Agha Hasan Abedi, BCCI president and founder.

His eagerness to hire experienced Pakistani bankers is one aspect of Abedi's management style. The way he runs the bank is even more unique. His headquarters are in Leadenhall Street in the City of London and there, when he's in town, Abedi sits in an openplan office, a concept that is consciously or unconsciously based on that of Bank of America's founder president, Amades Peter Giannini who sat where he could see and be seen. His boardroom houses a custom-built circular table at which Abedi, deliberately, has no set place. The office is a profusion of flowers, and the decor reeks of the same smoked-glass opulence that characterize the bank's branches that have been sprouting like spring blooms in the posher areas of London. No expense is spared: over the British Whitsun holiday the airconditioning was switched off during a heat wave. The flowers died but were immediately replaced.

BCCI employees do not have titles, apart from on the merchant banking side. Instead they have responsibilities. They are referred to as "executives". The general manager of the UK operations, Swaleh Naqvi, for example, describes himself as "executive in charge". This is the unorthodox style that does not create trust among BCCI's fellow bankers in London.

That unorthodox style, and the speed at which BCCI has expanded, is one of the great talking points in banking today.

78 Euromoney July 1978

through an intermediary who was a Middle East businessman. American Express have told us that to its knowl edge no offer was made to BCCI.

So Bank of America was approached. That, in turn, was seeking a presence in the Middle East through local participation and, unlike American Express, it was prepared to inject capital without wanting to run the bank. "Bank of America agreed to become a shareholder, but we made it a condition that we would establish the management style" was how Abedi put it. A promotory agreement was signed during what Abedi described as a "historic lunch" in San Francisco in June 1972. The concept had become a reality, but it was a reality that Bank of America was apparently to regret later. Almost six years later B of A was to state that it had been satisfied with its shareholding in the bank, but that it had now established a presence of its own in the Middle East. Abedi, naturally enough, claimed that the relationship benefited both parties. "People will think that Bank of America's withdrawal shows that the relationship wasn't a good one," he said, "but we had a good relationship and both partners have benefited financially". Bank of America, he said, had done very well out of BCCI. "And if anything, the damaging publicity we got when Bank of America announced its intention was a test for BCCI. It hasn't done us any harm at all." Bank of America, however, were unable to comment.

But back in the days when the relationship was just beginning to blossom, the future looked less problematical in many ways. BCCI then stood on the threshold of the growth that is best exemplified in Table 1. That shows just how fast the expansion was: from 19 branches in 1973 to 146 branches by the end of last year, from assets of $200 million in 1972 to assets of $2.2 billion in 1977, and from pretax earnings of $335,000 to $25.9 million over the same short, hectic period.

Abedi concentrated on Britain and the Middle East, singling these out as the main potential growth markets. The growth of branch banking in Britain, in particular, was spectacular. An example: at the end of 1973 Britain hosted four of BCCI's characteristic smoked-glass branches with the now familiar BCCI logo prominently displayed. At the end of last year the number had risen to 45, some of them situated in the smartest areas of London where bureau de change operations kicked in a major contribution

Table 1

branches

UK

Growth Gearing

before Tax (5000)

to earnings, while others opened in northern industrial areas that contained substantial Pakistani populations. Surprisingly, on the figures supplied to us by BCCI (Table 2), the UK operation is not as profitable as the rest of BCCI's business. While the bank's UK assets of $160 million represent more than 7% of BCCI's total balance sheet, UK profits contribute only 3% of total earnings. But London also serves as the bank's headquarters and is a favourite holiday place for many of BCCI's more important customers and shareholders. The sight of BCCI's limousines awaiting the bank's friends at Heathrow airport, for example, is not at all uncommon.

Abedi, however, reacted strongly to the suggestion put to him during the interview that BCCI had become an ethnic bank in the UK, serving the Pakistani immigrant population and Middle East visitors. "We prefer", he said, "to be called a multinational operation." But "turning on the British population to BCCI is not easy and it will take a long time."

Abedi disputed that BCCI's growth, especially in the UK, has meant that it has become extended on the management side. "Our growth has been a balanced one in all directions." He believed that BCCI has adequate management capability, and said that 40% of BCCI's total global staff of 2,700 are not working to full capacity.

He has, however, called a halt to the bank's growth in the UK and that has been done with one main purpose in mind: to persuade the Bank of England to give it a full banking licence. It is said that BCCI has been on the waiting list for authorization longer than any other bank. It is also said that the Bank of England nearly granted it in 1976, but then drew back when it saw just how fast BCCI's expansion was progressing. "The Bank of England probably hasn't given permission because of the atmosphere surrounding the BCCI and the propaganda that has been spread about us," Abedi said, who referred to the long-established banks of the City as the “Club".

"It is not only the Bank of England that is against us, but the Club", he claimed. "After all, United Bank of Pakistan

80 Euromoney July 1978

got its full licence after just one year's operation in London." He claimed, however, that the bank was not in a hurry to achieve authorized status (which allows banks to deal in foreign exchange). "While we are waiting for it, we shall continue to increase our capital and improve our leverage position." In the meantime, BCCI in the UK is limited to taking foreign currency deposits of no more than $75 million, while on sterling business the bank is limited only by the Bank of England's 124% minimum reserve ratio.

The global leverage position could certainly do with improving. Table 1 shows that the ratio of capital to liabilities (BCCI's own figures) actually fell during 1974 (not a great year for banking) and even now stands at less than 54%. That may be one of the factors that has deterred the Bank of England from granting it authorized status. Abedi certainly recognized the need to improve its gearing: "By 1980 we hope that our leveraging will have improved to 7%," he said.

That growth in assets alarmed not only the Bank of England, it alarmed Bank of America as well, and is reported to be a major source of disagreement between the two, in spite of Abedi's denials. By 1976 these disagreements had resulted in B of A imposing a moratorium on the raising of new capital to finance BCCI's expansion, a moratorium that has since been lifted in line with B of A's decision to pull out.

Table Two

Asset growth in the Middle East has also been phenomenal, particularly in the United Arab Emirates which ran into a banking crisis last year. BCCI has 11 branches in Abu Dhabi, nine in Dubai and nine spread through the other emirates; it was a prime target for innuendo, but in our interview Abedi claimed that it had remained very liquid throughout the crisis, and that when two Bank of England officials had been called in to advise the UAE Currency Board, BCCI was pleased to open its books and disclose all. If it were to do that again the books would show that out of 114,000 accounts maintained at BCCI, around 50,000 are in the UAE. Some 25,000 are in the UK.

But it has run up against an apparent brick wall in Bahrain where it requested a commercial banking licence in 1973. The Bahrain Monetary Agency did not exist at the time: all requests had to be submitted to the Prime Minister. BCCI was turned down on the grounds that the number of commercial banks allowed in Bahrain was limited, but that when the policy was relaxed a licence would be issued. The bank is still waiting, although in the meantime it has been given an offshore banking unit licence that it has still to take up. "Most OBU business we can do in Abu Dhabi and Dubai and through our subsidiary in Kuwait," contended Swaleh Naqvi.

Somehow, BCCI appears to have an uncanny knack of making a name for

One of Bank of Credit and Commerce International's most unusual relationships is in Swaziland, where BCCI is establishing a new joint venture bank, called the Swazi Nation Development Trust Fund, with the King of Swaziland, King Sobhuza II. The king, the world's longest reigning monarch, will not only own 45% of the bank, but he will deposit between $20 and $30 million during the first day's business to get it off to a flying start. The documentation forming the new bank was to be completed late last month. The bank will have a capital of only $1 million.

Swaziland's major exports are sugar, peaches and pineapples. In turn, the king, who prorogued parliament five years ago and has ruled under a state of emergency ever since, controls export licences. The new bank hopes to carve out a significant part of Swaziland's trade financing business, and to finance new building of sugar mills. It will also set up subsidiaries in nearby Lesotho and

itself in whatever market it operates. Nowhere was this more apparent than in the US where it formed an association with one of the most controversial figures of all, Bert Lance. We have already described Abedi's account of how BCCI introduced Lance to Pharaon, and of the deal that resulted from that meeting. Just as intriguing was the deal that resulted from Lance's recommendation that four of BCCI's clients Sheikh Kamal Adham, ex-chief of Saudi Arabian intelligence; Sheikh Sultan al Nahyan, crown prince of Abu Dhabi; Abdullah Darwaish, adviser to the latter's family, and Faisal Saud al Fuliaj, a Kuwaiti and a major shareholder with BCCI in Kuwait International Finance Company

-

buy into Financial General Bankshares, a bank holding company that has bank holdings in 14 states of the union. Lance recommended to these four BCCI clients that they purchase 4.9% each of Financial General, just enough to keep them within the Section 130 SEC regulation prohibiting purchases of 5% or more without permission. That deal

Botswana.

Africa is central to Abedi's strategy. Already it makes a significant contribution to group earnings; last year, for example, it accounted for 18% of pretax earnings, or $4.7 million. Abedi told us that he considered banking opportunities in Africa, partly because of the relative unsophistication of the existing banking system in some parts, and partly because of the comparatively higher spreads available. So BCCI is looking further afield at Nigeria and Malawi.

It already has six branches in Egypt, easily the most profitable of the African operations; it also has two branches in Kenya, and a single branch in each of the following: Ivory Coast, Sudan, Gabon, Morocco, Djibouti and Mauritius. That's not all: there are joint ventures in Ghana and Liberia. And in the Sudan another BCCI branch is due to open this month: unusual, because every other bank in the Sudan has been nationalized.

group gain control then BCCI would probably manage the US bank holding company.

BCCI stated to us that Lance is paid a retainer by ICIC to seek out suitable investment opportunities in the US, but refused to state the size of that retainer. However, it disclosed that Lance is also paid a commission for each deal that comes to fruition - presumably he is being paid a commission for the sale of the shares in Financial General. The $3.6 million loan made to him by BCCI is still outstanding, the bank claimed, and that is to be repaid by him when the deal involving the sale of his stock in National Bank of Georgia is concluded. Abedi told us that he had first met Lance in London soon after Lance's resignation, and had there and then decided that Lance had the

necessary credentials to work for BCCI. The major shareholders at BCCI are one of the greatest points of contention. It's said that some of the most prominent Middle East rulers own stakes in the bank, although there are some that disbelieve this. BCCI provided Euromoney with a complete list of its shareholders on the understanding that they were not be published: we were obliged to accept that, but within that understanding we can confirm that the list includes members of the ruling families of Abu Dhabi, Dubai, Sharjah, Bahrain, Saudi Arabia and Iran. Our diagram shows the unique structure of the shareholdings. Many of them are men of untold wealth.

One of BCCI's most prominent Middle East shareholders hides behind the anonymity of two holding companies: Stock Holding Company SA and BCC Holding Company SA. Any company registered in Luxembourg does not, however, need to be informed of any changes in the shareholding of the company.

Bank of America's shareholding fell to 24% when it decided not to take up some of the $10 million rights issue in December 1977. During the same month BCCI Holdings issued capital notes for $20 million. According to BCCI notes worth $2 million were placed through BCCI's associate, Kuwait International Finance Company (KIFCO). KIFCO approached two Kuwaiti based investment companies with a view to selling the BCCI paper. One did. The other was interested but out of liquid funds. As a result KIFCO lent the investment company $1 million to buy some of the BCCI paper with a repurchase agreeement to buy back the paper in six months time. One of BCCI's Middle East shareholders took a substantial part of the $20 million issue for his own personal portfolio.

The most recent shareholder in BCCI is Dr Ghaith Pharaon, a Saudi Arabian businessman who has been in the news recently for his deal with Lance. Pharaon is a possible buyer of Bank of America's stake in BCCI, valued by BCCI at $18.7 million, at book value but at present he owns only 4.5%

Pharaon aside, Middle East interests own 35% of BCCI, valued at $27.3 million. The remaining 41% is held by a Cayman Islands-registered company called International Investment and Credit Overseas Ltd. In the past year, ICIC Overseas has become the largest

was acting in concert with Lance and the four clients to secretely gain control of the bank holding company. But subsequently the allegation was dropped when the group agreed to make a tender offer at $15 a share for Financial General. If the

Euromoney July 1978 81

shareholder: through Abedi's direction, or so he said, Middle East shareholders

Overseas. The two major ruling family shareholders each held around a fifth of the shares when BCCI was founded six years ago. Their shareholdings have now been cut to less than 5%. Altogether there are 22 Middle East shareholders in BCCI, of which 17 are members of ruling families. Of the remaining five, one is a Kuwait-based company, and the rest are Middle East businessmen, of whom Pharaon is the most prominent.

ICIC Overseas, which owns 41% of BCCI Holdings, was set up in April 1976 in the Cayman Islands. It now has assets of $22 million. ICIC Overseas is, in turn, wholly owned by ICIC Holdings, which was formed at the same time. The latter is a joint stock company, which is in the process of being turned into three separate companies: 35% of ICIC Holdings is owned by Bank of Credit and Commerce Foundation with assets of $7.7 million, 35% by ICIC Staff Benefit Trust with similar assets of $7.7 million, and 30% by ICIC Business and Promotions, with assets of $6.6 million. All three companies are incorporated in the Cayman Islands. BCC Foundation and the ICIC Staff Bemefit Trust are both registered as trusts. ICIC Business Promotions is formed by guarantee. Each has four trustees and a board of directors

create a foundation for charitable

purposes; foundations are generally created for business reasons, but ours is genuine and unique”

distillation of the ideas that Abedi culls from his management books, with a dash of eastern philosophy. But it is Abedi's concept of what he calls "above and below the line" that probably matters more to his shareholders. It boils down to this: Abedi's dream is to create a bank with assets of $4 billion that will create profits (that's the above the line bit) which in turn will be paid into a foundation that will dispense charity (that's below the line). But who will the beneficiaries be? Abedi shied away from that question, and when pressed, said: "We are quite serious about wanting to create a foundation for charitable purposes: foundations generally created for business reasons, but ours is genuine and unique." And so, at the end of it all, the purpose of the BCC Foundation remains a mystery. "There are certain values," said Abedi quietly, "to which we are dedicated."

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