NBO controversy puts merger in doubt again

THE PROPOSED merger between BankMuscat and the National Bank of Oman (NBO) is again in doubt after an American law firm sent new information regarding NBO’s financial history to the merger’s auditor, KPMG.

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By  Rhys Jones Published  February 20, 2005

THE PROPOSED merger between BankMuscat and the National Bank of Oman (NBO) is again in doubt after an American law firm sent new information regarding NBO’s financial history to the merger’s auditor, KPMG. Arabian Business can exclusively reveal that Washington-based law firm, Chadbourne & Parke sent a letter dated February 9, to a top BankMuscat official and a senior KPMG partner last week. The letter contains details of NBO’s alleged historical practice of reporting allegded falso financial information. The move follows a spate of lawsuits against the controversial bank. In the letter, a copy of which was seen by Arabian Business, Chadbourne & Parke says it is keen “to advise BankMuscat against acquiring a financial institution that might well be laden with fraud”. The law firm also alleges that based on its investigations and conversations with persons inside NBO, including former senior officers of NBO, the bank was involved in an effort “to overstate its assets and ultimately perpetrate a fraud on its customers, regulators and perhaps the banking community in the Gulf region.” The law firm, which represents former NBO customers and shareholders, claims the bank accomplished its fraudulent objectives by engaging in an overly aggressive loan expansion programme, understated its loan loss provisions and continued to accrue interest from non-performing loans. “It [NBO] has done so [misled customers] by misrepresenting the true financial condition of NBO and by publishing false and financial statements in an effort to portray NBO as healthy and vibrant when, in fact, it is insolvent and possible nothing less than a colossal failure,” the letter reads. The letter goes on to allege that NBO has issued false financial statements for the past five years and suffered from gross weaknesses in its corporate governance, internal controls and financial reporting policies. Other potentially improper business practices also may exist at NBO’s Egyptian branch office in Heliopolis according to Chadbourne & Parke. Furthermore, the firm claims that NBO tried to unfairly influence external auditors. “We have been told that NBO utilised high-pressure tactics to arm-twist its outside auditing firm, Ernst & Young (E&Y), including former E&Y audit partners and audit management, to go along with its fraudulent reporting scheme,” the letter says. It adds that BankMuscat’s Board of Directors should “exercise caution before approving a merger with an institution that may not only be financially unsound, but also fraudulent”. The NBO said it was not aware of the letter and therefore could not comment. KMPG was unavailable for comment. A spokesman for BankMuscat said it would be making no official comment on the planned merger in the near future. The spokesman refused to confirm whether the bank had seen the letter.

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