Arab World Online LLC
By Betsy Hiel
April 12, 1996
The significant role that Islamic banking continues to play on the international financial scene was highlighted this week with the announcement that the U.S.' Citibank will open an Islamic banking subsidiary in Bahrain this July. The new bank, Citi Islamic Investment Bank, is a 100% owned subsidiary of Citicorp Banking Corporation and will initially be capitalized at $20 million. "We believe this new venture represents the first Islamic bank to be launched as a stand-alone business by a major international bank," states Citibank Vice Chairman William R. Rhodes, speaking to a group of international business people and political leaders attending the Gulf Economic Forum in Bahrain.
While industry figures of the amount currently invested in Islamic funds is hard to come by, Islamic banking experts state that the number is significant. "It is my rough estimate that the figure is substantially over $100 billion, representing assets under Islamic management and the value of Islamic financial services and products of financial institutions," states Nick Angell, partner of the New York-based law firm of Afridi, Angell & Baker with offices in London, the Arabian Gulf and Pakistan. "That includes the completely Islamized institutions of Iran and Pakistan, assets and products of Islamic financial institutions outside Iran and Pakistan and a very rough estimate of those Western, Arab and Muslim banks that operate on Western banking principles but offer Islamic financial services," he explains.
Citibank already has a major banking presence in Bahrain and has been providing Islamic banking services to investors and financial institutions since the early 1980s, through its offices in Bahrain and London. With the creation of the new Islamic bank, it will now formalize the range of products and services available and continue to tailer them to the special needs of customers. "It demonstrates our dedication to serving customers around the world who need and expect a wide range of different services. The Islamic banking market is growing fast and we at Citibank expect to develop our product offerings still further in this competitive market sector," states Rhodes.
"This simply is a recognition that the market for financial products designed to meet the requirements of the Shariah (Islamic law) is not a temporary phenomenon, particularly if designed to be closely competitive with products of the Western markets," Angell tells Tradeline when discussing the significance of the new bank. "Until now, Western financial institutions have been content to offer Islamic products through their Western offices, mostly to investors coming from the Islamic world. However, Citibank's establishment in Bahrain recognizes that there is a much deeper and broader market for Islamic products to be offered and made easily available within the Islamic world itself," he points out.
Islamic financial products and services are based on profit-sharing principles so as not to break the Islamic prohibition on riba (usury). "Up until now the primary products successfully offered by Islamic financial institutions have been murabaha (trade financing) and ijarah (leasing). Although there has been expectation and confidence that mudaraba and musharaka (forms of investment similar to Western-style equity investments) would form an important and substantial element of the activities of Islamic financial institutions, these have not yet materialized to the extent anticipated," Angell explains.
"Also, Islamic financial institutions are beginning to play a role in the financing of infrastructure projects in the Middle East, South Asia, and East Asia," he asserts. The $200 million tranche financed by the Kuwait Finance House, an Islamic financial institution, for the $1.2 billion Equate project in Kuwait illustrates this point. This private sector financing transaction combined traditional and Islamic financing mechanisms for the first time. As Islamic banks focus on long-term projects that provide higher yields for their investors, we can expect to see similar deals in the future.
SO YOU'RE LONGING TO BUY SAUDI STOCKS?
"In early August, the first closed-end fund permitted to invest in Saudi Arabia will begin trading on the London Stock Exchange. Managed by Saudi American Bank, a Riyadh-based Citibank affiliate, the Saudi Arabia Investment Fund will be the only way for foreigners to buy into the oil-rich kingdom."
Citibank took a 20 per cent stake in EFG Hermes, Egypt's largest financial services company
Younger generation of Middle Eastern investors spur growth in Citibank's private banking business
Bank of America drawn into Allfirst probe
Bank of America drawn into Allfirst probe
Michele Berk Staff
Charlotte, N.C.-based Bank of America is part of the investigation into foreign currency exchange trading losses at Baltimore-based Allfirst Financial Inc.
Bank of America was providing Allfirst with foreign exchange brokerage services for cash transactions, Georgie Shields, a spokeswoman for BofA confirmed Wednesday.
Shields said Bank of America was cooperating and assisting Allfirst with its investigation. At least half a dozen investigations are under way into how trader John M. Rusnak, 37, tallied up $691.2 million in trading losses between 1997 and early 2002.
Citibank also has come under scrutiny for its relationship with Allfirst. A spokesman for CitiGroup, the parent company of Citibank, acknowledged his company was cooperating with Allfirst investigators but said he couldn't comment further on Citibank's relationship with Allfirst.
Both Bank of America and Citibank provided services to Allfirst's foreign exchange trading desk, industry sources said. Bank of America provided services for cash transactions only, according to the bank.
But Citibank offered Allfirst services for options transactions, where most of the losses occurred, according to sources.
Bank of America is the largest bank in Maryland, based on deposit market share, above Allfirst. It's second to Allfirst in the Greater Baltimore area with a 17 percent share of the local market, to Allfirst's 18 percent share.
A Citibank employee may have known about the losses and an alleged cover-up scheme by Rusnak. The employee is said to have warned Rusnak in an e-mail found by investigators, according to a report in the Sunday Times of London.
Allfirst alleges Rusnak lost money betting that the Japanese yen would rise in value, then tried to hide his losses through a complex fraud scheme.
Officials with Allfirst and its Irish parent company Allied Irish Banks PLC have repeatedly said they will not comment further on the situation until they see the results of an internal investigation.
Former treasury official Eugene Ludwig was hired by AIB's board of directors to conduct that investigation and report the results March 9.
Copyright 2002 American City Business Journals Inc.