When the deal between Egyptian investment bank EFG Hermes and Qatar’s QInvest fell apart yesterday, some in the banking industry were not surprised blaming Egypt’s stagnant business environment.
“Since when did the regulator approve anything after the revolution?” lamented one banker.
The Cairo and Doha-based banks said a planned joint venture had ended after they reached a 12-month deadline without approval from the Egyptian regulator, the Egyptian Financial Services Authority. The two sides had received approval from countries including Saudi Arabia, the United Arab Emirates, Qatar, and Jordan.
It was seen as the latest casualty of Egypt’s struggling economy after January 2011. But there is more to the story than meets the eye.
EFG Hermes’ top two executives, Hassan Heikal and Yasser El Mallawany are under investigation for alleged insider trading. They are among nine, including the two sons of former president Hosni Mubarak, alleged to have made an illegal profit of more than 2 billion Egyptian pounds ($331 million) through corrupt stock exchange transactions last May.
EFG’s CEOs and the other defendants deny the charges. The case is ongoing.
EFG spokespeople insisted there was no link between the delays in approving the joint venture and the investigations into the CEOs. But this is very difficult to believe when history shows that if any company is hit with any allegations of financial misconduct the heads of the company are usually the first to go.
The fact that Mr Heikal and Mr El Mallawany did not resign, despite investigations into a previous transaction, is likely to have put a dampener on the deal.
The CEOs reputation was no longer intact, innocent or not. Both are rumoured to have had close relationships to the former regime, especially Gamal Mubarak, within and outside the bank.
For some countries, this would be enough to prompt a resignation.
In Spain, for example, a rule of “professional virtue” is used as a prerequisite for those working in the banking industry and can be lost by anyone faced with a criminal record.
If the deal had gone through it would have paved the way for QInvest to buyout 60% of EFG, plug another $250 million into the banking business and give the CEOs a free ride out of their mess and responsibilities for the bank.
Was the head of Egypt’s regulator, Ashraf El Sharkawy, prepared to take this responsibility, knowing it would give the men a free pass?
The Financial Times alludes to this too:
According to a person familiar with the deal: “It fell through because no one in Egypt now wants to make a decision or affix their signatures to a piece of paper.”
Businessmen in Egypt have complained that, since the 2011 revolution which ousted Hosni Mubarak as president, officials have shied away from making big decisions because of fears over possible allegations of corruption.
EFG has turned to Plan B. It will sell “non-core” assets and return most of the cash to shareholders to cut costs by 35%.
In light of the deal falling apart, and another lost business opportunity, perhaps it’s time for Mr Heikal and Mr El Mallawany to do the right thing and step down, taking responsibility for their case until it is resolved.
The chief executives of Egypt’s biggest investment bank, EFG Hermes, have been quietly replaced as the bank attempts to clean up its image ahead of a potential takeover from Qatari firm Qinvest, three sources close to the matter have said.
Hassan Heikal and Yasser El Mallawany, who were last year charged with alleged insider trading alongside the sons of the former Egyptian President Hosni Mubarak, are still “technically on board but have been removed from the executive function,” said one investment banker close to the bank. Mr Heikal and Mr El Mallawany are still getting a paycheck but remain in their positions only on paper, the banker said.
EFG Hermes denied any changes were made. The changes have not yet been officially announced and Mr Heikal and Mr El Mallawany are still employed as CEOs at EFG Hermes.[caption id="attachment_1329" align="alignright" width="144"] Yasser El Mallawany[/caption]
Karim Awad and Kashif Siddiqi, who were last year announced as the new co-CEOs as part of the Qinvest takeover, are now running the bank, a second banker said. They were head of Investment Banking and head of Asset Management respectively.
Under Qinvest deal, Mr El Mallawany and Mr Heikal were to leave on completion of the transaction that would see Qinvest take control of the bank. But the deal has stalled because of delays in getting government approval in some Arab countries, according to a statement from EFG in January.
Mr Heikal, who has been living in London for at least a year, is now “pursuing other opportunities” and is “definitely not involved in the running of EFG,” a third source said.
A registry form at the Dubai International Finance Centre in the United Arab Emirates, where EFG Hermes is also registered, lists Mr Awad and Mr Siddiqi as the new directors. Mr Heikal and Mr El Mallawany are listed as former directors, ending their position in June 06 2013, just 7 days after the case of alleged insider trading was brought against them in Cairo.
In addition, EFG Hermes main website also suggests changes at the helm. As of February 16, the website title Karim Awad as Co-chief executive of the investment bank, and lists him first in the ranking on the profiles page. But this change was made only a week ago, when the website had described him under the old title of head of investment banking.[caption id="attachment_1330" align="alignleft" width="210"] Hassan Heikal[/caption]
The change is subtle, but indicates a significant shift in the bank’s executive management.
EFG has seen a sharp drop in its market value since the turmoil of the 2011 uprising in Egypt, partly because of its association with Gamal Mubarak, son of the former Egyptian president who owned a stake in its private equity business.
A further shadow was cast over EFG when its two co-chief executives, Mr Heikal and Mr El Mallawany, were among the nine alleged to have made an illegal profit of more than 2 billion Egyptian pounds ($331 million) through corrupt stock exchange transactions last May. The case is ongoing.
In case you were wondering, Egypt continues to attract investment from foreign oil partners and the billion of dollars they are owed by the Egyptian government is not putting them off, the head of the state-run gas company Egyptian Natural Gas Holding Co told Bloomberg yesterday.
Chairman Mohamed Shoeib was so positive in fact that he said his company’s debts to overseas partners “aren’t that high,” without being more specific.
It’s a strange comment at a time when Egypt clearly owes even small and medium sized oil companies such as UK-based Dana Petroleum (not to be confused with the UAE-based Dana Gas) tens of millions of dollars.
It was a busy day yesterday for Egypt’s business community, as another big business conference in just a few months was held to entice foreign investors back to Cairo.
But before we get to that, cast your eye on this “Formal Apology” made to Bank of America /Merrill Lynch, from Egyptian bank EFG Hermes on behalf of one of their analysts. This was an email sent yesterday to clients:
We sincerely apologize to Bank of America – Merrill Lynch (BAML) and our / their clients for a note titled ‘Recent Saudi Weakness: Summary Of Local Chatter’ sent by our sales desk in Dubai. The note, written by a junior employee of EFG – Hermes in Saudi, failed to highlight the source of the information or that the material was prepared by BAML and not his own. It is with the utmost sincerity that we apologize to BAML and our clients for this embarrassing oversight.
EFG Regional Trading Team
Not just journalism that attracts plagiarism…
Yesterday, the country’s prime minister Hisham Qandil tried to woo investors saying he wants the country to become a mecca for investments and officials are determined to boost confidence to revive an economy battered by last year’s unrest that ousted President Hosni Mubarak.
Here’s a round-up of the most important news (with some gossip behind of the scenes of the Euromoney conference):