European Islamic Investment Bank (EIIB), which recently announced it has relocated some staff from its head office in the UK to Bahrain, has refuted market talk that the move was due to a difficult market in London.
“The decision had nothing to do with difficulties faced in London, but rather the increasing opportunities we’re seeing and the resulting need for some personnel to be closer to their target markets in the Islamic world. The bank continues to be a UK-based bank regulated by the Financial Services Authority,” said Alwaleed Kamal, the managing director of strategic business development at EIIB.
Also signaling its commitment to the Bahraini market, Kamal said EIIB has considered a number of strategic opportunities there, including the acquisition of a controlling stake in a Bahrain-based investment bank.
In a response to Islamic Finance news, Kamal, who is also head of the bank’s Bahrain office, said: “The deal did not go through for reasons beyond our control. Negotiations started in the beginning of the second quarter of 2011 and just recently fell apart. We continue to be opportunistic and if the right transaction presents itself, we will pursue it.”
Changing course
EIIB opened for business in London in April 2006 and launched its representative office in Bahrain later that year. After seeing its business shrink as a result of the financial crisis the bank, which has recorded four straight years of losses since 2007, embarked on a new strategy last year which included focusing on three core business within Islamic markets: namely investment management, banking and financial services.
In the bank’s 2010 annual report released this year, Shabir Randeree, the chairman of EIIB who took over from Adnan Ahmed Yousif, who resigned in February 2011, said: “EIIB’s founding strategy has shown itself to be over-optimistic and incompatible with the dramatically changed business environment resulting from the global recession.”
The bank’s circumstances have been so dire in the past few years that in a note to shareholders late last year, Subhi Benkhadra, its newly-appointed CEO, admitted EIIB’s board of directors had been faced with a very real possibility of having to wind up the bank. “In December 2009, the board concluded that the latter would be an inherently incorrect view and that a radically new and credible strategy could indeed be envisaged and successfully implemented,” he said.
Confident amid challenges
In spite of the challenging times, Kamal remains optimistic. “In absolute terms, the bank has performed much better than most Islamic investment banks in 2010 as banks wrote down the value of their inflated assets,” he said.
Its financial results last year have shown an improvement. Losses for the year declined to GBP5.92 million (US$9.46 million) from GBP22.18 million (US$35.43 million) in 2009 on higher income and lower expenses; although income from financing and investing activities remained depressed, at GBP1.98 million (US$3.16 million) against GBP3.77 million (US$6.02 million) the previous year.
However, the bank successfully reversed provisions, recording none for impairments of financing arrangements and impairments of available-for-sale securities, compared to GBP6.35 million (US$10.14 million) and GBP7.03 million (US$11.23 million), respectively, in 2009.
Optimistic on Bahrain
With continuing political uncertainty in the Middle East including Bahrain, how secure is EIIB’s move to increase its focus in the market? “Bahrain is an ideal base for EIIB to operate from due to its proximity and central location to many of the Islamic markets which we focus on. The events that gripped Bahrain were unfortunate, but day-to-day life has generally come back to normal levels and our business has not been affected to any material extent,” said Kamal.
Of the areas of business in which the bank has relocated staff to Bahrain from London, he said these comprised private equity and capital markets. The bank has also hired staff in Bahrain with real estate expertise, as this was a capability it did not previously have in either market.
On the bank’s deal pipeline, EIIB is concentrating on growth equity transactions in the US$5 million-US$25 million range and is mandated to invest globally but with a focus on Islamic markets, said Kamal. In quoted equity and Sukuk, the bank has actively managed portfolios focusing on Islamic markets while it will also invest in income generating products and transactions.
“Recently, we started negotiations with a Saudi entity for the sale and leaseback of some of their real estate assets. We are also in the process of structuring an equipment leasing product with an established international manager,” he added.
However, the bank remains mindful of possible pitfalls ahead. According to Kamal, the bank will make adjustments to its strategic direction as and when required. “One of EIIB’s challenges has been deploying its capital in sound assets. Although the current environment provides ample investment opportunities, we are cautious and opportunistic in our approach,” he said.