Booz Allen Hamilton is a management consultant company based in London offering advice to help businesses improve their performance.
When BCCI entered its major restructuring phase, the work required more than accountants and lawyers. The new majority shareholders in Abu Dhabi also needed independent advice on a more fundamental question:
What should the future banking organisation actually look like?
For this purpose, the international management consultancy Booz Allen & Hamilton was brought into the restructuring programme in 1991.
Its role was different from that of Price Waterhouse, BCCI’s auditors, and different again from the lawyers advising on the legal structure of the proposed new banks.
Booz Allen was concerned principally with the strategy, organisation and business structure of the banking operations that were intended to emerge from the restructuring.
Not appointed to deal with the Tampa publicity
Booz Allen’s appointment should not be confused with BCCI’s earlier response to the 1988 Tampa money-laundering indictment in the United States.
Following the indictment in October 1988, BCCI appointed the international public-relations firm Hill & Knowlton to help manage the serious adverse publicity surrounding the case.
The US Senate investigation subsequently examined Hill & Knowlton’s work for BCCI in considerable detail. It recorded that the public-relations firm was retained within days of the Tampa indictment and assisted BCCI with its press strategy, media presentations and responses to allegations about the Bank.
Booz Allen & Hamilton came later and for a very different reason.
It was not engaged as a public-relations firm. Its role arose from the effort to restructure the Bank itself.
A strategic review of BCCI
By early 1991, Abu Dhabi had become BCCI’s controlling shareholder and had committed substantial financial resources to supporting the Bank.
The problems facing BCCI could no longer be addressed simply by injecting additional capital. The existing international structure had to be reconsidered.
Lord Justice Bingham’s subsequent inquiry records that the Abu Dhabi majority shareholders appointed Booz Allen & Hamilton as management consultants to carry out a strategic review of BCCI.
- At this stage, important questions remained unresolved.
- Should BCCI continue as one international group?
- How many new banking institutions should be created?
- Where should they be based?
- Which parts of the existing network were commercially viable?
- Which businesses should be retained, transferred, reduced or discontinued?
- What management and organisational structure should the new institutions have?
These were the types of questions for which Booz Allen’s management and strategic expertise was relevant.
From review to restructuring
As the work developed, the restructuring increasingly centred on replacing BCCI’s complicated international organisation with three separately capitalised and regulated banking institutions.
The principal centres were to be:
- London - serving the United Kingdom and associated business;
- Abu Dhabi - covering substantial Middle Eastern and Asian operations;
- and Hong Kong - covering the Far East.
Problem assets would be separated from the viable banking businesses and dealt with through arrangements backed by the Abu Dhabi majority shareholders.
The proposed banks would have new boards and new senior management and would operate under more clearly defined national regulatory supervision.
Booz Allen became involved in working out how such a structure could operate in practice.
Designing the new UK bank
The proposed UK bank became one of the most developed elements of the restructuring programme.
By May 1991, Booz Allen was examining the feasible structure and business strategy of the new UK bank.
This meant looking at the business that could realistically be transferred from BCCI into the successor institution, the size and organisation of the new bank, the branches and activities it should retain and the management structure required to run it.
This was not simply an exercise in changing BCCI’s name.
The proposed institution was intended to be a smaller and more focused bank, with a new corporate structure, new management and a business plan designed to meet the requirements of the Bank of England.
Working alongside Price Waterhouse and the shareholders
The division of responsibilities between the principal professional advisers is useful in understanding the restructuring.
- Price Waterhouse was closely involved in assessing BCCI’s financial condition, identifying losses and problem assets, dealing with the financial support arrangements and working with the regulators.
- Booz Allen & Hamilton concentrated primarily on the strategic, organisational and commercial design of the proposed successor institutions.
- Legal advisers, including Allen & Overy, dealt with the corporate and regulatory legal structure required to establish the new banks.
The Abu Dhabi shareholders provided the financial backing and ultimately had to approve the shape and management of the successor organisation.
These different groups increasingly worked together.
The 31 May 1991 presentation to the Bank of England
An important indication of how far the restructuring had progressed came at the end of May 1991.
- On 29 May, the Bank of England received BCCI’s draft application for the proposed new UK bank.
- On 31 May 1991, a detailed restructuring presentation was made to the Bank of England.
Lord Justice Bingham records that the team making the presentation included representatives of:
- BCCI;
- Price Waterhouse;
- Booz Allen & Hamilton;
- and the Abu Dhabi majority shareholders.
The proposal was for a smaller and more focused UK bank. Some of BCCI’s existing business would be transferred into it, while other operations would be discontinued.
The intention at that stage was for the new UK company to begin trading at the beginning of October 1991.
That timetable is important.
It shows that Booz Allen was not preparing a distant theoretical study. It was helping to design an institution that was expected to begin operating within a matter of months.
New management was also being recruited
The organisational work was accompanied by efforts to recruit experienced new management.
The old BCCI structure was not simply intended to continue under another name.
New boards, chief executives, financial controllers and non-executive directors were being considered for the successor banks.
For the proposed UK operation, Leonard Kingshott, formerly a senior Lloyds Bank International executive, was eventually selected for a leading executive role.
The recruitment of experienced outside bankers was part of the wider objective of demonstrating that the successor institutions would have management independent of the senior executives associated with BCCI’s earlier problems.
Evidence of a programme moving towards implementation
The significance of Booz Allen’s involvement lies partly in what it tells us about the nature of the restructuring.
Had the proposals consisted simply of promises that BCCI would improve its controls, there would have been little need for a major international management consultancy to design new banking institutions.
Instead, the Abu Dhabi shareholders commissioned an outside strategic review and brought Booz Allen into detailed discussions about the future structure, business and management of the banking operations.
By the end of May 1991, Booz Allen representatives were sitting alongside Price Waterhouse, BCCI officials and the majority shareholders presenting the new UK banking proposal to the Bank of England.
The restructuring had therefore moved from the question:
“Can BCCI be repaired?”
towards a more fundamental question:
“What institutions should replace the existing BCCI structure, and how should they operate?”
That was the task in which Booz Allen & Hamilton became directly involved.
Key Sources
Lord Justice Bingham, Inquiry into the Supervision of the Bank of Credit and Commerce International, 1992 – particularly the sections dealing with the 1991 restructuring and the presentation of the new UK bank.
US Senate, The BCCI Affair – Hill & Knowlton and BCCI’s PR Campaign – useful for distinguishing the earlier public-relations response to the Tampa indictment from Booz Allen’s later restructuring role.