Mandelbrot set image very small MohammedAmin.com
Serious writing for
serious readers
Follow @Mohammed_Amin
Join my
email list

Search this site

Custom Search
Tap here for MENU

The Financial History of Gatehouse Bank plc

Gatehouse Bank was originally a wholly owned subsidiary, and remains mainly Kuwaiti owned. Since formation, it has lost very significant amounts of its shareholders' money.

Posted 20 December 2019

During 2019 I have been reviewing the financial history of the Islamic banks that were established in the UK in the mid-2000's.

This completed with my column in the 4 December 2019 issue of "Islamic Finance News" when I summarised the poor overall record of Gatehouse Bank plc. You can read it below.

The earlier banks in the series are covered at the links below.

  1. The Bank of London and the Middle East plc
  2. Islamic Bank of Britain plc, now called Al Rayan Bank plc
  3. European Islamic Investment Bank plc, now called Rasmala plc
  4. QIB (UK) plc, originally called European Finance House Ltd

The Financial History of Gatehouse Bank plc

Like the four other Islamic banks I have previously reviewed, Gatehouse Bank plc (“Gatehouse”) was established in the mid-2000’s. The optimism about the banking industry at that time, before the global financial crisis, and the era of low interest rates, is hard to remember.

Gatehouse was established as a wholly owned subsidiary. Its 2007 accounts report its parent company as The Securities House KSCC. A KSCC is a type of Kuwaiti company which is prohibited from conducting banking or insurance business, so Gatehouse was not the subsidiary of a bank. In later years, The Securities House KSCC reduced its shareholding as Gatehouse issued extra share capital.

The table shows the key figures up to the year ended 31 December 2018, the latest accounts on its website.

Historical results of Gatehouse Bank plc

Year ended 31 December

Profit (loss) after tax  £ million

Year end shareholders funds £ million

Share capital increase during year £ million

Return on average of opening and closing equity %

2007

(4.4)

                         5.60

           10.00

N/A

2008

(8.5)

                      37.20

           40.00

(39.7)

2009

(12.1)

                      25.20

                  -  

(38.8)

2010

(5.7)

                      19.50

                  -  

(25.5)

2011

(4.3)

                    115.20

         100.00

(6.4)

2012

2.4

                    117.40

(1.0)

2.1

2013

4.0

                    119.10

                  -  

3.4

2014

4.1

                    125.50

             1.00

3.4

2015

(0.8)

                    122.20

                  -  

(0.6)

2016

1.6

                    128.90

                  -  

1.3

2017

(0.4)

                    127.50

                  -  

(0.3)

2018

(15.9)

                    110.50

                  -  

(13.4)

Total

(40.00)

         150.00

As with the four other Islamic banks I have reviewed, the accounts tell a sorry tale.

The first-year loss is no surprise. Operational costs are inevitably incurred before a new bank earns anything. However, the second years shows increased losses from staff and other operational costs significantly exceeding income. Gatehouse by then had £ 50 million of share capital, but almost no liabilities to customers. Almost all assets were interbank placements. A bank cannot be profitable that way.

Management of new banks which are short of earning assets are often tempted to make customer advances which other banks might not, convincing themselves that the credit quality will be acceptable. That appears to have happened with Gatehouse, since the significant increase in losses for 2009 is primarily attributable to impairment provisions.

In the following two years the losses reduce, followed by three years of small profits. However, by then another £ 100 million of extra share capital had been injected. Even in its best years, 2013 and 2014, the return on average shareholders’ equity was only 3.4%. For that to be the best result is lamentable.

In 2018 the bank reported another large loss, primarily due to recognising a £ 12 million negative revaluation on finance provided to a customer in 2013 for real estate construction in France.

Stepping back, over its life the shareholders have injected £ 150 million of capital and watched more than 25% of it being lost. Despite that, each year, including 2018, the accounts have upbeat language, with little detail about problems or strategic challenges. Gatehouse Bank is not alone. The same was true with the other Islamic banks’ accounts.

Overall, making money in UK Islamic banking has proved very difficult. The industry is new, the institutions are small, and the UK’s low interest rate environment impairs banking profitability. However, poor management execution must also be part of the explanation for the losses.

 

The Disqus comments facility below allows you to comment on this page. Please respect others when commenting.
You can login using any of your Twitter, Facebook, Google+ or Disqus identities.
Even if you are not registered on any of these, you can still post a comment.

comments powered by Disqus

 

Custom Search

Follow @Mohammed_Amin

Tap for top of page