During 1990, serious financial and management problems within BCCI became the subject of increasingly intensive internal and external investigation. The Bank’s management, its auditors Price Waterhouse, and representatives of the Abu Dhabi shareholders examined substantial problem loans, losses and irregular transactions that required investigation, financial support and changes in management.
An internal Task Force was established to investigate problem assets and transactions and to determine the extent of the losses and irregularities that had emerged. This work formed part of a wider effort to identify impaired assets, establish responsibility and provide the information required for corrective action and restructuring.
The Bingham Report records that Price Waterhouse had already identified significant financial weaknesses by April 1990. Its report of 18 April 1990 highlighted the need for substantial provisions and additional financial support. These findings contributed to a programme of remedial action by the Abu Dhabi shareholders, including investigation of problem assets, changes in senior management, financial support and the development of proposals for restructuring BCCI.
The developing problems were not confined to BCCI's internal management. Information concerning the Bank's financial position and the investigations being undertaken was communicated to the supervisory authorities, including the Bank of England and the international College of Supervisors. By October 1990, discussions between the supervisors, Price Waterhouse and the Abu Dhabi interests were addressing the resolution of BCCI's financial problems, the removal or assumption of problem loans, additional shareholder support and a possible restructuring of the Group.
The Bingham Report records that the Abu Dhabi interests indicated their willingness to provide the financial support considered necessary and to remove problem loans from BCCI, subject to appropriate arrangements. An investigating committee established by Abu Dhabi to examine the problem assets was regarded by Lord Justice Bingham as a constructive development.
During the latter part of 1990, a restructuring proposal began to take shape under which BCCI's viable operations would ultimately be reorganised into separately managed and regulated banking institutions. On 27 November 1990, the Bank of England informed Price Waterhouse that it accepted in principle a proposal for three separate banks, subject to appropriate independence, regulation and supervision. Discussions continued with representatives of Abu Dhabi in December 1990.
Price Waterhouse therefore occupied an important position in the events of 1990. As BCCI's external auditor from 1987, it was examining the Bank's accounts and financial condition while also reporting significant matters to the supervisory authorities. Parliamentary records subsequently confirmed that Price Waterhouse reports concerning BCCI were available to the Bingham Inquiry and that information had been passed to the Bank of England during this period.
The significance of the 1990 Task Force investigation is that many of BCCI's principal financial and management problems had been identified before the Bank's closure in July 1991. They were being investigated internally, reported through Price Waterhouse and discussed with the shareholders and supervisory authorities while substantial financial support and a restructuring programme were being developed.
These investigations should be distinguished from the later Price Waterhouse Section 41 investigation, codenamed Sandstorm. The draft Section 41 report, delivered to the Bank of England in June 1991, brought together a much wider range of serious allegations and became an important factor in the regulatory decision-making immediately preceding BCCI's closure.
For further details, see Price Waterhouse Reports, Bingham Report on the Supervision of BCCI, and Abu Dhabi Majority Shareholding & Restructuring Programme.
