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GIB posts $757m loss over subprime crisis

Manama, February 22, 2008

Gulf International Bank (GIB) is the latest Middle East financial institution to take a hit from the US credit crisis.

The bank went into the red to the tune of more than $757 million last year as a result of subprime-linked exposure.

It had to get shareholder approval yesterday at an extraordinary meeting to raise its share capital by $1 billion to $2.5 billion.

"GIB stands strong and sound, with the shareholders having confirmed their ongoing support to the bank with the investment of an additional $1 billion  of capital," said chairman Shaikh Ebrahim bin Khalifa Al Khalifa.

"The capital increase exceeds the loss incurred last year. This is a clear expression of confidence in the bank. GIB remains committed to its leadership role in the region and its vision of being the merchant bank of choice in the GCC."

Operating income was $292.1 million, which was $73.7 million or 34 per cent up on the previous year.

However, after taking account of revaluation losses and provisions in relation to exposures impacted by the global credit crisis witnessed during the second half of last year, the bank reported a net loss of $757.3m for the year.

The provisions primarily related to structured investment vehicles (SIVs), and collateralised debt obligations (CDOs) incorporating exposures to the US subprime sector.

Net interest income was $305.6 million last year, $47.9 million up on the previous year.

The increase in interest earnings was principally due to significantly higher loan volumes, related in particular to GCC project financings.

Non-interest income benefited in particular from strong fee-based income derived from asset and fund management, corporate advisory and underwriting activities.

Fee and commission income rose by $22.3 million to $88.1 million for the year. Total operating expenses were contained below the prior year level.

Consolidated total assets rose to $30 billion at the end of last year, representing an increase of $5.2 billion over the prior year end.

The year-on-year increase was principally attributable to ongoing growth in the GCC loan portfolio.

Total equity amounted to $2,215 million at the end of last year, being $359 million higher than at the end of 2006.

The bank's capital adequacy ratios remained strong with Basel 1 Total and Tier 1 capital adequacy ratios of 14.7 per cent and 11.7 per cent respectively on December 31 last year. These ratios are high in comparison to both regulatory minimum and international standards.

The Basel 2 capital adequacy ratio on December 31 last year of 13.8 per cent was above the Central Bank of Bahrain's minimum ratio requirement of 12pc.

"While the bank has been impacted by the events and turmoil in the global credit markets, it has acted quickly and decisively to take the necessary measures to address the consequences of these adverse market developments," said chief executive Dr Khaled Al Fayez.

"The bank has taken prudent and conservative provisioning actions in relation to investments in SIVs that were adversely impacted by the liquidity crisis resulting from the credit market turmoil, and CDOs incorporating exposure to the US subprime sector.

"Provisions included $150 million in respect of possible impairments that had not been specifically identified at the year end.

"At the end of last year, 98 per cent of available-for-sale debt securities were investment-grade rated. We are nevertheless taking active and comprehensive measures to further enhance the bank's risk management processes."

The bank is owned by the six GCC governments and the Saudi Arabian Monetary Agency.-TradeArabia News Service




Tags: GIB | Subprime crisis | loss |

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