Through proxy shareholders, AUB now controls about 47 per cent of BKME's shares, with Kipco Asset Management Company (Kamco)controlling about 29 per cent (MEED 6:12:02).

The struggle between Kuwait Investments Projects Company (Kipco)and AUB for control of BKME began in early 2001 with the acquisition by AUB of a 15 per cent stake in the Kuwaiti bank from the Kharafi Groupin a $133 million transaction (MEED 30:3:01). The position was taken in anticipation of the long-awaited initial public offering (IPO) of the 54 per cent stake in the bank held by Kuwait Investment Authority (KIA). Subscription to last summer's IPO was restricted to Kuwaiti individuals and institutions and, through proxy bidding, both Kamco and AUB grew their positions (MEED 24:5:02).

However, the general assembly staged in September saw conflict over the composition of BKME's board after four previous members - all KIA appointees - stood down. Kamco sought to have an appointed presence on the board in proportion to its shareholding. However, Kuwaiti law stipulates that the right of appointment to corporate boards is restricted to corporate entities. The BKME shares controlled by Kamco were held in a portfolio owned by Sheikh Abdullah Nasser al-Sabah, the grandson of the Kuwaiti Foreign Minister. As a result, Kamco was denied the right of appointment of directors.

The board was then chosen by election. As none of the four candidates proposed by Kamco held the minimum number of shares required by Kuwaiti company law to be a director, the bulk of BKME's newly-elected board were supported by AUB interests.

Among BKME's board members are Adel el-Labban, group chief executive of AUB, and Michael Fuller, the newly-appointed deputy general manager of BKME and previous chief executive officer of Al-Ahli Commercial Bank of Bahrain, one of the founding entities in the formation of AUB.

'The Central Bank is happy with the situation and has ratified interim results,' says El-Labban. 'We have not yet received the certificate from the Ministry of Commerce confirming the composition of the board and we have launched legal proceedings against the Minister - there are precedents for this. But for now the board has been elected by the bank's shareholders, it is functioning and it will remain constituted until March 2005.'

AUB's aim is to establish close ties with BKME. 'We are looking at increased co-operation between BKME and AUB, which will be of benefit to both parties,' says El-Labban. 'We will, of course, also recognise the minority rights of the other shareholders.'

With AUB likely to be keen to increase its shareholding further, the possibility remains that Kipco will seek to exit its position, as its original plan to take control of BKME and then merge it with Burgan Bank, another of its subsidiaries, now appears thwarted (Banking, MEED Special Report, 13:12:02, pages 30-32).

'If they wish to exit we will be interested in paying a reasonable price,' says El-Labban. 'But we are in no rush. As far as ownership of BKME is concerned, it is game, set and match to us.'

AUB's plans for the construction of a cross-border bank have been advanced by the BKME deal. It is the latest edition to an expanding stable of regional banking assets. AUB is itself the result of the merger of Al-Ahli Commercial Bank of Bahrain with London-based United Bank of Kuwait. Through that merger and the subsequent acquisition of Commercial Bank of Bahrain, a strong franchise is being built and it is keen to enter other GCC markets.

Links between AUB and BKME are further reinforced by BKME's acquisition of a significant stake in AUB. Two blocks worth more than 5 per cent were bought in December 2001 and January 2002 (MEED 11:1:02).