In May 1990, the Government of Abu Dhabi and related institutions acquired a majority interest of more than 77 per cent in BCCI. The change in ownership came at a critical stage in the Bank’s history, when substantial problem loans, losses and management irregularities had been identified and a major programme of financial support, investigation and restructuring was being developed.
The Abu Dhabi majority shareholders subsequently provided very substantial financial support to the BCCI Group. According to the material reviewed on BCCI Insights and the chronology recorded in the Bingham Report, this support included cash, guarantees and promissory notes amounting to approximately US$5.1 billion, together with a commitment to maintain the Group’s capital base while the restructuring programme was implemented.
The restructuring was intended to address both BCCI’s financial difficulties and the complexity of its international organisation. A central objective was to replace the existing group structure with three separately managed, capitalised and regulated banks, based in London, Abu Dhabi and Hong Kong. Problem loans and impaired assets were to be transferred to separate companies, or to a fourth institution, whose purpose would be to manage and recover those assets.
The programme also involved the proposed relocation of BCCI’s Central Office from London to Abu Dhabi, changes in senior management, closure or consolidation of selected branches and offices, and substantial staff reductions. More than 2,000 employees were reported to have left under voluntary or compulsory redundancy arrangements as the Group sought to reduce costs and reorganise its operations.
The restructuring was developed in consultation with BCCI’s external auditors, Price Waterhouse, the Abu Dhabi shareholders and members of BCCI’s College of Supervisors. The Bingham Report records that the Bank of England was aware of the proposed three-bank structure and, on 27 November 1990, informed Price Waterhouse that it accepted the proposal in principle, subject to appropriate independence, regulation and supervision. Discussions with representatives of Abu Dhabi continued through late 1990 and into 1991.
By 4 March 1991, the Bank of England had been informed that the majority shareholders had decided to continue supporting BCCI and had approved the required financial package. Work on the restructuring continued during the following months, with timetables being developed for regulatory approval of the proposed successor banks in the United Kingdom, Hong Kong and the United Arab Emirates.
Considerable progress had therefore been made by the middle of 1991. Proposals for new boards and management structures were being developed, problem assets were to be separated from the viable banking businesses, and the Abu Dhabi shareholders continued to indicate their willingness to provide further capital. An updated restructuring proposal was still being submitted to the regulators in the days immediately preceding BCCI’s closure.
On 4 July 1991, the Abu Dhabi Government remitted a further US$650 million in support of BCCI. However, the chronology recorded in the Bingham Report shows that by this stage the European regulators were already moving towards coordinated supervisory action. The Bank of England had by 2 July reached the view that action should be taken before further discussions with the majority shareholders. The UAE Central Bank, although a member of the College of Supervisors, was not included in the decisive discussions leading to closure.
The significance of the restructuring programme is therefore that BCCI was undergoing an extensive programme of recapitalisation and organisational reform at the time the decision was taken to close it. The programme had the financial backing of the Abu Dhabi majority shareholders and had been developed in continuing discussions with the Bank of England and other regulators. Whether sufficient opportunity was ultimately given for that programme to be completed remains one of the important questions surrounding the events of July 1991.
For a fuller account of the proposed three-bank structure, Abu Dhabi financial support, correspondence with regulators and the implementation timetable, see Restructuring Programme.
