By Ulf Laessing
UPDATE 3: Approval by shareholders for $1.3bn emergency rights issue to cover huge losses.
Investors in Gulf Bank threw Kuwait's fourth-largest lender a lifeline on Tuesday by approving a $1.4 billion emergency rights issue to cover the major derivatives losses that plunged it deep into the red.
Gulf Bank, the only bank in the oil-rich Gulf Arab region to be rescued by the state due to the global credit crisis, posted losses of 289.1 million dinars ($1.05 billion) in the first 10 months of the year after five clients bet on currency derivatives and then refused to pay to cover the losses.
Shareholders approved a rescue plan ordered by the central bank to raise 375 million dinars in a 100 percent rights issue to cover derivatives losses of the same amount and make a fresh start with a new board.
Sitting stony-faced in the assembly hall at the bank's headquarters, Chairman Kutayba al-Ghanim listened to hours of complaints by shareholders demanding answers.
"Where is the money, how did it happen?" one shouted.
Despite the troubles, Ghanim voiced optimism and said the the bank would seek opportunities in and outside Kuwait.
"I'm convinced Gulf Bank will be one of the best banks in Kuwait and the countries of the Gulf Cooperation Council after the restructuring," he said, predicting growth rates of 10 percent in coming years.
Earlier, he told the state news agency KUNA he had received "numerous" requests to sell a majority stake but would put them on hold as it would not get a good price due to its problems.
"It is not the right time to discuss any such attempts for Gulf Bank due to the fact that right now the bank will be the weaker rather than the stronger party," Ghanim said.
Kuwait's government, keen to diversify its oil-fuelled economy, has guaranteed deposits at all banks in the wake of the Gulf Bank case, which caused panicked customers to queue for days at the headquarters to withdraw their money.
Gulf Bank had posted two straight quarterly profit declines and was the only major lender in the OPEC country that took provisions for bad debt this year.
The bank took provisions of 279.2 million dinars in the first ten months to cover 11 derivatives deals betting on the euro exchange rate, according to a presentation to investors.
Under the rescue plan, the country's sovereign wealth fund, the Kuwait Investment Authority (KIA) has offered to buy up any remaining stock from the capital increase. But with a discount offer of 300 fils a share - a third of the market price - the issue is expected to be snapped up completely.
Gulf Bank's shares traded at 0.95 dinars on Tuesday compared with a year high in January of 1.98.
KIA's role matches that of other sovereign funds such as the Qatar Investment Authority (QIA), which have rushed to support local banks as the global crisis bites.
The central bank has said it does not expect other lenders to go the way of Gulf Bank as none has similar exposure to derivatives. It has halted trading in Gulf Bank until the end of the revamp. (Reuters)