Saturday, 27 November 2010

Wagon hitched to a runaway train

Abu Dhabi Commercial Bank's (ADCB) moves in structured investment products during 2006 and 2007 were part of a strategy that made the lender, owned by the Government, one of the region's most sophisticated investors and a key Middle Eastern partner for some of Wall Street's biggest firms.

But while buying into structured investment vehicles (SIVs) such as Cheyne Finance and Stanfield Victoria gave ADCB a portal into some of the most high-flying and hard-to-understand investments in the world, fallout from the credit crunch and sub-prime mortgage crisis in the US has turned the bank from one of the Gulf's most sophisticated investors into one of its most aggrieved.

In addition to SIVs, ADCB was exposed to the US mortgage crisis through collateralised debt obligations (CDOs), which packaged home loans and sold them to investors as securities. It also has one of the largest exposures among local banks to Dubai World, the Government conglomerate that recently reached a pact to restructure US$24.9 billion (Dh91.45bn) of debt.

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