The Future of the Antwerp Diamond Bank
November 26, 09After many months of rumors (and a KBC denial published in these columns some months ago), it is now official: the possible sale of the Antwerp Diamond Bank (ADB) is contained in the $5 billion Belgian government bail-out of ADB’s parent company KBC. The bail-out, or recapitalization (which is a more friendly euphemism for the same term) has now been approved by Ne
After a quite extensive investigation, Kroes has now determined that "the capital injection is necessary to maintain the market's confidence in KBC and to ensure its contribution in providing loans to the real economy.” The recapitalization met with her criteria for state aid and “was an adequate remedy to a serious disturbance in the Belgian economy.”
ADB Sale Second Priority
The sale of ADB is not among the first priorities outlined by the Competition Commissioner and it may take some 3 to 4 years before it is realized – if it is realized. I must be clear
In fact, with regard to KBC, the Commission has approved two recapitalizations, an asset r
KBC must also stop the activities of "KBC Financial Products" - the business that was responsible for marketing the Collateralised Debt Obligations that caused KBC's difficulties. KBC furthermore has provided a repayment plan outlining how it will repay the recapitalizations it received from the Belgian authorities.
And here is the catch. The bail out is mostly a loan that needs to be repaid. KBC sources b
Impact on Diamond Clients
There are thus three scenarios on the t
KBC Chief Executive Jan Vanhevel has warned that there will no be “cheap distress sales” of any asset; the EC has given ample flexibility for the processes to take the time needed. No fire-sales. As far as ADB is concerned, KBC has declared that it will continue its support for the bank as it has done so far – time will tell, of course.
A few hours before the EC announcements, ADB’s Executive Committee Chairman Pierre De Bosscher gave a policy speech at the Antwerp Diamond Conference. Undoubtedly, De Bosscher was aware of the forthcoming announcement, though it wasn’t reflected in his remarks. To the contrary. He stressed that during the crisis his bank had not reduced credit facilities! He also stressed the long-term nature of his policies.
Chairman Pierre De Bosscher’s Policy Statement
His message was one of calm, stressing the difference between the general corporate banking approach and the policy followed by the bank. Generally speaking, he said, “when customers cannot
“We did not do any of these things,” said De Bosscher. “We have [in the current crisis] not followed this path of
- no reduction in credit lines (unless in an exceptional case) was necessary and,
- hence access to existing credit facilities stays guaranteed during an economic slowdown and,
- ultimately, finance can be obtained again at the same credit modalities as before as soon as sufficient valid transactional cover is at hand.”
Reconfirming Longstanding Policy
“Whatever the changes [in the post-crisis diamond industry] may be, I am convinced that the true essence of the relationship between the specialized diamond banker and his client should not be altered in the future. I firmly b
“As far as ADB is concerned,” said De Bosscher, “and notwithstanding the ever increasing regulatory pressure and capital constraints weighing on all of us stemming from national and supranational authorities, I can assure you that we will continue to fully adhere to our relationship banking and transaction oriented credit policy, hereby continuously aiming to strike an adequate and appropriate balance between risk and reward. In addition, in line with trade statistics which have shown that the Antwerp marketplace has weathered the storm comparatively better than other diamond centers, we will not fail to support and even promote the prominent role of Antwerp as the world diamond centre.
“However, we should always bear in mind that our typical diamond lending model may not be narrowed to the mere issue of providing sufficient and formally valid transactional cover, but finds its rationale in the asset conversion cycle within the diamond pipeline.
“It is in the common interest of all stakeholders in the industry to strive to create a smooth flow of goods through the pip
- distortions or speculative behavior such as overpaying, overbuying goods and overstretched financing terms.
- and last but not least unethical behavior as not honoring contracts.
“Therefore, it is our view at ADB that existing transactional credit modalities need not only be reinforced but also more accurately calibrated to the underlying business cycle.”
ADB’s Diamond Borrowing Best Practices
“There are a number of credit issues which could and will be tackled in the very near future in favor of all parties concerned, and what we could call if I may be somewhat presumptuous ‘diamond borrowing best practices’”:
- Effective self securing transactional cover, by obtaining duly enforce
- Effective self liquidating transactions by requiring full, direct and separate payment of each underlying receiv
- Setting of qualitative and quantitative criteria on
- Full transparency on payments so as to ascertain proper diamond usage of the credit
- Adequacy of financing period and optimal combination of purchase and sale facilities in regard to the individual business cycle
- Timely submission of consolidated financial statements according to international recognized standards
- Higher solvency (either through additional capital or lower finance ratio) in function of shrinking margins on certain assets
“Finally,” said Mr. De Bosscher, “let us not lose sight that since diamond banking entails a close relationship between the bank and its client based on mutual trust, an open dialogue should be initiated as soon as the borrower fears that he will be confronted with lack of collateral due to deteriorating markets.”
Looking at the Long-Term
I do like to stress that ADB is not in for a quick buck, but strives at a long relationship with its customers. You will certainly remember that we were the first [diamond financing] bank to emphasize the importance of a visible solvency (…) others in the industry followed, that we also were the first to ask for consolidated figures (…) others in the industry followed (…) all this not to annoy our customers but in favor of our so beloved industry. Also in respect to the aforementioned pending credit issues, ADB will take the lead,” concluded Mr. De Bosscher, who characterized his speech as being “your banker’s dream of his Customer of Choice in the new economy.”
History will tell whether this speech will, if anything, make ADB “more attractive” to a potential buyer, whether it may strengthen KBC resolve to make sure there will be no disposal of “second priority” list assets – or whatever. For customers, the name plate on the door might change. It’s unlikely that more than that will happen – if it happens.