VZCZCXRO3881
PP RUEHTRO
DE RUEHAS #1638/01 3151133
ZNR UUUUU ZZH
P 111133Z NOV 07
FM AMEMBASSY ALGIERS
TO RUEHC/SECSTATE WASHDC PRIORITY 4831
INFO RUEHMD/AMEMBASSY MADRID 8677
RUEHFR/AMEMBASSY PARIS 2402
RUEHRB/AMEMBASSY RABAT 2009
RUEHTU/AMEMBASSY TUNIS 6861
RUEHTRO/AMEMBASSY TRIPOLI
RUEHNK/AMEMBASSY NOUAKCHOTT 6095
RUEHNM/AMEMBASSY NIAMEY 1348
RUEHBP/AMEMBASSY BAMAKO 0297
RUEHCL/AMCONSUL CASABLANCA 3121
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 ALGIERS 001638 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
CASABLANCA FOR USFCS RORTIZ 
CAIRO FOR TREAS ASEVERENS 
COMMERCE PASS TO JREITZE 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN PREL AG
SUBJECT: THE HIGH STAKES OF CITIBANK'S CPA BID 
 
 
SENSITIVE BUT UNCLASSIFIED -- NOT FOR INTERNET DISTRIBUTION. 
 
¶1. (SBU) SUMMARY:  Citibank is the sole American bank bidding 
on the privatization of the state-owned bank Credit Populaire 
d'Algerie (CPA).  Competition is considered stiffest from 
the two leading French banks, Societe General and BNP. 
Citibank may find itself disadvantaged by its recent 
announcement of a massive reduction in profits and the 
resulting turmoil over the company's leadership, and there 
is a chance that these factors may cause Citibank to pull out 
of the Algerian bid altogether.  Meanwhile, a recent Algerian 
government rule change may delay the bidding process by 
another quarter or more.  We expect continued aggressive 
advocacy by the French government, including President 
Sarkozy in person when he visits in December.  If Citibank 
remains in the running, we recommend strong USG support and 
advocacy on its behalf.  END SUMMARY. 
 
A KEY MOMENT FOR ECONOMIC REFORM IN ALGERIA 
------------------------------------------- 
 
¶2. (U) CPA is one of five state-owned banks in Algeria (which 
control 95 percent of the country's banking sector), and the 
first of three slated for privatization.  With a 13-percent 
domestic market share, CPA is the fourth-largest bank in 
Algeria by both net income and assets, with total assets 
reaching almost six billion dollars in 2005.  Given its 
customer base of 770,000 and its 140 branches, CPA is 
considered to be a strategic purchase by the leading foreign 
banks interested in quickly expanding their presence and 
holdings across Algeria.  By all accounts, Citibank is facing 
stiff competition from the French in its bid to buy a 
51-percent interest in CPA. 
 
¶3. (U) Citibank is the only American institution of the six 
banks short-listed to bid on CPA, and most agree that its 
main rivals are the French firms BNP Paribas (BNP) and 
Societe Generale (SocGen), both of whom have been expanding 
in Algeria since 2006.  The first phase of the bidding 
process -- submission of technical offers -- is currently 
scheduled to close sometime around November 20.  Bidders 
whose submissions receive a score of 80 or higher will then 
be invited to submit financial offers, which will reveal 
their offering price for the bank. 
 
THE BUMPY ROAD THUS FAR 
----------------------- 
 
¶4. (SBU) The bidding process has already been delayed since 
February, and news reports indicate that a recent rule change 
allowing state-owned enterprises to use private banks for the 
first time since 2004 (septel) will cause the bidding to be 
delayed again until the first half of 2008.  We believe the 
Algerians want the bidders to re-evaluate CPA and adjust 
their offers upward in light of the rule change, which will 
allow CPA to retain its parastatal customers even after 
privatization.  Citibank's Managing Director for Algeria, 
Kamel Driss, told us in early November that he in concerned 
that the GOA may consider his firm's recent $5.9 billion 
write down and resulting profit slides, along with the 
subsequent resignation of its CEO, as weakening its CPA bid. 
He stressed that all major banks, including Citibank's 
French competitors, are faced with the same problems 
associated with sub-prime loans.  However, Driss also said 
that prior to its leadership shakeup, Citibank senior 
management had been distracted by the bank's sub-prime 
dilemma and drop in share price.  He said that company 
executives recently met in New York specifically to review 
the CPA proposal, in part because Citibank's former CEO was 
often accused by his detractors of expanding the bank's 
international operations too quickly. 
 
FRENCH INFLUENCE REMAINS STRONG 
------------------------------- 
 
 
ALGIERS 00001638  002 OF 002 
 
 
¶5. (U) We have received reports from numerous sources that 
the French government is lobbying hard for both BNP and 
SocGen.  Jamel Djerad, an Algerian consultant and chief of 
staff to the Algerian prime minister during the late 1980s 
and early 90s, told us that SocGen remains interested in 
buying BNP and, with that potential merger in mind, French 
officials and influential citizens feel free to lobby for 
either bank in order to ultimately reach the same result. 
Djerad added, however, that SocGen has stronger support than 
BNP among the French elite and power base, including 
President Sarkozy, who is expected to advocate for the French 
banks during his state visit to Algeria in early December. 
Djerad asserted that key Algerian government players favor 
SocGen, and noted that the bank's development director 
frequently flies to Algiers by private jet -- a luxury highly 
restricted by the Algerians -- to meet with President 
Bouteflika.  He also expected, however, that a delay in the 
bidding was likely because of an ongoing disagreement between 
President Bouteflika and other power brokers over whether 
sale of CPA would be better accepted publicly and better 
serve the privatization process if the buyer were an American 
or French firm. 
 
CITIBANK'S OFFER 
---------------- 
 
¶6. (SBU) With this privatization, the Algerian government 
expects new investments in banking technology, expanded 
banking services to the public, creation of new jobs, and the 
recovery of outstanding credit on non-performing loans.  In 
its technical offer, Citibank will stress its experience in 
acquiring over 100 firms in the last five years, its 
provision of English-language technical training, and its 
record of using the process to offer a full range of consumer 
financial products and high quality training to the employees 
of the acquired firm.  Citibank's technical offer will 
include assistance in forming a credit bureau in order to 
improve risk analysis, governance and banking controls. 
Citibank also says it will expand consumer banking and 
lending for small to medium-sized enterprises (SME).  In the 
end, Citibank is counting on its track record of being the 
only foreign bank willing to invest and lend in Algeria 
during the years of terrorism in the 1990s, together with the 
fact that it is the largest foreign and private bank in 
Algeria in terms of assets. 
 
COMMENT: MORE THAN JUST A BANK 
------------------------------ 
 
¶7. (SBU) We feel strongly that the USG should support and 
advocate for Citibank's CPA bid not only because it is the 
sole U.S. company in the running, but because a 
Citibank-owned CPA would significantly advance our goals of 
economic and financial reform in Algeria.  With such an 
acquisition, Citibank would be able to inject a level of 
professionalism, transparency and best practices into a 
significant portion of the banking sector across Algeria. 
Further, its stated goal of SME development and its offers of 
technical assistance with credit risk analysis and banking 
controls would support the ongoing programming of the 
Departments of State, Treasury and Commerce.  Lastly, given 
that Citibank's in-house language is English, an expanded 
Citibank workforce in Algeria, especially in the financial 
sector, would leverage the English-language programming that 
the Algerian government frequently asks us to provide. 
DAUGHTON