Arab Banking Corp ., then part-owned by the Libyan state, used a New York branch to
borrow at least $5 billion from the U.S. Federal Reserve in 2008 and 2009. Photographer: Chris Ratcliffe/Bloomberg News
April 1 (Bloomberg) -- Bloomberg reporter Bob Ivry talks about the U.S. Federal Reserve's lending to Libya-backed Arab Banking Corp. and other foreign banks during the financial crisis.
He speaks with Matt Miller on Bloomberg Television's "Street Smart." (Source: Bloomberg)
Arab Banking Corp., the lender part-
owned by the Central Bank of Libya, used a New York branch to
get 73 loans from the U.S. Federal Reserve in the 18 months
after Lehman Brothers Holdings Inc. collapsed.
The bank, then 29 percent-owned by the Libyan state, had
aggregate borrowings in that period of $35 billion -- while the
largest single loan amount outstanding was $1.2 billion in July
2009, according to Fed data released yesterday. In October 2008,
when lending to financial institutions by the central bank’s so-
called discount window peaked at $111 billion, Arab Banking took
repeated loans totaling more than $2 billion.
Fed officials say all the discount window loans made during
the worst financial crisis since the 1930s have been repaid with
interest.
The U.S. government has frozen assets linked to the regime
of Libyan ruler Muammar Qaddafi and engaged in air strikes
against his military forces, which are battling a rebel uprising
in the North African country. Arab Banking got an exemption that
allows the firm to continue operating while barring it from
engaging in any transactions with the Libyan government,
according to the U.S. Treasury Department.
Sanders Reacts
“It is incomprehensible to me that while creditworthy
small businesses in Vermont and throughout the country could not
receive affordable loans, the Federal Reserve was providing tens
of billions of dollars in credit to a bank that is substantially
owned by the Central Bank of Libya,” Senator Bernard Sanders of
Vermont, an independent who caucuses with Democrats, wrote in a
letter to Fed and U.S. officials.
The letter was addressed to Fed Chairman Ben S. Bernanke,
Treasury Secretary Timothy F. Geithner and John Walsh, acting
comptroller of the currency. The figure refers to the aggregate
amount of loans the bank received under U.S. lending programs.
Arab Banking, known as ABC, owed about $4 billion to the Fed
under other bailout programs in the fall of 2009, data released
in December show.
“ABC has a robust balance sheet, is amply capitalized and
currently maintains a comfortable liquidity position,” the
company said in an e-mailed statement. “ABC currently has no
outstanding loans under any Federal Reserve, or other, emergency
lending program.”
Libya’s Stake
Jack Gutt, a spokesman for the Federal Reserve Bank of New
York, declined to comment. Arab Banking said Dec. 2 that Libya’s
stake in the Manama, Bahrain-based lender had increased to 59
percent.
“There was an uneasy detente between the United States and
Libya” when the loans were made, said William Poole, senior
economic adviser to Merk Investments LLC and a former president
of the Federal Reserve Bank of St. Louis. “It would not happen
in the morning.”
The New York branch, on Park Avenue in midtown Manhattan,
deals mainly in trade finance, according to its website. David Siegel is the branch’s treasurer. The bank’s chairman is
Mohammed Husain Layas, chief executive officer of the Libyan
Investment Authority. The CEO is Bahrain-based Hassan Ali Juma.
“ABC’s New York branch conducts wholesale business and
plays an important role in helping U.S. companies conduct
business in the Middle East,” the company said in the
statement. “The New York branch of ABC also participates in
enhancing the liquidity of U.S. markets and virtually all of its
employees are U.S. citizens.”
Company’s Loss
Arab Banking reported a loss of $880 million in 2008 as it
took a $1.1 billion charge tied to structured investment
vehicles and derivative products known as collateralized debt
obligations. Arab Banking recovered during the next two years,
posting profits totaling $265 million.
Libya previously shared the bank with the Abu Dhabi
Investment Authority and the Kuwait Investment Authority, both
sovereign investment funds. The Libyan Central Bank bought out
the Abu Dhabi stake in 2010 and took majority control, which
prompted Fitch Ratings in December to downgrade Arab Banking’s
credit rating.
In March, after the U.S. froze Libya’s assets, Fitch
downgraded the bank’s credit rating again, this time to “junk”
status. Contracts to protect Arab Banking’s debt, which
typically rise as investor confidence deteriorates, increased by
186 basis points to 500 during March. A basis point equals
$1,000 annually on a contract protecting $10 million of debt.
Uncertain Outcome
“Nobody knows how the situation in Libya is going to work
out finally and who will ultimately be in charge and obviously
who will be running institutions like the central bank,” Philip
Smith, a London-based Fitch analyst, said in a phone interview.
Under the asset freeze, the bank has been prevented from
conducting transactions with the Qaddafi regime and can thus
continue trading with other customers as usual, Smith said.
Arab Banking “has a policy of complying with all
applicable sanctions regimes and has conducted, and will
continue to conduct, its dealings in strict and total compliance
with all relevant laws and regulations,” the company said in
the statement.
The bank listed deposits of $17.5 billion at the end of
2010. According to a report from the Fitch Ratings firm, the
Libyan Central Bank places “sizeable deposits” with the
lender. Marti Adams, a spokeswoman for the Department of
Treasury, declined to comment on whether Arab Banking is holding
any frozen Libyan assets.
“It is today escaping the economic sanctions imposed to
hobble Muammar Qaddafi’s brutal regime,” Sanders said in his
letter. “Why would the U.S. government exempt the Arab Banking
Corporation from economic sanctions when it is primarily owned
by the Central Bank of Libya?”
Bloomberg News has posted the Fed documents for Bloomberg
Professional Service subscribers, as well as online at
www.bloomberg.com.
To contact the reporters on this story:
Donal Griffin in New York at
Dgriffin10@bloomberg.net;
Bob Ivry in New York at
bivry@bloomberg.net.
To contact the editor responsible for this story:
David Scheer at
dscheer@bloomberg.net.