Collapsed Bahraini banks seek debt deal
Manama, April 8, 2014
A multi-billion dollar financial dispute that followed the collapse of two Bahraini banks continues to make ripples around the world.
Now, more than four years later, some creditors are being offered a final settlement, said a report in the Gulf Daily News (GDN), our sister publication.
At least seven banks in Bahrain are owed hundreds of millions of dollars - almost five years after two others collapsed with massive debts.
Bahrain-based Awal Bank and The International Banking Corporation (TIBC) have been in administration since mid-2009, sparking a worldwide scramble by financial institutions to recover an estimated $22 billion from them and other entities.
Thirteen former bank officials are currently standing trial in Bahrain's High Criminal Court on charges of corruption.
The TIBC case is complicated by the fact that its shareholders and directors were, on paper at least, members of a Saudi conglomerate who claim they had nothing to do with it.
The Saudi-based Ahmad Hamad Al Gosaibi and Brothers (AHAB) family business group is now being held liable for $9.2 billion, but claims it is the victim of an elaborate fraud.
It has pointed the finger at Saudi citizen and Saad Group founder Maan Al Sanea, who married into the Algosaibi family and is among those facing criminal charges in Bahrain.
However, Al Sanea has repeatedly denied wrongdoing.
AHAB is now trying to reach a compromise with banks seeking repayment of the $9.2 billion - debts it says were run up against its knowledge by TIBC, AHAB's Money Exchange and other businesses in Bahrain including Algosaibi Trading Services and Algosaibi Investment Holdings.
Sources said seven banks in Bahrain are seeking between $300 million and $400 million from AHAB, but it is not known how many banks in the kingdom have been affected by the collapse of Awal Bank - which is part of Al Sanea's Saad Group.
AHAB last week announced plans to offer a comprehensive settlement for financial institutions during a meeting in Dubai on May 7.
"After more than four years of litigation yielding few tangible results for banks, AHAB is set to propose comprehensive settlement terms to resolve the claims against it," AHAB said in a statement.
Its assets, including its share portfolio and land in Saudi Arabia, are estimated at between $1.1 billion and $1.4 billion.
Around 65 banks have reportedly filed lawsuits against AHAB in 10 countries in an attempt to recover their money, while it is speculated that some of the AHAB debt has been sold on the secondary market.
AHAB is in turn taking legal action against Al Sanea, who has already been ordered by the Grand Court of the Cayman Islands to hand over $2.5 billion as an interim payment.
Meanwhile, last October AHAB dropped a case against one of Al Sanea's righthand men, American Glenn Stewart, after the former Bahrain resident agreed to share information on a range of subjects including Al Sanea, AHAB, TIBC and other related companies.
Both Awal Bank and TIBC were audited by PricewaterhouseCoopers, but AHAB acting chief executive officer and chief restructuring officer Simon Charlton said he was surprised that alarm bells were not sounded before their collapse in 2009.
"We are very surprised that they did not discover anything suspicious," he said.
PricewaterhouseCoopers declined to comment.
AHAB says it is considering legal action against some of the banks it owes money to - accusing them of ignoring normal banking practice when they lent money to entities operating under its name.
It has already countersued one of its creditors, a UAE bank, in the US where a case is still ongoing.
"Bank systems for due diligence, at the very least, did not work and it is AHAB's view that at least some were deliberately bypassed or compromised," said Charlton.
He claimed some banks turned a blind eye when dealing with TIBC and other entities because they were profiting themselves - for example through high interest charges and fees "that did not make commercial or logical sense".
Charlton also claimed that representatives of banks pursuing AHAB for loan repayments never met a member of the Algosaibi family.
"They never even met the family," he said. "Unsecured lending of $9 billion to a family they had never met."
Meanwhile, AHAB's chief legal co-ordinator Eric Lewis accused banks of charging "loan shark rates" to hand over money without asking questions.
"They were doing these split value foreign exchange transactions which were effectively disguised short-term loans," he said.
"If the base rate for lending is a couple of per cent and someone is willing to pay you 15 or 18 per cent to borrow money for a week, any sensible bank has got to ask: what is this about?
"They can't take loan shark rates and not ask questions."
The current status of the Awal Bank and TIBC administrations is unclear.
Administrators have been appointed for both institutions, but neither Awal Bank administrator Charles Russell or TIBC administrator Trowers and Hamlins responded to the GDN's request for information.
The Central Bank of Bahrain also declined to comment, as did the seven banks in Bahrain allegedly owed money by AHAB. - TradeArabia News Service