Thread: Kuwait moves to prop up major bank after losses

Kuwait moves to prop up major bank after losses
By DIANA ELIAS – 3 hours ago

KUWAIT CITY (AP) — Kuwait's Central Bank stepped in Sunday to prop up one of the country's biggest banks and said it was considering guaranteeing deposits in domestic banks — in one of the first concrete signs that the global financial crisis may next hit the oil-rich Gulf.

In Saudi Arabia, meanwhile, the government said it would deposit $2.7 billion into the Saudi Credit Bank to help lower-income citizens deal with financial difficulties, the country's Al-Ektisadiya newspaper reported.

The two moves came just a day after finance ministers from the six-nation Gulf Cooperation Council held an emergency meeting to echo assurances, which they have repeatedly voiced over the past few weeks, that the region's banks face no liquidity crisis.

Kuwait's decision to stop trading in shares of Gulf Bank sent a shock wave through the country's bourse, which closed down almost 3.5 percent and brought its year-to-date losses to over 19 percent.

"The halting of Gulf Bank shares spread panic in the bourse today, because the government has been saying banks are safe from (global financial crisis) losses," said investor Ahmed al-Fadhli in a telephone interview.

The central bank order said trading in Gulf Bank shares would be suspended pending an investigation into the derivatives deals that caused the losses. The bourse's statement said some investors had balked at covering their losses, but neither the central bank nor Gulf Bank indicated the scope or timeframe of the bank's losses.

But one banking official with access to the information estimated the bank's losses at up to $749 million. The official spoke on condition of anonymity because of the sensitivity of the issue.

Over the past few weeks, Kuwaiti investors have voiced clear concerns about the market. One stockbroker unsuccessfully sued to temporarily close the bourse while other traders last week stormed out of the exchange, demanding the government intervene to halt their near-daily losses.

Investor al-Fadhli said about 40 brokers walked Sunday from the exchange to the nearby seaside Seif Palace, demanding to see the prime minister, Sheik Nasser Al Mohammed Al Sabah, to ask for more government intervention.

The Gulf Bank news further fueled market turbulence in the broader GCC, not just in Kuwait, a tiny country which is far more dependent on oil revenue than many of its other Gulf counterparts.

Oman's stock exchange was down about 8.29 percent while Qatar's exchange was off almost 9 percent. Saudi's benchmark Tadawul index was down a moderate 3.06 percent, a day after plummeting over 8 percent.

Sunday is a normal business day in the Arab Mideast, which usually observes Friday as the weekend.

So far, the Gulf countries have been thought to be protected from the crisis, in part because of the cushion of oil money many of them have built up during years of high oil prices. However, because most of the region's banking sector is privately held, not much is known about the institutions' true risk exposure levels.

The Gulf Bank news also appeared to have pushed the Kuwaiti government to take a step it has so far resisted — guaranteeing deposits. The country currently makes no deposit guarantees.

The central bank said it would propose an urgent bill to guarantee bank deposits in an effort to "boost confidence in our banking sector and enhance its ability to compete with banks in countries where deposits were guaranteed by the state" but gave few details on specifics.
The guarantee would cover local Kuwaiti banks.

The various Gulf countries have taken a range of measures to maintain market confidence, including cutting interest rates and pumping billions into their economies.

In tandem, officials have repeatedly said the region is not exposed to the kind of toxic debt that has led to massive losses in the United States and spread to other global markets.

But the move to deposit funds in the Saudi Credit Bank, to be used interest-free by lower-income Saudis, showed the push many of the GCC countries were undertaking to ensure that their citizens are not affected by the current international crisis.

Much of that effort is funded by the countries' massive cash surpluses, accrued from oil wealth. But with crude prices falling, analysts say some spending may be curtailed.

The draft bill to guarantee deposits could prove to be the necessary catalyst for stability, analysts said.

But some, including independent financial analyst Ali al-Nimesh, have cricizied demands to stop trading, arguing that such a step was counterproductive and unnecessary since the daily losses have not exceeded 4 percent, compared to a more than 8 percent drop in the benchmark Saudi Tadawul index on Saturday, for example.

"Unfortunately, Kuwaitis have been used to demanding help and getting it ... and parliament has played a negative role in this," al-Nimesh said.

Lawmakers have passed pay hikes and set up a state fund to buy bad consumer debts despite strong Cabinet opposition.

The government believes oil revenues should be used for development instead of "popular" demands that do not take into consideration that oil prices might fall sharply, dragging down state revenues in tow.

Associated Press business writer Tarek el-Tablawy contributed to this report from Cairo, Egypt.

ap.google.com

Brokers need to read the small print:

"Share prices may go down as well as up"

What a wonderful world, where you cream off the profits and demand the government intervene to stem any losses.

One stockbroker unsuccessfully sued to temporarily close the bourse while other traders last week stormed out of the exchange, demanding the government intervene to halt their near-daily losses.

Fragile bastards, never heard any squawks when it was on the up.

Originally Posted by Mid

Kuwait's decision to stop trading in shares of Gulf Bank sent a shock wave through the country's bourse, which closed down almost 3.5 percent and brought its year-to-date losses to over 19 percent.

That's actually quite reasonable, haven't they read the news ? most markets are down 25% and more

Kuwaiti banking crisis deepens
October 28 2008
By Robin Wigglesworth in Abu Dhabi

The crisis in Kuwait’s banking sector deepened on Tuesday as the chairman of Gulf Bank resigned over derivatives losses and Moody’s warned it could downgrade the bank, the country’s second biggest lender.

Kutayba Al Ghanim replaced his brother Bassam Al Ghanim as chairman of Gulf Bank after depositors on Monday started to withdraw deposits from the stricken bank – the first known bank run in the region during the crisis – despite the Kuwaiti central bank’s pledge to support the bank and guarantee all bank deposits in the country.

Moody’s Investors Service said it would review Gulf Bank’s Aa3 rating for a possible downgrade due to the flight of depositors, the potential loss to the bank, and the apparent lack of risk management at the institution.

Mr Ghanim is the first senior banker in the region to have resigned over losses since the financial crisis broke last year. Gulf Bank said on Sunday it had made an undisclosed loss on trading currency derivatives for a client, who subsequently refused to honour their commitments.

Other Kuwaiti bankers estimate the loss at up to $800mn. The loss “raises questions as to whether the underlying risks assumed by customers, and by extension by the bank, were properly identified and managed,” Moody’s said in an emailed statement.

The run on deposits was reportedly modest in absolute terms, but “represented a flight of retail customer funds that could have a longer-term impact on the bank’s business franchise,” according to the credit rating agency.

The losses on currency derivatives came after the euro declined against the dollar, according to Gulf Bank, which said it would cover the costs until it can work out an agreement with its clients. Gulf Bank reported total assets of KD5.19 billion ($19.2 billion) as of September.

The Al Ghanim brothers Bassam and Kutayba al Ghanim are the bank’s biggest shareholders, controlling nearly a third of the company’s stock through Alghanim Industries, a Kuwaiti conglomerate.

Trading in the bank’s shares has been halted until the central bank – which has appointed a supervisor to monitor the bank’s treasury management and monetary market activity – conducts an inquiry into the losses.

The Kuwaiti stock market slipped 2.1 per cent on Tuesday, taking its loss this year to 22.8 per cent, with fellow bank Kuwait Finance House dropping 4.3 per cent.

National Bank of Kuwait gained 4 per cent as many Kuwaitis deposited money withdrawn from Gulf Bank in the country’s biggest financial institution. Kuwait is one of the world’s biggest suppliers of oil and one of the richest countries in the Gulf, but became the third country in the region to move to prop up its banking sector.

Despite robust public finances and current account surpluses, signs are mounting that the Gulf is far from immune to the storm sweeping financial markets. Abu Dhabi Commercial Bank in the United Arab Emirates and Gulf International Bank and Arab Banking Corporation in Bahrain last year reported writedowns on US investments.

Few other institutions have admitted to subprime losses, but many have started to take mark-to-market losses on investment portfolios due to plunging regional and international equities. The MSCI Gulf index has lost nearly half its value this year.

ft.com