Stephen Timewell looks at the US-led consortium charged with establishing the Trade Bank of Iraq which will have a major role in the reconstruction of the country.
A consortium of 13 international banks, led by the US’s JP Morgan Chase & Company, has won the mandate to run the recently formed Trade Bank of Iraq (TBI). The Coalition Provisional Authority (CPA) in Iraq established the Trade Bank on 17 July to support Iraqi reconstruction through trade finance services and JP Morgan beat off stiff competition from at least four consortiums each led by major US banks, Bank of America, Bank One, Citibank and Wachovia.
Getting the Trade Bank operational represents one of a number of financial developments taking place to provide the infrastructure for Iraq’s reconstruction effort. In late August, the US Export-Import Bank voted to notify Congress of a proposed $500m facility that would provide the US banks short-term export insurance to cover transactions with the new Trade Bank.
Also, Iraq’s US-appointed Governing Council has recently named a Western-educated economist as head of Iraq’s Central Bank. Council chairman Ahmad Chalabi announced the appointment of Sinan al-Shibibi as central bank governor on 10 September. Mr al-Shibibi, educated in Britain, worked at Iraq’s Planning Ministry until 1980 and then spent two decades with the United Nations Conference on Trade and Development (UNCTAD).
Taking shape
While many details of the Trade Bank remain, according to bankers, “very fluid and still to be negotiated”, the core structure is emerging. The CPA will contribute an initial $5m in paid-up capital to the bank’s $100m capital structure. Other financial assistance is expected from US Eximbank and from residual funds from the UN Oil for Food Program which has been until now the prime vehicle for meeting Iraq’s trade finance needs but is due to expire in November.
The Trade Bank will be 100% Iraqi-owned but the management contract will be with JP Morgan for the first 12 months. All trade documentation, covering all exports and imports to and from Iraq, including oil, will go through the TBI. While revenues, according to bankers, will not go through the bank, it will handle all letters of credit and trade data. Estimates of trade volumes vary widely but bankers indicate that numbers will start off quite small but could in time ramp up to $1bn a month.
The CPA director for economic policy, Peter McPherson, is reported to have expected TBI to issue its first trade credits by the end of September but bankers suggest mid-October is a more likely date.
The consortium consists of 13 banks from 13 countries representing all the world’s major trading blocs. JP Morgan is clearly the lead bank in the exercise but three banks, Australia’s ANZ Banking Group, National Bank of Kuwait (NBK) and the UK’s Standard Chartered are expected to play leading roles.
While it is the intention that TBI will be an Iraqi bank run by Iraqis, the initial stages will look a little different. A temporary office is to be established in Kuwait until it becomes stable enough to shift it to Iraq. The operating platform will be run by JP Morgan with the help of NBK. The Kuwait bank, one of the strongest banks in the region, believes it is well placed to play an important role in Iraq’s reconstruction, as does Standard Chartered which has an extensive network in the Gulf as well as in Asia and Africa.
Ready to re-enter
Standard Chartered, which had a number of branches nationalised in Iraq in the 1970s, is keen to be actively involved in Iraq and has recently appointed Stuart Horsewood as country manager, although he is initially based in Dubai. Standard Chartered, like JP Morgan and NBK, is also expected to be closely involved in training. Although the TBI is expected to grow quickly, the initial staff requirement is said by bankers to be around six people.
ANZ is keen to extend its trade links with Iraq. “The TBI provides an avenue for Australian and New Zealand exporters, such as those in the grains and dairy industry,” says ANZ’s managing director for trade, Mark Paton. Other participating banks, such as Poland’s Bank Millennium, Turkey’s Akbank and South Africa’s Standard Bank, are also looking for opportunities which may extend into project finance areas as well as trade.
Trade Bank of Iraq Consortium
JP Morgan Chase & CompanyANZ Banking GroupNational Bank of KuwaitStandard CharteredAkbankBanco Comercial PortuguesBank MilleniumBank of Tokyo MitsubishiCaja de Ahorras y pensiones de BarcelonaCredit LyonnaisGruppo San Paolo IMIStandard BankRoyal Bank of Canada
