Faced with these difficulties, two EBIC partners, Société Générale (Paris) and Banca Commerciale Italiana, decided to leave Eurab. Janssen, despite some reservations, did not think Société Générale de Banque should do the same. Eurab, he said, offered good profitability though with a very high risk coefficient. The Brussels subsidiary represents half the group s risk. The activity there is essentially medium-term lending to Arab countries and to South America. Société Générale de Banque is responsible for management there.
This latter point was an issue for Janssen however, as he believed that this responsibility was becoming too heavy a burden and was in any case out of proportion with Société Générale de Banque s shareholding. In vain the bank had suggested that a standby facility of US$100 million should be subscribed by all shareholders, pro-rata with their shareholdings. The EBIC banks gave their consent, but their Arab partners were reluctant to reply with the request. From that time on, Générale management deemed it necessary to systematically reduce the commitments of the Brussels subsidiary so as to bring the risk level into line with the bank s shareholding.
Société Générale de Banque therefore, from 1982 on, endeavoured to reduce the Eurab Brussels balance sheet by focusing the business on documentary credits and limiting the loan portfolio. However, transferring assets i.e. parts of the loan portfolio onto the books of other branches created tensions. The London subsidiary did not have sufficient capital to take on such exposure and attempting to transfer assets to the Bahrain subsidiary met with resistance from some Arab shareholders.
In October 1985, Société Générale de Banque held a 7.6 percent share of Eurab s capital. The total consolidated balance sheet of the consortium was in the order of US$2 billion, while capital and reserves amounted to around US$125 million. However the assets included substantial loans to countries where the economic situation was causing concern. An increase in capital was planned, but the Arab shareholders proved unable to contribute their share. Therefore at the end of 1985, the decision was taken to liquidate the Eurab group.
Société Générale de Banque s exposure to the Middle East in the 1980s
In the 1980s, the Middle East remained a major reserve of capital. The funds that Société Générale de Banque took in from the region almost always exceeded the loans granted to borrowers there.
Nevertheless there were many ups and downs in the pattern of deposits Middle East banks entrusted to Générale, in parallel with the fluctuations of currency reserves of Arab countries and the regional political situation. Deposits stood at BEF 29 billion at the end of 1983, compared with BEF 49.6 billion at the end of 1982. This decline was partly due to the outbreak of the Iran-Iraq war; Iraq s assets had plunged from BEF 20 billion to BEF 400 million. Fortunately the Kingdoms of Saudi Arabia and Bahrain, and Kuwait and Jordan remained loyal and sizeable depositors of funds.
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