Turning it round
We were engaged in exotic derivatives, and when the market turned against our clients then our clients did not pay us back."
After two horror show years, the stock market thinks Kuwait's Gulf Bank has turned a corner. Are they in for another nasty surprise? Don't worry about a thing, says CEO Michel Accad.
Michel Accad, CEO of Kuwait's Gulf Bank, has a pleasing sing-song speaking voice. His French accent adds to the effect. To hear him explain what happened to the bank in 2008 and 2009, before he joined, calamity sounds like nothing more than passing inconvenience. Which, in fairness, is what it turned out to be. He says, matter of factly: "2009 was a very difficult year for Gulf Bank. At the end of 2008, we had a traumatic experience when we lost a lot of money through the derivatives issue that we had. We lost our entire capital, not far from $1bn. We were engaged in exotic derivatives, and when the market turned against our clients then our clients did not pay us back."
Well, yes, when you put it like that, it does indeed sound traumatic. There is no question, if you are an investment bank, that losing your entire investment capital is bad. It makes investing difficult, for a start. But help was at hand. "What happened was that in early 2009 the bank was fully recapitalised and the government, through the Kuwaiti investment authority, became 16 percent shareholder in the bank because they underwrote the new capital rights issue," Accad explains.
The early months of 2009, then, must have seemed like a new dawn for employees and, indeed shareholders, of Gulf Bank. With its riches replenished, and presumably twice shy, the bank - Kuwait's fourth largest by market value - was surely poised to recapture past glories. Cruelly, within months these dreams were shattered.
"In 2008, the derivative problem was very specific to Gulf Bank. In 2009 what we faced was a problem which was generic to all banks, which was the quality of the credit portfolio. The stock market went down, the real estate went down throughout the region. In 2009 we were then affected by credit related losses. And the credit related losses essentially ate up all our profit."
The management has since provisioned for the loss of another billion dollars from the start of 2009 to June 2010. During that time, not only was the bank having a nightmare with bad credit, but, by the sounds of it, it also had plenty exposure to the $20bn Algosaibi/Maan Al Sanea fiasco, which still rumbles on and has caused more bank managers in the Gulf to wake screaming in the night than any other event in Gulf banking history. Accad alludes to "exposure to the famous Saudi names," but demurs when Arabian Business asks him to actually name them. He will say that that, too, is "one hundred percent provisioned for".
Given all of the above, surely there is no point even asking Accad how business is. Clearly it is terrible, and as CEO of Gulf Bank, he must teeter ever more precariously on the verge of a nervous breakdown.Is he not being improbably brave by merely giving this interview? He laughs. "You can talk about 2008 and 2009, but may I remind you that we are in 2010?" he says politely. "All that is behind us and we are practically... we are making a very nice profit. In the first half we completed one hundred percent provisions, we still ended up with a relatively small profit. For the second half of the year we expect that no matter what happens in the economy we will do much better and show a good profit for the year."
How much profit? Of course he can't say - his company is listed on the Kuwait exchange. "It will be decent," is all he'll say.
Accad joined Gulf Bank in August 2009, and put in place a new management immediately. He credits the turnaround in his bank's fortunes (and that is exactly what he refers to 2010 as, "our turnaround year") to this new leadership, leadership, he says, that was free of the mistakes of the past.
Actually, he is a passionate believer in dropping the pilot when times are tough, or tough for a prolonged period.
He says: "It is much easier for a new management team to say 'look, let's take provisions on the past because the past does not belong to us. The past belongs to the old management, therefore we can take provisions.' It is very difficult for the old management - and I have noticed in the UAE most banks have stuck with the same management as they had before - they tend to be reluctant in recognising past losses, correct? Because it is still them. It is hard to recognise you need to put something behind you if you are the one who created it."
Before joining Gulf Bank, Accad says he was CEO of Citigroup for the MENA region, and deputy CEO of Arab Bank.