Middle East: How They Broke the Bank

MIDDLE EAST

Lebanon was plunged into economic crisis when its huge Intra Bank shut down last month, and the situation is steadily getting worse. For three days all other Lebanese-owned banks were closed; when they reopened, $35 million was withdrawn almost immediately. Virtually none of it has been redeposited in Lebanese banks. Since Intra held 38% of the country’s deposits, its continued shutdown has meant a disabling shortage of cash. Lebanese restaurants report up to a 50% falloff in business; in the gambling casinos, the dealers are playing blackjack with one another. Worse, merchants have now lost their credit ratings, must do business on a full cash basis before goods will be delivered. Since they do not have much cash, there is not much commerce.

The Enemies. Understandably, angry Lebanese have been anxious to know how it all happened, and by last week it was possible to piece together, with the mortar of some conjecture, the pattern of failure. Intra’s power had made for the bank and its chairman, Yusif Bedas, some powerful enemies. And in a series of separate acts that built a devastating chain, they broke the bank.

Britain moved first. Unhappy over Bedas’ refusal to buy British Aircraft VC10s for Intra-owned Middle East Airlines (MEA), Whitehall pressured Kuwait into transferring funds away from Intra and into Britain to shore up the pound. Then the government of France, which owns 15% of MEA, covets the rest, and doesn’t like pro-American Bedas in any case, blocked an Intra bid to build a seriously needed new European headquarters in Paris. Next Russia, always glad to oblige in such matters, had its Narodny Bank withdraw the $5,000,000 it had deposited with Intra. Narodny staffers then spread the rumor that Intra was sick.

Intra’s trouble was still far from hopeless, but the smell of blood was in the financial air. Pro-Saudi Arabian politicians in Lebanon cited leftist newspaper attacks on King Feisal to persuade some Saudis to make immense withdrawals. Attempting to head off an acute crisis, Bedas went to the government’s Central Bank for a loan. There he ran up against old foes, and the loan was refused. Word of the refusal soon reached the leaders of Lebanon’s bank employee union, who disliked Bedas for keeping the union out of Intra with high salaries. With the reported leadership of two ex-government bigwigs, both of whom had been refused large loans by Bedas, the union helped to mount a phone and letter, door-to-door campaign to spread the news of Intra’s crisis to small depositors, who panicked.

Downed Cow. Apparently aware of what was going on, the Cabinet of Prime Minister Abdullah Yaffi summoned Acting Intra Chairman Najib Salha and asked whether he could personally guarantee Intra’s balance sheets. He said he would check, but when he returned to the meeting with an affirmative answer, he was barred forcibly by an armed guard. While he futilely shouted protests from outside, the Cabinet adjourned without the guarantee. The next morning the bank was broken.

But perhaps not permanently. The other banks, at first joyous at the collapse of their big rival, now feel that only the reopening of Intra will bring back confidence in Lebanon’s key banking industry. A recent government-commissioned report by Lebanese financial experts pegs Intra’s assets at only $8,000,000 less than its liabilities, a relatively small sum that the bank directors themselves could make up out of their pockets. Bedas, who was out of the country when the crisis struck, has stayed out, but has been scouring the U.S. and other financial markets, where he has raised a reported $70 million. And if the bank wants to raise cash by selling off such assets as MEA, the interested buyers include France, Russia, Kuwait and even Stavros Niarchos. Intra, in short, claims it could open tomorrow if it were allowed to. Despite a heavy dose of press criticism, Yaffi’s government is going slow. “We are working hard,” says Intra’s Salha. “But when the cow is down, the butchers get out their knives. It is difficult going.”