Cablegate: Italy's San Paolo Wins Bank of Alexandria Auction

VZCZCXYZ0011
RR RUEHWEB

DE RUEHEG #6444 2901548
ZNR UUUUU ZZH
R 171548Z OCT 06
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 2085
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0211

UNCLAS CAIRO 006444

SIPDIS

SENSITIVE
SIPDIS

STATE FOR NEA/ELA, NEA/RA, EB/IDF/OMA
USAID FOR ANE/MEA MCCLOUD AND DUNN
USTR FOR SAUMS
TREASURY FOR NUGENT AND HIRSON
COMMERCE FOR 4520/ITA/ANESA/TALAAT

E.O. 12958: N/A
TAGS: EAID ECON EINV EFIN EG
SUBJECT: ITALY'S SAN PAOLO WINS BANK OF ALEXANDRIA AUCTION

1. (U) The Italian Gruppo SanPaolo IMI, Italy's third largest bank,
won the auction for Bank of Alexandria (BOA) for a total price of
$1.6 billion. SanPaolo will purchase 80 percent of BOA's shares,
with 5 percent reserved for BOA employees and the remaining 15
percent floated on the Cairo/Alexandria Stock Exchange. Journalists
were barred from entering the auction room at Mena House Hotel in
Giza, but proceedings were broadcast over closed circuit to
officials at the Central Bank and the ministries of Finance and
Investment. Other than announcing the winner and sale price, the
GOE did not make any official statement on the sale or indicated
when the transaction will be finalized.

2. (SBU) BOA has assets of $6.9 billion and total deposits of $5.4
billion. Although the smallest of Egypt's public banks in assets,
it has the largest network of any bank in Egypt, with 188 branches
nation-wide. The $1.6 billion sale price exceeded most estimates,
including that of the local Economist Intelligence Unit, which
estimated the bank's value at approximately $1 billion. However,
some press statements predicted a sale price of up to $2 billion,
given BOA's large branch network. The GOE studiously avoided
estimating the bank's value in the run up to today's auction, no
doubt to diminish the possibility of claims that BOA was sold for
less than fair value. The GOE recently sold Omar Effendi, a
publicly-owned department store, amidst widespread criticism that
the sale price was less than the company's true worth.

3. (U) The GOE is expected to use the proceeds from the sale to
further banking sector reform and help offset the non-performing
loans (NPL) of the other public banks. The merger of Banque du
Caire into Banque Misr will be completed by the end of 2006, leaving
only two public banks, Banque Misr and the National Bank of Egypt,
operating in the market. The combined NPL portfolio of the public
banks is estimated at LE 19.2 billion ($3.3 billion). The Central
Bank has not announced plans to further either of the two remaining
public banks. However, consolidation of private banks is moving
forward through the Central Bank's enforcement of the LE 50 million
minimum capital provision in the 2003 Banking Law.

4. (SBU) Comment: SanPaolo is a bit of a surprise winner, as most
local observers were expecting Egypt's Commercial International Bank
(CIB) to win the auction. It is widely believed that CIB brought in
U.S. investment firm Ripplewood, which bought 18 percent of CIB late
last year, specifically to bolsters its chances of acquiring BOA.
Some observers believed that in the event CIB did not win, one of
the two Arab banking consortia participating in the auction (a
Jordanian/Saudi consortium and an Emirati consortium) would win. No
Embassy contacts predicted SanPaolo as the winner. SanPaolo will be
the first Italian bank to enter Egypt's market, following the trend
of a number of other European banks. France's Credit Agricole
recently expanded its operations in Egypt through acquisition of
Egyptian American Bank, and Greece's Pireaus Bank entered the market
last yer through the purchase of Egyptian Commercial Bank End
comment.

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