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Cablegate: Central Bank of Egypt Pressures Bank Piraeus Into

VZCZCXYZ0000
PP RUEHWEB

DE RUEHEG #2346/01 3561245
ZNY CCCCC ZZH
P 221245Z DEC 09
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 4517
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

C O N F I D E N T I A L CAIRO 002346

NOFORN
SIPDIS

E.O. 12958: DECL: 12/21/2019
TAGS: PGOV EFIN ECON EG
SUBJECT: CENTRAL BANK OF EGYPT PRESSURES BANK PIRAEUS INTO
NOT DISMISSING EMPLOYEES

REF: CAIRO2292

1.(SBU) Key Points: -- In October, Piraeus Bank Egypt, a foreign bank, tried to dismiss about 90 of its employees. After a public outcry, the Central Bank of Egypt (CBE) successfully pressured Piraeus not to dismiss them. -- The CBE has to approve foreign bank CEOs before they can officially take their position. ------------------------------------- Piraeus Bank tried to dismiss workers -------------------------------------
2.(C) On 17 December, Econoff met with Nayera Amin, CEO of Piraeus Bank Egypt, to discuss the Bank,s dispute with the Central Bank of Egypt (CBE) over dismissing some of its workers. Amin told us that the bank has never generated a profit due to overstaffing and numerous unskilled personnel. Amin said she along with Piraeus Bank Group headquarters in Greece decided to identify the lowest performing employees and layoff about 300 of them in three tranches. She said that in October 2009 the bank,s human resources department identified about 90 underperforming employees to be dismissed, called them into a room without any notice, and forced them to sign letters of resignation.

3.(U) Piraeus Bank Egypt, with 1500 employees and only 57 branches, is one of the smaller foreign banks in Egypt. It was created in 2005 when Piraeus Bank Group in Greece bought the Egyptian Commercial Bank and renamed it Piraeus Bank Egypt. The Piraeus Bank Group in Greece owns 95% of Piraeus Bank Egypt. Amin became CEO of Piraeus Bank Egypt in June 2009; she replaced Gamal Moharram who left in December 2008.

4.(C/NF) After Moharram's departure, the Egyptian press portrayed him as a hero, claiming that he resigned because Piraeus Bank Group in Greece was forcing him to fire workers. However, Piraeus Bank Egypt's loss of $4.4 million dollar loss in 2008, the lowest profit margin of any Egyptian Bank that year, was almost certainly a contributing factor. World Bank Lead Financial Economist Sahar Nasr told us that Piraeus Bank discovered that Moharram was committing fraud and asked him to resign. Nasr said that the GOE keeps incidents like this out of the press so it will not hurt confidence in banks or give groups that oppose privatization more opportunity to criticize the GOE for increasing the role of the private sector in the economy and opening up to foreign businesses. Moharram is now the president of the American Chamber of Commerce in Egypt. --------------------------------------- CBE has Influence Over of Foreign Banks ---------------------------------------

5.(C) According to Amin, independent Egyptian journalists objected loudly to the dismissals and called on the CBE governor to intervene. CBE Deputy Governor Hisham Ramez told us that the CBE was upset with how Piraeus Bank Egypt had handled the firings and called the Bank,s board and pressured them into rehiring the workers and not dismissing any more. Ramez admitted that the CBE has no legal authority to intervene in a foreign bank,s dismissal decisions but implied that the CBE threatened the Piraeus Bank Egypt board to no longer give Piraeus Bank any special treatment if it did not comply. Ramez told us that the CBE had allowed Piraeus Bank to open new branches even though it did not meet the minimum capital requirements and he seemed taken aback that Piraeus would try to fire workers after the CBE had done it a favor. Within about a week of CBE's intervention, Piraeus Bank rehired the workers and postponed its plans to dismiss more employees.

6.(C) Amin told us that the CBE has control over foreign bank CEOs because it has to approve them, and it is not a pro-forma process. She said that once a bank appoints a CEO, the person has to be vetted by the CBE, including a long and thorough investigation of the candidate,s credentials and financial information. She also said that EGIS, the Egyptian national intelligence service, conducts a background investigation of the candidate. Amin told us that the CBE rejected the previous Piraeus Bank Egypt candidate for CEO without giving any explanation. Amin said this was unusual from what she has seen in North Africa during her 20 years working for Citibank in the region. She added that in Tunisia the central bank has to approve foreign bank CEO candidates, but the approval is pro-forma.

7.(C) Amin said she was confident that once the press forgot about this incident Piraeus Bank Egypt would be able to return to its plans to reduce the number of employees if they approached it differently, perhaps by offering an early retirement package like the public National Bank of Egypt did (reftel). Amin admitted though that if Piraeus Bank Egypt does not begin to see a profit soon, the Piraeus Bank Group will probably sell it. ------- Comment -------

8.(C) As long as the GOE retains formal and informal control over foreign banks operating in Egypt and the GOE bows to public pressure to protect private sector jobs, the GOE will almost certainly continue to interfere in foreign banks' operations. GOE interference in foreign banks' attempts to improve their efficiency will undermine the benefits of banking reforms aimed at introducing foreign competition into the sector and restructuring state-owned banks to make them more efficient and less susceptible to government pressure. GOE interference in a foreign banks' attempts to become profitable will likely discourage much needed foreign investment in the financial sector and complicate any future attempts by the GOE to privatize any government-owned banks. Scobey

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