Gulf Bank, the only bank in the oil-rich Gulf Arab region to be rescued by the state due to the global credit crisis, posted losses of KD 289.1 million ($ 1.05 billion) in the first 10 months of the year after five clients bet on currency derivatives and then refused to pay to cover the losses. Shareholders approved a rescue plan ordered by the central bank to raise KD 375 million in a 100 percent rights issue to cover derivatives losses of the same amount and make a fresh start with a new board.
Sitting stony-faced in the assembly hall at the bank’s headquarters, Chairman Kutayba al-Ghanim listened to hours of complaints by shareholders demanding answers. “Where is the money, how did it happen?” one shouted. Despite the troubles, Ghanim voiced optimism and said the the bank would seek opportunities in and outside Kuwait. “I’m convinced Gulf Bank will be one of the best banks in Kuwait and the countries of the Gulf Cooperation Council after the restructuring,” he said, predicting growth rates of 10 percent in coming years. Earlier, he told the state news agency KUNA he had received “numerous” requests to sell a majority stake but would put them on hold as it would not get a good price due to its problems. “It is not the right time to discuss any such attempts for Gulf Bank due to the fact that right now the bank will be the weaker rather than the stronger party,” Ghanim said.
Kuwait’s government, keen to diversify its oil-fuelled economy, has guaranteed deposits at all banks in the wake of the Gulf Bank case, which caused panicked customers to queue for days at the headquarters to withdraw their money.
Gulf Bank had posted two straight quarterly profit declines and was the only major lender in the OPEC country that took provisions for bad debt this year.
The bank took provisions of KD 279.2 million in the first ten months to cover 11 derivatives deals betting on the euro exchange rate, according to a presentation to investors.
Under the rescue plan, the country’s sovereign wealth fund, the Kuwait Investment Authority (KIA) has offered to buy up any remaining stock from the capital increase. But with a discount offer of 300 fils a share — a third of the market price — the issue is expected to be snapped up completely.
Gulf Bank’s shares traded at 0.95 dinars on Tuesday compared with a year high in January of 1.98.
Support
KIA’s role matches that of other sovereign funds such as the Qatar Investment Authority (QIA), which have rushed to support local banks as the global crisis bites.
The central bank has said it does not expect other lenders to go the way of Gulf Bank as none has similar exposure to derivatives. It has halted trading in Gulf Bank until the end of the revamp.
Meanwhile, the regular and extraordinary General Assembly of the Gulf Bank which was held on Tuesday approved an increase of the bank’s capital from about KD 125.3 million to about KD 250.7 million, by issuing 1,250 million shares with a nominal value of 100 fils and premium of 200 fils.
The Assembly endorsed the bank’s sale of its right to priority in subscribtion to increase capital through the Kuwait Stock Exchange, according to the provisions of the Ministry of Commerce and Industry, in addition to deputizing the Board to take necessary action.
The General Assembly also approved the allocation of unsubsribed shares for the Kuwait Investment Authority as representative of the government.
It also approved to give priority to existing shareholders to subscribe in proportion to their ownership in the capital.
