By 1990, the Bank of Credit and Commerce International (BCCI) had reached a critical stage in its history.
Serious problems had been identified in parts of BCCI’s loan portfolio and financial accounts. Large exposures had become difficult to recover, losses had not been fully recognised, and weaknesses had been identified in the management and control of parts of the BCC Group. These problems required more than additional capital. They required a fundamental reorganisation of the Bank.
What followed was an extensive restructuring programme supported by BCCI’s new majority shareholders in Abu Dhabi and developed over more than a year with the involvement of Price Waterhouse, Booz Allen & Hamilton, legal advisers, BCCI management and banking supervisors in several countries.
The objective was not simply to preserve BCCI in its existing form. The programme was intended to replace its complicated international structure with separately capitalised and independently regulated banks, strengthen financial controls and management, isolate impaired assets from viable banking operations, reduce and consolidate parts of the branch network, and provide a new basis on which the underlying banking businesses could continue.
By the first half of 1991, restructuring had moved well beyond discussion. Financial support had been committed, problem assets were being transferred, external advisers were working on the successor institutions, senior management was being recruited, regulatory applications were being prepared, and detailed business plans and financial projections were under consideration.
The programme remained active until BCCI was abruptly closed on 5 July 1991.
Abu Dhabi assumes control
A decisive change took place in May 1990, when the Government of Abu Dhabi and related interests increased their shareholding in BCCI to just over 77 per cent, becoming the controlling shareholders.
This occurred against a background of growing concern about BCCI’s financial position. Price Waterhouse had identified substantial uncertainties concerning major loans and other exposures, and the new majority shareholders were made aware that significant losses might ultimately have to be absorbed.
They nevertheless elected to continue supporting the Bank.
Abu Dhabi was therefore not acquiring BCCI in ordinary circumstances. It was taking control of an international banking group at a time when substantial financial weaknesses were already emerging and when additional capital and structural reform were clearly required.
The purpose of the intervention was to stabilise the Bank, establish the extent of its impaired assets, provide financial support and reorganise its operations.
Price Waterhouse subsequently recorded that Abu Dhabi had undertaken to provide support for losses arising from specified loans and advances. The Bank of England and the Luxembourg supervisory authorities were aware both of the uncertainties surrounding the financial position and of the shareholders’ commitment to provide support.
That commitment became the financial foundation of the restructuring programme.
Price Waterhouse and the financial restructuring
Price Waterhouse occupied a central position throughout this process.
As BCCI’s external auditor, it had already become deeply involved in examining the Bank’s loan portfolio, accounts and financial position. As further problems were identified, its role extended beyond the normal audit process into the investigation of losses, assessment of liabilities and assistance with the financial arrangements required for restructuring.
Following the change in majority ownership, Price Waterhouse worked with the Abu Dhabi shareholders, BCCI management and regulators on proposals intended to place the Group on a more secure financial and organisational footing.
The restructuring proposals included:
- replacing senior management where necessary;
- identifying and separating impaired and doubtful assets;
- simplifying BCCI’s complicated international corporate structure;
- transferring important central functions from London to Abu Dhabi;
- reducing and consolidating selected branches and offices;
- substantial reductions in staffing;
- strengthening financial reporting and internal controls; and
- establishing separately capitalised and separately regulated successor banks.
These measures represented a fundamental reconstruction rather than a temporary rescue operation.
A restructuring framework was discussed with BCCI’s international College of Supervisors established for BCCI, which brought together the principal regulators responsible for the different parts of the Group.
The Bank of England had an important role because major BCCI management and operational functions were based in London. Luxembourg supervised BCCI S.A., while the United Arab Emirates and other jurisdictions were responsible for operations falling within their respective regulatory systems.
The underlying structural difficulty was that BCCI’s international banking business did not correspond to a single, straightforward corporate entity. The Group operated through two principal banking companies together with subsidiaries, branches, affiliates and related operations spread across numerous jurisdictions.
The restructuring was intended to replace that structure with something significantly simpler and easier for national regulators to supervise.
The three-bank structure
By late 1990, the restructuring had increasingly centred on the establishment of three separately capitalised and independently regulated banks.
The proposed centres were London, Abu Dhabi and Hong Kong.
London would serve the United Kingdom and related business; Abu Dhabi would become the principal centre for the Middle East and substantial parts of the Asian operations; and Hong Kong would serve the Far Eastern business.
Each institution was intended to have its own capital, board, senior management and regulatory supervision.
The old BCCI structure would not simply have continued under a new name. Existing operations were to be reviewed and transferred selectively into the successor institutions, while the old legal entities would progressively be wound down.
This represented an important change in the organisation of BCCI. Instead of attempting to maintain a single complicated international structure, the viable banking businesses were to be divided into institutions that could be supervised more directly by their respective national regulators.
On 27 November 1990, the Bank of England informed Price Waterhouse that it accepted the three-bank proposal in principle, subject to the remaining financial, organisational and regulatory requirements being satisfied. The surviving record therefore shows that by the end of 1990 the three-bank structure had become the principal framework around which the restructuring proceeded.
Separating viable banking from problem assets
A central element of the programme was that the proposed new banks should not inherit the full burden of BCCI’s impaired and doubtful loan portfolio.
Problem assets were therefore to be separated from the viable banking operations.
Various structures were examined, including separate recovery companies and the possibility of a fourth institution whose principal purpose would be to hold, manage and recover impaired assets.
This was an important part of the design.
The proposed operating banks were intended to begin with clearer balance sheets, adequate capital and a manageable portfolio of viable business. Problem loans inherited from the old BCCI structure would be transferred elsewhere, financially supported by the Abu Dhabi shareholders and dealt with separately through recovery arrangements.
By May 1991 this was no longer simply a proposal.
Substantial problem assets had been transferred to companies owned or backed by Abu Dhabi. In return, BCCI received support through promissory notes, guarantees and other arrangements designed to compensate the Bank for impaired assets and previously unrecorded liabilities.
The recovery of those underlying loans was therefore intended to become a separate process rather than a continuing burden on the successor banks.
Financial support on an exceptional scale
The restructuring depended upon very substantial financial support from Abu Dhabi.
By 1991, billions of dollars had been committed through share subscriptions, guarantees, promissory notes and arrangements for the transfer or support of problem assets.
The financial-support package completed in May 1991 provided potential support of approximately US$5.1 billion. According to the Bingham material, this included approximately US$3.061 billion in promissory notes, a US$750 million guarantee, provision for replacing substantiated unrecorded deposits and a proposed new share subscription that was ultimately increased to US$650 million.
The significance of this support was not simply its size.
The Abu Dhabi majority shareholders were continuing to finance the restructuring despite the increasingly serious information emerging about BCCI’s losses and internal irregularities.
Rather than withdrawing from BCCI, they agreed to absorb substantial financial exposure, support the removal of problem assets, strengthen the capital position and finance the transition to the proposed successor institutions.
That continuing support was fundamental to the restructuring.
Booz Allen & Hamilton
As the programme moved from broad restructuring principles towards the actual design of the successor banks, Booz Allen & Hamilton, the international management consulting firm, became closely involved.
Its function differed from that of Price Waterhouse.
Price Waterhouse was principally concerned with BCCI’s financial condition, the identification of losses and liabilities, audit matters and the financial arrangements supporting the restructuring.
Booz Allen was involved in the business and organisational design of the proposed new institutions.
By May 1991, the firm was examining the feasible structure of the proposed UK bank and preparing its business strategy. Its work covered the organisation of the new institution, the activities it should retain, its management structure and the basis on which a smaller and more focused banking operation could operate successfully.
The appointment of a major international management consultancy illustrates the stage the programme had reached. The task was no longer simply to decide whether BCCI should be reorganised. Detailed work was being undertaken on what the replacement institutions would actually look like and how they would operate.
From proposal to implementation
During the spring of 1991, the restructuring moved steadily towards implementation.
The Bank of England had established a demanding timetable for progress on the proposed UK institution, while the Luxembourg authorities were pressing for a resolution of the existing BCCI structure.
Price Waterhouse continued to work closely with the shareholders, management and regulators.
On 16 May 1991, BCCI informed the Bank of England that Booz Allen had made recommendations that were to be discussed with the supervisors. The Bank was also told that individuals had been identified to manage the proposed new institutions, although not all appointments had yet been formally completed.
By 23 May, Price Waterhouse was seeking decisions on remaining structural matters, including the management of the new banks, the future of other BCCI entities and the precise structures to be adopted in Abu Dhabi and Hong Kong.
On 28 May 1991, representatives of the Abu Dhabi majority shareholders met the Bank of England and presented the three-bank structure in greater detail.
They reaffirmed their commitment to support the restructuring despite the extent of the financial problems that had by then emerged.
They also proposed extensive changes to senior management.
The existing senior management structure was to be replaced and new boards created for the successor banks. Although some directors might be common to the three institutions, each bank was intended to have its own chief executive, financial controller and non-executive directors.
Names of potential senior appointees were already being discussed with the Bank of England.
The proposed UK bank
The proposed United Kingdom institution became the most advanced element of the restructuring.
On 29 May 1991, the Bank of England received a draft application for the new UK bank.
On 31 May, the proposals were formally presented by a team including representatives of BCCI, Price Waterhouse, Booz Allen & Hamilton and the Abu Dhabi majority shareholders.
The proposed institution was to be substantially smaller and more focused than BCCI’s existing UK operation.
Selected viable activities would be transferred into the new bank, while others would be discontinued.
The working timetable contemplated the new UK institution beginning operations at the start of October 1991.
Its governance was also intended to be substantially different from the previous structure.
The surviving proposal contemplated a board consisting of executive and non-executive members, including representation associated with the Government of Abu Dhabi, UK banking interests and the regulatory arrangements being developed with the Bank of England.
The chairman was to be selected within the agreed governance structure, while the new chief executive and deputy chief executive would sit on the board. Shareholder-appointed directors during the initial period were to be subject to regulatory concurrence.
A steering committee was also envisaged to oversee the steps required before the new bank commenced operations.
This was therefore not a proposal simply to rename BCCI’s existing UK operation.
It contemplated a new company, new capital, a new board, new senior management, closer regulatory oversight and a detailed review of the business and staff to be transferred into the successor institution.
New management
The recruitment of independent and experienced senior management was regarded as essential.
Regulators wanted the successor institutions to be led by bankers with substantial international experience who were separate from the problems associated with the earlier management structure.
By early June 1991, a prominent British banker approached to become chief executive of the proposed UK bank had indicated his willingness to take the position.
He was Leonard Kingshott, formerly a senior executive of Lloyds Bank International.
His appointment subsequently became public. Following BCCI’s closure, the UK Parliament was informed that Kingshott had been appointed chief executive of the proposed new UK institution.
Accounts of the restructuring indicate that he had begun work at BCCI’s London offices by 1 July 1991, only four days before the closure, in preparation for the new banking operation.
At one stage the proposed UK bank was referred to as the Commercial Bank of Europe. Other surviving material used variations of the Oasis Bank name for the proposed regional institutions.
The names were still evolving while the corporate and regulatory arrangements were being completed. More important was the fact that senior management was being recruited and detailed preparations for the successor institutions were continuing.
Boards and prospective leadership
The Bingham Report records that by early June the proposed chairmen and deputy chairmen of all three banks were expected to come from the United Arab Emirates.
This was consistent with the substantial financial commitment being made by Abu Dhabi and with the governance arrangements envisaged for the new institutions.
Other prospective directors and senior figures were discussed during the restructuring process, but not all proposed appointments were finalised or documented before the closure.
Contemporary reports and later recollections also associated prominent international figures with the possible restructured organisation. Such reports should be distinguished from appointments for which documentary confirmation exists.
Former Prime Minister Lord James Callaghan, for example, had a long-established relationship with Agha Hasan Abedi and had taken an interest in matters affecting BCCI. Later accounts also referred to the possibility of Margaret Thatcher becoming associated with a restructured organisation. No documentary evidence presently available establishes that either had formally accepted an appointment to one of the proposed successor banks.
For the factual history of the restructuring, the significant point is that a new governance and management structure was being assembled and discussed with the regulators.
Detailed consideration by the Bank of England
During June 1991, the proposed UK bank continued to receive detailed regulatory consideration.
The Bank of England raised technical questions concerning capital requirements and the proposed risk-asset ratio. These had to be resolved before authorisation could be granted.
On 4 June 1991, Brian Quinn, a senior Bank of England official involved in banking supervision, recorded that he had seen nothing that led him to believe that the Bank should object to the proposed restructuring.
A paper prepared for the Bank’s Board of Banking Supervision on 6 June contemplated the possibility of giving approval in principle to the proposed new UK bank before the end of June, provided the remaining requirements were satisfied and developments in the United States did not create serious additional difficulties.
On 13 June, representatives of BCCI, Price Waterhouse and the leading UK law firm Allen & Overy met Bank of England officials and reviewed the draft business plan and application in detail.
The Bank specified the capital ratio it required.
BCCI revised the proposal accordingly.
On 18 June 1991, twelve copies of a revised draft application were delivered to the Bank of England together with an updated business plan and financial projections.
Lord Justice Bingham later described them as substantial documents.
The revised application incorporated the capital ratio required by the Bank and responded to other regulatory comments. At an internal Bank of England meeting that day, the specifically recorded reservation concerning the application related to the proposed name of the new institution.
The application was expected to proceed to the Bank’s Assessment Committee.
This sequence demonstrates how advanced the UK component of the restructuring had become by the middle of June 1991.
Price Waterhouse's two roles
One unusual feature of the final period was that Price Waterhouse was involved simultaneously in two different processes.
On one side, it remained deeply involved in BCCI’s financial restructuring. It was working with management, the Abu Dhabi shareholders and regulators as losses were identified, problem assets transferred, financial support arranged and successor institutions developed.
At the same time, the Bank of England had appointed Price Waterhouse to carry out a separate investigation under Section 41 of the Banking Act 1987.
At the same time that Price Waterhouse was working with BCCI, the Abu Dhabi majority shareholders and the regulators on the restructuring, the Bank of England had separately commissioned Price Waterhouse to carry out an investigation under Section 41 of the Banking Act 1987.
The investigation was commissioned on 4 March 1991 and was treated as confidential. BCCI’s management and the Abu Dhabi majority shareholders were not told that this separate investigation was under way, even though they were continuing to commit substantial financial support and were working with Price Waterhouse and the Bank of England on the restructuring programme. The Bingham Report later recorded that the shareholders had not been told that the future of the restructuring might depend upon the outcome of the Section 41 work.
The published record also leaves an important distinction unclear. Serious problems involving BCCI’s lending, losses, false accounting, unrecorded liabilities and internal controls had already been identified through earlier audits, investigations and the Bank’s own internal work. Price Waterhouse itself had been closely involved in identifying many of those problems while simultaneously assisting with the financial restructuring.
At the same time that Price Waterhouse was working with BCCI, the Abu Dhabi majority shareholders and the regulators on the restructuring, the Bank of England had separately commissioned Price Waterhouse to carry out an investigation under Section 41 of the Banking Act 1987.
The investigation was commissioned on 4 March 1991 and proceeded confidentially while the restructuring programme continued. BCCI’s management and the Abu Dhabi majority shareholders were not informed that this separate investigation was under way or that its outcome might affect the future of the restructuring.
The resulting document was not a completed report. It was expressly marked “DRAFT” and dated 22 June 1991.
Its delivery was also unusual. It was delivered on the night of Saturday, 22 June 1991, outside normal working hours, and was handed to a Bank of England security guard for the official to whom it was addressed. The Bingham record gives no explanation for why a document that was shortly to assume such importance was delivered in this manner.
What can be established from the chronology is that the Section 41 work and the restructuring proceeded in parallel. Price Waterhouse was simultaneously involved in the financial restructuring while carrying out the confidential investigation for the Bank of England. The restructuring continued to advance through June 1991, and the draft Section 41 report was delivered only shortly before the Bank of England changed course.
The contents of the draft, and the extent to which they added genuinely new information beyond matters already identified and being addressed, are not clearly established in the public record. Nor did the Bingham Report provide a detailed item-by-item analysis distinguishing new findings from matters already known through earlier audits, investigations and restructuring work, or comprehensively examine how the draft came to be used in the Bank of England’s subsequent decision to abandon restructuring and move towards closure.
That distinction is particularly important because the document received on 22 June 1991 was still a draft. It was delivered on the evening of a Saturday, outside normal working hours, and handed to a Bank of England security guard. At the same time, the restructuring programme continued to advance on the basis that known losses, doubtful assets, management weaknesses and accounting irregularities were being addressed through substantial Abu Dhabi financial support, separation of problem assets, management changes and the creation of new independently regulated banks.
The coexistence of these two processes is central to the chronology. On one side, Price Waterhouse was helping to identify losses and put in place the financial arrangements required for restructuring. On the other, it was carrying out a confidential Section 41 investigation for the Bank of England whose existence and potential significance had not been disclosed to the Abu Dhabi majority shareholders financing that restructuring.
When the draft Section 41 report arrived on 22 June 1991, the Bank of England’s position subsequently changed. Within days, it moved away from the restructuring programme and towards coordinated closure.
Lord Justice Bingham later concluded that the Bank of England’s decision to close BCCI was appropriate in the circumstances. At the same time, his report also recorded the extent to which the restructuring had advanced and acknowledged that the Abu Dhabi majority shareholders had been given reason to believe that, if the Bank’s requirements were met, the restructuring could proceed.
The confidentiality surrounding the commissioning of the Section 41 investigation, the status and contents of the draft, the extent to which it contained information not already known, and the use subsequently made of it in abandoning the restructuring are examined separately in the Perspective section.
The two processes therefore proceeded alongside each other:
one was intended to reorganise and preserve viable banking operations; the other was a confidential Section 41 investigation commissioned by the Bank of England.
The Section 41 document was delivered in draft form to the Bank of England on the evening of Saturday, 22 June 1991. At that point, the restructuring programme was still advancing, with financial support, regulatory applications, business plans and management arrangements continuing to be developed.
A programme still moving forward
Lord Justice Bingham later recorded the significance of the position reached by June 1991. By encouraging detailed proposals for the new UK bank, discussing them with BCCI and its advisers, requiring amendments and indicating the possibility of approval once its conditions were satisfied, the Bank of England had given the majority shareholders reason to believe that the restructuring remained capable of implementation.
The position of BCCI’s existing United Kingdom regional business is also relevant. Bingham recorded that, “In its supervision of the UK Region the Bank encountered nothing to cause serious concern.” This distinguished the UK regional banking operation from the serious problems subsequently identified at Group level and helps explain why a separately incorporated and independently regulated UK successor bank formed an important part of the restructuring programme.
The shareholders had not been told that continuation of the restructuring might depend upon the outcome of the separate Section 41 investigation. Bingham’s account indicates that, before receipt of the draft Section 41 report, the Section 41 investigation had not been regarded within the Bank of England as likely to prevent the restructuring from proceeding.
After the draft was received on 22 June 1991, the Bank of England’s position changed rapidly. Lord Justice Bingham nevertheless later concluded that the decision to close BCCI was an appropriate course of action in the circumstances.
By June 1991, the practical record was extensive.
New companies were being planned. Capital requirements were being negotiated. Regulatory applications had been submitted. Business plans and financial projections had been revised. Senior management was being recruited. Booz Allen was working on the design and strategy of the successor institutions. Price Waterhouse remained involved in the financial restructuring. Abu Dhabi continued to provide financial support.
The restructuring was not a dormant proposal. It was an active programme approaching implementation.
The final days
The Bank of England’s position changed rapidly after receipt of the draft Section 41 report.
According to the Bingham Report, the draft was considered by senior Bank officials during the week beginning 24 June 1991. By 28 June, at a meeting chaired by the Deputy Governor, the Bank had concluded that the proposed restructuring and the new UK bank could no longer proceed.
Bingham records that this reversal reflected the combined effect of several factors: the cumulative impact of the draft Section 41 report that was not finalised, the prospect of a disclaimer on BCCI’s 1990 accounts that had yet to be finalised, increasing contacts from the United States, concerns about the restructuring timetable and possible action by other regulators without these being specified, and allegations then being made concerning Ghanem al-Mazrui, the representative of the Abu Dhabi majority shareholders. Some of those allegations were not established at the time. Bingham also records differing contemporary assessments of how much of the draft represented genuinely new information.
By 28 June, the Bank of England had decided that it could not approve the proposed new UK bank or allow the restructuring then under consideration to proceed. It was also considering the regulatory action that would be required in the United Kingdom and coordinating with supervisory authorities in other jurisdictions.
The chronology therefore records a decisive change between 24 and 28 June 1991: from detailed consideration of an Abu Dhabi-backed restructuring that had advanced towards regulatory approval, to a decision that the restructuring could no longer proceed and that regulatory action against BCCI should instead be prepared.
The Bingham Report records the factors that influenced this change of course. It does not, however, provide a detailed item-by-item analysis showing precisely which findings in the draft Section 41 report were genuinely new, how each was weighed against matters already known and being addressed, or why the concerns identified could no longer be dealt with within the restructuring programme then under way.
Restructuring activity continued
Although the Bank of England was moving away from the restructuring option by the end of June, the restructuring programme continued to operate and implementation activity was not immediately stopped.
Leonard Kingshott was reportedly beginning work on the proposed new UK bank on 1 July 1991. Further restructuring documentation continued to circulate, and accounts of the final proposals indicate that an updated plan for the three regional successor banks was sent to the Bank of England and the Luxembourg authorities on 3 July.
Abu Dhabi also continued to provide financial support. On 4 July 1991, one day before closure, a further US$650 million was transferred as part of the agreed capital and restructuring arrangements.
The timing is important to the chronology: financial support under the restructuring arrangements was still being provided immediately before BCCI was closed on 5 July.
The US$650 million was subsequently recalled after Ghanem al-Mazrui, representing the Abu Dhabi majority shareholders, was informed of the closure decision at a meeting on 5 July 1991 in Luxembourg, where BCCI Holdings (Luxembourg) S.A. was registered.
The transfer of the US$650 million on 4 July 1991, however, remains an important part of the documented chronology. It shows that the Abu Dhabi majority shareholders were still meeting substantial financial commitments connected with the restructuring immediately before BCCI was closed on 5 July.
5 July 1991 - an abrupt end
On 5 July 1991, coordinated regulatory action led by the Bank of England was taken against BCCI in the United Kingdom and a number of other jurisdictions.
The Bank of England did not itself have authority to close BCCI throughout the world. Action depended upon the relevant supervisory and judicial authorities in the jurisdictions in which BCCI operated. On 5 July 1991, branches and operations were closed or suspended and assets frozen in a number of countries, although the response was not the same in every jurisdiction.
The restructuring programme that had occupied the Abu Dhabi shareholders, Price Waterhouse, Booz Allen & Hamilton, Allen & Overy, BCCI management and banking regulators for many months came to an abrupt end.
For BCCI’s employees around the world, most of whom had played no part in the matters that had brought the bank to this position, the closure came without the transition envisaged under the restructuring programme.
The same was true for those directly involved in constructing the successor banks.
The Abu Dhabi shareholders had acquired control of a troubled BCCI banking group, accepted substantial financial exposure, committed billions of dollars in support, agreed to major management changes and participated in the development of a structure intended to replace the existing BCCI organisation with separately regulated institutions.
They had continued to support and implement that programme into the first days of July.
Bingham later acknowledged the position in which the shareholders found themselves. His report recorded that the Bank of England’s dealings had given them reason to believe that, if the Bank’s requirements were met, the restructuring could proceed. In describing their reaction when that course was abandoned, Bingham said that their “feeling of betrayal” was understandable.
Lord Justice Bingham ultimately concluded that the Bank of England’s decision to close BCCI was an appropriate course of action. His report, however, does not set out in detail the reasoning by which the specific findings in the draft Section 41 report were assessed by the Bank of England against the restructuring programme already under way. It does not identify, finding by finding, what was genuinely new, what had already been known and was being addressed, or why the restructuring measures then being implemented could no longer provide an acceptable regulatory solution.
Bingham’s conclusion should also be read alongside the contemporaneous statement issued by the Abu Dhabi majority shareholders after the closure. They stated that the action of 5 July had been taken without consultation with them or with the Central Bank of the United Arab Emirates, despite the fact that the restructuring plan had been developed over the preceding months in discussions with the Bank of England and other regulators, and that the latest composite plan had been sent to the regulators on 3 July 1991.
The shareholders maintained that they had already made major management changes, injected substantial fresh capital, recruited senior management for the proposed successor banks and remained prepared to provide further capital if required. They described the decision to close BCCI as unjustified and stated their belief that, had the restructuring been allowed to proceed, depositors would not have lost money. Those were the shareholders’ own representations and should be distinguished from Bingham’s independent conclusions, but they are important to the historical record because they show how the closure was understood by the party financing the restructuring.
The historical significance is that the restructuring did not end because the proposed successor institutions had been established and subsequently proved unworkable. It ended before they had the opportunity to begin operating.
The proposed banks in London, Abu Dhabi and Hong Kong were never launched.
The arrangements being developed to separate and recover impaired assets were overtaken by liquidation.
The new management structures being assembled were never given the opportunity to take control of the successor institutions.
The business plans, regulatory applications and financial projections then under consideration were superseded by closure.
The financial-support arrangements on which the restructuring had been built also came to an end once the Abu Dhabi majority shareholders were informed that the programme would not proceed.
From restructuring to liquidation
The programme developed during 1990 and 1991 had sought to dismantle the existing BCCI structure while preserving viable banking businesses within new and more directly regulated institutions.
Its principal components were already identifiable and, in important respects, under implementation: new majority ownership, extensive shareholder financial support, the identification and separation of problem assets, new senior management, new boards, separately regulated successor banks, revised business plans, capital requirements negotiated with regulators, external professional advisers and an implementation timetable.
When BCCI was closed on 5 July 1991, that programme was replaced by an entirely different process: closure, asset freezing and the eventual liquidation of much of the international Group.
The regulatory reasoning behind that change of course, the draft Section 41 report, the events leading to the closure decision and the subsequent justification for abandoning the restructuring are examined separately in the Perspective section.
For the history of BCCI the Bank, the documented position is clear:
When BCCI was closed on 5 July 1991, an extensive Abu Dhabi-backed restructuring programme was not merely being discussed. Substantial financial support had been committed, problem assets were being separated, successor banks were being designed, regulatory applications and business plans had been prepared, new management was being recruited, and important elements of the programme were already being put into effect.
Important Sources
- Statement of Abu Dhabi Majority Shareholders
- Sir Thomas Bingham, Inquiry into the Supervision of the Bank of Credit and Commerce International, HC 198, 1992 - particularly the sections dealing with the 1990-1991 restructuring, Abu Dhabi support, Price Waterhouse, the proposed successor banks and the events of June-July 1991.
- Bank of England, Annual Report 1992 and Banking Act Report 1992-1993 - the Bank’s contemporary and subsequent accounts of its supervisory approach, restructuring and the impact of the Section 41 findings.
- Bank of England Quarterly Bulletin, 1992, “Policy after the ERM; supervision after Bingham” - comments by Governor Robin Leigh-Pemberton on the remedial and restructuring strategy pursued before receipt of the Section 41 report.
- Hansard, UK House of Commons debates and written answers, July 1991 - contemporary parliamentary records concerning BCCI’s closure, the proposed Commercial Bank of Europe and the appointment of Leonard Kingshott.
- U.S. Government Accountability Office, Bankruptcy: Complex Financial Institutions and International Coordination Pose Challenges, GAO-11-707, 2011 - later evidence on the international liquidation and recoveries.