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

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.

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.

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:

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.

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

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