Investment Perspective: Biggest Risks to Iraqi Banks

Mark DeWeaver, co-founder of Quantrarian Capital Management – a DC-based emerging markets hedge fund – and author of Animal Spirits with Chinese Characteristics: Investment Booms and Busts in the World’s Emerging Economic Giant, discusses the biggest risks to Iraqi Banks from an investment perspective.

According to DeWeaver, “the real issue with the banks is not how they’re reporting but what they’re really doing. And a lot of what they’re really doing involves related party transactions, in which the majority shareholder family is using bank funds for projects of its own.”

“An interesting example of this is that majority shareholders apparently sometimes will get a line of credit from their own bank to subscribe to the bank’s rights issues. In other words, when their bank has a rights issue, they’ll take up the rights on the shares that they’re holding by borrowing money from their own bank to pay for them. That means that the capital base of the banks is not quite what it seems. If those majority shareholders don’t pay back these loans, the new capital disappears. As long as everything’s going fine for the majority shareholder family, such capital is real capital I suppose but it is very contingent on the majority shareholder’s ability to repay the bank,” concludes DeWeaver.