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]