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Viewing cable 06CAIRO680, CONTROVERSY OVER SALE OF EGYPTIAN AMERICAN BANK

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Reference ID Created Released Classification Origin
06CAIRO680 2006-02-05 12:12 2011-08-24 16:30 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Cairo
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 CAIRO 000680 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR NEA/ELA, NEA/RA, AND EB/IDF 
USAID FOR ANE/MEA MCCLOUD 
USTR FOR SAUMS 
TREASURY FOR MILLS/NUGENT 
COMMERCE FOR 4520/ITA/ANESA/TALAAT 
 
E.O.  12958: N/A 
TAGS: ECON EFIN EINV EG
SUBJECT:  CONTROVERSY OVER SALE OF EGYPTIAN AMERICAN BANK 
 
Sensitive but unclassified.  Please protect accordingly. 
 
------- 
Summary 
------- 
 
1.  (SBU) Calyon Bank of Egypt recently purchased all of the 
GOE's shares in Egyptian American Bank (EAB), taking a 
controlling interest in the small but profitable bank. 
Shareholders immediately protested the sale, claiming that 
it was not sufficiently transparent, and that the price per 
share paid by Calyon was under market value.  A further 
controversy erupted when it was revealed that two members of 
the new Nazif Cabinet were major shareholders in Calyon. 
The GOE responded (and financial sector contacts confirmed) 
that the price per share paid by Calyon was fair, 
particularly as Calyon had agreed to abide by EAB's costly 
personnel policies.  The GOE also asserted that the two had 
severed their management ties with Calyon before taking 
public office.  The episode highlights the challenges the 
GOE faces as it pursues privatization, a concept that deeply 
unpopular in Egypt.  End summary. 
 
--------------------- 
CALYON GETS A DEAL... 
--------------------- 
 
2.  (U) Calyon Corporate and Investment Bank, an Egypt-based 
subsidiary of the French Credit Agricole Group, recently 
purchased all of the GOE shares in EAB, a joint venture 
subsidiary of the state-owned Bank of Alexandria (BOA).  The 
sale was a step in BOA's preparation for privatization, 
which the GOE has said will take place by March.  The sale 
gave Calyon controlling interest in EAB, and prompted 
protests from stockbrokers and EAB shareholders, who 
questioned the selling price of LE 45 per share, lower than 
the price per share offered by other prospective buyers and 
lower than the LE 56.8 price per share on the Cairo and 
Alexandria Stock Exchange (CASE) at the time of sale. 
Shareholders also protested a perceived lack of transparency 
regarding the bank's total market value and Calyon's plans 
for the future of EAB.  Some stock market experts went so 
far as to call the sale invalid, due to lack of transparency 
and suspicion of fraudulent practices. 
 
------------------- 
BUT SO DOES THE GOE 
------------------- 
 
3.  (U) The GOE responded to the protests with various press 
statements, including one from BOA that noted that the 
actual acquisition price was LE 50 per share, from which LE 
5 were reserved for the employee insurance fund.  Although 
the sale price per share was still below EAB's trading price 
on the CASE, the GOE approved the sale after Calyon agreed 
to abide by EAB's personnel policies and retain all 
employees after the takeover in management.  The GOE made 
this a condition of the sale, fearing a repeat of last May's 
Misr International Bank (MIBank) episode, in which 600 
employees of MIBank resigned in protest when National 
Societe Generale Bank (NSGB) purchased the bank and 
converted all employees to NSGB's less lucrative 
compensation plan. 
 
4.  (SBU) EAB Managing Director Roderick Richards confirmed 
the above to ECPO Counselor, while noting that the 
complaints that Calyon had paid below market value for EAB 
reflected a misunderstanding of the market.  Richards 
pointed out that relatively few of EAB's shares were openly 
traded (most being owned by the GOE via Bank of Alexandria). 
Those shares traded at a low volume until news of the sale 
approached, when volume increased and the market price 
jumped, a jump that Richards argued did not accurately 
reflect EAB's value.  Indeed, Richards added, a discount 
against a firm's book value is common when one bank buys 
another, reflecting the discounted value of the purchased 
bank's loan portfolio. 
 
---------------------------- 
DID THE CABINET MEMBERS TOO? 
---------------------------- 
 
5.  (U) A further controversy erupted when it was revealed 
that two members of the new Nazif Cabinet, Minister of 
Transportation Mohamed Mansour and Minister of Housing Ahmed 
Maghrabi, were major shareholders in Calyon.  Mansour was 
the former CEO of Calyon, and he and Maghrabi own 
approximately 25% of the bank through their El Mansour-El 
Maghrabi Company.  The opposition press claimed that Mansour 
possibly violated the Egyptian constitution, which states 
that ministers may not hold other positions while in office. 
According to the BOA press release, Mansour resigned from 
his position as CEO of Calyon before taking office as 
Minister of Transportation.  During a meeting with visiting 
Congressional staffers, Minister of Investment Mahmoud 
Mohieldin affirmed that the ministers had severed their 
private sector connections upon joining the GOE.  Maghrabi 
also held a press conference at which he asserted that El 
Mansour-El Maghrabi Company did not interfere in Calyon's 
management but was a shareholder like any other.  In the 
same conference, Mahmoud Abdel Latif, chairman of BOA, noted 
that BOA made a huge profit on the sale, which would make 
BOA's balance sheet more attractive when that bank is put on 
the market, sometime in the next few months. 
 
------- 
COMMENT 
------- 
 
6.  (SBU) Although this controversy is not likely to have 
serious consequences, it was unwelcome publicity for Mansour 
and Maghrabi, two members of the "reform wing" of the 
Cabinet.  It is also a reminder of the how unpopular the 
concept of privatization is in Egypt.  Members of parliament 
have questioned the value of privatizing banks, or indeed 
any public sector entities, that are supposedly running 
efficiently and turning a profit for the GOE.  The average 
Egyptian is very ready to believe opposition accusations 
that the privatization program does not benefit Egypt, but 
only those in power.  The episode demonstrates the 
challenges the new Cabinet faces as it pursues an 
increasingly aggressive privatization program and also tries 
to persuade the public that it is sincere in fighting 
corruption.  End comment.