   No skin off its nose as they say.

Note 25 Page 57: This discusses the acquisition of Al Thouraia through an asset swap – non cash. The assets are described on Page 58. In effect through this transaction, GIH acquired control of this company, added KD28 million or so to its cash balance, and removed KD83 million in borrowings (from Al Thouraia) from its balance sheet on consolidation. Note GIH does not necessarily have control over the new cash. And it's likely that the KD83 million in debt remains a legal obligation of GIH so that impacts GIH's (the Parent's) cash position contrary to the impression from the consolidated numbers.  It's not only down KD28 million but another KD83 million.  This transaction may also be a very convenient way of dealing with a troublesome issue as discussed below - Saudi Mazaya.

Page 58 reveals that Al Thouraia Project Management Company was established in 2008. Having raised a large amount of capital for no doubt worthy investments, it decided to place most of it with a single financial institution – which technically was not a bank but a entity with an investment firm license. Now why would Al Thouraia's highly responsible board do something like that?   Of course, some out there asked similar impertinent questions about the placements by Global MENA Financial Assets with GIH.

Well, it knew the credit of GIH intimately as this press release shows. And as we learn there: 

"Global announced the launch of Al-Thouraia Project Management Company's capital increase to KD180 million.  Al-Thouraia shall be utilized as a Special Purpose Vehicle (SPV) to invest its whole capital in Mazaya Saudi for Commercial Investment Company "Mazaya Saudi", which has been incorporated in the Kingdom of Saudi Arabia, and will be managed by Mazaya Holding Company "Mazaya". Global Acts as Lead Manager Al-Thouraia Project Management Company." 

If you've been reading the readers' comments to this blog (where you will often find more informed comment than in the main articles), you have seen The Rageful Cynic's link to a post on the saga of Saudi Mazaya.

Debt Rescheduling - "The Most Short-Sighted Unrealistic Deal of 2009"

Note 29 Page 61-62 details the debt rescheduling.  To put my comments in context, note that this US$1.7 billion equivalent deal is secured by US$1.4 billion in principal investments and US$0.3 billion in real estate.  All conveniently hived off into separate companies so that that the lenders should have an easier time of taking ownership.  They merely have to take the equity in the holding companies.  No need to re-register a plethora of individual assets in their own name.

This transaction, as GIH constantly reminds us, won the "Most Innovative Deal" by Euromoney for the Islamic tranche. And you can read more praise on pages 20 and 21 of GIH's 2009 annual report.  Earlier GIH also issued a brochure full of self praise.

After looking through the terms of the deal, I'd like to belatedly award the entire transaction "The Most Short Sighted Unrealistic Deal of 2009". 

A charitable soul would be likely to give GIH's management the benefit of the doubt – that they were coerced into signing this deal.   In evaluating this it would be useful to know just how hard they fought these terms, if at all.

I'm at a loss to find even a single kind word to say about financial institutions that would impose such a deal on a borrower. Banks are not to be faulted for trying to get back the amounts they loaned. But the terms of a rescheduling should be designed to minimize the damage to the borrower.  Milk the cow don't kill it.  

This deal, as you'll see from the details below, does not do this but sets a thoroughly unrealistic repayment schedule and then couples it with interest rate step ups and other onerous clauses. 

Repayment Schedule:

1. Year 1: 10% 
2. Year 2: 20%. 
3. Year 3: 70%. 15% in the first six months, 20% in the next six months and 35% at year end. 

Did anyone in their right mind think this was achievable without causing great damage?  That markets would recover that fast?  Did anyone notice that GIH has almost KD41 million in bonds maturing during Year 3 on top of this debt service? Even if markets have recovered a sale of that size - a literal fire sale - is likely to burn a lot of value up.

Interest Rate: 

1. Year 1: 1.5% plus Libor, EIBOR or Central Bank of Kuwait discount rate). 
2. Year 2: An additional 1% on the margin, taking it to 2.5%. 
3. Year 3: An additional 1 % on the margin, resulting in 3.5%. 

The interest rate step-up is designed to put pressure on GIH to meet the unrealistic repayment schedule. It's hard to see the rational rationale for this.  If the term were longer, say 7 to 10 years, this might make sense (though with the step ups a little more spread out).  But with the short tenor, it doesn't make a lot of sense. How many whips do you need to apply to the horse?   And, if GIH can't sell its assets, another 1% is not going to suddenly cause them to do so.

Fees: 

1. A 1% flat fee on the amount of the rescheduling.
2. Plus 0.25% of the amount rescheduled starting on 15 December 2008 to the date of signing. Both amounts to be capitalized. 
3. Then 24 months after signing another 1% flat fee on the amounts outstanding. Also to be capitalized.   A third whip?  Same comment as above.  If GIH is in a tough spot, an extra 1% on the debt isn't going to move them one way or the other.

Covenants:  

GIH commits to maintain: 

1. Asset value to debt outstanding of .75x. 
2. From 30 June 2010 a minimum Capital Adequacy Ratio of 5% increasing to 7% from 1 July 2011 through final repayment 9 December 2012. 
3. If GIH fails to repay 40% of the original facility amount by the second anniversary, the banks have the right to convert the shortfall into GIH shares. 
4. Finally, the proceeds of any new equity raised must be used to prepay the rescheduled debt. Funny I must have missed that point in previous discussions about GIH's approval of its Rights Offering. Did anyone (including GIH's wise creditors) think that potential shareholders are going to be excited about buying new equity in a firm that can't pay dividends and where the proceeds of the offering will not be used to build the business but to pay back apparently rather greedy lenders? Might it not have been a better idea to let GIH raise capital without requiring that it be used for debt prepayments? On the theory that additional capital would build the business capacity which would strengthen the banks' position.  And of course once the cash was in the till, it could be used for cash shortfalls on debt repayments?  Looks like a case of "wise" bankers shooting themselves in the foot.  One wouldn't use the expression "shoot themselves in the head" here as it's pretty clear there would be more damage caused by a bullet in the foot than one in the head to this wise collection of lenders.

No wonder the lenders were besides themselves with effusive praise for GIH and its management. It seems that GIH gave them everything they asked for. Or perhaps just about everything.  Whether this is all achievable or makes the best sense for the banks is debatable.

The only thing I can think of that would justify such terms would be a profound lack of faith in management - probably based on an adverse assessment of fundamental ethics.  That clearly can't be the case here.  Can it?

Competition: Revise That Corporate Slogan

Taking a cue from a post from Farmer Joe, Suq Al Mal launches its First Annual "Revise That Corporate Slogan" Competition.

Entrants may submit their entries by posting a comment.

And may, if they wish, suggest other firms whose slogans may need updating or revision.

Here are our two initial candidates: 

1. Dubai Holdings - For the good of tomorrow.
2. Dubai World - The Sun Never Sets on Dubai World

 

Gulf Investment House to Settle Remaining KD13 Million in Foreign Debt

AlWatan quotes Badr Abdullah Al-Ali, CEO, saying that GIH is in negotiations with five Gulf financial institutions to settle its remaining KD13 million in foreign debt.  The goal is apparently to finalize the process by this coming November.

You'll recall Badr appeared earlier in this blog as one of the members of The Investment Dar's Creditors' Committee.

In 2009 GIH reported a KD20 million loss.

For 1Q10, the loss was down to KD1.2 million.  At 31 March total borrowings were some KD57.8 million of which KD33.5 million was from related parties.   By looking at the 2009 related party note it appears that the then KD23 million in murabaha from related parties were from major shareholders. It's probably a safe bet that this is the case at 31 March 2010.  If I'm not mistaken (not a certainty as close readers of this blog know!), KFH owns 20% of GIH.  I tried to check but the KSE website is balking when I try to open the "Investment" Firms sector webpage.  It pays to keep one's eye on the ball.  According to the KSE, KFH owns 30.72% of GIH.

By settling this KD 13 million, GIH would have about KD9.3 million of non related party debt remaining.  However, it's not clear if it has settled any debt since 31 March.  In which case this proposed repayment may result in it becoming debt free.  In any case even after the proposed payment, KD9.3 million remaining its non related party debt burden would be quite manageable.

Dr. AlHashel to the New Capital Markets Authority. Sh. Mishal to the Central Bank?

Both AlQabas and AlWatan report that Central Bank of Kuwait Deputy Governor, Dr. Mohammed Y. AlHashel has agreed to take up the post of the head of the newly formed CMA.

AlQabas reports that Shaykh Mishal AlJabir AlAhmad Al Sabah has been chosen to replace him as Deputy Governor at the Central Bank.  Shaykh Mishal is currently Assistant Undersecretary at the Ministry of Commerce and Industry where he is also head of the Office of Investment of Foreign Capital.

Dr. Mohammed is described as both an academic and a banker.  More importantly he is seen as active and decisive - two things that are required for the position.

The Power of One's Personality

I missed this news item but as luck would have it I chanced upon it today. Just what Myers-Briggs type would that be?

Manama: A Kuwaiti man was briefly detained after the police arrested him for using his flasher-equipped car to join the security motorcade of Saudi Prince Khalid Bin Soltan, the deputy defence minister, during his visit to Kuwait last week.

The intruder was reportedly able to move with the security cars to all the places visited by Prince Khalid after the protection officers thought that his car belonged to the state security or was part of the prince's entourage, Kuwaiti daily Al Rai reported on Sunday.

However, the Kuwaiti officers started having doubts when they noticed that the car invariably parked at a distance from the other cars whenever the motorcade reached a place to be visited by the prince.

An officer eventually approached the driver and asked about his employer and was shocked to learn that he was not connected with the motorcade or was a member of the prince's entourage during the visit.

According to the paper, the man said that he worked at the education ministry and that his decision to join the motorcade was a personal initiative prompted by his love for action movies.

The man was detained by the state security, but was later released after the intervention of a "powerful personality", the paper said.

National Bank of Kuwait - Boubyan Bank Share Purchase Authorization

NBK announced on the KSE today that the authorization it received from the Central Bank of Kuwait to purchase up to 60% of the shares in Boubyan Bank expires 22 June 2010 not 20 May 2010 as previously reported.

This  gives a little more breathing room to Commercial Bank and the Investment Dar to work out a deal so they can sell to NBK.

[11:23:20]  ِ.ايضاح من (وطني) بخصوص المهله المحدده لتملك حصة في (بوبيان)‏
يعلن سوق الكويت للأوراق الماليه ، عطفا على اعلانه السابق بتاريخ ‏
ِ28-03-2010 و الخاص بموافقة بنك الكويت المركزي ‏على رغبة بنك الكويت
الوطني بشراء حصه بحد أقصى 60% من رأسمال بنك بوبيان لمدة ثلاثة
أشهر ، يفيد البنك بأن المهله الممنوحه من بنك الكويت المركزي تنتهي في ‏
ِ22-06-2010 و ليس كما ذكر سابقا بأنها تنتهي في 20-05-2010 .‏

Kuwait Stock Exchange Suspends Trading in 8 Additional Companies

If you've read other press accounts, you may be wondering why I am saying the KSE has suspended 8 companies when others say 22.  That's because 14 of the number have been suspended for some time now due to failure to provide earlier financial statements.  And those companies are indicated by ( موقوفة ) after their names in the official KSE announcement below.

The new companies include:

1. Global Investment House
2. The International Investor
3. Industrial and Financial Investments
4. KMEFIC
5. Aref Investment Group
6. Kuwait Finance and Investment Company (KFIC)
7. AlQurain Holding
8. Wethaq Takaful Insurance Company (Wethaq)

Seven of the above companies are from the investment company sector at the KSE.  Wethaq is from the insurance company sector.

What's surprising in the above list is the presence of GIH and KMEFIC.  KMEFIC is owned by the AlAhli United Bank Group.  Presumably, a lot of these companies will clear their financials in fairly short order.

[8:58:29]  ِ.وقف التداول باسهم شركات اعتبارا من اليوم ‏
يعلن سوق الكويت للاوراق المالية بانه تم وقف التداول باسهم (22) شركة ‏
وهى الشركات التالية:‏
الشركة الاهلية القابضة (اهلية) (موقوفة) ‏
شركة المستثمر الدولي (مستثمر د) ‏
شركة بيت الاوراق المالية (البيت) (موقوفة) ‏
شركة الاستثمارات الصناعية (ا صناعية) ‏
شركة الكويت والشرق الاوسط للاستثمار (كميفك) ‏
شركة المجموعة الدولية للاستثمار (المجموعة د) (موقوفة) ‏
شركة مجموعة عارف الاستثمارية (عارف) ‏
شركة الدار للاستثمار (الدار) (موقوفة) ‏
شركة اعيان للاجارة والاستثمار (اعيان) (موقوفة) ‏
شركة بيت الاستثمار العالمي (جلوبل) ‏
الشركة الخليجية الدولية للاستثمار (غلف انفست) (موقوفة) ‏
الشركة الكويتية للتمويل والاستثمار (كفيك) ‏
الشركة الدولية للاجارة والاستثمار (د للاجارة) (موقوفة)‏
شركة القرين القابضة (قرين قابضة) ‏
شركة وثاق للتامين التكافلي (وثاق) ‏
شركة لؤلؤة الكويت العقارية (لؤلؤة) (موقوفة)‏
شركة مجموعة المستثمرون القابضة (المستثمرون)(موقوفة) ‏
شركة المشروعات الكبرى العقارية (جراند)(موقوفة) ‏
شركة الصفاة العالمية القابضة (صفاة عالمي) (موقوفة)‏
شركة فيلا مودا لايف ستايل(فيلا مودا) (موقوفة)‏
شركة الشبكة القابضة (الشبكة )(موقوفة)‏
الشركة الكويتية للخدمات الطبية(عيادة ك) ‏
اعتبارا من اليوم الاحد الموافق 16-05-2010 ،وذلك لعدم تقديم البيانات ‏
المالية المرحلية للفترة المنتهية فى 31-03-2010 ،فى الموعد المحدد .‏

Dubai Holdings Commercial Operations Group - Still No Financials

Well, "bukra" is in the official slogan of the Holding Company so this isn't a surprise I suppose.

DHCOG announced today on the Nasdaq that it still didn't have its financials finalized.

"Dubai Holding Commercial Operations Group LLC (“DHCOG”) has further extended the publication date of its 2009 consolidated financial statements, due to the complexities of consolidating the financial results of its various operating businesses across multiple geographies. In accordance with the rules and regulations set forth by the listing authority at Nasdaq Dubai, the voluntary suspension of listing on the exchange of DHCOG’s Medium Term Notes remains in force until DHCOG issues its Audited 2009  Financial Statements and Annual Report on or before May 31, 2010".

Remind me, did DHCOG buy a lot of new foreign subsidiaries in 2009?

AlGosaibi v Maan AlSanea - AlGosaibi Attempts to Enlist Kuwaiti Banks Against Saad

AlQabas reports that AlGosaibi and its counsel (Saudi and American lawyers) met with Kuwaiti banks exposed to both AlGosaibi and the Saad Group to request that they unite their legal actions against Saad by forming an alliance whose goal would be the combining of their individual legal documents and other evidence, including any forged documents or documents suspected of being forged to strengthen the legal position of all creditors in recovering their money through the legal process.

At the beginning of the meeting the Kuwait banks reportedly indicated their intention not to co-operate with one party of the debtors.  

The representatives of AlGosaibi responded by:

1. Assuring of the start of a "new page" of co-operation between AlG and its creditors.  You'll recall earlier that AlQabas had carried a report that Kuwaiti creditors were frustrated with AlG's responses to their attempts at contact and negotiation.
2. That the Kuwaiti banks should have a permanent representative in the creditors committee in Riyadh and Dubai so that they would learn "in near proximity" (first hand) what was happening.
3. That 70% of the AlGosaibi Group's wealth had been designated to pay its debts.

The banks responded to the last point by noting they were not going to entertain any discounts on the debt from any party (either AlG or Saad).  And that they were on the verge of taking legal steps against Saad.  This is described in the last paragraph of the article as the filing of cases in Saudi by some and by others in the USA.

The article then notes that the Central Bank of Kuwait has instructed Kuwaiti financial institutions to provision 100% for AlG and Saad exposure by 31 December 2010.  Three banks have almost already achieved that level.  It being understood that some banks had relatively small exposures.  As for those with larger exposures it's expected that they will require until the end of the year.

Assuming the article is correct, what's interesting about this is the apparent attempt by AlGosaibi to enlist creditors in its campaign against Maan AlSanea and the Saad Group.  As you'll recall, AlG has accused Mr. AlSanea of forging certain documents to obtain loans in AlG's name but then using the funds for his own purposes.  And, as you'll recall, Mr. AlSanea vigorously denies these accusations.

AlG appears to be trying to bolster its accusations of wrongdoing by Mr. AlSanea  by enlisting third parties to join in its campaign.  By portraying itself as the innocent victim of wrongdoing,  AlG may hope to  deflect creditor anger and pressure (from itself) to Mr. AlSanea.  A tactic, that if successful, might also set the stage for a later justification for a discount on the debt.

Mashreqbank v AlGosaibi - Mashreqbank's Consolidation Motion Accepted

The NY Supreme Court accepted Mashreq's motion to consolidate its two cases against AlGosaibi (the partnership) and the individual AlGosaibi heirs.  Decision was made on 10 May and posted on the NY Supreme Court's website today as Document #128.  If you'll look at earlier posts, there are details on how to access the NYSC's website.

As you'll recall, having the two cases separate had posed a legal problem for Mashreq as outlined in this earlier post.  The cases in question are 601650/2009 (against the partnership) and 602717/2009 (against the individual heirs/partners).

AlGosaibi v Maan AlSanea - Allegations of Forgery - Evidence Inconclusive?

Here's an article from the Gulf Daily News in which a forsenic expert is quoted as saying that it is not possible to determine if Sulayman AlGosaibi's signatures were forged or not.

There are a couple of interesting things about this report.

In  the NY Supreme Court Case (601650/2009), as part of a forum non conveniens argument, the attorney for Maan AlSanea submitted a  sworn statement by one of AlGosaibi's lawyers, Andrew John Ford, given in connection with the suit of British Arab Commercial Bank and others against AlGosaibi.  This is Document 107-2 (Exhibit 25), which you can access by going to the Supreme Court of New York's website, and undertaking an Index Search using the above case number (601650/2009)

Here's paragraph #13 of the Ford statement.

"AHAB says that this borrowing was obtained by the forgery of the signatures of the chairman of AHAB by or at the direction of Mr AI Sanea on hundreds of banking documents. It has submitted many of the  banking documents to forensic examination by Dr Audrey Giles, head of the Giles Document Laboratory  and formerly head of the Questioned Documents Section of the Metropolitan Police Forensic Science Laboratory. Dr Giles' work has been hampered by the lack of original documents (many of which were  removed from the Money Exchange by Mr AI Sanea and which he has refused to return). Nevertheless she  has so far concluded that there is evidence that the signatures on at least 286 banking documents are not  genuine. On some documents, signatures have been applied by colour photocopying or by an inkjet printer and then traced over with a porous-tip pen; on others, the signatures are identical matches of those on  other documents and therefore highly unlikely to be genuine. In some cases the signatures were applied to  documents at a time when it would have been physically impossible for the purported author to have  signed because of incapacitating illness."

It's unclear if

1. Based on additional work, Dr.  Giles has changed her earlier findings.  
2. Or this refers solely to this particular batch of documents cited in the Gulf Daily News article.

Presumably, more information will be forthcoming.

Gulf Finance House - No Sale of Khaleeji Commercial Bank

In announcements on the Bahrain Stock Exchange, GFH officially replied to the two AlQabas press reports referred to in my earlier post.

The first concerns GFH's plan to sell Khaleeji Commercial Bank. 

Here GFH states that it is in the process of  amending its capital management program and that this involves increasing its stake in KHCB.  And that it will advise the KSE when this process is complete -- completion of studies and receipt of necessary approvals.

It should be noted that this press release was in response to a letter sent today (13 May) by the BSE.

The second concerns the "reply" to GFH's auditors on the "going concern" assumption.

GFH disavows the AlQ statement noting it is the opinion of the newspaper.

Kuwait Stock Exchange Warns 74 Companies of Potential Suspension

You may read elsewhere today the KSE issued warnings to 88 companies that if they don't provide their 31 March 2010 financials to the KSE by 8:30 AM on 16 May (Sunday), they will be suspended from trading.  

Let's look a bit closer as this is less "scary" than it would seem from the headline..

1. Since 14 companies are already suspended for failure to provide earlier financials, the warning theoretically could result in the suspension of an additional 74.  Hence, my use of the number 74 in this post. 
2. Many of these companies will likely provide financials in time - particularly those companies that have scheduled board meetings to discuss their financials.  This is just the warning stage.  
3. In fact if you read the remainder of the KSE announcements today, you'll notice that day 51 board meetings are scheduled to take place today to discuss financials and 6 on Saturday.

As per the announcement, the "cohort" is divided into two groups:

1. Those that haven't provided their financials and have NOT set a date for a Board meeting to discuss their financials.  This group comprises some 34 companies of whom 14 are already suspended for failure to provide earlier financials.  Suspended companies have  (موقوفة)  (= suspended) after their names.
2. Those that haven't provided financials but HAVE set a date for a Board meeting to discuss.

Normally, I'd provide the names in English but 88 is a rather long list.  And, many of these are likely to provide financials by the deadline.   Let's see what happens on Sunday.

[8:4:17]  ِ.ايضاح بخصوص الشركات التي لم تقدم البيانات المالية في الموعد المحدد
يعلن سوق الكويت للأوراق المالية واستنادا الى قرار لجنة السوق بجلستها
رقم 97/4، والذي يلزم كافة الشركات والصناديق المدرجة في السوق بتقديم
البيانات المالية المرحلية في موعد أقصاه 45 يوما من تاريخ انتهاء الفترة،
فان الشركات التي لم تقدم البيانات المالية المرحلية للربع الاول المنتهي ‏
في 31-03-2010 كما يلي :‏
ِ1-شركات لم تقدم بياناتها المالية ولم تحدد موعد اجتماع مجلس الادارة و
عددها (34) شركة على النحو التالي: ‏
الشركة الاهلية القابضة (اهلية) (موقوفة) ‏
شركة المستثمر الدولي (مستثمر د) ‏
شركة بيت الاوراق المالية (البيت)(موقوفة) ‏
شركة الاستثمارات الصناعية (ا صناعية) ‏
الشركة الدولية للتمويل (د للتمويل ) ‏
شركة الكويت والشرق الاوسط للاستثمار المالي (كميفك) ‏
شركة المجموعة الدولية للاستثمار (المجموعة د) (موقوفة) ‏
شركة عارف الاستثمارية (عارف) ‏
شركة الدار للاستثمار (الدار) (موقوفة) ‏
شركة الامان للاستثمار (الامان) ‏
شركة اعيان للاجارة والاستثمار (اعيان) (موقوفة) ‏
شركة بيان للاستثمار (بيان) ‏
شركة بيت الاستثمار العالمي (جلوبل) ‏
الشركة الخليجية الدولية للاستثمار(غلفت انفست) (موقوفة) ‏
الشركة الكويتية للتمويل والاستثمار (كفيك) ‏
الشركة الدولية للاجارة والاستثمار (د للاجارة) (موقوفة)‏
شركة تمويل الاسكان (اسكان) ‏
شركة المدار للتمويل والاستثمار (مدار) ‏
شركة الصفاة للاستثمار (الصفاة) ‏
شركة القرين القابضة (قرين قابضة) ‏
شركة المدينة للتمويل والاستثمار (المدينة للتمويل) ‏
شركة نور للاستثمار المالي (نور) ‏
الشركة الكويتية البحرينية للصيرفة الدولية (صيرفة) ‏
الشركة الكويتية الصينية الاستثمارية (الصينية) ‏
شركة المسار للاجارة والاستثمار (المسار) ‏
شركة وثاق للتامين التكافلي (وثاق)‏
شركة لؤلؤة الكويت العقارية (لؤلؤة) (موقوفة)‏
شركة مجموعة المستثمرون القابضة (المستثمرون)(موقوفة) ‏
شركة المشروعات الكبرى العقارية (جراند)(موقوفة) ‏
شركة الصفاة العالمية القابضة (صفاة عالمي) (موقوفة)‏
الشركة الوطنية للميادين (ميادين) ‏
شركة فيلا مودا لايف ستايل(فيلا مودا) (موقوفة)‏
شركة الشبكة القابضة (الشبكة )(موقوفة)‏
الشركة الكويتية للخدمات الطبية (عيادة ك) ‏
ِ2- شركات لم تقدم البيانات المالية وحددت موعد اجتماع مجلس الادارة وعددها ‏
ِ(54) شركة على النحو التالي: ‏
الشركة الوطنية العقارية (وطنية) ‏
الشركة الكويتية العقارية القابضة (العقارية) ‏
شركة الامتيازات الخليجية القابضة (امتيازات) ‏
شركة ايفا للفنادق والمنتجعات (ايفا فنادق) ‏
شركة الارجان العالمية العقارية (ارجان) ‏
شركة الانظمة الالية (الانظمة) ‏
شركة مركز سلطان للمواد الغذائية (م سلطان) ‏
شركة هيومن سوفت القابضة (هيومن سوفت) ‏
شركة طيران الجزيرة (الجزيرة) ‏
شركة مجمعات الاسواق التجارية الكويتية (اسواق) ‏
شركة اكتتاب القابضة (اكتتاب) ‏
شركة كويت انفست القابضة (كوين انفست) ‏
الشركة  الدولية للمنتجعات (منتجعات) ‏
شركة حيات للاتصالات (حيات كوم) ‏
الشركة الكويتية للاغذية (اغذية) ‏
شركة المعدات القابضة (المعدات)‏
الشركة العالمية للمدن العقارية (المدن ) ‏
الشركة العربية العقارية (ع عقارية) ‏
شركة داماك الكويتية القابضة (داماك كويت) ‏
شركة الاتصالات المتنقلة (زين) ‏
الشركة الكويتية السورية القابضة (السورية) ‏
شركة فلكس ريزورتس للمنتجعات والعقارات (فلكس) ‏
شركة الصفاة للطاقة القابضة (صفاة طاقة) ‏
بنك الاثمار (الاثمار) ‏
الشركة الاولى لتسويق الوقود (اولى وقود) ‏
شركة عيادة الميدان لخدمات طب الاسنان (الميدان) ‏
الشركة الكويتية للمسالخ (مسالخ ك) ‏
شركة المجموعة المتحدة للصناعات الغذائية (الغذائية) ‏
شركة الخطوط الوطنية الكويتية (خطوط وطنية) ‏
شركة النخيل للانتاج الزراعي (النخيل) ‏
شركة مجموعة الخصوصية القابضة (الخصوصية) ‏
شركة التمدين العقارية (تمدين ع) ‏
الشركة الكويتية لصناعة مواد التغليف (التغليف) ‏
شركة الديرة القابضة (الديرة) ‏
شركو مجموعة السلام القابضة (السلام) ‏
شركة جيزان القابضة (جيزان) ‏
شركة صكوك القابضة (صكوك) ‏
شركة نفائس القابضة (نفائس) ‏
شركة مبرد للنقل(مبرد) ‏
شركة ابيار للتطوير العقاري (ابيار) ‏
شركة مشاعر القابضة (مشاعر) ‏
شركة الصفاة تك القابضة(صافتك) ‏
شركة الشامل الدولية القابضة (الشامل) ‏
شركة المعادن والصناعات التحويلية (معادن) ‏
شركة صفوان للتجارة والمقاولات (صفوان) ‏
شركة الصناعات الهندسية الثقيلة وبناء السفن (السفن) ‏
شركة اعيان العقارية (اعيان ع) ‏
شركة مشرف للتجارة والمقاولات (مشرف) ‏
شركة المقاولات والخدمات البحرية (بحرية) ‏
شركة المخازن العمومية (اجيليتي) ‏
شركة منا القابضة (منا قابضة) ‏
شركة هيتس تيلكوم القابضة (هيتس تيلكوم)‏
شركة المجموعة المشتركة للمقاولات (مشتركة) ‏
شركة مجموعة عربي القابضة(عربي قابضة) ‏
وعليه فانه سوف يتم ايقاف اسهم تلك الشركات عن التداول فى حال عدم تقديم ‏
البيانات المالية المذكورة فى الموعد النهائي المحدد فى الساعة 8:30 من صباح
يوم الاحد الموافق 16-05-2010 .‏

Gulf Finance House - Not to Sell Khaleeji Commercial Bank Stake?

AlQabas quoting Reuters quotes Ted Pretty, Group CEO at GFH, that GFH is not considering selling its  37% stake in KHCB, but rather increasing it.  Apparently, as part of planned foray into retail and commercial banking in Bahrain and the region.

Since GFH desperately needs to sell assets and since KHCB is likely the most attractive of what it has to offer for sale, it's hard to understand the business rationale here.

Obviously, there's more to this story that just this news item.  Was GFH successful in selling some other assets?  Has an old or new shareholder suddenly agreed to invest capital?  Was GFH unable to find a buyer for its interest?  Perhaps, a 37% stake isn't sufficiently attractive to a potential investor in KHCB who may want to ensure control over management?

Damas - Al Manara Jewellery Files AED114.7 Million Lawsuit Re JV

Damas announced this lawsuit on NasdaqDubai earlier today.

Damas International Limited (the Company) stated today, that it received a legal notice from Al Manara Jewellery on 10 May 2010, notifying the Company and one of its subsidiaries Damas Jewellery LLC, of a claim filed before the Abu Dhabi Courts for AED 114.7 million in relation to one of the joint venture business that the subsidiary had participated in Abu Dhabi, UAE.

The civil suit filed by the JV partner claims compensation of an apparent breach of the joint participation agreement that the subsidiary of Damas had signed when establishing the venture. The Company firmly believes the case to be without merit and intends to vigorously defend its interests related to this civil action.

There is a mention on pages 46 and 75 of "Al Manara" in Damas' 2008/2009 financials in reference to a 49% owned JV.  

Probably an issue of failing to meet a cash call - no doubt motivated by its current cash position.

Shaykh Sultan Bin Khalifa - Let's Make A Deal?

A very interesting post over at Rupert Bumfrey's blog.

Here's another link to the story at Moscow Times.

And an earlier one to the Times of London.

Let's see if more emerges.  Right now the story is a bit hard to swallow.

As far as I can tell this is still on the level of an accusation by one party in a rather bitter dispute with another.

A Barbarous Law is Not a Just Law

There is a lot of talk but relatively little action by so-called "Muslims" and "Islamic" countries to uphold Islam.

Legally circumcised?  A five year old child?

What sort of an animal would do this to anyone?  What sort of father would do this to his daughter?

What sort of doctor would perform such a mutilation?

What hospital would allow such barbarity within its walls?

What sort of judge or judicial system would look upon this with other than horror?

This sort of thing goes on in the lowest forms of civilization - brutal unthinking unenlightened backward tribes where the jahiliyya still reigns.

And the upshot is that the wife is going to be prosecuted for calling this كلب  out?

Gulf Finance House - Comments on 1Q10 Financials

GFH has posted its 1Q10 financial on its website.  That has to be a record.

Let's take a quick look.

Going Concern/Matter of Emphasis

Here's what KPMG had to say in its Review Report.

"Without qualifying our conclusion, we draw attention to note 1 in the interim financial information which discusses material uncertainties relating to the Group's liquidity position and regulatory capital adequacy, which, may cast doubt about the appropriateness of the going concern assumption used in the preparation of the interim financial information."

And here's the relevant portion of note 1.

"As at 31 March 2010, the Group's had accumulated losses of US$ 440.173 million and, as of that date, its current contractual obligations exceed its liquid assets.  As a result, the ability of the Group to meet its obligations when due depends on its ability to achieve a timely disposal of assets.  Further, the regulatory capital adequacy ratio of the Group as at 31 March 2010 stood at 13.97%, which restricts the Group's ability to absorb further losses or undertake additional exposures.  These factors indicates the existence of material uncertainties which may cast significant doubt about the Group's ability to continue as a going concern."

Comments on Financials

I've already made some comments.  So rather than repeat them here, I'd invite you to first take a look here and then follow below - where the comments elaborate on that earlier post.

Capital and Liquidity

KPMG had a similar "matter of emphasis" in the company's 31 December 2009 audited financials at which time it should be noted that GFH's CAR was 12.91%.  So, clearly, some improvement on that score.

Unfortunately, as is pretty common practice, there is no note in the interims on CAR.  And note 41 in GFH's audited FYE 2009 financials does not provide a lot of detail on the components of risk weighted assets ("RWA").  One particular issue is understanding why at 2009 they are almost twice total assets as per the balance sheet.  Also the determination of Tier 1 capital isn't clear.  It's shown as US$381.5 million as compared to nominal capital of US$433 million.  Deductions for subsidiaries?

What we know is that CAR was 13.97% as of 31 March 2010.  If we assume that we can use the changes in equity since then to compute a new regulatory capital, then we come up with roughly US$392 million. Which gives RWA of US$2.8 billion.  Or some 2.15X nominal assets.  More detail would be very useful in sorting this out.   I suspect that's not going to be forthcoming.

Also as I commented earlier, it's hard to understand why any rational investor would be converting the Deutsche Bank murabaha into equity given GFH's situation and the market price of its share.  It occurs to me that this could be a convenient device for capital infusions.  There is no need to call an OGM to issue additional shares and the holder can decide when and how much capital to "contribute".  Perhaps just enough to keep the CAR out of the CBB's "red zone" and to avoid tripping covenants.  At this point, only about US$28.3 million remains.  And as I hope you'll recall (who says optimism is dead) from one of my much earlier posts, the DB transaction was issued at a discount.

As to liquidity as I pointed out in my earlier post, GFH's 31 March 2010 cash of US$21.5 million gives scant margin to cover operating expenses and interest, much less the US$100 million in principal due in August and the US$20 million in principal due in September for the debts rescheduled earlier this year.   Note that roughly US$140 million of "Placements" are blocked to support potential contributions by GFH to fund projects.  So a first glance at the balance sheet might suggest a more robust liquidity position than actually exists.

Asset sales are likely therefore to be critical over the next 12 to 18 months.  GFH is unlikely to develop sufficient cash flow from operations to repay US$120 million this year and pay roughly an additional US$30 million to US$45 million in operating expenses.  And I am low balling those expenses.

But what is even more perplexing is note 7 where we learn that  during the first three months of 2010 GFH has bought back US$15 million of its sukuk maturing in 2011.   Given the near term demands on cash, it boggles the mind to think that they would be using precious limited liquidity for such a purchase.  Even if it is at a discount.  Also when one looks at the relative cost of GFH's debt, this debt is the cheapest by far.  The US$100 million is Libor plus 5%.  The LMC rescheduled facility an eye popping 8% flat.  While the 2011 sukuk is at Libor plus 1.75%.  Perhaps, GFH is helping a friend exit?  I have a similar  question on the rational reason why a company in GFH's position would purchase US$35 million in Treasury Shares during 2009.   And one cannot help but wonder did GFH's lenders not impose any conditions on prepayment or purchase of debt?  Could they have missed so obvious a covenant, especially since GFH has shown a penchant for buying this particular debt back?

Balance Sheet

Other than the comments above regarding the 2011 sukuk and the "Placements", some additional points.

1. No movement on the US$85 million Investment Banking Services Receivable.  You'll recall that GFH wrote down roughly half of this in 2009.
2. Other assets Financing Projects is up a US$1.5 million.  Seems small to be additional funding.  Is this interest?  And if so, it would be very interesting to know how much of this amount is accrued unpaid interest.  As I noted earlier, it's unlikely that FP are going to be a source of cash in the near term.
3. Investors' Funds declined by US$50 million though I only see US$29 million in the Cashflow statement. 

Income Statement

1. Roughly US$5 million of investment banking income was from related parties.  The comparative figure for 1Q09 was US$46.5 million.  With related party business a firm can enjoy dramatic savings on marketing costs.  Sometimes even on underwriting and due diligence.  Well, at least initially.
2. As I noted in my earlier post, cash is going to pay GFH's running bills and its debt repayment.  So far cash generated as a percentage of income is relatively low.  Of course, this is early going.  But then the US$120 million in debt maturities is "early" as well.

All in all GFH is in a tough spot.  Let's hope that management's apparent optimism isn't misplaced.

Gulf Finance House Responds on Auditors' Matter of Emphasis on "Going Concern"

Update:  GFH denies issuing this statement.  Let's see if AlQ replies.

According to AlQabas GFH has issued a statement on its auditors' matter of emphasis on management's assumption of GFH as a going concern.

GFH's well reasoned argument is reported to consist of the following:

1. This sort of thing is a part of internationally accepted auditing principles.  Unspoken apparently is the idea that auditors are always doing this sort of thing - making a mountain out of a mole hill because of some silly "principle".
2. 1Q10 results demonstrate clear improvement.  
3. And the results are really "distinguished"  ( نتيجة مميزة )  given the difficult times.
4. The improvement reflects the hard work of executive management who have reorganized operations without the need for additional provisions.

I glad that GFH has taken the time to set the record straight.  

After hearing these powerful arguments, I'm sure many of you will have a hard time taking the auditors'  apparent "box-ticking" quibble about lack of liquidity or weak capital adequacy seriously.  I know I don't.

In any case, in the interest of fairness, I'll be looking for additional commentary from GFH tomorrow on this topic - though I don't know how much piling on of logical firepower GFH's poor auditors are going to be able to withstand.

Commercial Bank of Kuwait - New Board Leadership & Commentary on 1Q10 Results

Two articles in AlQabas for 12 May.

1. On the Board:  Badr AlAhmad as Chairman and Ali Al Awadhi as Vice Chairman.
2. 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.

National Bank of Kuwait - Dabdoub Did Not Resign

AlQabas has an article in which the Chairman of NBK, Muhammad Abdul Rahman Al-Bahar, denies that Ibrahim Dabdoub has resigned from the bank.

And here's one from AlWatan in which Abu Shukri himself denies the report.  AlW says that resignation supposedly occurred in an exchange of emaisl.

This is a strange story and I'm guessing there's more here than meets the eye.  

The typical Kuwaiti investor pattern of making a small fortune by destroying an even larger one?

Perhaps one of our Kuwaiti readers will comment.

BTW when you see Abu Shukri resign that will be a sign to very very carefully re-evaluate your holdings of NBK shares.   His shoes are going to be very hard to fill.