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.