FORMER PM'S LICENSE APPLICATION IS A TEST FOR

S E C R E T SECTION 01 OF 04 AMMAN 002044

SIPDIS

NOFORN

E.O. 12958: DECL: 03/04/2015
TAGS: EFIN ECON PGOV JO
SUBJECT: FORMER PM'S LICENSE APPLICATION IS A TEST FOR
CENTRAL BANK

REF: AMMAN 538

Classified By: Charge d'Affaires David Hale for reasons 1.4 (b),(d),a
nd (e)


1. (C) SUMMARY: The announcement by former Prime Minister Ali
Abul Ragheb that he has applied for a new banking license has
stirred up considerable interest in the Jordanian business
community, but also provoked controversy and a war of words
between Abul Ragheb and another former prime minister, now
also a bank chairman. The furor is further smearing a
reputation already besmirched by accusations concerning Abul
Ragheb's activities while in political office. If handled
incorrectly, it could damage the credibility of both the
CBJ,s independence as a regulator and of the GOJ as a whole.
END SUMMARY.

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A BANK IS BORN?
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2. (SBU) Jordanian press reports are feeding a belief that
the long frustration of Jordanian investors who have been
clamoring for a new banking license is at an end. On
February 22, trucking magnate and former Prime Minister Ali
Abul Ragheb formally applied for a new banking license; he
expects it to be granted "very soon." He explained that the
time was ripe for Jordanian banks to expand regionally, but
few had the capital or the ambition to do so; Abul Ragheb is
very interested in the opportunities presented by what he
feels are unexploited markets in the Aqaba Special Economic
Zone, Sudan (where Abul Ragheb's family owns three
factories),and Iraq (where he has strong business
relationships dating back before Saddam's fall). According
to Abul Ragheb's statements to the press, the proposed new
bank will have an initial capitalization of JD 100 million -
the third highest paid-up capital of any bank in Jordan
(total shareholder equity, however, would initially be
equivalent to a mid-sized bank). Half of this capital would
be raised from a group of 60 private investors that Abul
Ragheb has assembled; the other half would come from an IPO
prior to the bank's launch.


3. (C) Based on what Abul Ragheb told us and on rumors in the
marketplace, the 60 private investors would include a
veritable "Who's Who" of Jordan's major businessmen who are
not currently major shareholders of any existing commercial
bank. Besides the Abul Ragheb family, which would contribute
5-7% of the bank's startup capital, and the Social Security
Corporation (SSC),which is supposedly interested in taking
10%, the investors would prominently include Samir Ka'war
(uncle of Jordan's current ambassador to the United States)
and Omar Khalid Shoman (nephew of Arab Bank Chairman
Abdulmajeed Shoman and cousin of Arab Bank CEO Abdulhameed
Shoman),who in February 2004 sold off his father's 11% stake
in Arab Bank in a complex deal involving the SSC and the late
Rafiq al-Hariri. Most intriguingly, the Iraqi Bunniah family
- longtime friends of Abul Ragheb - are contributing JD 1
million for 1% of the bank; Abul Ragheb told us that he views
this as the most important element of the ownership structure
because it creates a strong alliance with one of Iraq's top
business families. Left unmentioned by Abul Ragheb was the
participation of the Iraqi Khawam family in the consortium, a
fact that has created some buzz among banking insiders.


4. (C) Abul Ragheb told us that had he wished, he could have
found twice as much money, and that he has been receiving
calls for weeks from people who want a piece of the new bank;
his friends are "upset" that they are not being given larger
shares or any shares at all. At least one friend of Abul
Ragheb, however, turned him down flat. Sabih al-Masri
(strictly protect) told us that Abul Ragheb had recently come
to him to ask him to participate in the bank,s founding
group. Masri told us that while he considered himself to be
a good friend of Abul Ragheb, he felt that it was not a good
idea to go into business with friends and that to invest in a
third bank after already holding large stakes in two others
(Arab Bank and Cairo-Amman Bank - ref A) was not a good idea.
Masri added, however, that a third reason for his reluctance
to join the consortium was that while Abul Ragheb was rich,
Masri did not consider him to be a businessman.

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A PR STORM BREWS AND CBJ FUMES
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5. (C) The developing Abul Ragheb banking consortium has been
an open secret among financial insiders for months. It
emerged publicly, however, only on February 25, when Jordan
Kuwait Bank (JKB) Chairman, and former Prime Minister,
Abdulkarim al-Kabariti made a speech at the JKB,s annual
General Assembly meeting denouncing Abul Ragheb,s plan for a
new bank and casting aspersions on the sources of Abul
Ragheb,s wealth. News of the speech, whose transcript has
not been released by JKB, was quickly picked up in the press.
Abul Ragheb hit back aggressively and publicly, highlighting
the large (estimated 90%) majority of Jordanian ownership of
his proposed new bank and making an implicit comparison to
the majority Kuwaiti ownership of JKB. Abul Ragheb has,
however, been most effective in his tactic of convincing
markets that his banking license is a fait accompli to which
the sector must adjust itself. Many bankers are already
beginning to talk about the positive benefits that a new bank
could bring. The deputy CEO of one major bank to whom we
talked even believed that the license had been awarded one
month ago and expressed surprise when told that it had not
yet been awarded at all.


6. (S/NF) Whether or not CBJ approval of the license is
indeed a fait accompli is a subject on which there are many
widely varying points of view. Abul Ragheb told us that
feedback from the CBJ on the application had been "very
positive." According to a close friend of Abul Ragheb, on
the other hand, the story is a bit more complicated: the
former PM had received the King,s blessing prior to making
an initial application for a banking license in the summer of

2004. The CBJ, however, refused this application. Abul
Ragheb had returned to the King, and convinced him that the
creation of the bank was vital to the furthering of the
King,s vision of Jordan as a banking center. The King then
reportedly told Abul Ragheb to proceed in setting up his
consortium even without prior CBJ approval of the license )
because that approval would definitely come when Abul Ragheb
again applied for the license. (COMMENT: Although this story
is circulating in Amman, we have no hard evidence confirming
the King's involvement. The accusation focuses not on a
suggestion of personal profit by the King, but of unorthodox
and non-transparent intervention which undercuts efforts to
project a reformed, investor-friendly image. END COMMENT.)


7. (S/NF) The CBJ has yet another version of the story of the
Abul Ragheb license. CBJ Deputy Governor Faris Sharaf
(strictly protect) confirmed to us that there is support "at
the highest level" for Abul Ragheb's application, but noted
that the CBJ was far from ready to approve the application
and had in fact stated publicly as recently as mid-January
that it would not be granting applications for new banks.
Sharaf voiced his strong personal opposition to issuance of a
new banking license at this time, saying that given what he
termed a "human resources" bottleneck in the Jordanian
banking sector, licensing a large extra bank right now would
only dilute the quality of decision-making in Jordanian
banks. As an example of this constraint, he noted that in
order to hire a competent branch manager, recent sector
entrant Bank Audi had been forced to offer a salary four
times the going rate. Pointing to the high liquidity of
Jordanian banks, Sharaf argued that pouring more investment
capital into the banking sector would not be particularly
useful; what Jordanian banks needed was a more sophisticated
understanding of how to evaluate their opportunities. This
was precisely why the CBJ had in 2004 given licenses to three
good foreign banks to operate in Jordan.


8. (S) The Abul Ragheb consortium, however, did not even
approach the standards set by the 2004 licensees. Sharaf
noted that few of the primary promoters of the application
were bankers and that he doubted the commitment of Abul
Ragheb to be in the bank for the long term. Sharaf also
noted that the precedent that would be set was a bad one,
given the number of other domestic businessmen trying to get
a license. These include one group led by yet another former
Prime Minister, Fayez al-Tarawneh, and Mufleh Aqel
(Industrial Development Bank Chairman and Banking Association
President),who had provided the technical expertise for the
Abul Ragheb bid but has recently fallen out with him. An
even more advanced consortium is led by Zuhair Khoury, a
former chairman of Jordan's Housing Bank, and Khalid Shahin,
a wealthy and well-connected Jordanian businessman. The
latter is locally famous for his unconventional relationships
with Jordan's banks, which have in the past included several
defaults by various Shahin companies on large loans and, most
significantly, Shahin's alleged looting of the Philadelphia
Investment Bank (PIB),in which he had held a controlling
stake.


9. (S) Sharaf expressed his frustration at both Abul Ragheb
and Kabariti. He explained that the CBJ had done its best to
accommodate Abul Ragheb's desire to be a major participant in
a bank while adhering to its position on minimizing the
number of banks in Jordan. Sharaf claimed that the CBJ had
done its best to present Abul Ragheb with alternate options
ranging from a takeover of an existing bank (such as PIB) to
the conversion of the license of the Industrial Development
Bank. Abul Ragheb, however, had failed to come to an
arrangement with any of these banks. Kabariti, by bringing
the subject into the public sphere, had only made it more
difficult for the CBJ to "bury" Abul Ragheb's application.
In fact, Sharaf claimed, Abul Ragheb had not yet even filed
an application; he had only sent a letter to the CBJ
announcing his intent to apply for a license. As it is, the
furor over the license has forced Abul Ragheb to be more
aggressive, cowed some of the members of the board tasked
with evaluating the application who had initially opposed a
new bank, and ensured that no matter what the CBJ decides, it
will likely be charged with bending to political pressure.
Sharaf said that he was trying to "stiffen" CBJ Governor
Touqan to stand up against the application; ultimately,
however, the principle involved in this matter is so
important that if the bank were to receive a license without
responding to his concerns, Sharaf would "go back to making
money" in the private sector.

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MORE FUEL FOR THE FIRE
--------------


10. (SBU) The controversy over the license comes at a time
when Abul Ragheb,s reputation is under attack from a
different quarter. The General Intelligence Directorate,s
Anti-Corruption Department concluded, on February 27, a
six-month-long investigation of the Jordan Magnesia
Corporation (JorMag),a GOJ joint-venture white elephant that
in its initial phases financially benefited Abul Ragheb,s
son. While the investigation cleared JorMag and all parties
associated with it of any wrongdoing, Parliament has refused
to accept its conclusions and on March 2 called for the
appointment of a prosecutor-general to take the case to
court. One parliamentary deputy, in the course of these
hearings, directly accused Abul Ragheb of having rewarded
Saleh Irshaidat with the post of Deputy Prime Minister in
return for his complicity in the corrupt awarding of the
tendered project to the consortium represented by Hassan Abul
Ragheb. Irshaidat was at the time the Director-General of
the then state-owned Arab Potash Corporation, through which
the joint venture was formed.

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COMMENT
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11. (C) While Abul Ragheb,s planned bank is at least as much
a product of hype as of substance, the addition of another
bank of its size could be good for the banking sector. Given
the failure of local banks to fully serve the market and
provide innovative products, it is difficult to maintain that
Jordan is over-banked. Abul Ragheb is correct in his belief
that both the Aqaba Special Economic Zone and Iraq-related
trade are underserved, and his insistence on participation by
Iraqis seems far-sighted. The CBJ is, however, probably
correct that Abul Ragheb's consortium may not be the right
group to attempt to deliver these services; Sabih al-Masri's
decision to opt out of the consortium lends further credence
to this judgment.


12. (C) Irrespective of the solidity of Abul Ragheb's
business plan, optics will not be good for the CBJ if it
grants a license to the Abul Ragheb consortium. There is
already a belief in the sector and the wider public that "the
fix is in." Abul Ragheb,s history will likely taint public
perceptions of his dealings with the GOJ for a long time to
come, and in this case perceptions appear to be at least
partly accurate. The presence in the founding consortium of
a large number of known (e.g., the Khawam family) and
suspected violators of UN sanctions on Iraq adds yet another
black mark on the bank. Finally, a failure by the CBJ to
stick to its position on licensing of domestic banks will
make it more difficult to say no to consortia with even
weaker credentials and reputations, such as the Shahin-Khoury
group.

13. (C) The timing of the Anti-Corruption Unit,s findings on
Jordan Magnesia adds yet another disturbing twist to the
situation. While the clearing of all parties involved in the
Jordan Magnesia disaster may well be both accurate and
unbiased, it will not appear that way to many Jordanians. A
license award now will likely provoke further speculation
that the investigation was a whitewash for Abul Ragheb,
devaluing the GOJ,s anti-corruption credentials.


14. (C/NF) In sum, an emergence of Abul Ragheb as a player in
the banking sector would likely blemish the sector even if,
in a best-case scenario, it were to provide a needed spur to
competition. The escalating war of words seems to ensure
that an awarded license will further diminish the confidence
of foreign investors in the transparency of the Jordanian
financial system and the independence of the CBJ, as well as
erode the confidence of ordinary Jordanians in the
motivations of their leaders. Conversely, Sharaf's apparent
determination to resist all pressures to grant this license
is a welcome development. Sharaf, the son of a former prime
minister of Jordan and a potential candidate for the post of
CBJ governor, may have the necessary weight to resist this
move; if so, it will be an encouraging sign for the future
role of the CBJ. The emergence of this controversy comes
amidst a spike of accusations of corruption connected with
several other high-profile projects and personalities in the
country. Regardless of the facts of the cases, the
persistence of the accusations being made - unless
effectively countered - risks tarnishing Jordan's reform
credentials.
HALE