Middle East: Shoman’s era ends as Arab Bank chairman resigns

By:
Dominic O’Neill
Published on:

Dispute with CEO; Cites cost-cutting, centralization

The Shoman era at Arab Bank seems to have come to a definitive end. Abdel Hamid Shoman, the founder’s grandson, resigned as chairman in August, along with three other members of his family who also had management positions.

The Shoman family has been synonymous with Arab Bank for three generations. Under the Shomans, Arab Bank became perhaps the region’s most geographically widespread bank, moving from Palestine to Jordan after the creation of the state of Israel.

In a statement to Euromoney, the former chairman said he resigned after the board of directors failed to respond to his concerns about the management of the bank under Nemeh Sabbagh. Sabbagh took over from Shoman as chief executive after the positions of chairman and CEO were split in February 2010.

Sabbagh was formerly CEO of Arab National Bank, Arab Bank’s Saudi operation. But he left ANB to run BankMed, which is owned by Lebanon’s Hariri family. That also means that he is well connected to a shareholder base that has gradually increased its stake in Arab Bank as the Shomans’ stakes have declined.

Heart of the dispute

One of the most essential strategic decisions revolves around how to centralize the bank’s diverse operations, across 30 different countries, 18 of which are in the Arab world, a region going through rapid demographic, technological and now political change. According to Shoman, this was at the heart of the dispute.

In Shoman’s eyes, Sabbagh, as CEO of Arab Bank, has shown he has insufficient experience of managing a regional rather than a local bank.

Running Arab Bank, says Shoman, requires "a broader knowledge and capability to recognize and address each country’s needs based on its own environment and regulations".

Abdel Hamid Shoman, the founder’s grandson, resigned as chairman of Arab Bank in August
Abdel Hamid Shoman, the founder’s grandson, resigned as chairman of Arab Bank in August
He adds: "I received letters of complaint signed by more than 17 senior managers at the bank, ranging from head office and in countries. They included complaints about the centralized management style where there was little to no authority given to others, in comparison to the past practices where we had formulated committees with proper authorities that could make timely decisions in order not to affect the business or service towards customers."

Arab Bank declined Euromoney’s request for an interview with Sabbagh. However, the idea that Sabbagh’s management lacked experience appears contrary to the views expressed in a press conference by the new chairman, Sabih Masri (the statement did not mention the issue of centralization).

Masri said Arab Bank remains "built and developed by [...] professionals possessing outstanding banking expertise and qualifications that put them at the forefront of the banking experts regionally and internationally."

However, according to Shoman: "Decisions were now being done in a top-down centralized approach without involving others and with no consideration to any of the senior management’s long-term experience and expertise."

Meanwhile, according to Shoman, Sabbagh has also moved to a riskier, more centralized management style. Over many years, Arab Bank has built a reputation for prioritizing liquidity over returns, something deemed necessary to managing the risks of operating in such a politically volatile region.

Shoman says the bank has become more focused on annual profit growth and less focused on the long-term interests of its depositors, shareholders and employees under Sabbagh. "I can see that the bank is moving in a direction based on a short-term vision, which will lead to its shrinking in both size and growth," he says. "Costs were also being cut randomly without a clear strategy or logic behind it, hurting the bank and its longer-term interest."

According to the 2011 annual report, the group’s profit grew 13% in dollar terms and overall expenses fell 3% (employee expenses were up 5%). Nevertheless, views expressed in the report did not suggest a move to a less conservative strategy: "Arab Bank maintains a low–risk strategy. [...] Liquidity continues to be an area of great focus for Arab Bank."

Concerns go unanswered

Shoman says he sent a letter to the CEO outlining these concerns and requesting Sabbagh to formulate a plan to alter the situation. He says Sabbagh failed to reply, so he escalated the matter to the board of directors, which was similarly unresponsive.

For his part, Masri said the resignation was Shoman’s personal decision. He acknowledged that the chairman fell out with the board of directors, but he said the matter was simply to do with the new corporate governance structure.

Masri said: "[Arab Bank] will carry on its successful journey locally, regionally and globally based on its long-standing values and its sound strategy built on institutionalizing professional foundations and solid financial practices."

Nevertheless, it seems inevitable some changes are occurring and will continue to occur at Arab Bank, just as change is sweeping the Arab world as a whole. Sabbagh has been the first person from outside the family to take management control of the bank, for example.