THE ARAB BANK'S PLACE IN JORDAN AND THE REGION

UNCLAS SECTION 01 OF 04 AMMAN 006852

SIPDIS

SENSITIVE

USDOC FOR 4520/ITA/MAC/ONE/COBERG
TREASURY FOR MILLS, PIPATANAGUL
PASS OPIC FOR STEVE COWAN, ABED TARBUSH
EXIM BANK FOR BOSCO

E.O. 12958: N/A
TAGS: EFIN JO
SUBJECT: THE ARAB BANK'S PLACE IN JORDAN AND THE REGION

REF: AMMAN 0794

SENSITIVE BUT UNCLASSIFIED; PLEASE HANDLE ACCORDINGLY


1. (SBU) SUMMARY: For more than seventy years, the Arab Bank
has been among the most respected, and even beloved,
financial institutions in the region. Having weathered wars,
political and economic unrest, closures, and
nationalizations, the Bank has grown into a regional and
global player in the banking sector, with a reputation as a
transparent, competent, and trustworthy banker and lender.
The Bank's Palestinian roots, connections, and reputation of
dependability have made it the preferred bank for
Palestinians worldwide. Due to its stature, as well as to
the historical relationship between the founding Shoman
family and the monarchy, the Arab Bank enjoys an esteemed
place in Jordanian society, economically, politically, and
socially, and has become the "rock" of financial institutions
in Jordan--a "go to" place when times are tough, and a
symbol, to Palestinians and Jordanians alike, of the
"indomitable" Arab spirit. End summary.

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BACKGROUND
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2. (SBU) The Arab Bank Group (ARBK) is one of the largest
financial institutions in the Arab world, with over 400
branches and offices in 30 countries in Asia, Europe, and the
Americas. It comprises Arab Bank plc, Arab Bank Switzerland,
and a number of other subsidiaries and affiliates worldwide,
including branches in New York, London, Paris, Australia, and
the Gulf countries. According to its 2001 annual report, the
Bank had assets of $22.2 billion at the end of 2001. The
company's net income for 2001 was $195 million, up 6.9% over

2000.

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THE BANK AND THE JORDANIAN ECONOMY
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3. (SBU) Arab Bank branches in Jordan and the Occupied
Territories accounts for 22% of the Bank's assets and 21% of
its worldwide revenues. According to Central Bank of Jordan
(CBJ) figures, the Bank holds 31% of assets, 37% of bank
deposits, and 17% of loans in the Jordanian banking system.
The company also accounts for 39% of the Amman Stock
Exchange's (ASE) market capitalization. With its reputation
for probity, transparency, and sound management, the Bank has
been a cornerstone of the local economy, and, having survived
many political and economic crises in the region, is the
institution the Jordanian government and Arab clients look to
for reassurance when times get tough. Following the
devaluation of the Jordanian dinar in the late 80s, the Bank
was one of the few legitimate sources of foreign currency in
Jordan. In the wake of the al-Shemailah loan scandal
(REFTEL) earlier this year, it was rumored that the Bank
deposited sufficient funds at the CBJ in the event they were
needed to bail out troubled local banks directly affected by
the scandal. Depositors withdrew funds from banks affected
by the scandal and deposited them in the Arab Bank.


4. (SBU) Also noteworthy is the esteem in which the Bank
and its founding family, the Shomans, are held. It is said
that, upon hearing of a threat on a leading Shoman's life by
a prominent southern tribe, the late King Hussein intervened
personally and told tribal elders directly that dire
consequences to the tribe would result should the threat be
carried out. Another source told us that, when Lebanese PM
Rafiq Hariri attempted to purchase an additional 5% stake in
the Bank put up for sale by Kuwaiti interests, and the
resulting increased Hariri share posed a threat to Shoman
family control, King Abdullah personally weighed in with the
Kuwaitis on behalf of the Shomans to support a bid by the
Jordanian Social Security Corporation, which went on to
purchase the shares, and left the Bank in Jordanian hands.

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Current Ownership and Control
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5. (SBU) The Shoman family continues to have putative
control over the Company through its reputation, the respect
and support of the majority of shareholders, and day-to-day
management of the Bank. Currently, the family's stake is
down to 35%, according to market estimates. Other major
holders are the Jordanian Social Security Corporation (SSC),
the Palestinian/Jordanian al-Masri, al-Sabbagh, and al-Saifi
families, Lebanese Prime Minister Rafiq al-Hariri (8%),and
the Saudi Government (17%) via various investment vehicles.
"Non-Arab" ownership of Arab Bank shares is limited, banned
as it was until the mid 90s by the Bank's internal bylaws due
to fears of Israeli influence.


6. (SBU) The Shoman family also exerts a controlling
influence via the Board of Directors. Out of the eleven
seats on the board, three are occupied by Shomans, two by the
al-Masri family, and one each by the Sabbagh family, the SSC,
a representative of the Saudi Ministry of Finance, the Jordan
Insurance Company, the Beirut-based Arabia Insurance Company,
and the al-Hariri family, all save the latter loyal to the
Shomans.

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PRESENCE IN THE WEST BANK/GAZA
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7. (SBU) In the mid-nineties, the Bank received permission
by the Central Bank of Jordan (CBJ) and the Israeli Central
Bank to reopen in the West Bank/Gaza, under the supervision
of both the CBJ and the Palestinian Monetary Authority (PMA).
The Bank, which controls about 55% of total deposits in the
Occupied Territories, is said to be the main international
bank used by the Palestinian Authority (PA),although the PA
apparently prefers to use local, less transparent banks for
much of its domestic business. The Arab Bank also owns 55%
of the Arab Palestine Investment Bank, and was the founding
shareholder in the Palestine Development and Investment
Company (PADICO),established in 1993 to help revitalize the
Palestinian economy. However, the Bank has come under
increasing criticism locally as of late due to its extremely
conservative lending policy; it has virtually ceased lending
as a result of the Intifada and at a time when Palestinian
small and medium enterprises need assistance in rebuilding
and supporting their businesses.


8. (SBU) Long identified with the Palestinian cause (Note: a
short biography of the founder of the Bank, Abdul-Hamid
Shoman, can be found on the intifada.com website under
Palestinian personalities),the Bank's employees, along with
then-CEO Abdul-Majid Shoman and the Bank's senior management,
donated 5% of one month's salary to the Palestinian people at
the outbreak of the al-Aqsa Intifada in October, 2000.
Abdul-Majid also established the Welfare Association, which
is, according to its website, is "the largest Palestinian
source of private funds directed toward humanitarian and
development efforts for Palestine". The Bank's charitable
arm, the Amman-based Abdul-Hamid Shoman Foundation, sponsors
a number of Palestinian cultural, scientific, and literary
funds and fora.


9. (SBU) As one of the few financial outlets available to
Palestinians in the West Bank/Gaza, the Bank continues to be
a conduit for remittances from the United States and
elsewhere to the Occupied Territories. The sums involved are
considerable in sum, but individual transactions are likely
small. The PMA requires that transactions of more than
$10,000 be reported to the PMA, with a 24-hour hold on the
transaction while it is scrutinized. According to a recent
U.S. news report, the FBI's Joint Terrorism Task Force is
investigating an Iraqi native indicted under Federal charges
of running an unlicensed business that illegally transferred
money to the Middle East. The indictment alleges that Kareem
Abdalhassin Albasam used 11 accounts at four Utah banks to
transfer approximately $2 million to the Amman branch of the
Arab Bank, where an associate disbursed the money to others.
In addition, the IDF website (www.idf.il) contains a report
based on documents purportedly captured during the April
siege of the Muqatta that show that money from Saudi
charities was funneled to "families of notorious terrorists"
in the West Bank via Arab Bank branches. None of these
reports suggests that Arab Bank management was aware of such
transactions.
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AN ARAB BANK FOR ARABS
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10. (SBU) Founded by Abdul-Hamid Shoman as an "Arab bank
for Arabs", the Arab Bank opened its first branch in
Jerusalem in May 1930. Its expansion began in 1934 with the
opening of a branch in Amman, and throughout the region in
the years following. However, with the establishment of the
State of Israel in 1948, the Bank lost its branches in Haifa
and Jaffa, as well as most of the branches' deposits.
Following the Six Day War in 1967, the Bank lost its West
Bank and Gaza branches.


11. (SBU) In the wake of these closures, the Bank
nonetheless honored its clients' deposits both post-1948 as
well as after the Six Day War, despite not being indemnified
by the Israelis. This commitment by the Bank to its
depositors has made it the bank most favored by Palestinians
worldwide. Moreover, the closures caused resentment that
simmers to this day, and the Bank refuses to deal with Israel
or the Israeli government. (Note: A wave of nationalizations
also took place in Libya, Syria, Iraq, Aden, and Sudan in the
Sixties and Seventies. Syria and Iraq have yet to reimburse
the Bank for these takeovers. In Saudi Arabia, the
Saudization of the Bank resulted in the establishment of the
Arab National Bank, in which the Arab Bank retains a 40%
share. The Bank has never had branches in Iran. End note.)

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THE INDOMITABLE ARAB
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12. (SBU) Shoman founded the Bank after spending 18 years in
the United States forging links with Arab communities there
and learning the retail and banking businesses. He returned
to Palestine in 1929 to establish a bank that would "unite
Arab economies" and combat what he called "Zionist plans" to
take over the region. Active in the Palestinian
demonstrations in 1936, he imported 20,000 pounds of rice and
sugar from Egypt to sell to Palestinians at token prices.
Charged with a number of offenses by British mandate
authorities, he served 18 months in a prison near Haifa.
Upon his release, Shoman returned to banking. At the
outbreak of World War II, when a crowd of deposit holders
rushed the Jerusalem branch to withdraw their funds, Shoman
instructed all branches to honor such requests. This action
restored confidence in the Bank. Most funds were
redeposited, and the Bank acquired its reputation as a safe
haven, a reputation that still holds today. In 1948, Shoman
moved to Amman along with the Bank's headquarters.


13. (SBU) Shoman pushed the Bank's expansion as a way of
linking Arabs and Arab communities throughout the world.
Upon opening a branch in Zurich in 1962, the Bank became the
first Arab financial institution to establish a presence in
Switzerland. With branches also in France, Germany, Italy,
Spain and the U.K., the Bank's European entities now comprise
the majority share of total assets, loans, deposits and
revenue. The Bank also has branches in South America, China,
Korea, and the United States. Supervised by a host of major
international regulators, the Bank, and the Shoman family,
have maintained an unsullied reputation within the
international banking community for transparency, regulatory
compliance, and faithful adherence to international banking
norms and standards.

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MANAGEMENT IN TRANSITION
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14. (SBU) ARBK Chairman and son of founder Abdul-Hamid
Shoman, Abdul-Majid Shoman, transferred most of his formal
powers to his eldest son, Abdul-Hamid Shoman, now CEO, in

2001. The younger Shoman is restructuring the Bank's
management team, much to the chagrin of the old guard, and it
has been said that he does not command respect in the way his
father and grandfather had. The Bank is targeting its
recruiting efforts on graduates from Western universities,
and, as part of a new, accelerated management training
program, these new recruits will move into middle management
positions within four years, as opposed to ten years
previously, and this, too, may cause some morale problems.
In addition, in the recognition it must keep up with modern
banking, management, and technical advances, the Bank's
strategic plan includes the establishment of strategic
business units, human resource management, and IT
development. The Bank's overall management has been
progressively decentralized, with the establishment of
regional management centers and branch managers gaining more
leeway on decision-making.

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COMMENT
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15. (SBU) As much a part of Jordanian history as any other
institution, civil or otherwise, the Arab Bank occupies an
important role in Jordan, commercially, financially, and
culturally, so much so that the Bank's stability plays a role
in the stability of the country and the region as a whole, as
recently expressed to us privately by the Governor of the
Central Bank. Given the Arab Bank's reputation for
transparency and probity, and its financial bulk in the area,
allegations to the contrary would be most surprising, with
potentially far-reaching consequences for the Jordanian and
Palestinian banking systems, and ultimately, economies.


16. (SBU) THIS MESSAGE HAS BEEN CLEARED BY CONGEN JERUSALEM.

GNEHM