Egypt’s Biggest Listed Bank Slumps After Chairman Steps Down

(Bloomberg) -- Commercial International Bank SAE slumped in Cairo after its chairman stepped down amid concerns over governance.

The stock fell as much as 10% to trade at 60.10 Egyptian pounds before paring the decline to 7.2% at close. The decline pulled the benchmark EGX30 index down 3.5%, the biggest drop for a session since March 18.

Hisham Ezz Al Arab resigned after an emergency meeting of the board convened to discuss a letter from the central bank communicating the regulator’s decision to dismiss him, CIB said in a statement on Friday. The bank said it took the central bank’s findings “very seriously,” and will investigate the issues raised. The bank didn’t elaborate on the content of the letter, and CIB officials said they had yet to see the audit in question.

“Investors, from now, will look forward to the complete audit report, which is still pending from the Central Bank of Egypt,” Aarthi Chandrasekaran, a money manager at Shuaa Capital in Dubai, said in an interview to Bloomberg TV. “Until then, I think they will be very skeptical to to take any new position.”

“I don’t expect this event to actually blow out of proportion,” Chandrasekaran said. “But the way the news came out -- the way it was handled the first two days -- was a disappointment to the investor community.”

Sherif Samir Samy, a former chairman of Egypt’s market regulator, was appointed as non-executive chairman. CIB remains “prudentially sound” and depositor funds are fully secured, the central bank said in a statement released Friday.

CIB’s depository receipts on the London Stock Exchange rose as much as 15% after the announcement, rebounding from a 42% loss earlier on Friday and after a 17% slump the previous session. Shares in Cairo were suspended from trading on Thursday.

Read more: Chairman of Egyptian Lender Quits After Central Bank Review

“Management ensured that there are no financial crimes, no fraud and believes, had there been huge financial losses or fraud, it wouldn’t have stopped” at Ezz Al Arab’s removal, Dalia Bonna, an analyst at Pharos Securities Brokerage, wrote in a report. Rather, “the CEO, board, and the management team would’ve been gone as well.”

Read more comments from analysts:

• Amr Elalfy, head of research at Prime Holding, wrote in a note that investors should not “push the panic button indiscriminately,” and that Sunday’s session “will probably be key as to how the rest of the year will fare.”
  • Until the CBE releases its final report concerning the findings, “we could continue to see some fluctuation in the share price on an intraday basis.”
  • Share seen as finding support around 60 Egyptian pounds driven by institutional buyers “opting to get in at a 10% discount to Wednesday’s price.”

• The CBE said that depositors money is safe, which “indirectly implies that there are no material losses to be booked by CIB,” analysts at Naeem Holding write in a note

  • The CBE letter “notes of major violations of regulations, weak supervision of operations and internal control, which can be described as financial crime and unethical actions.”
  • Still, management made it clear in the call on Friday “the likelihood of no material damage to the P&L and balance sheet”
• Pharos Securities’ Dalia Bonna writes that the situation “is not a disaster,” and there that there is “no need to panic”
  • Highlights that, over the last three to four months, “at least 2-3 chairmen have been removed. It is not an isolated incident. It had the most impact because other banks had no foreign investment nor were they listed so they went unnoticed.”
  • “There might be increased /beefed up investment in audit, compliance, and internal control teams either because it is needed or be part of negotiation with the CBE.”

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