Faisal Private Bank, the 100%-owned Swiss unit of Bahrain’s Ithmaar Bank, revealed this month that it is seeking new shareholders to help raise funds to meet the minimum capital requirement under Swiss regulations.
Like many Gulf-related banks, Faisal fell victim to the 2008/09 financial crisis and has since struggled to reverse its fortunes.
With Ithmaar unable to inject further capital into the bank, the entrance of new shareholders is seen as a crucial lifeline for Faisal to continue its operations.
Lacking capital
Faisal did not respond to questions sent from Islamic Finance news. However Mark Koch, its CEO, recently said that Faisal is in negotiations with three financial institutions to take up a stake. The institutions comprise two from the Gulf and one from the UK.
The bank’s conundrum stems from the failure of Ithmaar to provide a US$60 million capital injection; required for Faisal to meet the Swiss Financial Market Supervisory Authority’s minimum capital requirement of CHF50 million (US$53.21 million). The Swiss regulator has given Faisal until June to meet the capital requirement.
In 2009, Ithmaar tried to raise up to US$500 million for its subsidiary, but only succeeded in raising US$100 million; after which it was barred by the Central Bank of Bahrain from further funding to Faisal.
Ithmaar itself has reported three straight years of losses since 2009, also stemming from the Middle East’s financial woes. Although still in the red as at the first quarter of 2012, the bank has narrowed its loss to US$452,000 from as much as US$233.37 million in 2009.
Roadblock
Faisal’s story is not atypical to the fortunes of banks in the Gulf following the Middle East’s financial crisis. Banking on the real estate boom, it initially booked rapid growth through upfront payments from investors.
The bank’s business model allowed it to build up a real estate portfolio worth CHF1.1 billion (US$1.17 billion) in 2009. However, the bubble quickly burst as real estate prices plunged. Faisal was also forced to contend with amendments to Swiss accounting rules which led it to stop collecting fees based on expected future earnings.
Nonetheless, the bank appears to have been able to continue operations, although business may be close to a grinding halt due to its lack of funds, with Koch noting that the bank has had to turn down business as a result.
Big plans
Koch himself was appointed to the bank in 2009 following the resignation of then-CEO, Marco Rochat. The new CEO’s mandate was to broaden Faisal’s focus beyond wealth and asset management to trade finance and asset management.
Launched in 2006, the bank aimed to tap into Arab funds managed by institutions in Geneva after receiving its Swiss banking license. It was set up in Geneva as Faisal Finance in 1982.
At its launch, the bank managed a CHF1.25 billion (US$1.33 billion) investment fund and has launched its funds in China, Hong Kong, Indonesia, Japan, Malaysia, Singapore and Taiwan. It has also been involved in real estate transactions in eastern Europe and the US.
With investors waiting in the wings to take over Faisal, there may be hope yet for the bank as its potential new shareholder could help steer it in the right direction. — EB