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Credit crunch hastens Gatehouse Bank, GSH merger

Another sign that these are difficult times, even for the Islamic banking sector, is the announced merger by The Securities House K.S.C.C.,a leading Shariah-compliant investment company listed on the Kuwait Stock Exchange, of its two London-based subsidiaries Gatehouse Bank PLC and Global Securities House (GSH) UK into one entity under the Gatehouse Bank brand.

The merger was in many respects forced by the prevailing global financial market conditions and once again by the huge costs of establishing and maintaining financial institutions in the City in London. There are legal and other reasons why Securities House had to go down the GSH route to establish Gatehouse Bank, the last Islamic bank to be authorized by the Financial Services Authority (FSA) in the UK.

The Islamic finance market however was always convinced that a merger was inevitable because having two institutions from the same financial stable whose activities had an element of both complimentarity and duplication, was in the medium-term unsustainable. The credit crunch and the global financial crisis merely hastened this inevitability.

Gatehouse Bank, according to the market, had hardly completed a single deal since its establishment in early 2008. But at the same time the bank had recruited 30 staff -- most of them at middle to senior level. The merger means that David Testa, the former CEO of Gatehouse Bank, who came to set up the bank from WestLB's London branch, has resigned, and the former chairman, Richard Thomas who was also CEO of GSH UK, now becomes CEO of the merged Gate4house Bank PLC. As a result, the board of directors of Gatehouse Bank has appointed Fahed Faisal Boodai as the new chairman of the bank. These changes are with immediate effect. Chairman Boodai is confident that "The Shariah-compliant finance markets will continue to grow rapidly. We believe we will be better able to exploit business opportunities by combining our strength in capital markets and off balance sheet investments. Integrating our London-based operations into Gatehouse Bank will bring together our financial resources, staff skills and business experience to deliver superior service to our clients and better value to our shareholders." Thomas has over 30 years experience in Islamic finance. In fact his entire career has been virtually in the sector which started with Saudi International Bank, where he and Duncan Smith pioneered the first-ever Islamic structured finance products in the mid-19803. Since then he was involved in the launching of the International Islamic Banking Unit, the Islamic finance unit of the then United Bank of Kuwait in London; the launching of Islamic Asset Management (IAM) at ABC International Bank in London which launched the Alburaq brand of Islamic consumer finance products in the UK; and GSH and Gatehouse Bank. He is also member of the UK Trade & Investment (UKTI) Financial Services Sector Advisory Board and chairman of the Islamic Finance sub group, and was recently appointed by UKTI as special representative for Kuwait.

The combined entity, stressed The Securities House in a statement, "will benefit from the strength of Gatehouse Bank in capital markets services and GSH UK's skills in asset and fund management, creating an even stronger business with which to approach the growing opportunities in Shariah-compliant financial markets, both in London and worldwide. "The two companies confirm that they have already worked together closely on a number of projects in the real estate sector and further opportunities have been identified in trade finance and liability risk management.

The merger will be completed through the acquisition of the assets and liabilities of GSH UK by Gatehouse Bank, for which the approval of the FSA must be attained.

According to Richard Thomas, who has spent the last few days meeting his staff individually, Gatehouse Bank is "looking to the future with a sound platform already in place in the heart of the City of London. Gatehouse Bank has built an enviable depth of professional talent and a reputation for probity in matters of Shariah compliance while mobilizing that talent to deliver an award winning existing product range in a short time.

"I am delighted that our shareholder has the confidence to set us the task of now forging ahead into new markets with new products, combining the capital markets skills of Gatehouse Bank with the asset management skills of GSH UK.

We see strong opportunities for the Islamic financial services industry in Europe and the deepening of established markets such as Malaysia. We believe that from London we can best serve our clients and shareholders by building counterparty relations and strategic initiatives in these centers to complement our traditional strength in the GCC," he added.

By Mushtak Parker

© Arab News 2009

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