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Friday, 22 January 2010

Bahrain SWF to focus on transparency

Bahrain's sovereign wealth fund Mumtalakat is focussing on further improving its corporate governance before getting a credit rating and is relaxed about a parliamentary probe, its chief executive said on Thursday.

Talal Al Zain told Reuters in an interview in Manama that the fund was still working on improving the financial reporting structures and corporate governance of its portfolio companies.

"Right now, today, my focus is that we apply better corporate governance on the companies that we own, starting with Mumtalakat", he said.

David Jackson: casualty of hubris... though not his own.

Back in September of 2006 I went to the IMF meeting in Singapore. You can think of the IMF meetings as part Model UN part speed dating. They’re like model UN in that most of the sessions I went to had a bunch of guys trying to explain the massive American fiscal and current account imbalances and why they had been so persistent. No one really understood it but you can’t go to the IMF meeting and get up on stage and say “I really have no idea” so they looked like a lot of high school kids pretending as though they knew what the stance of Sudan would be on refugees in Bosnia. It was charming and made me feel good about the education I had received.

The IMF meeting is also a lot like speed dating. I know it sounds strange to say that about a gathering of the worlds central bankers, who wants to hang out with those guys? Easy the world’s financial institutions because central banks are where the money is. Trouble is, there are so many clients and so many rivals and so many potential clients and rivals, that you only get a little time with each one. Most financial institutions throw parties each night of the conference in an attempt to woo the clients. If you’re a young freebooter like me you check out the parties of the other firms and then work the room at your own so the boss can see you pressing the flesh.

So that night back in 2006 I hit the Saudi party, there were a lot of interesting people there and the most money but, sad to say, no drinks. The Qatari party was truly outstanding. They had all the martinis you wanted, seven different kinds of buffets and I want to say Cirque de Soleil or something there for entertainment, my memory of it is a little fuzzy. The QFC may not have had too much game as a financial center but they threw a mean bash. Then I headed back to my own party. After the riot of the Qatari party my own was pretty lame. I was pigeonholed by some really dull guy from the accounting department or something. He was an important person to cultivate but really not what I had in mind. As I was trying to figure out how to change the conversation to something more interesting than the Venetian discovery of double entry bookkeeping from the Arabs a group of men behind me burst into absolutely uproarious laughter.

As I turned around and as I did I caught the eye of the man at the center of the group, a large and boisterous African American. “Let’s ask him!” The man said, pointing at me. “Ask me what?” I replied. “Well, today we have been playing a game with all our bankers. People have been pitching us deals all day. We have provided them each with a simple test and whoever can pass it wins our next deal. Do you think you can pass?” I wasn’t sure, “I’m not sure, try me” says I. “OK, here goes: I’m going to sing a verse from a song and you have to tell me the name of the song and the artist. OK?” This was really odd but it beat the history of accounting so I told him to shoot. Then the enormous African American began to sing:

“I got in town a month ago, I’ve seen a lot of girls since then”
“If I could meet ‘em I could get ‘em”
“But as yet, I haven’t met ‘em”
“That’s why I’m in the shape I’m in.”

I knew it instantly: “Another Saturday Night, by Sam Cooke from... I think... 1963.” (BTW, that song is quite the theme song for non-Muslim males in Dubai)

Explosive Guffaws, from all the men in the circle but one, our salesman Imran. Imran just stared daggers at me. The man put his arm around Imran with his huge paw coming to rest on Imran’s shoulder. “You see, Imran you should have brought this guy along. Then you would have gotten your trade done. Heh heh heh.”

Then he looked at me, “So, Mr. Soul Man, what is it that you are trying to sell here in Singapore?” As it happened I was there to lobby support among some western finance ministers for a clandestine financing project related to the reconstruction of Lebanon after the recent war, so I told him that I wasn’t selling anything. “That can’t be!” He bellowed, I had been out of the US long enough for the loudness of other Americans to be noticeable. “Why I’ll bet you spent half an hour to get that dimple in your tie exactly perfect this morning. No one who isn’t selling something would go to that length to look so dapper.” It made me a little uncomfortable how right he was. “OK, OK, so you’re selling something but not right now, and not to me. Fine, you get a rain check. One free deal with Istithmar.” The man stretched out his hand to me, “My name’s David Jackson. What’s yours?”

You may recognize that name because David Jackson was the CEO of Istithmar the private equity wing of Dubai Holding who was forced out yesterday.

I tell this story to give you a sense of the kind of guy that he was. I joined up with David Jackson and crew that night and party hopped the IMF meeting with them, he was a fun guy. Back in 2006 the memory of his time slaving away at an investment bank was still fresh. He has been on the other side of the table pitching deal after deal to sceptical clients. Now he was on the fun side of the table, with a big pile of money and all his former bosses hoping that a few words in the right key some of it would rub off on them. So he had fun with them. He would make them jump through hoops like asking his Arab coverage people to name soul tunes. Or winding them up over their dimple tied ties. He was having fun with it, and why not. He felt he had earned it.

In a lot of ways he had. I think that over time it is possible that he fell under the spell of Dubai Sorcery, and the power of the Dubai Sorcery for expats is that it makes them fall under their own spell. David Jackson was probably a better than average investment banker in New York where he worked for ten years before coming to Dubai. Once in Dubai however, he was a rock star. As the head of a major private equity firm with “middle eastern money” (borrowed in his case) behind him people were lined up around the block trying to pitch him investments. The trouble is, when people are lined up around the block telling you how smart and important you are you start to believe them.

During the depths of the financial crisis Jackson gave a talk where he said that Istithmar was patient capital and that they were putting money to work while everyone else was selling assets. I’m sure that Mr. Jackson had access to the balance sheet and income statements so he must have known this to not be true. Still, I think he believed it. He believed it because he had begun to believe the stories his admirers told him and then he began to admire himself and that can be fatal. But David Jackson was not undone by his own hubris, he was undone long before that.

A lot of life is more about knowing the game than playing it well. David Jackson was a bright guy. Perhaps not so bright that he would have done as well in New York as he did in Dubai but bright nonetheless. He knew the game. He knew that the people who hired him wanted to be on the front page. They did not want to own 20 million shares of Costco, they wanted to own Barneys. They didn’t want to own six dozen holiday inns in the Midwest, they wanted to own the W Union Square in New York. They didn’t want to own 3% of Federated Investors they wanted to own Perella Weinberg and GLG. For the powers that be in Dubai making levered investments into high profile companies was part of building “Brand Dubai.” If higher volatility and lower returns were the result they would make it back in hotel bookings back in Dubai. In the beginning as I have told you he took it lightly, later on he took it seriously. David Jackson understood the game and David Jackson delivered.

The hubris that has destroyed the career of David Jackson was the hubris of the people who hired him. They hired him because he was outgoing and flamboyant and bright. They set up a game in which he had every incentive to buy trophy assets and he delivered in spades. They did this in the belief that the more widely the name of Dubai was known, the better it would be for Dubai. The trouble is buying trophy assets with massive leverage on the eve of a massive credit contraction is a spectacularly bad trade to make. So now the people who have set up the game have taken David Jackson off the board. Now the creditors and Abu Dhabi are the most important pieces. The players change. The game goes on.END

The World's Biggest Oil Reserves

This month Iraq will finalize contracts with the likes of ExxonMobil, Royal Dutch Shell and BP to develop some of its biggest oil fields. These giants are among the world's last remaining pockets of so-called "easy oil." They don't require ultradeep drilling or innovative production techniques, just the application of Big Oil know-how. No wonder the oil companies agreed to develop Iraq's fields without even getting an ownership stake in the fields and collecting as little as $1.15 per barrel recovered.

Given the size of Iraq's undeveloped giants there are no technical reasons why within 10 years the country can't supplant both Iran and Russia to become the world's No. 2 oil producer after Saudi Arabia. No wonder Iraq holds three of the top 10 fields of the future.

Charlie Rose: A Q&A with Prince Alalweed bin Talal

Prince Alwaleed bin Talal is chairman of Kingdom Holding Co., a Saudi firm with billions invested around the globe. He is ranked among the 25 wealthiest people in the world and is the largest single investor in embattled Citigroup (C), which just posted a $7.6 billion net loss for the fourth quarter. It is said that his displeasure with another Prince, Chuck Prince, contributed to the ouster of the Citi CEO in late 2007. The economic crisis has taken a toll on Prince Alwaleed's holdings, and he recently injected nearly $600 million of his personal wealth into his firm after a year of steep losses. He is a nephew of King Abdullah of Saudi Arabia and one of the most outspoken members of the royal family. I talked with the prince on Jan. 15.

How do you see the global economic recovery?

The decline has stopped. The question now is, will there be an L-shaped or V-shaped recovery? I hope that the L will be at least a U.

Fitch Places Commercial Bank of Kuwait on Watch Negative

Fitch Ratings has today placed Commercial Bank of Kuwait's (CB) Individual rating of 'C/D' on Rating Watch Negative (RWN). At the same time the bank's other ratings have been affirmed at Long-term Issuer Default (IDR) 'A+' with Stable Outlook, Short-term IDR 'F1', Support '1' and Support Rating Floor 'A+'.

The RWN reflects an increased level of uncertainty following the resignation of CB's Board of Directors, which was announced in a brief statement to the Kuwaiti stock-market on 17 January 2010. In addition CB has - like its peers - been affected by the deterioration in the operating environment in Kuwait during 2009. There has been a sharp deterioration in asset quality and the bank's non-performing loan ratio has more or less tripled since end-2008. Management expects all of 2009 profits to be absorbed by impairment charges, and year-end 2009 impairment levels are likely to remain high. Fitch expects to resolve the RWN over the coming few months after the election of the bank's new board and publication of its year-end 2009 accounts.

CB's IDRs and Support rating reflect the extremely high probability of support from the Kuwaiti authorities, in case of need. CB has a strong domestic franchise, and the Kuwaiti authorities have a long history of strong support for domestic banks. CB's capital ratios have strengthened (Tier I ratio was 16.2% at end-9M09) and pre-impairment profitability remains satisfactory, although below 2008 levels.


The Association of America Railroads reported mixed traffic figures for the week ending January 16th. Total carloads declined 0.8% vs 2009 and down 18.5% vs 2008. Intermodal traffic was a bit stronger with a 1.3% year over year climb, but a 12.6% decline versus 2008. Breadth in the data continues to improve over the latest week as 12 of the 19 commodity groups reported year over year improvement. For the first two weeks the total volume is down 6.7% vs 2009 and down 23.3% vs 2008. There is no denying the weakness of the real economy in this data. The sluggish recovery continues and improvement remains meager despite very easy year over year comparisons.

Dubai launches executive shake-up after crisis

Dubai restructured its government decision-making process on Thursday in an effort to draw a line under the financial crisis that raised questions about governance in the Gulf’s commercial hub late last year.

Crown Prince Hamdan bin Mohammed al-Maktoum, head of the executive council, the emirate’s top decision-making body, has created five committees to be run by long-standing government officials.

The move has been seen as a further effort to replace the generation of flashy young technocrats associated with Dubai’s boom and bust – which loaded the emirate with debts of more than $100bn (€71bn, £62bn) – with more sober functionaries with close ties to the ruling family.

Damage at the close in New York…