Cablegate: Parliament Approves Sale of Banque Du Caire

Published: Thu 26 Jul 2007 04:46 PM
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R 261646Z JUL 07
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REF: Cairo 2188
1. (SBU) The Economic Committee of the People's Assembly approved
the Central Bank's plan to sell the state-owned Banque du Caire,
despite strong criticism from opposition parties. Criticism focused
on a perceived lack of transparency, as CBE had previously stated it
would not sell any public banks after Bank of Alexandria (BOA).
Some parties also warned of foreign domination of the banking
sector. CBE Governor El Okdah told the press that merging Banque du
Caire with Banque Misr would have severely burdened the state
budget. Proceeds from the sale will be used to pay Banque du
Caire's public sector non-performing loans (NPLs), which have been
transferred to Banque Misr. Deputy CBE Governor Tarek Amer told
emboffs that Egypt has a painful history of foreign domination of
the banking sector. But even if Banque du Caire is sold to
foreigners, the foreign share of the market will amount to only 24%.
CBE and Banque Misr management believe that Banque du Caire will be
very attractive to potential buyers due to its market share and
large branch network. While the sale announcement has raised a fury
of protest in parliament, local bankers are enthusiastic and hope it
will strengthen Egypt's banking sector.
Parliament Approves Sale
2. (U) Amid heated debate, the Economic Committee of the People's
Assembly (PA) approved the proposed sale of Banque du Caire (reftel)
on July 18. Opposition parties criticized the government for lack
of transparency in banking policy and expressed concern over foreign
domination of Egypt's banking sector. Criticism came from all
quarters, including the liberal al Wafd party, which focused its
criticism on the government's lack of transparency in deciding to
sell the bank. Independent parliamentarians linked to the Muslim
Brotherhood joined leftist Tagammu party representatives in
condemning sale of government assets, especially in light of the
CBE's previous statements that no public banks would be sold after
BOA. Tagammu MP Muhammad Abdel Aziz also raised the specter of
colonialism, saying that foreigners should not be allowed to control
Egypt's economy by controlling banks. Some MPs recommended that at
least 30% of the bank's shares be set aside for Egyptian investors
and bank employees. NPD member Dr. Mustafa El Said, Chairman of the
PA Economic Committee, told the press that in approving the sale,
the committee emphasized the importance of transparency in the sale
Central Bank Explains Decision
3. (U) Prior to the debate in the PA, CBE Governor El Okdah and
Banque Misr Chairman Mohamed Barakat held a press conference to
explain the decision to sell Banque du Caire. El Okdah explained
that Banque du Caire's NPLs totaled LE 12 billion, a burden the
state would bear if Banque du Caire were merged with Banque Misr, as
originally planned. CBE and Banque Misr management decided to sell
Banque du Caire and use the proceeds to pay Banque du Caire's public
sector NPLs, all of which have been transferred to Banque Misr. If
there are additional proceeds from the sale, they will be used to
pay other public sector NPLs held by Banque Misr and NBE, which are
estimated at a combined LE 6 billion. In addition to NPLs, some of
Banque du Caire's investments, its branches in the Gulf, and a few
branches in Egypt were also transferred to Banque Misr.
4. (U) El Okdah told the press he expects to obtain LE 12-15
billion for the bank, LE 3 billion more than SanPaolo paid for BOA.
(Comment: No valuation of the sale has been done yet, so we do not
know if El Okdah's estimates will reflect bidders' perceptions of
Banque du Caire's value). The stock market could not absorb an IPO
of a majority of the bank's shares, according to El Okdah, and an
IPO would also not bring in professional management, which the bank
desperately needs. Answering a question on foreign domination of
the banking sector, El Okdah said the sale would not allow Israel to
control of Egypt's banking sector. He also stressed that Banque
Misr and NBE will remain state-owned. Together these two banks
control 41% of the market. Minister of Finance YBG added that the
GOE retains the right to reject any offer for the bank without a
reason. Prime Minister Nazif echoed these statements at a press
conference the following day.
5. (SBU) CBE Deputy Governor Tarek Amer told emboffs and visiting
Treasury official Michael Hirson that Egypt has a painful history of
foreign domination of the banking sector. However, the current
foreign share of the market is only 18%. Even if Banque du Caire,
with 6% of the market, is sold to a foreign entity, foreign
ownership will only amount to 24%. Amer noted that there is a lot
of interest from potential buyers, and he agreed with the Governor's
view that the bank will sell for more than BOA. CBE will give most
weight to bidders looking to invest in long-term development of the
bank. The sale will likely be completed by February 2008, according
to Amer.
Banque Misr's Perspective
6. (SBU) Mohamed Ozalp, Deputy Chairman of Banque Misr, told
emboffs that Banque Misr decided to sell Banque du Caire because a
merger would not have added value to Banque Misr. Banque du Caire
has a small deposit base, with a customer demographic similar to
Banque Misr's, and 11,000 employees. Adding those employees to
Banque Misr's 13,000-strong payroll would create an unmanageable
behemoth. Banque du Caire's only specialization is microfinance, an
area Banque Misr does not want to enter. Ozalp agrees with his CBE
colleagues, however, that Banque du Caire will be more attractive to
investors than BOA. Banque du Caire has over 200 branches in all
Egyptian governorates, a state-of-the-art IT platform, and a new
headquarters building acquired as settlement for the NPLs of one of
the bank's major clients. Moreover, Banque du Caire offers
potential buyers a license - its most valuable asset, as CBE is not
issuing new licenses. Ozalp expressed surprise over the intensity
of opposition to the sale, noting that the CBE never said that it
would not sell any public banks after BOA, but merely that Banque
Misr and NBE would not be sold.
7. (SBU) Ozalp said the terms of the sale will be virtually
identical to those of BOA, except that the proceeds from the sale
will technically go to Banque Misr, as the owner of Banque du Caire,
rather than to the Ministry of Finance. In the best case scenario,
proceeds will be sufficient to pay off all of Banque Misr's public
sector NPLs, give the bank a capital injection, and possibly
transfer some funds to the state budget. A clean balance sheet will
make Banque Misr competitive with private sector banks and improve
the bank's overall rating. Ozalp added that LE 22.5 billion of
Banque Misr's private sector NPLs have already been settled (LE 11
billion of those in cash) and 90% of the remaining loans have been
8. (SBU) The decision to sell Banque du Caire has added fuel to the
anti-privatization fires in Egypt, bringing together diverse voices
in opposition to sale of state assets. So far the opposition has
not succeeded in stopping large, important transactions, such as the
flagship department store Omar Effendi. We do not anticipate that
opposition will be able to stop the sale of Banque du Caire either,
despite calls for public protest from opposition political parties.
By the same token, bankers in Cairo seem energized about the
prospects of new, high quality entrants into the market, and hope
that it will have a positive impact on a sector that is already
doing well. The use of the sale to further clean up public bank
balance sheets is consistent with the overall GOE strategy of
strengthening the financial sector.
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