VZCZCXYZ0000
RR RUEHWEB

DE RUEHEG #2188/01 1961336
ZNR UUUUU ZZH
R 151336Z JUL 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 6139
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0300

UNCLAS CAIRO 002188 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR NEA/ELA, NEA/RA 
USAID FOR ANE/MEA MCCLOUD AND DUNN 
USTR FOR SAUMS 
TREASURY FOR MATHIASON AND HIRSON 
COMMERCE FOR 4520/ITA/ANESA/OBERG 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN EG
SUBJECT: IN SURPRISE MOVE, GOE ANNOUNCES PLANS TO SELL BANQUE DU 
CAIRE 
 
 
Sensitive but Unclassified.  Please protect accordingly. 
 
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Summary 
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¶1.  (SBU) On July 8, Egypt's Central Bank announced that it would 
sell the publicly-owned Banque du Caire, the third largest bank in 
the country.  The announcement caught many off guard, as the GOE had 
previously indicated it would not privatize any other public banks 
after last year's sale of Bank of Alexandria (BOA).  The Central 
Bank indicated that the terms of the sale would be similar to those 
of BOA. 
While BOA's non-performing loans (NPLs) were paid off before BOA was 
put on the block, the disposition of Banque du Caire's NPLs is still 
unclear.  The Central Bank announced that a committee would be 
formed to conduct a valuation of Banque du Caire and a sale advisor 
would be chosen in a few weeks.  The actual process of valuation and 
due diligence could take some time, however, given the complexity of 
Banque du Caire's balance sheet.  Central Bank officials also voiced 
concern over the inevitable opposition to sale of the bank.  The IMF 
and World Bank support the sale, and believe there will be strong 
interest from investors.  Overall the sale is an important step in 
the ongoing banking sector restructuring and reform process in 
Egypt. 
 
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GOE to sell Banque du Caire 
--------------------------- 
 
¶2.  (U) In a surprise move, the Central Bank announced plans on July 
8 to sell the state-owned Banque du Caire.  The Central Bank had 
announced plans in September 2005 to merge Banque du Caire with 
Banque Misr, but those plans changed when it was determined that 
merger would be too difficult.  Instead, Banque Misr acquired Banque 
du Caire in January 2007 and set about reforming the latter's 
management and cleaning up its balance sheet, with its ultimate fate 
undetermined.  Cabinet Spokesperson Magdi Radi said that the Cabinet 
approved the plan to sell off Banque du Caire after deciding that 
keeping the entity as part of Banque Misr would result in too many 
redundancies.  Banque Misr already has 540 branches, and Banque du 
Caire 220, many of which are on the same street. 
 
¶3.  (SBU) The Central Bank announced that the terms of the sale 
would be similar to those of BOA, with a strategic investor invited 
to purchase 80% of the bank's shares, 15% to be sold in an IPO after 
sale to the strategic investor, and 5% reserved for bank employees. 
The GOE obtained $1.6 billion from Italian-based SanPaolo Bank for 
BOA, but only after all of BOA's NPLs were paid off using proceeds 
from the GOE's issuance of a third mobile phone license.  The 
disposition of Banque du Caire's NPLs, however, is still unclear. 
Some observers estimate that Banque du Caire still has distressed 
assets of LE 12 billion ($2 billion), or approximately 73% of the 
bank's total loans.  Deputy Central Bank Governor Tarek Amer told 
emboff, however, that all of Banque du Caire's NPLs had been 
transferred to Banque Misr after the acquisition. 
 
¶4.  (SBU) Regardless of the disposition of Banque du Caire's NPLs, 
most observers agree that the GOE is unlikely to obtain as much for 
Banque du Caire as it obtained for BOA, given Banque du Caire's 
weaker balance sheet.  The BOA sale demonstrated, however, the 
intense interest of international investors in acquiring banking 
assets in Egypt.  The Central Bank is expecting some of BOA's 13 
bidders to bid again on Banque du Caire.  Several of the BOA bidders 
were Gulf banks, and many observers believe more Gulf banks will bid 
this time around due to excess liquidity in the region.  We have 
heard that Citi Group and Commercial International Bank (a top 
Egyptian bank which has U.S. and IFC ownership) may also be 
interested. 
 
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Timetable for sale 
------------------ 
 
¶5.  (U) The GOE will form a committee to evaluate Banque du Caire 
and determine an asking price per share.  The committee will include 
representatives from the Capital Market Authority, the 
Administrative Control Authority, the Central Auditing Agency and 
the Ministries of Investment and Finance.  The Central Bank 
announced that a sale advisor would be selected within the next two 
weeks and an international tender issued by September, thus setting 
a relatively short deadline for completing the valuation.  (Comment: 
 The deadline may be unrealistic, given the complexity of Banque du 
 
Caire's balance sheet). 
 
¶6.  (SBU) The GOE has not announced how it will use proceeds from 
the sale, but many analysts believe it will be either to resolve the 
remaining NPLs of the other public banks or to pay down the budget 
deficit.  Some press reports speculate that net capital gains from 
the sale will be used to further recapitalize Banque Misr. 
(Comment:  If Deputy Governor Amer's comments are accurate, Banque 
Misr's balance sheet is no doubt weaker as a result of absorbing 
Banque du Caire's NPLs.  However, the GOE is likely relying on the 
strong management at Banque Misr to handle a larger portfolio of 
distressed assets). 
 
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Opposition to the Sale 
---------------------- 
 
¶7.  (SBU) Deputy Governor Amer told emboff he was very concerned 
about the inevitable opposition to selling of Banque du Caire. 
Indeed, within days of announcement of the sale, Yehia Hussein Abdel 
Hadi, an Undersecretary at the GOE Institute of Leaders Training and 
former chairman of the publicly-owned department store "Benzione," 
established "The Social Movement in Opposition to Selling Banque du 
Caire," with himself as Coordinator.  Abdel Hadi told the press that 
the sale demonstrated the duplicity of the GOE, which had indicated 
that no other public banks would be sold after BOA.  He further 
called on all depositors to withdraw their savings and transfer 
their pensions from Banque du Caire to Banque Misr or NBE.  He added 
that anyone who purchases shares of Banque du Caire should be 
considered an enemy of the Egyptian people.  Abdel Hadi spearheaded 
the failed opposition to the GOE's sale of Egypt's flagship 
department store "Omar Effendi"  and is also the Economic Expert of 
the Kefaya Movement, leading that organization's "No to Selling 
Egypt" anti-privatization campaign. 
 
¶8.  (U) Some private sector bankers also question the feasibility 
and benefit of selling Banque du Caire.  Overall, bankers are most 
critical of the GOE's lack of transparency in banking sector policy, 
evidenced by this sudden shift in policy regarding further sales of 
public sector banks.  Some parliamentarians have floated the notion 
that the IMF's recent mission to Egypt for Article IV consultations 
had an undue influence on the decision to sell Banque du Caire. 
These parliamentarians have argued that the GOE should not succumb 
to the IMF's demands, as doing so increases foreign control of the 
banking sector in Egypt. 
 
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IMF, World Bank Views 
--------------------- 
 
¶9.  (SBU) The IMF, and particularly the recent Financial Sector 
Assessment Program (FSAP) mission, certainly pressed the GOE and 
Central Bank to better define the disposition of the state-owned 
banks.  The IMF Resident Representative had indicated to Embassy 
officials several weeks ago that he would not be surprised if Banque 
du Caire was sold in the coming years, but when asked about last 
week's sudden announcement, he admitted to being quite surprised. 
Sahar Nasr, Senior Financial Economist at the World Bank's office in 
Cairo, was less surprised by the decision.  She told emboff that 
several months ago the World Bank wrote an aide memoire, seen by 
Prime Minister Nazif, which indicated that Banque du Caire had to be 
privatized.  She expected strong interest from international 
bidders, and believed that Banque du Caire was a worthwhile 
purchase, if only for the extensive branch network.  Given that the 
Central Bank will not issue banking licenses for new banks in Egypt 
and that the Board of Governors of the Central Bank must approve the 
opening of every new branch in Egypt, the purchase of Banque du 
Caire would allow any bank which with growth aspirations to quickly 
become a national player. 
 
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Comment 
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¶10.  (SBU) The GOE apparently hopes that bringing another private 
bank, likely a foreign entity, into Egypt's banking sector will 
improve the sector's image and the quality of financial services in 
Egypt, while providing the GOE with additional revenue.  The 
international community has supported the GOE's banking sector 
reform program for the past several years, but the GOE has not 
provided clarity about what the end-game was for the three remaining 
state-owned banks.  The announcement of the sale of Banque du Caire 
is a step in that direction.  Assuming this sale goes through, this 
 
move should further improve the efficiency of the Egyptian banking 
sector and help contribute to better allocation of financial 
resources.  Obviously, putting in place proper risk management tools 
and strong management will be needed as well. 
RICCIARDONE