Minority shareholders of the UK’s European Islamic Investment Bank (EIIB) have emerged to air their grievances over the bank’s operations, alleging that its single largest shareholder, HBG Holdings, has taken over control of the bank while exercising a loose hand in its management.
Following rumblings of discontent first reported in Islamic Finance news in October 2011, allegations have now surfaced that HBG, a Dubai-based private equity firm, possesses power of attorney over a block of shares, in addition to its existing 14% stake, that has afforded it over 43% control of EIIB.
With the bank showing continued losses in its 2011 financial results (EIIB discloses its financials once a year), could the minority shareholders be accurate in pointing their fingers at the inefficiencies in managing the bank?
The minority shareholders’ concerns began in late 2011, following HBG’s entry into EIIB earlier that year. Among allegations made include a strong influence by HBG over certain directors at EIIB; following which the private equity firm “supported” the firing of three independent directors.
“HBG nominated two board members from their side, effectively hijacking the bank’s board, with no independent board members,” said a source, who also highlighted that dissatisfaction over EIIB’s board representation is also due to the lack of experienced bankers on the board.
The bank’s board includes Abdallah Yahya Al-Mouallimi, its chairman, who is also a co-founder and the chairman of HBG; and Michael Willingham-Toxvaerd, who is also managing partner of HBG Holdings UK.
Apart from Keith McLeod, the deputy CEO and finance director of EIIB, who is also an executive director at the bank, the two individuals who are experienced bankers on the board comprise Aabed Al Zeera and John Robertson Wright. Aabed, who is also CEO of Bahrain’s International Bank, has also served at Arab Banking Corporation and Arcapita, while Wright has worked at banks including Oman International Bank and Kuwait’s Gulf Bank.
Another major grouse some quarters have observed is a hands-off approach to the bank’s day-to-day operations by Zulfi Caar Hydari, its CEO. Zulfi Caar is himself a co-founder of HBG and was appointed CEO of EIIB in December 2011 following the departure of Subhi Benkhadra, the bank’s previous CEO.
It is said that Benkhadra left the bank after butting heads with the HBG team; and eventually settled with EIIB after initiating an employment tribunal process against the bank.
According to a source, Zulfi Caar does not spend enough time in the UK to effectively manage EIIB.
With some of EIIB’s dirty linen out in public, do the grievances reflect on the bank’s financial performance? According to its 2011 annual report, the bank made a loss of GBP11.38 million (US$17.73 million) during the year, against a loss of GBP5.92 million (US$9.22 million) in 2010; contributed by a GBP9.7 million (US$15.11 million) impairment provision booked against debt due from Arcapita.
Despite growing impairments, the bank reported a surge in its total operating income to GBP9.7 million, compared to total operating income of GBP4.99 million (US$7.78 million) in 2010. However, this was boosted by a one-off gain from the disposal of oil and gas assets, without which the bank would have booked an operating loss of around GBP2.2 million (US$3.43 million).
With efforts still needed to boost its financial results, the bank’s minority shareholders may be right in highlighting the shortcomings of its directors and top management. Furthermore, with the bank’s renewed focus on mergers and acquisitions, in a bid to expand its business; despite a need for it to first strengthen its balance sheet, it may now be a time of reckoning for EIIB as it struggles to return to the black in a sustainable way. — EB