First Major Investment Bank in the Gulf Defaults

Zawya Dow Jones reported yesterday that Kuwait's Global Investment House defaulted on most of its $3 billion debt obligations.  The bank, which is listed on London's FTSE, is the largest indigenous investment bank in the Gulf by market value and manages one of the region's largest funds.  

The news of the default doesn't come totally as a surprise for those who have been following the issue.  Two separate rating agencies downgraded the bank recently, citing the risk of default.  Still, the news comes as a blow both to the Kuwaiti financial community as well as to investment firms throughout the Gulf.  Global Investment House is a well established, reputable bank, operating across almost a dozen countries.  Some of its shareholders include Bank of New York and Dubai Capital Group.  The fact that such a large institution could not refinance its debt bodes ill for the multitude of investment banks and firms throughout the Gulf that don't have the same reputation and weight as Global Investment House. 

National Bank of Kuwait's chief economist, Randa Azar, has called on the Kuwaiti government to move quickly to restore confidence in the markets after the Global announcement.  Still, few anticipate problems for the country as a whole since Kuwait has, much like its neighbors, built a large pool of reserves during the bull run in the oil market.  Farouk Soussa of S&P told Zawya/Dow Jones that Global's announcement should not affect Kuwait's sovereign rating and Standard Chartered recently forecasted a positive, if low, growth rate for the country.  But Global's announcement, coupled with Gulf Bank's losses in November, put the emirate in a dicey predicament from an investment perspective and may intensify calls for a stronger regulatory environment in the country. 

The chief economist of Saudi SABB predicted that Global's announcement may be the first in a chain of defaults throughout the Gulf, although he believes that the number is unlikely to be as great as it is in the US and Europe.  For more on risky investment firms, check out this blog entry posted on Zawya: The Wings of an Ant