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Middle East: No more easy money in the Gulf

Big losses, growing provisions, slowing profit growth: money is no longer easy in the Gulf, as banks’ third-quarter results brutally showed.

Worst hit has been Kuwait’s Gulf Bank, which in mid-November announced a $1.4 billion loss on investments. The source was sales of foreign exchange derivatives to companies that stopped honouring their obligations. But analysts say the dollar’s appreciation has probably caused similar losses at other Gulf financial institutions.

"Perhaps Gulf Bank was more aggressive in providing foreign exchange derivatives. But similar instruments were sold by other banks in the region," says Mardig Haladijian, financial institutions general manager at Moody’s Investors Service.

In Bahrain, three firms announced losses of about $200 million each last month. Investcorp, the region’s biggest independent private equity company, took a $200 million mark-to-market loss, thanks to holdings of funds of hedge funds. Gulf International Bank had to write down $284 million from its third-quarter results. CFO Stephen Williams tells Euromoney it was written down against bonds issued by Lehman Brothers and other distressed institutions in the west. It was also attributable to the bank’s one remaining structured investment vehicle.

"This SIV had longer-term funding than the ones we had previously provisioned against but it couldn’t withstand the collapse of Lehman Brothers and the knock-on effect of that," says Williams.

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