Shaikh Salem Abdulaziz Al-Sabah
Al-Hamour’s List: 2008 Doves of the Year
First and foremost, I would like to welcome all of you to 2009 and hope that you have enjoyed the holidays. After being away for so long I thought it best to start the year with a light but meaningful post.
As a follow up to 2008: Year of the Dove I have decided to create a list that gives the reader a snapshot of global central bank policy in 2008. Some of these men may have been named ‘most influential’ people by Newsweek, but on Al-Hamour these men are merely doves incognito. They are commended for their dovish efforts in trying to quell their respective financial markets and economies by using interest rates as their weapon of choice.
I have ranked each central bank by the percentage change for the 2008. This means that if at the beginning of 2008 the interest rate was 10% and finished the year at 5%, I would consider this a 50% drop in rate as opposed to an absolute 5%. In addition, interest rate cuts during the first quarter of 2009 will not be taken into consideration but it looks like the European Central Bank and the Bank of England are in the lead for this year’s list.
The list includes 55 entries but I have decided to only provide more detail on a few.
Source: Al-Hamour, Bloomberg
Source: Al-Hamour,Bloomberg
Source: Al-Hamour, Bloomberg
Source: Al-Hamour,Bloomberg
Source: Al-Hamour, Bloomberg
Source: Al-Hamour, Bloomberg
Source: Al-Hamour, Bloomberg
If you would like the sources of all the rates used for the different countries please email me and I will send you the information.
Gulf Bank Chairman submits resignation
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 or 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):
Responsible party
- 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 from 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]
Kuwaiti damsels in distress
In an effort to stay true to it’s stated objectives, ‘Direct credit policy to assist social and economic progress’ [1], the Central Bank of Kuwait met with banks and financial institutions last week. The purpose of the meeting called for by the CBK Governor Shaikh Salem Abdulaziz Al-Sabah was to inform the attendees that the CBK will extend all ‘necessary aid’ to institutions facing problems stemming from the current global credit crisis. The Governor also reassured his audience by stating that the government will not allow Kuwaiti institutions to fail. Although the CBK oversees both the Banking and Financial sector, they are not treated equally as financial institutions cannot access CBK liquidity.
The three institutions facing trouble and being supported by the CBK include:
- Global Investment House . The stock has returned -43% from its 52 week high and currently has a market cap of KD 875 mm. [Bloomberg symbol: GLOBAL.KK EQUITY]
- The Investment Dar. The stock has returned -36.5% from its 52 week high and currently has a market cap of KD 639 mm. [Bloomberg symbol: TID.KK EQUITY]
- Al-Madina. The stock has returned -54% from its 52 week high and currently has a market cap of KD 98 mm. [Bloomberg symbol: ALMADINA.KK EQUITY]
I think it will be interesting to see how things play out within the next few months and how this will effect the markets. I also think that it is unfair for institutions that have not been prudent to receive special treatment and bailout packages while those who have behaved merely get a pat on the back. For those of you invested in the local markets, expect downward pressure for the upcoming months as more dirt is uncovered. I hope that the markets punish the feeble and reward the strong, as they should.
All numbers are as of Oct 16 closing prices.
[1] Central Bank of Kuwait. www.cbk.gov.kw