In what must count as one of the most colorful press conferences in the GCC in recent memory, 61 year old Qutaiba AI Ghenim, the new chairman of troubled Gulf Bank in Kuwait, was filmed explaining the corporation’s new policies to the media in the bank’s headquarters on October 28, 2008. Although the chairman’s statements were interrupted by reporters questioning him, as well as by his cigar puffs and loud laughs, here are some excerpts:
“My question is to you, my question is to you. Because your explanation of derivatives is wrong. So if you were my student, you would fail the class. But I will tell you, my understanding of derivatives is very basic because I never dealt with them. So the first thing we did today is to stop anything related to derivatives or options. One thousand per cent. And whoever brings up derivatives and options to me will make us upset. The issue is under investigation, my dear. The last thing I’d say is I am surprised (interrupted by a question), but this is a woman; we can’t silence her.”
Female reporter asks if derivative trading has been stopped completely.
“Absolutely. Absolutely. Absolutely. Completely. Whoever wants derivatives must go to another bank. We don’t have derivatives. Hold on, I want to say one thing. I am surprised. I recall that Kuwait had four newspapers. You are so many mashallah. How many newspapers exist now? How many? Fifteen!”
The video of the above statements is widely available on YouTube. In fact, at the time of writing this article, there were over 35,000 views of this version alone. The posted comments by tech-savvy investors were quite candid for the generally criticism-shy Gulf region and mostly dealt with the new chairman’s comment that he would fail the reporter if he were his student for not explaining derivatives properly – only to declare a few seconds later that he himself had a “basic understanding’ of derivatives.
Gulf Bank recently announced losses totaling KWD 375 million (US$ 1.4 billion), prompting the stock market to suspend the bank’s stocks from trading for over a month. To rectify the situation, the board decided to recapitalize the bank by an amount equivalent to its stated losses, thereby returning its position to that of September 2008. The Ghanem family owns between them close to a third of the 48-year old bank’s shares, giving them substantial representation on the board of directors. Since the new bank’s chairman, who had taken over from his brother, prohibited dealings in derivatives for which he expressed his ‘basic understanding’, one wonders why he had not done so earlier, seeing as he was already a member of the previous board and a significant stakeholder in the bank.
By November 2008, Gulf Bank’s shares had nosedived over 45 per cent since their March peak of KWD 1.73 to sink to KWD 0.95, causing the Central Bank of Kuwait to intervene with the first bailout witnessed in the Gulf region. Gulf Bank also has the unfortunate honor of causing the very first bank run on a Gulf bank in decades. Although Gulf Bank isn’t the only financial institution in the GCC to suffer, it is among the most forthcoming.
In the UAE, Emirates NBD and Abu Dhabi Commercial Bank (ADCB), two of the country’s biggest banks, confirmed write-downs of AED 273 million and AED 208 million respectively. ADCB went so far as to sue Morgan Stanley and BNY Mellon because of losses resulting from a collapsed US $6 billion structured investment vehicle managed by UK-based Cheyne Capital. Ironically, several months before filing the suit, ADCB was honored by another major US financial institution for its high standards and quality of international fund transfers. Similar write-downs were announced by Gulf International Bank and the Arab Banking Corporation of Bahrain due to bad US investment decisions.
The board of Gulf Bank, as well as that of other financial institutions in the GCC, must understand that board membership is a responsibility that is not to be taken lightly. When a board member and major shareholder in a bank publicly declares that he has passing knowledge of an unregulated industry that cost his bank and shareholders over AED 5 billion under his watch, stopping it only on the day in which he assumed chairmanship, one may wonder what role the gentleman was playing as a board member. The same can be said about all the above mentioned banks and applies to a number of other banks and financial institutions in the GCC.
Holding a substantial stake in a bank should not automatically qualify shareholders to assume board memberships, let alone chairmanships. Incompetence and lack of knowledge cannot be hidden forever, now that tech-savvy investors have access to YouTube.
This article originally appeared in the December 2008 issue of MONEYworks. (PDF Download)