BMB Investment Bank announces 2008 results

The majority of this loss came in the fourth quarter as markets continued to deteriorate and the Bank took the prudent measure of provisioning some of its private equity investments.

BMB had correctly anticipated in 2007 the impending financial storm, however, it was impossible to predict the unprecedented magnitude and severity of the decline that has taken place. While obviously being impacted by the economic slowdown that has quickly turned into a global recession, the Bank has taken a variety of prudent measures over the past year to reduce asset price exposure and strengthen its balance sheet by reducing leverage and extending maturities on its funding. The Bank ended the year having reduced leverage from 1.4 at 31 December 2007 to 1.1 at 31 December 2008. As well the Bank extended the maturity on $34.7m of short-term liabilities from 2009 to 2011.

The main highlights of the year's performance include:

- Net loss for the year was $14.3m compared to a profit of $24.6m in 2007
- The fourth quarter of the year produced a loss of $13.0m as compared to a profit of $8.4m in the corresponding prior year period
- Income from investments totaled $2.7m as compared to $23.2m in 2007
- Losses from foreign exchange totaled $1.6m as compared to a profit of $1.9m in 2007
- Net interest expense dropped sharply from negative $3.9m in 2007 to negative $1.0m in 2008
- The Bank took impairment provisions of $4.0m mainly related to its private equity portfolio as compared to $3.5m in 2007
- Total assets stood at $100.5m at the end of 2008 as compared to $180.9m at the end of 2007
- Total shareholder's equity at 31 December 2008 was $43.0m as compared to $71.4m at 31 December 2007

Net loss

The Bank's loss of $14.3m was mainly generated in the fourth quarter of the year as a direct result of the global credit crisis and severe lack of liquidity in the financial markets. This virtual freeze in lending markets made private equity realizations both difficult and limited which in turn has affected performance fee income due to the lower number of realizations and lower exit prices.

In addition, the magnitude of this loss arose due to the provisioning of certain private equity investments where their fair values declined below cost during this period reflecting the current market conditions. This was undertaken even though we do not believe it reflects the inherent strengths of our portfolio, which is composed of long term assets to be realized over the long term.

Foreign exchange loss

Foreign exchange loss for the year was $1.6m as the United States dollar strengthened and the Bank was unable to fully manage exposures on its foreign currency denominated holdings in the continued absence of sufficient foreign exchange lines.

Total assets and shareholders' equity
Total assets at 31 December 2008 declined to $100.5m partly as a result of the Bank repaying the outstanding amount of $28.5m on its syndicated loan as well as the repayment of some bank and client deposits, repos and other borrowings. Shareholder's equity declined to $43.0m at 31 December 2008 as compared to $71.4m at 31 December 2007 due to the year's losses and the negative adjustment to fair value related to private equity.

Despite the above, the Bank's Basel II capital adequacy ratio remained robust at 22.8% at the end of 2008, only slightly changed from 24.0% at the end of 2007.

In commenting on the results the Bank's Chairman, Mr. Wilson Benjamin, said:

"2008 has certainly been a year of challenges and change. Our confidence in the strength of our business model and strategy remain unscathed and we maintain, as always, our discipline in the face of market turmoil. While the coming year will not be without challenges, we remain confident in the Bank's ability to produce solid returns in the coming years."

Albert I. Kittaneh, Chief Executive, said: "Despite the difficulties of the past year BMB enters 2009 with a strong balance sheet which has been tested and successfully proven itself over the years. Our capital position is sound and our investment portfolio remains fundamentally strong. While we prudently took provisions and negative fair value adjustments on our private equity portfolio, we firmly believe that these provisions will be recoverable as we realize these assets during the coming years.

Our own experience as an investor in this asset class for more than twenty years confirms our confidence: we have seen the value of our portfolio rebound from past economic downturns as the cycles have turned upwards."