US embassy cable - 05AMMAN2044

S E C R E T SECTION 01 OF 04 AMMAN 002044 
 
SIPDIS 
 
NOFORN 
 
E.O. 12958: DECL: 03/04/2015 
TAGS: EFIN, ECON, PGOV, JO 
SUBJECT: FORMER PM'S LICENSE APPLICATION IS A TEST FOR 
CENTRAL BANK 
 
REF: AMMAN 538 
 
Classified By: Charge d'Affaires David Hale for reasons 1.4 (b), (d), a 
nd (e) 
 
1. (C) SUMMARY: The announcement by former Prime Minister Ali 
Abul Ragheb that he has applied for a new banking license has 
stirred up considerable interest in the Jordanian business 
community, but also provoked controversy and a war of words 
between Abul Ragheb and another former prime minister, now 
also a bank chairman.  The furor is further smearing a 
reputation already besmirched by accusations concerning Abul 
Ragheb's activities while in political office.  If handled 
incorrectly, it could damage the credibility of both the 
CBJ,s independence as a regulator and of the GOJ as a whole. 
 END SUMMARY. 
 
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A BANK IS BORN? 
--------------- 
 
2. (SBU) Jordanian press reports are feeding a belief that 
the long frustration of Jordanian investors who have been 
clamoring for a new banking license is at an end.  On 
February 22, trucking magnate and former Prime Minister Ali 
Abul Ragheb formally applied for a new banking license; he 
expects it to be granted "very soon."  He explained that the 
time was ripe for Jordanian banks to expand regionally, but 
few had the capital or the ambition to do so; Abul Ragheb is 
very interested in the opportunities presented by what he 
feels are unexploited markets in the Aqaba Special Economic 
Zone, Sudan (where Abul Ragheb's family owns three 
factories), and Iraq (where he has strong business 
relationships dating back before Saddam's fall).  According 
to Abul Ragheb's statements to the press, the proposed new 
bank will have an initial capitalization of JD 100 million - 
the third highest paid-up capital of any bank in Jordan 
(total shareholder equity, however, would initially be 
equivalent to a mid-sized bank).  Half of this capital would 
be raised from a group of 60 private investors that Abul 
Ragheb has assembled; the other half would come from an IPO 
prior to the bank's launch. 
 
3. (C) Based on what Abul Ragheb told us and on rumors in the 
marketplace, the 60 private investors would include a 
veritable "Who's Who" of Jordan's major businessmen who are 
not currently major shareholders of any existing commercial 
bank.  Besides the Abul Ragheb family, which would contribute 
5-7% of the bank's startup capital, and the Social Security 
Corporation (SSC), which is supposedly interested in taking 
10%, the investors would prominently include Samir Ka'war 
(uncle of Jordan's current ambassador to the United States) 
and Omar Khalid Shoman (nephew of Arab Bank Chairman 
Abdulmajeed Shoman and cousin of Arab Bank CEO Abdulhameed 
Shoman), who in February 2004 sold off his father's 11% stake 
in Arab Bank in a complex deal involving the SSC and the late 
Rafiq al-Hariri.  Most intriguingly, the Iraqi Bunniah family 
- longtime friends of Abul Ragheb - are contributing JD 1 
million for 1% of the bank; Abul Ragheb told us that he views 
this as the most important element of the ownership structure 
because it creates a strong alliance with one of Iraq's top 
business families.  Left unmentioned by Abul Ragheb was the 
participation of the Iraqi Khawam family in the consortium, a 
fact that has created some buzz among banking insiders. 
 
4. (C) Abul Ragheb told us that had he wished, he could have 
found twice as much money, and that he has been receiving 
calls for weeks from people who want a piece of the new bank; 
his friends are "upset" that they are not being given larger 
shares or any shares at all.  At least one friend of Abul 
Ragheb, however, turned him down flat.  Sabih al-Masri 
(strictly protect) told us that Abul Ragheb had recently come 
to him to ask him to participate in the bank,s founding 
group.  Masri told us that while he considered himself to be 
a good friend of Abul Ragheb, he felt that it was not a good 
idea to go into business with friends and that to invest in a 
third bank after already holding large stakes in two others 
(Arab Bank and Cairo-Amman Bank - ref A) was not a good idea. 
 Masri added, however, that a third reason for his reluctance 
to join the consortium was that while Abul Ragheb was rich, 
Masri did not consider him to be a businessman. 
 
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A PR STORM BREWS AND CBJ FUMES 
------------------------------ 
 
5. (C) The developing Abul Ragheb banking consortium has been 
an open secret among financial insiders for months.  It 
emerged publicly, however, only on February 25, when Jordan 
Kuwait Bank (JKB) Chairman, and former Prime Minister, 
Abdulkarim al-Kabariti made a speech at the JKB,s annual 
General Assembly meeting denouncing Abul Ragheb,s plan for a 
new bank and casting aspersions on the sources of Abul 
Ragheb,s wealth.  News of the speech, whose transcript has 
not been released by JKB, was quickly picked up in the press. 
 Abul Ragheb hit back aggressively and publicly, highlighting 
the large (estimated 90%) majority of Jordanian ownership of 
his proposed new bank and making an implicit comparison to 
the majority Kuwaiti ownership of JKB.  Abul Ragheb has, 
however, been most effective in his tactic of convincing 
markets that his banking license is a fait accompli to which 
the sector must adjust itself.  Many bankers are already 
beginning to talk about the positive benefits that a new bank 
could bring.  The deputy CEO of one major bank to whom we 
talked even believed that the license had been awarded one 
month ago and expressed surprise when told that it had not 
yet been awarded at all. 
 
6. (S/NF) Whether or not CBJ approval of the license is 
indeed a fait accompli is a subject on which there are many 
widely varying points of view.  Abul Ragheb told us that 
feedback from the CBJ on the application had been "very 
positive."  According to a close friend of Abul Ragheb, on 
the other hand, the story is a bit more complicated: the 
former PM had received the King,s blessing prior to making 
an initial application for a banking license in the summer of 
2004.  The CBJ, however, refused this application.  Abul 
Ragheb had returned to the King, and convinced him that the 
creation of the bank was vital to the furthering of the 
King,s vision of Jordan as a banking center.  The King then 
reportedly told Abul Ragheb to proceed in setting up his 
consortium even without prior CBJ approval of the license ) 
because that approval would definitely come when Abul Ragheb 
again applied for the license. (COMMENT: Although this story 
is circulating in Amman, we have no hard evidence confirming 
the King's involvement.  The accusation focuses not on a 
suggestion of personal profit by the King, but of unorthodox 
and non-transparent intervention which undercuts efforts to 
project a reformed, investor-friendly image. END COMMENT.) 
 
7. (S/NF) The CBJ has yet another version of the story of the 
Abul Ragheb license.  CBJ Deputy Governor Faris Sharaf 
(strictly protect) confirmed to us that there is support "at 
the highest level" for Abul Ragheb's application, but noted 
that the CBJ was far from ready to approve the application 
and had in fact stated publicly as recently as mid-January 
that it would not be granting applications for new banks. 
Sharaf voiced his strong personal opposition to issuance of a 
new banking license at this time, saying that given what he 
termed a "human resources" bottleneck in the Jordanian 
banking sector, licensing a large extra bank right now would 
only dilute the quality of decision-making in Jordanian 
banks.  As an example of this constraint, he noted that in 
order to hire a competent branch manager, recent sector 
entrant Bank Audi had been forced to offer a salary four 
times the going rate.  Pointing to the high liquidity of 
Jordanian banks, Sharaf argued that pouring more investment 
capital into the banking sector would not be particularly 
useful; what Jordanian banks needed was a more sophisticated 
understanding of how to evaluate their opportunities.  This 
was precisely why the CBJ had in 2004 given licenses to three 
good foreign banks to operate in Jordan. 
 
8. (S) The Abul Ragheb consortium, however, did not even 
approach the standards set by the 2004 licensees.  Sharaf 
noted that few of the primary promoters of the application 
were bankers and that he doubted the commitment of Abul 
Ragheb to be in the bank for the long term.  Sharaf also 
noted that the precedent that would be set was a bad one, 
given the number of other domestic businessmen trying to get 
a license.  These include one group led by yet another former 
Prime Minister, Fayez al-Tarawneh, and Mufleh Aqel 
(Industrial Development Bank Chairman and Banking Association 
President), who had provided the technical expertise for the 
Abul Ragheb bid but has recently fallen out with him.  An 
even more advanced consortium is led by Zuhair Khoury, a 
former chairman of Jordan's Housing Bank, and Khalid Shahin, 
a wealthy and well-connected Jordanian businessman.  The 
latter is locally famous for his unconventional relationships 
with Jordan's banks, which have in the past included several 
defaults by various Shahin companies on large loans and, most 
significantly, Shahin's alleged looting of the Philadelphia 
Investment Bank (PIB), in which he had held a controlling 
stake. 
 
9. (S) Sharaf expressed his frustration at both Abul Ragheb 
and Kabariti.  He explained that the CBJ had done its best to 
accommodate Abul Ragheb's desire to be a major participant in 
a bank while adhering to its position on minimizing the 
number of banks in Jordan.  Sharaf claimed that the CBJ had 
done its best to present Abul Ragheb with alternate options 
ranging from a takeover of an existing bank (such as PIB) to 
the conversion of the license of the Industrial Development 
Bank.  Abul Ragheb, however, had failed to come to an 
arrangement with any of these banks.  Kabariti, by bringing 
the subject into the public sphere, had only made it more 
difficult for the CBJ to "bury" Abul Ragheb's application. 
In fact, Sharaf claimed, Abul Ragheb had not yet even filed 
an application; he had only sent a letter to the CBJ 
announcing his intent to apply for a license.  As it is, the 
furor over the license has forced Abul Ragheb to be more 
aggressive, cowed some of the members of the board tasked 
with evaluating the application  who had initially opposed a 
new bank, and ensured that no matter what the CBJ decides, it 
will likely be charged with bending to political pressure. 
Sharaf said that he was trying to "stiffen" CBJ Governor 
Touqan to stand up against the application; ultimately, 
however, the principle involved in this matter is so 
important that if the bank were to receive a license without 
responding to his concerns, Sharaf would "go back to making 
money" in the private sector. 
 
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MORE FUEL FOR THE FIRE 
---------------------- 
 
10. (SBU) The controversy over the license comes at a time 
when Abul Ragheb,s reputation is under attack from a 
different quarter.  The General Intelligence Directorate,s 
Anti-Corruption Department concluded, on February 27, a 
six-month-long investigation of the Jordan Magnesia 
Corporation (JorMag), a GOJ joint-venture white elephant that 
in its initial phases financially benefited Abul Ragheb,s 
son.  While the investigation cleared JorMag and all parties 
associated with it of any wrongdoing, Parliament has refused 
to accept its conclusions and on March 2 called for the 
appointment of a prosecutor-general to take the case to 
court.  One parliamentary deputy, in the course of these 
hearings, directly accused Abul Ragheb of having rewarded 
Saleh Irshaidat with the post of Deputy Prime Minister in 
return for his complicity in the corrupt awarding of the 
tendered project to the consortium represented by Hassan Abul 
Ragheb.   Irshaidat was at the time the Director-General of 
the then state-owned Arab Potash Corporation, through which 
the joint venture was formed. 
 
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COMMENT 
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11. (C) While Abul Ragheb,s planned bank is at least as much 
a product of hype as of substance, the addition of another 
bank of its size could be good for the banking sector.  Given 
the failure of local banks to fully serve the market and 
provide innovative products, it is difficult to maintain that 
Jordan is over-banked.  Abul Ragheb is correct in his belief 
that both the Aqaba Special Economic Zone and Iraq-related 
trade are underserved, and his insistence on participation by 
Iraqis seems far-sighted.  The CBJ is, however, probably 
correct that Abul Ragheb's consortium may not be the right 
group to attempt to deliver these services; Sabih al-Masri's 
decision to opt out of the consortium lends further credence 
to this judgment. 
 
12. (C) Irrespective of the solidity of Abul Ragheb's 
business plan, optics will not be good for the CBJ if it 
grants a license to the Abul Ragheb consortium.  There is 
already a belief in the sector and the wider public that "the 
fix is in."  Abul Ragheb,s history will likely taint public 
perceptions of his dealings with the GOJ for a long time to 
come, and in this case perceptions appear to be at least 
partly accurate.  The presence in the founding consortium of 
a large number of known (e.g., the Khawam family) and 
suspected violators of UN sanctions on Iraq adds yet another 
black mark on the bank.  Finally, a failure by the CBJ to 
stick to its position on licensing of domestic banks will 
make it more difficult to say no to consortia with even 
weaker credentials and reputations, such as the Shahin-Khoury 
group. 
13. (C) The timing of the Anti-Corruption Unit,s findings on 
Jordan Magnesia adds yet another disturbing twist to the 
situation.  While the clearing of all parties involved in the 
Jordan Magnesia disaster may well be both accurate and 
unbiased, it will not appear that way to many Jordanians.  A 
license award now will likely provoke further speculation 
that the investigation was a whitewash for Abul Ragheb, 
devaluing the GOJ,s anti-corruption credentials. 
 
14. (C/NF) In sum, an emergence of Abul Ragheb as a player in 
the banking sector would likely blemish the sector even if, 
in a best-case scenario, it were to provide a needed spur to 
competition.  The escalating war of words seems to ensure 
that an awarded license will further diminish the confidence 
of foreign investors in the transparency of the Jordanian 
financial system and the independence of the CBJ, as well as 
erode the confidence of ordinary Jordanians in the 
motivations of their leaders.  Conversely, Sharaf's apparent 
determination to resist all pressures to grant this license 
is a welcome development.  Sharaf, the son of a former prime 
minister of Jordan and a potential candidate for the post of 
CBJ governor, may have the necessary weight to resist this 
move; if so, it will be an encouraging sign for the future 
role of the CBJ.  The emergence of this controversy comes 
amidst a spike of accusations of corruption connected with 
several other high-profile projects and personalities in the 
country.  Regardless of the facts of the cases, the 
persistence of the accusations being made - unless 
effectively countered - risks tarnishing Jordan's reform 
credentials. 
HALE