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Sat 23 Feb 2008 01:09 PM

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Gulf International hit by subprime crisis

GCC-owned bank suffered $757mn last year because of exposure to US mortgage crisis.

Gulf International Bank (GIB), owned by the Gulf Arab governments, said it suffered a $757.3 million net loss in 2007, mainly due to the US subprime mortgage crisis, and has raised $1 billion in new capital.

The result, which compares with a profit of $255.5 million in 2006, was affected by "provisions related to structured investment vehicles... and collateralised debt obligations... incorporating exposures to the US subprime sector", the Bahrain-based bank said in a statement.

The bank said it increased its share capital by $1 billion to $2.5 billion after posting the results, which included an operating profit of $292.1 million, up 34% on 2006.

"The shareholders confirmed their ongoing support to the bank with the investment of an additional US $1 billion of capital," Chairman Sheikh Ebrahim Al-Khalifa said in the statement.

The bank is owned by the Saudi Arabian Monetary Agency and the governments of the six Gulf Arab States - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE.

Fitch Ratings downgraded on Friday GIB's individual rating to 'C/D' from 'C', while affirming its long-term issuer default rating 'A' with a stable outlook.

"The downgrade... reflects the bank's considerable, mainly structured credit market-related, impairment charges and trading losses of $1.05 billion in 2007, equivalent to a very high 57% of end-2006 equity," Fitch said.

Standard & Poor's Ratings Services said it affirmed its 'A-/A-2' long- and short-term counterparty credit ratings on GIB with a stable outlook.

"The affirmation balances the bank's announced loss related to large writedowns on its securities portfolio with the $1.0 billion capital increase," said Standard & Poor's credit analyst Emmanuel Volland. (Reuters)

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