US embassy cable - 05AMMAN1087

C O N F I D E N T I A L AMMAN 001087 
 
SIPDIS 
 
E.O. 12958: DECL: 02/07/2015 
TAGS: ECON, EFIN, KTFN, JO 
SUBJECT: AMMAN STOCK EXCHANGE REACTS TO RUMORS, THEN NEWS, 
OF PROBLEMS AT ARAB BANK'S NEW YORK BRANCH 
 
 
Classified By: Charge d'Affaires David Hale for reason 1.4 (b) and (d) 
 
1. (C) SUMMARY: A week-long, 12% drop in Arab Bank,s share 
price appears to have paused, as the price rose 1.5% today on 
domestically-reported news that the bank is considering 
voluntary closure of its New York branch.  While the recent 
slide in price was not due entirely to rumors of impending 
enforcement action against Arab Bank, and while the market 
appears to have taken the revelation of the news with some 
equanimity, the effects of the Arab Bank slide on the Amman 
Stock Exchange (ASE) as a whole provides a worrisome 
indicator of the fragility of the overheated market and of 
the ASE,s dependence on Arab Bank.  Septel will outline 
broader ASE market dynamics and its outlook for next year. 
END SUMMARY. 
 
2. (C) On January 31, Arab Bank,s share price stood at an 
all-time high of JD 298.  By the close of the market on 
February 7, the stock traded at JD 261, descending on that 
day by 5%, the maximum one-day decline allowed at the ASE. 
During this period, the overall ASE index declined by 7%. 
GOJ interlocutors have spoken with increasing alarm about the 
effect that the bank,s decline may have upon the market as a 
whole. 
 
3. (SBU) While the decrease has been dramatic, it has not 
been driven entirely by investors, fears of the implications 
of the Arab Bank,s possible NYC branch closure.  Arab Bank 
shares have risen 86 percent, from JD 160, in just 3 1/2 
months.  While international news coverage of both civil 
litigation and possible U.S. regulatory action against the 
bank certainly played a role in the past week,s decline, so 
has profit-taking by investors.  In addition, the January 31 
announcement by Arab Bank of 20% dividends on each share of 
stock for 2004 (vs. 40% in 2003) disappointed investors, many 
of whom may have unloaded their shares for this reason. 
 
4. (SBU) The 1.5% rise recorded by Arab Bank today follows 
the publication of understated articles appearing in the 
pro-government al-Ra,i and its English-language sister paper 
the Jordan Times, quoting an Arab Bank press release on the 
possibility that the Bank will voluntarily and gradually 
close its NYC branch because "the current operating 
environment in the U.S. is not in line with the financial 
institution's strategy."  A substantial initial drop in the 
share price this morning followed the dumping of the stock by 
several large institutional investors, including the Jordan 
National Bank.  Arab Bank's statement seemed to calm for now 
the market, which had previously been running on rumors. 
 
5. (C) COMMENT: What the events of the past ten days do 
illustrate, however, is the extent to which the ASE follows 
the lead of the Arab Bank.  This is unsurprising, given Arab 
Bank,s proportion of the market (currently slightly less 
than 33%).  But given the possibility of additional bad news, 
omens for the market do not appear favorable.  If a 
substantial blow to Arab Bank were to visibly shake it, the 
economic reverberations would be felt by most companies 
listed on the Amman exchange. END COMMENT. 
HALE