Like many financial institutions across the Middle East, Bahrain’s Global Banking Corporation (GBCorp) did not escape the whirlwind that was the recent financial crisis. After recording a full year of losses in 2010, the investment bank’s losing streak continued into the first quarter of this year.
According to its 2010 annual report, GBCorp adopted a new strategy which is expected to bear fruit this year. Its financial results indicate that the bank may have reached bottom at the end of last year but come the 31st December 2011, will the bank indeed see a reversal of fortunes?
Coming full circle?
Flashback to June 2007 and GBCorp’s future was full of promise. Although relatively small, with a paid-up capital of US$250 million, the bank has been busy since its inception. In 2008 it formed Global Energy Financial Services Company, its energy-focused subsidiary set up to identify and structure investments in the oil and gas and power sectors.
The following year, it announced the development of Marsa Al Seef, a residential and commercial project in Bahrain; while it also undertook a commercial, residential and mixed-use development project, Makkah Hills, in Saudi Arabia.
At the end of 2009 the bank established Diyafa Holding Company, in which it owns 90%, to leverage opportunities in the hospitality, food and beverage, retail and business service sectors.
Unfortunately for GBCorp, the financial crisis emerged amid the bank’s efforts to establish its presence and grow. Although the bank remained resilient in 2008, reporting a net profit of US$21.2 million and total assets of as much as US$455.9 million, it was eventually impacted by the global financial crisis in 2009.
During that year, the bank posted a loss of US$18.8 million and saw its asset base shrink to US$197.66 million. It attributed the decline in total assets to the utilization of its investor funds into key projects.
GBCorp remained in the red as last year came and went, but it implemented a new strategy which gave rise to optimism for 2011. In the bank’s 2010 annual report Saleh Al Ali Al Rashed, its chairman, said its revised measures include a focus on corporate finance, private equity, energy, asset and wealth management and investment placement, advisory services and establishing a recurring income base.
Challenges remain
The bank’s first quarter ended the 31st March 2011 results show a loss of US$6.76 million, larger than the US$2.96 million loss it recorded a year earlier but almost three times less than the US$19.45 million loss it posted just a quarter prior. While a definite improvement and a sign that the bank’s losses may have bottomed, the way forward will hardly be easy for GBCorp.
First, it has to contend with shrinking income, which in the first three months of this year amounted to US$683,000 compared to US$1.85 million in the previous corresponding period. Its income for the first quarter of this year was hampered by a US$281,000 loss from investment securities and a US$41,000 share of losses from joint ventures. In addition, its rental income from investment property was, at US$666,000, 36% lower than in the same period of 2010.
The bank also has some way to go to improve its cash flow. Although cash and cash balances rose to US$29.29 million in the first quarter from US$26.64 million a year earlier, this was a decline from the US$39.36 million-worth of cash it held at the beginning of the first quarter.
Although it achieved higher income and fees during the period, amounting to US$1.23 million against US$824,000 in the first quarter of last year, this was offset by a US$4.35 million payment for investors’ funds and a US$3.51 million cash outflow for expenses and project costs.
Having booked a negative cash flow from operating, investing and financing activities in the first quarter, the management of its cash flow poses a further challenge for GBCorp.
Hope floats
With such difficulties left to hurdle, can GBCorp deliver on its expectations to achieve a healthy 2011? Only time will tell if the new measures the bank has put in place will contribute to its turnaround this year. However, given that it has diversified its portfolio, the outlook could be promising.
The bank also, in May, appointed Oscar Silva as its new CEO. With 28 years of experience in investment banking and asset management, focusing on emerging markets, Silva could herald hope for the bank’s next stage of growth. Coupled with the bank’s new business plans, GBCorp may be well positioned to make a meaningful return to Bahrain’s banking scene this year.
As noted in its annual report for last year: “2010 was a year of introspection, followed by consolidation – of resources, business activities and planning. Today, with GBCorp’s leaner and stronger operations, coupled with a carefully reconstructed economic shock-resilient business model, the bank is ideally positioned for a long-term sustainable flourish.”