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."

The Pak Banker - - Editorial - Damian Reilly

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.

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