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The terrible financial history of European Islamic Investment Bank plc, now called Rasmala plc

This Islamic investment bank has lost significant amounts of money most of the time, with occasional profits. It has been a disastrous investment for its shareholders.

Posted 13 July 2019

I often stress to younger people how much can be learned about a company simply from reading its accounts.

Before I retired from PricewaterhouseCoopers I had some professional contacts with European Islamic Investment Bank plc (EIIB), which is now called Rasmala plc. However the article below, which was first published as my July 2019 column in the magazine "Islamic Finance News" is based entirely on the public domain information in EIIB's published accounts.

When you total the losses over the 13 year period, they are appalling. My article about Bank of London and the Middle East plc (BLME) "Small profits mixed with big losses - the record of the UK's largest Islamic investment bank" showed how hard it has been to make money in UK Islamic banking.

However EIIB managed to perform far worse than BLME.

The sorry saga of European Islamic Investment Bank plc, now called Rasmala plc

From the perspective of 2019, a world of widespread slow growth and fearing of trade wars, it is hard to remember the heady optimism of the mid-2000’s prior to the global financial crisis.

At that time, several Islamic banks were set up in the UK. One of them, Islamic bank of Britain plc was the only retail bank; my 6 February 2019 column looked at its financial history. The others were all investment banks, and on 9 January 2019 I summarised the history of Bank of London and the Middle East plc (BLME). Its cumulative losses by 31 December 2017 of £31.6 million illustrated how hard it can be for a new Islamic investment bank to make money.

The other large Islamic investment bank set up at the same time, European Islamic Investment Bank plc (EIIB) was only slightly smaller than BLME. However, its track record is even worse!

The table below using figures from the published accounts, shows that, despite being smaller, EIIB managed to lose even more money than BLME, with cumulative losses by 31 December 2017 of £64.3 million.

Calendar Year

Total comprehensive income for the year post-tax £'m

Year end equity shareholders' funds £'m

2005

1.3

111.2

2006

1.2

185.7

2007

-4.5

180.9

2008

-14.8

163.4

2009

-18.9

140.4

2010

7.5

143.0

2011

-9.9

128.7

2012

-10.4

119.7

2013

-0.8

122.9

2014

0.3

122.2

2015

-0.7

101.0

2016

-11.4

90.1

2017

-3.2

58.7

Cumulative losses

64.3

 

Why did EIIB perform so badly?

In my view, one key reason is frequent changes of management. The accounts report the executive directors as follows:

Calendar Year

Chief Executive

Finance Director

2005

John Weguelin

Tony Ellingham

2006

John Weguelin

Atif Raza

2007

John Weguelin

Atif Raza

2008

John Weguelin

Keith McLeod

2009

Keith McLeod (acting CEO)

Keith McLeod

2010

Subhi Benkhadra

Keith McLeod

2011

Zulfi Caar Hydari

Keith McLeod

2012

Zulfi Caar Hydari

Keith McLeod

2013

Zulfi Caar Hydari

None

2014

Zulfi Caar Hydari

None

2015

Zulfi Caar Hydari

Neil McDougall

2016

Zulfi Caar Hydari

Neil McDougall

2017

Zulfi Caar Hydari

Neil McDougall

In the first five years of operation, there was continuity of CEO but three different finance directors. This was followed by a period while the finance director stayed in post but there were several changes of CEO.

The years 2013 and 2014 without a finance director in place are particularly disturbing. I always worry that the absence of a finance director indicates that the authority of the finance function within a firm has been downgraded. In my opinion, a key role of the finance director is to ensure that the firm is managing its downside risks.

Reading the accounts, one also finds changes of strategy; some of the biggest losses appear to have arisen from forays into principal investing such as purchasing a large stake in a diamond mine which then had to be written down.

In recent years, the strategy has changed to managing assets for clients. This should be lower risk and requires less capital. The large reductions in equity shareholders’ funds in 2015 and 2017 were due to planned returns of capital to shareholders.

I would hope that with this revised strategy, EIIB (now called Rasmala plc) can leave behind its track record of consistent failure.

 

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