US embassy cable - 02AMMAN6852

UNCLAS SECTION 01 OF 04 AMMAN 006852 
 
SIPDIS 
 
SENSITIVE 
 
USDOC FOR 4520/ITA/MAC/ONE/COBERG 
TREASURY FOR MILLS, PIPATANAGUL 
PASS OPIC FOR STEVE COWAN, ABED TARBUSH 
EXIM BANK FOR BOSCO 
 
E.O. 12958: N/A 
TAGS: EFIN, JO 
SUBJECT: THE ARAB BANK'S PLACE IN JORDAN AND THE REGION 
 
REF: AMMAN 0794 
 
SENSITIVE BUT UNCLASSIFIED; PLEASE HANDLE ACCORDINGLY 
 
1.  (SBU) SUMMARY: For more than seventy years, the Arab Bank 
has been among the most respected, and even beloved, 
financial institutions in the region.  Having weathered wars, 
political and economic unrest, closures, and 
nationalizations, the Bank has grown into a regional and 
global player in the banking sector, with a reputation as a 
transparent, competent, and trustworthy banker and lender. 
The Bank's Palestinian roots, connections, and reputation of 
dependability have made it the preferred bank for 
Palestinians worldwide.  Due to its stature, as well as to 
the historical relationship between the founding Shoman 
family and the monarchy, the Arab Bank enjoys an esteemed 
place in Jordanian society, economically, politically, and 
socially, and has become the "rock" of financial institutions 
in Jordan--a "go to" place when times are tough, and a 
symbol, to Palestinians and Jordanians alike, of the 
"indomitable" Arab spirit.  End summary. 
 
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BACKGROUND 
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2.  (SBU) The Arab Bank Group (ARBK) is one of the largest 
financial institutions in the Arab world, with over 400 
branches and offices in 30 countries in Asia, Europe, and the 
Americas.  It comprises Arab Bank plc, Arab Bank Switzerland, 
and a number of other subsidiaries and affiliates worldwide, 
including branches in New York, London, Paris, Australia, and 
the Gulf countries.  According to its 2001 annual report, the 
Bank had assets of $22.2 billion at the end of 2001.  The 
company's net income for 2001 was $195 million, up 6.9% over 
2000. 
 
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THE BANK AND THE JORDANIAN ECONOMY 
---------------------------------- 
 
3.  (SBU) Arab Bank branches in Jordan and the Occupied 
Territories accounts for 22% of the Bank's assets and 21% of 
its worldwide revenues.  According to Central Bank of Jordan 
(CBJ) figures, the Bank holds 31% of assets, 37% of bank 
deposits, and 17% of loans in the Jordanian banking system. 
The company also accounts for 39% of the Amman Stock 
Exchange's (ASE) market capitalization.  With its reputation 
for probity, transparency, and sound management, the Bank has 
been a cornerstone of the local economy, and, having survived 
many political and economic crises in the region, is the 
institution the Jordanian government and Arab clients look to 
for reassurance when times get tough.  Following the 
devaluation of the Jordanian dinar in the late 80s, the Bank 
was one of the few legitimate sources of foreign currency in 
Jordan.  In the wake of the al-Shemailah loan scandal 
(REFTEL) earlier this year, it was rumored that the Bank 
deposited sufficient funds at the CBJ in the event they were 
needed to bail out troubled local banks directly affected by 
the scandal.  Depositors withdrew funds from banks affected 
by the scandal and deposited them in the Arab Bank. 
 
4.  (SBU)  Also noteworthy is the esteem in which the Bank 
and its founding family, the Shomans, are held.  It is said 
that, upon hearing of a threat on a leading Shoman's life by 
a prominent southern tribe, the late King Hussein intervened 
personally and told tribal elders directly that dire 
consequences to the tribe would result should the threat be 
carried out.  Another source told us that, when Lebanese PM 
Rafiq Hariri attempted to purchase an additional 5% stake in 
the Bank put up for sale by Kuwaiti interests, and the 
resulting increased Hariri share posed a threat to Shoman 
family control, King Abdullah personally weighed in with the 
Kuwaitis on behalf of the Shomans to support a bid by the 
Jordanian Social Security Corporation, which went on to 
purchase the shares, and left the Bank in Jordanian hands. 
 
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Current Ownership and Control 
----------------------------- 
 
5.  (SBU) The Shoman family continues to have putative 
control over the Company through its reputation, the respect 
and support of the majority of shareholders, and day-to-day 
management of the Bank.  Currently, the family's stake is 
down to 35%, according to market estimates.  Other major 
holders are the Jordanian Social Security Corporation (SSC), 
the Palestinian/Jordanian al-Masri, al-Sabbagh, and al-Saifi 
families, Lebanese Prime Minister Rafiq al-Hariri (8%), and 
the Saudi Government (17%) via various investment vehicles. 
"Non-Arab" ownership of Arab Bank shares is limited, banned 
as it was until the mid 90s by the Bank's internal bylaws due 
to fears of Israeli influence. 
 
6.  (SBU) The Shoman family also exerts a controlling 
influence via the Board of Directors.  Out of the eleven 
seats on the board, three are occupied by Shomans, two by the 
al-Masri family, and one each by the Sabbagh family, the SSC, 
a representative of the Saudi Ministry of Finance, the Jordan 
Insurance Company, the Beirut-based Arabia Insurance Company, 
and the al-Hariri family, all save the latter loyal to the 
Shomans. 
 
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PRESENCE IN THE WEST BANK/GAZA 
------------------------------ 
 
7.  (SBU) In the mid-nineties, the Bank received permission 
by the Central Bank of Jordan (CBJ) and the Israeli Central 
Bank to reopen in the West Bank/Gaza, under the supervision 
of both the CBJ and the Palestinian Monetary Authority (PMA). 
 The Bank, which controls about 55% of total deposits in the 
Occupied Territories, is said to be the main international 
bank used by the Palestinian Authority (PA), although the PA 
apparently prefers to use local, less transparent banks for 
much of its domestic business.  The Arab Bank also owns 55% 
of the Arab Palestine Investment Bank, and was the founding 
shareholder in the Palestine Development and Investment 
Company (PADICO), established in 1993 to help revitalize the 
Palestinian economy.  However, the Bank has come under 
increasing criticism locally as of late due to its extremely 
conservative lending policy; it has virtually ceased lending 
as a result of the Intifada and at a time when Palestinian 
small and medium enterprises need assistance in rebuilding 
and supporting their businesses. 
 
8.  (SBU) Long identified with the Palestinian cause (Note: a 
short biography of the founder of the Bank, Abdul-Hamid 
Shoman, can be found on the intifada.com website under 
Palestinian personalities), the Bank's employees, along with 
then-CEO Abdul-Majid Shoman and the Bank's senior management, 
donated 5% of one month's salary to the Palestinian people at 
the outbreak of the al-Aqsa Intifada in October, 2000. 
Abdul-Majid also established the Welfare Association, which 
is, according to its website, is "the largest Palestinian 
source of private funds directed toward humanitarian and 
development efforts for Palestine".  The Bank's charitable 
arm, the Amman-based Abdul-Hamid Shoman Foundation, sponsors 
a number of Palestinian cultural, scientific, and literary 
funds and fora. 
 
9.  (SBU)  As one of the few financial outlets available to 
Palestinians in the West Bank/Gaza, the Bank continues to be 
a conduit for remittances from the United States and 
elsewhere to the Occupied Territories.  The sums involved are 
considerable in sum, but individual transactions are likely 
small.  The PMA requires that transactions of more than 
$10,000 be reported to the PMA, with a 24-hour hold on the 
transaction while it is scrutinized.  According to a recent 
U.S. news report, the FBI's Joint Terrorism Task Force is 
investigating an Iraqi native indicted under Federal charges 
of running an unlicensed business that illegally transferred 
money to the Middle East.  The indictment alleges that Kareem 
Abdalhassin Albasam used 11 accounts at four Utah banks to 
transfer approximately $2 million to the Amman branch of the 
Arab Bank, where an associate disbursed the money to others. 
In addition, the IDF website (www.idf.il) contains a report 
based on documents purportedly captured during the April 
siege of the Muqatta that show that money from Saudi 
charities was funneled to "families of notorious terrorists" 
in the West Bank via Arab Bank branches.  None of these 
reports suggests that Arab Bank management was aware of such 
transactions. 
---------------------- 
AN ARAB BANK FOR ARABS 
---------------------- 
 
10.  (SBU)  Founded by Abdul-Hamid Shoman as an "Arab bank 
for Arabs", the Arab Bank opened its first branch in 
Jerusalem in May 1930.  Its expansion began in 1934 with the 
opening of a branch in Amman, and throughout the region in 
the years following.  However, with the establishment of the 
State of Israel in 1948, the Bank lost its branches in Haifa 
and Jaffa, as well as most of the branches' deposits. 
Following the Six Day War in 1967, the Bank lost its West 
Bank and Gaza branches. 
 
11.  (SBU) In the wake of these closures, the Bank 
nonetheless honored its clients' deposits both post-1948 as 
well as after the Six Day War, despite not being indemnified 
by the Israelis.  This commitment by the Bank to its 
depositors has made it the bank most favored by Palestinians 
worldwide.  Moreover, the closures caused resentment that 
simmers to this day, and the Bank refuses to deal with Israel 
or the Israeli government.  (Note: A wave of nationalizations 
also took place in Libya, Syria, Iraq, Aden, and Sudan in the 
Sixties and Seventies.  Syria and Iraq have yet to reimburse 
the Bank for these takeovers.  In Saudi Arabia, the 
Saudization of the Bank resulted in the establishment of the 
Arab National Bank, in which the Arab Bank retains a 40% 
share.  The Bank has never had branches in Iran.  End note.) 
 
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THE INDOMITABLE ARAB 
-------------------- 
 
12.  (SBU) Shoman founded the Bank after spending 18 years in 
the United States forging links with Arab communities there 
and learning the retail and banking businesses.  He returned 
to Palestine in 1929 to establish a bank that would "unite 
Arab economies" and combat what he called "Zionist plans" to 
take over the region.  Active in the Palestinian 
demonstrations in 1936, he imported 20,000 pounds of rice and 
sugar from Egypt to sell to Palestinians at token prices. 
Charged with a number of offenses by British mandate 
authorities, he served 18 months in a prison near Haifa. 
Upon his release, Shoman returned to banking.  At the 
outbreak of World War II, when a crowd of deposit holders 
rushed the Jerusalem branch to withdraw their funds, Shoman 
instructed all branches to honor such requests.  This action 
restored confidence in the Bank.  Most funds were 
redeposited, and the Bank acquired its reputation as a safe 
haven, a reputation that still holds today.  In 1948, Shoman 
moved to Amman along with the Bank's headquarters. 
 
13.  (SBU) Shoman pushed the Bank's expansion as a way of 
linking Arabs and Arab communities throughout the world. 
Upon opening a branch in Zurich in 1962, the Bank became the 
first Arab financial institution to establish a presence in 
Switzerland.  With branches also in France, Germany, Italy, 
Spain and the U.K., the Bank's European entities now comprise 
the majority share of total assets, loans, deposits and 
revenue.  The Bank also has branches in South America, China, 
Korea, and the United States.  Supervised by a host of major 
international regulators, the Bank, and the Shoman family, 
have maintained an unsullied reputation within the 
international banking community for transparency, regulatory 
compliance, and faithful adherence to international banking 
norms and standards. 
 
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MANAGEMENT IN TRANSITION 
------------------------ 
 
14.  (SBU) ARBK Chairman and son of founder Abdul-Hamid 
Shoman, Abdul-Majid Shoman, transferred most of his formal 
powers to his eldest son, Abdul-Hamid Shoman, now CEO, in 
2001.  The younger Shoman is restructuring the Bank's 
management team, much to the chagrin of the old guard, and it 
has been said that he does not command respect in the way his 
father and grandfather had.  The Bank is targeting its 
recruiting efforts on graduates from Western universities, 
and, as part of a new, accelerated management training 
program, these new recruits will move into middle management 
positions within four years, as opposed to ten years 
previously, and this, too, may cause some morale problems. 
In addition, in the recognition it must keep up with modern 
banking, management, and technical advances, the Bank's 
strategic plan includes the establishment of strategic 
business units, human resource management, and IT 
development.  The Bank's overall management has been 
progressively decentralized, with the establishment of 
regional management centers and branch managers gaining more 
leeway on decision-making. 
 
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COMMENT 
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15.  (SBU) As much a part of Jordanian history as any other 
institution, civil or otherwise, the Arab Bank occupies an 
important role in Jordan, commercially, financially, and 
culturally, so much so that the Bank's stability plays a role 
in the stability of the country and the region as a whole, as 
recently expressed to us privately by the Governor of the 
Central Bank.  Given the Arab Bank's reputation for 
transparency and probity, and its financial bulk in the area, 
allegations to the contrary would be most surprising, with 
potentially far-reaching consequences for the Jordanian and 
Palestinian banking systems, and ultimately, economies. 
 
16.  (SBU) THIS MESSAGE HAS BEEN CLEARED BY CONGEN JERUSALEM. 
 
GNEHM