Restructuring Programme

Background and Strategic Commitment

Following increasing financial pressure and internal report produced in April 1990 in response to the specific requirements of the external auditors of the BCC Group, Price Waterhouse (PW), and disclosure of irregularities by Mr Swaleh Naqvi, acting President and former Chief Executive, BCCI initiated comprehensive restructuring discussions with its majority Abu Dhabi shareholders aimed at strengthening its financial position, simplifying its organisational structure, and enhancing governance across its global operations.

A key development underpinning the discussions was the acquisition of over 77% shareholding by the Government of Abu Dhabi and its related institutions, and injection of cash and Abu Dhabi promissory notes totalling approximatley US$5.1 billion, to provide strong financial backing and strategic direction for the BCCI group of Banks.

The majority shareholders formally committed to maintaining the Group’s capital base and supporting the restructuring process. This commitment was reaffirmed to the College of Regulators, including the Bank of England and other international supervisory authorities, reflecting a coordinated approach to regulatory engagement and oversight.

Importantly, the Bingham Report (1992) inquiring into the Supervision of the Bank of Credit and Commerce International, led by Lord Justice Bingham confirms that:

The majority shareholders had “signed up to the financial package” involving very substantial financial support (para. 2.503)
Shareholder backing was central to the proposed restructuring and ongoing operations

This demonstrates that the restructuring programme was supported by credible financial commitments at the highest level.

Objectives of the Restructuring Programme

The restructuring programme was designed to:

Simplify the Group’s complex structure, which consisted of numerous subsidiaries and affiliates
Enhance transparency and regulatory compliance
Strengthen capital adequacy and financial resilience
Improve operational efficiency and profitability by reducing staffing levels and closing or consolidating selected branches and offices where appropriate.

The programme was intended to be implemented in stages, with completion targeted by the end of 1991.

This strategic direction is consistent with observations in the Bingham Report that earlier structural reform and supervisory clarity would have been essential in addressing the Group’s challenges (para. 2.484).

Structural Reorganisation

The following were the main features:

Organisation Structure

BCCI's holding company and the principal subsidiary Bank of Credit and Commerce International SA will remain incorporated in Luxembourg.

Relocation of BCCI Central Office from London to Abu Dhabi

The Central Office, also referred to as the Central Support Office (CSO), was based in London and carried out BCCI’s head office and central management functions. Under the restructuring programme, it was proposed that these functions would be transferred to Abu Dhabi.

Closure of BCCI Subsidiaries, Affiliates, Branches and Offices

The Abu Dhabi majority shareholders, in consultation with BCCI’s college of regulators, principally the Bank of England and the Luxembourg Monetary Authority, finalised a plan in principle to consolidate and rationalise the BCCI Group’s operations.

The objective of the plan was to create a simpler and more transparent structure, replacing the existing arrangement of a holding company with 33 subsidiaries and affiliates. The intention was to reorganise the Group’s operations into three separate and independent banks, with new names, to be established in London, Abu Dhabi and Hong Kong.

The proposed banks were to be capitalised from the outset in accordance with international standards. The plan also envisaged the winding up of BCCI by the end of July 1991.

BCCI's Problem Loan Portfolio

As part of the restructuring programme, the Abu Dhabi majority shareholders considered the establishment of separate independent companies, or a fourth bank, to assume responsibility for the BCCI Group’s problem loan portfolio and related recoveries, and to be responsible for the recovery of those assets.

Reduction in Staffing Levels

The reduction in staffing levels mainly affected the United Kingdom, where it was proposed that many of BCCI’s 45 branches would be closed or merged. It also affected locally employed staff working at BCCI’s Central Office in London, which was being relocated to Abu Dhabi.

More than 2,000 employees were reportedly either made compulsorily redundant or applied for voluntary redundancy under a scheme that offered an enhanced payment package.

There was no decision requiring redundant employees to repay their outstanding staff personal loans or housing loans as a condition of redundancy. This also included officers who were required to relocate to Abu Dhabi.

Reorganisation of the Group’s banking operations

A central feature of the restructuring involved the reorganisation of BCCI's global banking operations into a more streamlined structure with the closure of some branches and offices and reduction in staffing levels.

Consolidation into three principal banks with head offices located in London, Abu Dhabi, and Hong Kong, aligned with international regulatory standards
Transfer the problem assets to a fourth bank that would be responsible for recoveries
Gradual winding down of certain subsidiaries and affiliates
Reduction of staff through voluntary and compulsory redundancies

The Bingham Report confirms that:

A three-bank restructuring proposal was formally presented (para. 2.241)
The Bank of England considered the structure “potentially acceptable” (para. 2.273)
The Bank had given agreement in principle to the proposal (para. 2.275)

The critical point is that is that the restructuring was not speculative - it had reached regulatory consideration and conditional acceptance.

Separation of Problem Assets

In parallel with structural reforms, BCCI’s shareholders approved the creation of separate independent companies to take over the Group’s problem loan portfolio.

This measure allowed:

Dedicated management of non-performing assets
Improved recovery processes during a period of global economic recession
Core banking operations to focus on productive and profitable activities

While not detailed extensively in structural terms in the Bingham Report, this approach aligns with the broader restructuring framework being developed with advisers, including Price Waterhouse, who were actively engaged in restructuring planning.

Financial Position and Capital Support

The restructuring programme included a reassessment of BCCI’s financial position:

Estimated asset base of approximately US$19 billion
Customer deposits of around US$15 billion
Total loans of approximately US$11 billion

Although the Group anticipated significant losses after provisioning, these were fully supported by the majority shareholders through injection of cash and promissory notes with recourse to Abu Dhabi.

The Bingham Report records that:

Shareholders were prepared to commit very substantial additional funding (para. 2.463–2.464)
Support from Abu Dhabi was understood to be sufficient to underpin the Group’s financial position, subject to agreement on the final structure

This reinforces that the restructuring programme was supported by real financial capacity, not merely intention.

Regulatory Engagement and Transparency

BCCI management maintained ongoing communication with regulators, including:

Reporting issues relating to US banking interests
Submitting proposals for restructuring and divestment
Implementing closures of loss-making operations

However, the Bingham Report highlights a critical tension:

There were serious shortcomings in communication and supervisory understanding (para. 2.514)
The scale of issues identified in 1991 should not have come as a surprise (para. 2.479)

This suggests that, while engagement existed, it was not always effectively coordinated or fully understood at senior levels.

Competing Approaches: Restructuring vs Closure

One of the most important insights from the Bingham Report is that:

Closure was not the only possible course of action (para. 2.478)
The Bank of England ultimately decided it could not authorise the restructuring under negotiation (para. 2.509)

At the same time:

Price Waterhouse regarded liquidation as a “nightmare scenario” (para. 2.465)
They considered closure to be precipitate and potentially prejudicial (para. 2.468)
Shareholders were continuing to provide liquidity and support in anticipation of restructuring (para. 2.480)

Commitment to Continuity and Stability

Throughout this period, BCCI management and its majority shareholders emphasised:

Continuity of operations in key markets
Strengthening financial stability
Preservation of international banking relationships

The Bingham Report indicates that these commitments were made in circumstances where:

Shareholders believed restructuring remained a viable outcome
Advisers continued to work on restructuring proposals

What is not Recorded in the Bingham Report

The Bingham Report was confined to examining the adequacy of regulatory supervision of the Bank of Credit and Commerce International (BCCI), particularly by the Bank of England. It did not extend to investigating issues of intent or possible bad faith in the handling of the restructuring programme with BCCI and Abu Dhabi prior to the bank’s closure.

The Bingham Report (Part III) describes the supervisory process leading up to the closure of BCCI on 5 July 1991. Contemporaneous correspondence and subsequent analysis also refer to internal decision-making by the Bank of England in the days immediately preceding the closure, including references to 1 July 1991.

Certain accounts raise serious questions regarding financial movements immediately preceding the closure of the BCCI on 5 July 1991, as well as events following closure. These include references to a transfer of US $650 million on 4 July 1991 to BCCI’s account with Security Pacific International Bank New York, and the location and control of shareholder promissory notes associated with the Abu Dhabi majority shareholders.

According to the recollections of former employees, who were dealers in the Treasury Division at BCCI Central Office in Abu Dhabi, the US $650 million represented final capital support sought by the Bank of England in connection with the restructuring programme. It is understood that this amount was transferred to BCCI on 4 July 1991, prior to the scheduled Board meeting of 5 July 1991 in Luxembourg, and was subsequently recalled.

A letter dated 24 March 1991 from George Badem (BCCI Liquidation, Luxembourg) to the BCCI Campaign Committee, representing former employees, refers to US$650 million as a subscription to a capital increase which was subsequently withdrawn following notification to Mr Mazrui (the director representing the Abu Dhabi majority shareholders) of the imminent closure of the bank. This was communicated by the Bank of England before the start of the scheduled Board meeting in Luxembourg on the morning of 5 July 1991, attended by officials of the Bank of England and the Institut Monetaire Luxembourgeois (the Luxembourg Banking Commission, now the Central Bank of Luxembourg). Mr Mazrui immediately acted by instructing that the US$650 million be recalled. This was possible as 4 July was a public holiday in the United States, and the transaction had not been processed by the morning in Luxembourg.

A further issue concerns the status of Abu Dhabi promissory notes following the announcement of closure. These notes for approximately US$4 billion were part of a financial support package in the region of US$5.1 billion provided to BCCI in 1990. It appears that officials of the Bank of England and the Institut Monetaire Luxembourgeois proceeded on the assumption that these instruments were securely held at BCCI S.A. Luxembourg and would ensure that full payment to depositors, along with the additional support of US£650 million.

Subsequent correspondence indicates that the original notes were in fact held in the custody of the BCCI Central Office in Abu Dhabi and were placed before the local court with an injunction preventing their removal prior to any attempt to secure them.

Concluding Observation

The restructuring programme of BCCI represented a serious and coordinated attempt to address structural, financial, and regulatory challenges.

The Bingham Report provides important confirmation that:

A restructuring plan existed and had progressed to regulatory consideration
Substantial financial support from majority shareholders had been committed
Closure was ultimately chosen, but was not the only available course

At the same time, the report makes clear that:

The crisis arose in part from earlier supervisory failures and delayed intervention
Opportunities for orderly restructuring may have been more viable at an earlier stage

This raises important questions regarding:

The timing and handling of regulatory decisions
The extent to which restructuring proposals were seriously considered
Whether alternative outcomes might have been achievable under the supervision of regulators

References

Bingham Report
Paras: 2.241, 2.273, 2.275, 2.463–2.465, 2.468, 2.478–2.480, 2.503, 2.509, 2.514
Price Waterhouse
Audit and restructuring involvement referenced throughout Bingham Report
A Statement of the majority shareholders (Press Release, July 1991)
Letter from Central Executive Officer of BCCI to Governor of the Central Bank of Sri Lanka (6 May 1991)
Letter to Pierre Jaans, Commissioner, Institut Mountaire Luxembourg (22 May 1993)
Letter from George Baden, BCCI SA Luxembourg – in Liquidation to BCCI Campaign Committee (24 March 1995)
Letter from BCCI Campaign Committee to George Baden, Liquidator, BCCI SA Luxembourg (8 March 1995)