Tighter times for Lebanese banks
Lebanese banks’ first-half results have revealed tougher market conditions. Overall for the banking sector, deposits grew by just $3.2 billion in the first five months of the year, 13 percent less than the average growth of the past five years. The three largest banks in Lebanon, Bank Audi, Blom Bank and Byblos Bank, took provisions totaling some $150 million in the first half of the year as a risk precaution in case of defaults, given the uncertain economic conditions in Lebanon and neighboring Syria. Bank Audi, Lebanon’s largest bank by assets, reported net profits of $230 million for the first half of the year, growing by 28 percent over the same period last year. Removing the profits made through the June sale of its 81 percent stake in LIA Insurance Company to Saham Finances, an African insurance company, the profit growth falls to less than 6 percent. Audi also took provisions of $68 million. Blom Bank, Lebanon’s second largest bank by assets, reported first-half net profits of $165 million on July 31, up by just one percent on the same period last year — it took provisions of $60 million. Byblos Bank, Lebanon’s third largest bank by assets, reported profits of $80 million in the first half of the year, flat on the same period of last year, while allocating provisions of $23 million.
U.S. seizes $150 million in ‘Hezbollah funds’…
The United States authorities announced they had seized $150 million that they claim was used by Hezbollah entities to launder money. The seizure is the result of a civil complaint filed in 2011 in New York against the now defunct Lebanese Canadian Bank, acquired by Société Générale de Banque au Liban (SGBL) in September 2011 for $580 million. The lawsuit asserts that entities linked to Hezbollah were channeling funds from Lebanon into the US financial system between January 2007 and early 2011 to acquire used cars to then sell in West Africa for cash, which was then transferred back to Lebanon along with funds from drug sales and other crimes. SGBL placed the $150 million in escrow at a New York correspondent account of Lebanon’s Banque Libano Française (BLF) pending the lawsuit. BLF and SGBL are not accused of any wrongdoing according to the prosecutors.
…and scrutinizes banks for Iran dealings
Standard Chartered Bank (SCB), Deutsche Bank and Royal Bank of Scotland (RBS) are the latest banks in the hot seat for their dealings in Iran. New York’s superintendent of Financial Services Benjamin Lawsky accused United Kingdom-based SCB last month of helping Iranian banks and corporates hide some 60,000 transactions worth at least $250 billion, between 2001 and 2010. SCB agreed to pay a record $340 million penalty to settle the charge and prevent the revoking of their New York license. The regulator is also accusing the bank of having similar schemes with other countries sanctioned by the United States, such as Burma, Libya and Sudan. Lawsky said the “rogue bank” is being aided by its consultant Deloitte & Touche, an accusation that Deloitte’s Chief Executive Joe Echevarria considers “distortions of the facts.” Deutsche Bank is also being scrutinized by US authorities according to the New York Times, but with the investigation still at an early stage, no accusations have been put forth as Executive went to print. RBS has volunteered information to the UK and US regulators concerning its dealings with Iran following an internal review.
Death sentences in Iran banking scandal
An Iranian court sentenced four people to death on July 30, following a billion-dollar bank scandal that came to light in September 2011. The court sentenced two others to life imprisonment and several received sentences ranging up to 25 years. 39 people were sent to trial for the fraud. The scandal, one of the biggest frauds in the Islamic republic’s history, involved several Iranian banks and caused losses amounting to a staggering $2.6 billion over more than two years. The financial scandal involved the forging of documents to secure credit from various financial institutions, including Bank Saderat, one of the largest in the Middle East. The proceeds were then used to purchase state-owned enterprises, such as the Khuzestan Steel Company, as the government implemented its controversial privatization scheme, which began in 2004. Back in October, Kayhan, a conservative newspaper under the direct supervision of the Office of the Supreme Leader, had identified the suspect as billionaire mogul Amir-Mansour Aria, and alleged complicity on the part of President Mahmoud Ahmadinejad’s top ally, chief of staff Esfandiar Rahim Mashaei. Ahmadinejad denies Mashaei’s link to the scandal.
Lebanese banks under cyber attack
Remember Stuxnet? That was the computer virus discovered in June 2010 that attacked Iran’s nuclear program and which in June this year was reported by the NY Times to be part of an American-Israeli intelligence operation. Now it’s the turn of Lebanese and Arab bank accounts to come under cyber attack from a virus dubbed Gauss — after an apparent reference to the German mathematician Carl Gauss that was found in the code — which is capable of stealing browser passwords and online banking account details. Moscow-based cyber security firm Kaspersky Labs, which discovered Stuxnet, also uncovered Gauss and is having a difficult time cracking the code, pleading for help on their website. “We’re talking about a complex package (…). It maintains code and has similar functionality to Flame and Stuxnet,” says senior security researcher Kurt Baumgartner. Flame and Stuxnet both have the ability to rewrite code; Stuxnet rewrote code leading to enrichment centrifuges in Iran to go out of control and become useless. So far, Kaspersky Labs has detected Gauss on more than 2,500 computers in the Middle East, of which approximately 1,600 are in Lebanon and nearly 500 in Israel. Bank of Beirut, Blom Bank, Byblos Bank and Credit Libanais have been affected, according to the Russian security firm, as well as Citibank and Paypal. While the origin of the virus is still unclear, Kaspersky Labs said it believed it was built in the same laboratories as Stuxnet, Flame and Duqu, another espionage virus.
Egypt requests $4.8 billion from the I.M.F.
Egypt’s president Mohamad Morsi has asked Christine Lagarde, the International Monetary Fund’s (IMF) chief, for a $4.8 billion loan to cover the country’s budget deficits. Talks between Egypt and the IMF have been ongoing ever since president Hosni Mubarak was deposed last year, but a deal failed to go through as the IMF required broad political support as a key condition for the loan. Following the formation of a government by President Morsi and his dismissal of top army generals, the deal is expected to be given the green light, with Lagarde stating that, “It is going to take a bit of time and we feel that we have perfectly competent authorities to negotiate with.” Egyptian Prime Minister Hisham Kandil expects the loan to be signed by the end of the year and be for five years, with a grace period of 39 months and interest rate of 1.1 percent. With limited alternative options, the Egyptian government had to borrow a hefty $12 billion from its central bank in the 12 months to June 2012.
Qatar investment spree continues
This time, Qatar goes after China as its sovereign wealth fund, Qatar Investment Authority (QIA), acquires a 22 percent stake in a Chinese investment fund, CITIC Capital Holdings, known for its investments in real estate and private equity. CITIC is partly owned by CIC, China’s sovereign wealth fund. While the size of the investment was not disclosed, the deal is expected to have a significant impact as it links two major sovereign wealth funds. Back in the United Kingdom, a country Qatar is very familiar with through its numerous investments, the peninsula has been eying a stake in UK-based airport operator BAA, owner of London’s Heathrow airport, the third busiest airport in the world. Qatar Holding is set to acquire a 20 percent stake for £900 million ($1.4 billion) in BAA from Ferrovial, the Spanish company owning 49 percent of the operator. Qatar will become the third largest shareholder in BAA after completion of the deal. “This acquisition is a key element in our exposure to the infrastructure sector,” said QIA in a press release.
Lebanese companies’ appetite to open up for capital
According to a survey of 100 Lebanese companies by BEMO Securitization, the structured finance unit of Banque Bemo, 48 percent of Lebanese companies would be willing to open up their capital to new investors. The vast majority of these companies operate in capital-intensive sectors, such as industry, with startups making up 40 percent and well-established companies comprising the remaining 60 percent. One third of Lebanese companies have no interest in opening up their capital and would not issue preferred shares (a class of ownership with higher claims on assets than common shares but with no voting rights), with most of the companies within this category made up of well-established family owned businesses operating in sectors that are not capital intensive, such as the trade sector. The final 19 percent of surveyed companies would consider issuing preferred shares, with half of these companies being well-established family-owned businesses in non-capital intensive sectors.
