Nadine Hani: The known and the unknown in the acquisition of the Lebanese Canadian Bank

The resilience of the Lebanese banking sector has made it the pride of the people of Lebanon. It is a true reflection of their professionalism and drive to excel.

Yet this pride does not justify staying silent when mistakes happen. Business news reporting in the Arab region has evolved, and journalists are not used anymore to the way that Lebanese bankers shy away from the media, and to their brief press releases.

An example of that is the press release that was issued earlier this week mentioning that “Societe Generale de Banque au Liban, SGBL” had bought certain assets and liabilities of the “Lebanese Canadian Bank.” That press release lacked all the basic information.

The structure of the deal, engineered by the Lebanese Central Bank governor, succeeded in protecting the banking sector from the allegations of the US treasury, that the Lebanese Canadian bank is “embroiled in money laundering activities linked to Hezbollah.”

The Lebanese Central Bank auctioned off the Lebanese Canadian Bank in March, and announced that SGBL was the winning bidder. And after an article was published in The Wall Street Journal a couple of weeks ago, referring to those allegations and citing that SGBL’s financial consultants had raised questions about “suspicious accounts,” the Central Bank governor hastened to finalize the deal by engaging in negotiations with SocGen, which owns 19 percent of SGBL, and visiting Washington to guarantee the non-objection of the US administration regarding the exit strategy it envisaged.

This statesmanship and diplomacy in responding to challenges cements the confidence in Lebanon’s Central Bank Governor Riyad Salameh and in his administration during crises. Yet despite the political sensitivity of this deal, the financial aspect of the merger could have been done in a more transparent way. All of its stages trigger questions.

How did the auction take place? The other four offers of the banks participating in the auction haven’t been disclosed. And how did SGBL win especially when it was buying a much bigger bank by all measures? The logical explanation is that SGBL was chosen because it is partially owned by a foreign bank, which somehow endorses the compliance of the assets it was buying with international standards.

And why hasn’t the value of the deal been announced officially till now, although leaks have estimated it to be in the range of $550 million to $600 million. And why is there a problem in announcing the structure of the merger, even if it included guarantees for the buying party as compensation for any risk stemming from executing the transfer of the accounts?

How will SGBL fund the acquisition? Will it be a cash transaction or share swap? And will SGBL need to raise additional funds?

And what does it mean to “buy some assets and liabilities,” as stated in the press release for SGBL? Why is it not acquiring the whole bank?

To be fair, one has to know that SGBL is not a listed bank, it does not have outstanding bonds or preferred shares, and the foreign shareholder does not have a majority, so legally the bank is not required to disclose.

However, this merger is between two banks whose combined deposits reached $9.9 billion at the end of 2010, and therefore there’s a public interest that requires disclosure.

There’s a precedent in the Lebanese Banking sector, when EFG Hermes sold its stake in Audi Bank to M1 Group, which belongs to the Mikati family. At the time questions surrounded the role of the Central Bank in financing the deal.

No one doubts the role of the Lebanese Central Bank in insuring the solidity and stability of the banking sector, but it is time for Lebanon’s Central Bank and the Lebanese banks’ administrations to open up and abandon their inherited secretive approach, especially that other Arab banks, and particularly the Gulf banks, have surpassed Lebanon in their transparency and openness, qualities which we as Lebanese have always assumed to be our own.

(Nadine Hani is Senior Business News Presenter at Al Arabiya TV, and one of the best known media personalities in the Arab world. This essay appeared in Lebanon’s An Nahar. Ms. Hani can be reached at: [email protected])