Where the bankers went after Beirut – and why they will go back

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By Francis Ghilès

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Everyone misses Beirut, the lost playground and former financial nexus of the Middle East. Now, as the fighting continues, as the new Lebanese president’s efforts to find a settlement fail, as the Syrians and Maronites, Palestinians and Left-wingers continue to destroy each other and to complete the ruin of Beirut, the foreign banking community instead of writing off Beirut indefinitely, is awaiting the opportunity to return.

If and when the fighting dies down and conditions return to normal, Beirut will regain its position, according to the majority of international bankers who lived and worked in the city until the fighting drove them out. Considering the efforts made by other regional Middle East centres like Cairo and Bahrain, that may be surprising, but Beirut, as it was, cannot be replaced by any one centre.

That is due to the very nature of Beirut as it was before the fighting erupted. Beirut was not a centre for syndicating medium-term loans, it was not a major taker of deposits in its own right, and it did not have a sophisticated dollar interbank market. Its banking business revolved around its position as an entrepot port for Syria, Jordan, Iran, Iraq and the Lebanon itself, from which its trade financing business derived: from its banking secrecy laws, which enabled ruling families from the Gulf to channel their wealth into deposits in New York through numbered accounts at Beirut banks; and from its investment banking activities, still in their infancy when the guerillas took to the streets, but important nonetheless.

The numbered account system still operates, but the ruling families and other wealthy depositors are reportedly withdrawing their personal account business

Those were the advantages that Beirut offered, coupled with the fact that it was relatively inexpensive to do business from, communications and services were generally better than other regional centres (apart from Bahrain), and it was an agreeable place for a foreign banking community to conduct business from.

Today, in spite of the fact that the fighting continues, Beirut is still an important trade financing centre, doing perhaps 30% of the business that it did at its peak. The numbered account system still operates, but the ruling families and other wealthy depositors are reportedly withdrawing their personal account business, fearing that numbered account records may be discovered by guerillas: and, as the tombstones still testify, Lebanese investment banks are still doing business.

Some foreign bank branches are still operating on and off, when the Lebanese staff can reach them. That depends on the security situation in the area. Most banks have not officially closed their branches, subsidiaries or representative offices but have frozen all operations in and out of the city until the situation is sorted out.

Typical of many is what happened to the State Bank of India whose representative left Beirut in November 1975. Bank of India’s General Manager in Bombay, MJS Varshneya told Euromoney he hoped to reactivate the office “when normalcy returns to the city.” Most banks Euromoney spoke to confirmed that this was their intention.

Of great interest in recent weeks is the fact that a number of foreign banks have set up private offices in Beirut which are not registered with the Central Bank. This move is seen as a means of coordinating business, of which there is plenty. Trade financing continues but on a cash basis. Unsurprisingly, Lebanese banks are more adept at this kind of business because of their intimate knowledge of the milieu. No banks will officially confirm this setting up of private offices but various sources agree the phenomenon is spreading.

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Most of the banks, both foreign and Lebanese, are in the Palestinian-held area of Beirut. The majority of the bank headquarters were situated in the centre of the city 3, with some in the Centre St. Charles 2, where the American "Holiday Inn" was located. Most of the branches were in Hamza 1, and to a lesser extent in Rue Foch 4.


Will Beirut ever come back? Klaus Tjaden, Commerzbank’s near east representative who lived in Beirut until last autumn, asserts: “If and when the fighting dies down and conditions are restored to normal, Beirut will recover its position – although it will take time.” The city, he says, “is irreplaceable as a service and information centre in the near and middle east.” That view is shared, more or less equally, by the bankers who have been forced out of Beirut, although a substantial minority wonders whether, apart from good living conditions, educational facilities, and transport and communications, Beirut was really so essential. “Petro­people came to Beirut, not petro­dollars” says one former member of the foreign banking community.

First National Bank of Boston’s Paul Vonckx, for instance, feels that “Beirut was not essential in banking terms, even if it was a nice place to live.” But “the bank felt it was doing good business coming in from the US end through companies working in the Middle East, in addition to its direct efforts in the Middle East.”

Riad Khouri of ARIMFI, an Arab controlled, Swiss-registered investment company says: “Beirut’s position as the service and communications centre in the Middle East was never in doubt, but its banking role was very limited.” Alan Moore, director-general of the Bahrain Monetary Authority, who is obviously not disinterested in the outcome of Beirut, adds: “Beirut was never a major centre for dealing in wholesale money markets, as opposed to trade finance and private accounts where it was quite active.”

What's frozen, what isn't?

A further unpleasant side-effect of the tragedy of Beirut is the allegations concerning some of the foreign banks that have pulled out since the fighting began. 

Since their departure allegations have been made in private, mainly by indigenous Lebanese bankers, that some foreign banks have refused to repay foreign currency deposits on the grounds that their files have been destroyed in the fighting, and that duplicate files do not exist. It is alleged that some Lebanese citizens are finding it impossible to withdraw foreign currency deposits from branches of these same banks in other centres.

One of the major American banks told Euromoney that the sheer complexity of the Beirut situation and the lack of legal guidelines and directives from the Lebanese Central Bank have prevented the bank from repaying all deposits placed with its Beirut branch by Lebanese citizens. 

The distinction between Lebanese and other Arab nations is imputed by some parties to fear that whoever gains power in the Lebanon may seize private Lebanese accounts. Some draw a parallel with the situation after Castro seized power in Cuba. The amount of frozen deposits is impossible to ascertain, but this argument will run and run.

Where have all the bankers gone? Most European banks moved back to their home bases when it became obvious that the fighting would continue. The three major Swiss banks returned to Zurich, although Swiss Credit Bank co-ordinates operations from Switzerland and emphasizes the growing importance of its Cairo branch. The four big German banks moved back to their respective bases: Westdeutsche Ländesbank to Düsseldorf, the other three to Frankfurt although Deutsche Bank’s Cairo office has become quite active.

Crédit Commercial de France, Banque Nationale de Paris and Crédit Lyonnais took differing routes: CCF moved to Cairo, Crédit Lyonnais to Paris; while BNP split its operation between the French capital and its Bahrain branch, which it views as playing an increasingly important role. The only Spanish bank with regional headquarters in Beirut, Banco Atlantico, moved provisionally to Cairo, as did Banca Commerciale Italiana, but Banco di Roma returned to Rome.

Algemene Bank Nederland with branches long established in Istanbul, Teheran, Amman, Dubai, Abu Dhabi, Bahrain, Jeddah and Morocco, redistributed the work with a minimum of disruption. British banks varied in their reactions: Barclays moved its operation to London, while Lloyds chose Bahrain. British Bank of the Middle East split the work between Nicosia and London (but this was only branch work, there being no regional office).

For Japanese, Canadian and US banks, London has been the most favoured fall back position. Bank of Tokyo, Sumitomo Bank, Sanwa Bank and Dai-Ichi Kangyo moved back to London, while Industrial Bank of Tokyo chose to move back to its home base, and Fuji Bank opted for Athens. 

One of the Japanese banks that moved to London explained, that apart from being an excellent information and service centre on account of the growing number of Middle Eastern visitors to the city, a number of Japanese companies cover the Middle East out of London. Bank of Montreal, Toronto Dominion and Bank of Nova Scotia moved to London. First National City Bank and Chase Manhattan moved part of their operations to Athens, and at the same time created the impression of an influx of US banks into the city.


A few banks decided to stay in the Middle East: Amex moved to Amman, Chemical Bank to Cairo, but the vast majority retreated either to London or their home base, in some cases splitting the operations. To London went Bankers Trust, First National Bank of Chicago, United California Bank, and Crocker National Bank, First National Bank of Dallas, while First National Bank of Boston split its operation between London and Luxembourg (for deposits), and Boston (for management).

Morgan Guaranty and Irving Trust moved back to New York and Continental Illinois National Bank to Chicago. Bank of America NT and SA chose Paris, in part because the senior officer appointed to Beirut last autumn was already stationed there. The choice of Paris was also made by the two major consortium Arab banks, UBAF and BAII, although in the latter case, the operation is split between Paris and Bahrain.

The French capital has been a clear favourite for Lebanese banks. The tolerance displayed by the French authorities about the percentage of foreign staff which a foreign bank can employ (between 25% and 50%) has helped. Among the banks officially entered on the list of the Association Francaise de Banques (AFB), are Banque Libanaise pour le Commerce, Banque Libano­Française, Banque Européènne pour le Moyen-orient, Banque de l’Orient Alabe et de l’Outre Mer, Banque d’Affaires France-Arabe, and Banque de la Méditeranée which acts as a correspondent bank.


These banks maintain relations with associates and partners in Cyprus and in Lebanon, where many local branches, particularly in the Christian-held area, appear to be functioning smoothly. Some banks – not only Lebanese ones – are still operating normally in the centre of the half-wrecked capital.

Two Jordanian banks, Jordan National Bank and Arab National Bank have not been looted and have remained open throughout recent events, apparently under the protection of Palestinian guards, in spite of the fact that Jordan is not voted as a strong supporter of the Palestinian cause. One foreign bank was able to remove archives from its Beirut branch, because it comes from a country believed to favour the Palestinian cause. Most branches of foreign banks have however been unable to operate and many safes looted.

At least 50 foreign banks had regional representative offices in the city. Most were forced to move out of town a year ago, although some very brave ones lasted until March.

Beirut's main weakness: it did not attract deposits from the oil surplus countries of the Gulf area

Those banks which have moved their Beirut activities to London profess to be happy and many feel that both in terms of information gathering and communication, the UK capital is fine. Banks that went elsewhere also appear contented, although some are unhappy with Cairo – one bank is considering moving to Paris because of the poor state of communications. The possible growth of Cairo is also hampered by the long-term outlook in Egypt: bankers like the direction in which President Sadat is steering his country, but there are fears of a swing to a more Left wing or nationalistic regime if the President’s support falters.

In such circumstances the rise of Bahrain may appear to be a further menace to Beirut’s chances of staging a comeback, but that is not comparing like with like. Alan Moore says that statistics for the Bahrain offshore banks at the end of August showed liabilities of $4.5 billion, an increase of $1 billion since the end of June, with over $2 billion of deposits coming from the region. These figures point to Beirut’s main weakness: it did not attract deposits from the oil surplus countries of the Gulf area although it remained a favourite place for wealthy Syrians, Iraqis and Gulf Arabs to channel their money through.


Bankers are fairly unanimous in saying that the rise of Bahrain would have occurred, irrespective of the way Beirut went, because of the essential differences between the two, although living conditions may be less pleasant in Bahrain, and setting up an offshore banking unit is expensive: capital expenditure and operating costs for the first twelve months can be as high as $1,200,000 if a staff of 10 is needed, including 4 expatriates, even $1,700,000 if 15 people are needed, of which six are expatriates.

Most banks, while accepting that the venture is a calculated risk, agree with Alan Moore that they have “generated business in Bahrain that they would not have seen if they had not taken this chance to establish a full branch in the Gulf region”. Thirty-two banks have obtained a licence (cost: $25,000 each) and 30 have already paid the first licence fee.

The advantages of Bahrain are well rehearsed – over and above its geographical position: excellent communication, a liberally constructed and flexibly supervised banking system, due in part to old ties with the UK. This point is stressed by Kenneth Day, vice­president at Chemical Bank’s London office, who speak of “a favourable regulatory atmosphere and no taxation, capital or reserve requirements for off-shore business” and last, but not least, the country’s “political stability and its acceptability in the Arab world”. 

Day is careful to stress that the demise of Beirut and rise of Bahrain are not directly linked. Simply “it is essential to be on the spot to do business more effectively” which has meant setting up offices in other cities as well – in the case of Chemical Bank, Cairo, Teheran and Dubai. 

Bahrain is a good place to tap funds for medium-term Euro­currency loans and bonds. The number of institutions which dispense aid and make investments on a large scale is also on the increase and they will increasingly be sought as partners: as it is, their names are increasingly appearing on tombstones.


Bahrain is also favourably located in a time zone between other major financial centres such as Singapore, London and New York. Australian bankers are already making use of the new facilities and the growing Asian dollar market is expected to boost Bahrain’s role.

The increasing number of banks setting up representative offices in Teheran also points to another area of growth, one which could not be covered out of Beruit: Persians and Arabs mix like oil and water, which is why a number of banks had opened offices in the Iranian capital long before the situation in Beirut made normal banking conditions impossible. A further area which was never really covered from Beirut is North Africa: Algeria has been a major borrower for years now as it seeks to industrialize fast; Morocco is a well known customer and Tunisia is shortly to negotiate its first loan. 

The opening of a representative office in Tunis by Chase Manhattan and Bankers Trust may be followed by others, although European banks, associated in a number of instances with local banks, will no doubt continue to deal with the Maghrib from their home base. 

Other banks have split their operations, like Chase Manhattan, between Athens and London, BNPbetween Paris and Bahrain, but on the whole they have retreated, like one man to one base. This has meant more travelling, and sampling the pleasures of life at home rather than in Beirut.


The foreign banking community, in spite of its expressed determination to return when the fighting ends, seems to be taking a more sober view of Beirut’s former importance. Book assets of banks in Beirut were apparently less than $8 billion, and daily forex deals did not exceed $50 million when the guerillas moved in, but

Some natural tears they dropped but wiped them soon.
The world was all before them, where to choose
Their place of rest, and Providence their guide.