VZCZCXYZ0000
RR RUEHWEB

DE RUEHEG #2307/01 2071646
ZNR UUUUU ZZH
R 261646Z JUL 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 6292
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0306

UNCLAS CAIRO 002307 
 
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: PARLIAMENT APPROVES SALE OF BANQUE DU CAIRE 
 
Sensitive but Unclassified.  Please protect accordingly. 
 
REF:  Cairo 2188 
 
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Summary 
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¶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. 
 
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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 
process. 
 
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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. 
 
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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 
reactivated. 
 
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Comment 
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¶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. 
RICCIARDONE