New Bahrain Middle East Bank vehicle to target US mortgage bonds

14 February 1997

Bahrain Middle East Bank (BMB) says it is about to start marketing $7 million-10 million in equity for a new investment company targeting US mortgage-backed securities. The bank recently reported a 70 per cent rise in net profits for 1996 (MEED 17:1:97).

The new company is similar in concept and structure to Global Diversified CBO, a BMB vehicle set up last year to invest in high-yield US bonds. The new company will have a five-year investment programme and will raise $240 million-300 million through an issue of commercial paper. By contrast, Global Diversified was funded by a $200 million issue of 12-year bonds.

BMB's chief executive, Albert Kittaneh, says the bank came up with the concept for the new company and will market some of its equity to investors in the Gulf, while retaining 50-55 per cent of the stock for itself. Paine Webber of the US will structure and sell the commercial paper from New York, with Chase Manhattan Bank will provide back-up liquidity for the issue. Alliance Capital will manage the new company's investment portfolio of US collateralised mortgage obligations (CMO).

About one-third of BMB's assets are now held in the form of US government or corporate bonds. The bank's consolidated assets rose by 42 per cent last year to $646 million, partly reflecting the establishment of Global Diversified. The rise was partly offset by the repayment of the final $50 million of a loan made by BMB to Saks & Company of the US. BMB, which was a co-investor with Investcorp in the acquisition of Saks, lent the US firm $100 million in 1990 with the intention of selling down the loan in the Gulf. Then Iraq invaded Kuwait, and the loan remained on BMB's books. The first $50 million was repaid in 1993. In the near future, BMB plans to further reduce its loan portfolio, which now stands at about $37 million.

The bank's funding policy is to reduce its reliance on interbank deposits. However, bank deposits rose slightly in 1996 as a proportion of total liabilities, while customer deposits fell. Kittaneh says BMB is currently working on an investment fund, which is to be managed by a UK institution. The bank is also in the 'final study stage' of plans for a corporate acquisition in conjunction with 'Gulf-connected investors in the US.'

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