The wrath of the Credit Reaper has shaken the second largest Kuwaiti bank and has left little room for compassion. I have just received news that Mr. Bassam Al-Ghanim, Chairman of Gulf Bank of Kuwait, has resigned. It is unclear at the moment who will take his place but since the Al-Ghanim family represents a large holding in the bank another member of the family might step in. Mr. Kutayba Al-Ghanim has been made aware of this and the family is addressing the situation accordingly. I have full faith that this matter will not jeopardize the bank’s clients. It is also expected that the CEO and Head Treasurer face pressure from the Central Bank to step down as this derivative debacle is sorted out.
The total estimated loss for the derivative trade is greater than the Euro 700 mm noted in my previous post. As the markets opened on Monday the 27th Gulf Bank offloaded the first US$ 1 bn leg at approximately EUR/$ 1.2580. Later in the day the other portion was closed out at EUR/$ 1.25. This amounts to a total loss of US$ 1.2 bn orÂ KD 313 mm, which represents 70% of Gulf Bank’s Tier 1 & 2 Equity.
I think the greater issue at hand here is determining which party will bear the risk of the loss. These are the scenarios that I see playing out (Please feel free to discuss):
- Gulf Bank: In this situation the bank will need to be recapitalized. This can be done either through a merger, acquisition, or capital increase. However, it is possible that the Central Bank extend a facility to GBK to cover the loss in which case the repayment terms will be lenient or the Kuwaiti government may want to acquire a stake directly in the bank, following in the footsteps of the Bank of England.
- Clients: Given the clients currently exposed to the derivative trade, it is highly unlikely that they can afford payment. I will include a more detailed analysis of their financial health in my next post as I am currently gathering all the information. Therefore, as mentioned in my previous post a rise in bankruptcy filing of individuals or corporations would not be unexpected.
In any case either party will try and avoid payment and seek the legal route, a process which can take a long time before a decision is made. However, the Central Bank along with the new Crisis Management Council headed by the Governor Shaikh Salem Abdulaziz Al-Sabah, might be able to expedite the process if need be.
Again, I would reiterate my position that I have full faith in the members involved in this unfortunate incident to act accordingly and in the best interest of the bank’s clients and shareholders. I also have full faith in the Central Bank Governor to honor his statement to secure the bank’s deposits, as he has shown considerable leadership in the past.
Please do not hesitate to contact me if you have any inquiries or would like to discuss further. All comments are welcome.
Disclaimer: All values are internal estimates and actual numbers may vary significantly fromÂ stated numbers.
Update: Mr. Kutayba Y Al-Ghanim has been appointed Chairman of Gulf Bank. He currently holds the following positions in Kuwaiti incorporated companies:
- Chairman: Gulf Bank of Kuwait K.S.C. [Bloomberg: GBK.KK EQUITY]
- Chairman: Alghanim Industries (Private)
- Chairman: Kuwait China Investment Company K.S.C.
Mr. Adel M R Behbehani has been appointed Vice-Chairman of Gulf Bank. He currently holds the following positions in Kuwaiti incorporated companies:
- Chairman: Kuwait Pipes Industries & Oil Services K.S.C [Bloomberg: PIPE.KK EQUITY]
- Vice Chairman: Gulf Bank of Kuwait K.S.C. [Bloomberg: GBK.KK EQUITY]
- Director: The Investment Dar K.S.C. [Bloomberg: TID.KK EQUITY]
Press interview with Mr. Kutayba Y Al-Ghanim at Gulf Bank’s Board Room [Link]
ilshit ilmashtoot !
any part nationalization and recapitalization of the bank must be subject first to the full assessment of the bank current balance sheets
I dont want my government money to be spent bailing these banker only to discover that we overprice their share price like what happen with RBS
and again change of management required, this is bank not a take away joint to be running in this manner
Pingback: Bassam Al-Ghanim resigns from Gulf Bank.
Man…i read the first article and i’m like he’s gonna explain the dead cat bouncing theory…then i kept on reading i finished everything and i still couldnt forget the dead cat bouncing theory…the name is just too cool…
could u elaborate more on this:
The total estimated loss for the derivative trade is greater than the Euro 700 mm noted in my previous post. As the markets opened on Monday the 27th Gulf Bank offloaded the first US$ 1 bn leg at approximately EUR/$ 1.2580. Later in the day the other portion was closed out at EUR/$ 1.25. This amounts to a total loss of US$ 1.2 bn or KD 313 mm, which represents 70% of Gulf Bankâ€™s Tier 1 & 2 Euquity.
I do not understand why GBK has to offload it if they knew they were going to loose money? Did they need to release the assets in order to get the money?
Regarding who will take control, the Central Bank has veto power over all sensitive positions in a bank (i.e. all board members, CEO, head of corporate banking, and treasury), so they won’t necessarily just let it go to a family member if they don’t think they will do a good job. Especially with the state the bank is in now. Plus apparently the two brothers don’t get along…
I have a question – have you gotten any more official numbers regarding the loss (as their position should be closed by now)? I hear wildly varying numbers from different sources….
“it’s all a conspiracy so that the americans will be able to buy a bank and control our local economy so that they can control the price of oil”
I swear to god that’s what one of my co-workers said in response to this post …… fucking retards ………
What are your sources, because KD 313 mln is far from the KD 200 mln estimated-loss that has been circulating in town for the past 2 days? To me, other than the CEO, the CGM and the GM treasury should also resign. In parallel, a thorough restructing of the bank should also be undertaken in order to move from an archaic way of working to a more up to the banking-standards one.
Qutaiba Al Ghanem is the new chairman – apparently he was a reserve board member.
Dr. Abdulkareem Al Saeed has resigned also, and Adel Behbehani is now deputy chairman.
@DOO: I understand your point and hope that the Central Bank does act accordingly.
@Chah: I appreciate the feedback!
@Banana Man: Dead Cat Bounce is coming soon. I promise.
@fadi: The position is not GBK’s so they had to unload it, meaning sell the exposure. This was due to the fact that the investors in the derivative product have failed to pay the losses they own, hence the intervention of the Central Bank.
@The smoking gnu: I cannot comment on the relationship of the brothers as I do not know if that is true. However, the numbers posted here are what I feel comfortable posting based on my own estimate, the actual number maybe 10% off of the US$1.2 bn posted. You are right about the appointment of the new members. I have updated the post to reflect the new information.
@KTDP: Tell me about it, everything is a conspiracy theory in Kuwait.
@Chico: As noted earlier the estimated loss is an internal estimate, the number could be 10% off. I am not sure where the KD 200 mm is coming from. Also, it might be slightly off depending on what exchange rate you use, but nothing too major.
does anybody know what type of derivatives?
excuse my ignorance but normally in such cases who is suposed to pay the losses? the bank or the client?
Do we have something like chapter 11 bankruptcy protection in Kuwait or a bankrupt company simply goes poof?
did you see the CEO’s interview (Qutayba Alghanim)?!
now that interview doesn’t make me confident about the banks direction! he doesn’t even know about derivatives!
it wasn’t a relief to shareholders.
nobody commented about the cigar?
@Amshi: It is unclear at the moment as the exposure is said to be a structured product, meaning there are many variations. Hopefully things will be made public in the near future. I would actually want to get a copy of the term sheet and frame it.
@Ban: No ignorance here but that is the key issue of this whole situation. Depending on the legal documents both parties present it will be up to the authorities to determine.
@Nubo: I am not sure of the exact law but will check into it. If anybody has expertise in this field please feel free to comment.
@momo: Unfortunately I was out during the interview and didn’t watch it. The copy on YouTube is not clear but if anybody has a good version please send the link and I will add it to the post. I didn’t hear any positive feedback, but I hope that the Central Bank will take the lead.
@hashim bukharas: The Cohiba is supposedly his trademark and apparently nobody has seen him without one in his hand. Good eye.
@momo: Thanks, good quality. It seems as though there was more said in the beginning.
“What happened to Gulf Bank is a frightening case… The central banks are challenged right now and if this situation continues , it will have a negative impact on the economy. There are two challenges, one is to make sure there is enough liquidity in the markets, and the other is to make sure that stupid people are not running the banks.”
– Rolf Schneebeli, former V.P. of Citibank Switzerland
What I think is pathetic is the fact that Kuwait can not enforce its own laws against such fraudulent Executives who have committed a CRIME. Its doesn’t matter who owns the bank, what matters is that a crime has taken place and it was reported by the Central Bank of Kuwait, the regulatory authority. The Govt has to step in and incarcerate the guilty. Those who have intentionally premeditated a financial scandal, without taken into consideration informing the Central bank, because of the CBK deposits and the KIA and other Govt entities ownership in the bank. Which makes Bassam Al Ghanim and the Board liable for those losses and therefore must face up to their crime and stand trial. just as the law 1/93 says. and so it should be enforced. Enough humoring the ultra rich and its time to make them accountable and liable for the losses they have caused people.
@Randa: I do agree that the people responsible should be liable for their actions. However, as of yet we do not know who is at fault. That is why the government has turned over the matter to the Attorney General’s office (Al-Niyaba). I am not sure though if the KIA or the government have a direct stake in GBK. Depending on how the board is structured, there usually is an investment approval board that consists of only a few members from the full board. Let’s wait and see what the investigation finds and then determine if the involved parties are addressed accordingly.
I like the passion 🙂
I see you enjoy reading the Black Swan. So did I. Now to apply it to Q8’s case. GBK’s crash is the Black Swan thats going to take down the Credit rating of all of Kuwait banking Sector because it exposed the negligence of the Central Bank. And that will have a direct impact on the market recapitalization of these banks the back bone of the Economy. As of now, the Central Bank has requested from the KIA, which has direct and indirect shares in the bank up to 23.5% of the Bank. To officially petition a compliant with the Public Prosecution (AL Niyaba Al 3amah Lil Amwal) and today, the resigned BOD and some of the top executives have been issues travel bans. Its very clear who is behind this criminal action and who is 100% liable, accountable and Guilty. I wish that Kuwait starts to behave like a Sovereign country and not a playground for the Ultra Rich.
I enjoy the passion ; )
@Randa: Im going to start with Fooled by Randomness, just to complete the series I guess. Have you read that too?
I am not sure if it was negligence on the Central Bank or misconduct on GBK’s side. But I do know that there is a party at fault here. I mean deducing the fact that the BOD is liable might be accurate but in any case I think its only fair to present all the facts before pointing fingers, back to the ‘innocent before proven guilty’ notion. I am not sure where you got the 23.5% number, are you referring to KIA money via KIC or other local funds in which the KIA has invested in?
But, I do agree that Kuwait shouldnt be the playground for the Ultra Rich. People should be held accountable for their actions and mistakes, especially when the mistake affects other people. In any case I think it will also be important for Kuwaitis not to put up with a verdict that doesnt indemnify the parties not involved, in addition to the shareholders [ones not responsible].
Passion is good 🙂
I have not read that book, but thanks for mentioning it, I will be sure to read it. You are absolutely right, we should not rush to judgment, however, there are some clear culprits, who have started their negative exchanges in the media and in the courts, and those are THE obviously guilty. The Central Bank has announced that the Audits from EY PWC will be out on the 16th, so we will know then. I still believe that its a shame those obvious criminals have ruined such a great establishment and took down Kuwait’s Banking sector reputation in specific, and Kuwait’s Business and economy in general.
I really liked this post. Can I copy it to my site? Thank you in advance.
Thank you. I don’t mind as long as you mention the source.
What is your website? Would love to take a look. Thanks!
Looks like a good forum for whats going on.
Be back soon