Debt restructuring, the sale of land and an increase in management fees all combined to finally help the embattled Bahraini investment bank Gulf Finance House return to profit.
The bank, which has been hit hard by the financial crisis, yesterday reported net profits of US$ 4.7 million (Dh17.26m) for the second quarter of the year - up from a net loss of $11.2m for the same period last year.
Despite the apparent turnaround, Gulf Finance House shares were unmoved at 18.5 US cents yesterday, their lowest level since February, as investors and analysts remained sceptical about its prospects.
"At first glance [the] headline figures look positive but we don't believe they indicate the company has turned a corner," said Ghassan Chehayeb, the regional head of credit research at Exotix, a specialist investor in illiquid debt.
"The company still has not been able to produce meaningful cashflows and revenues from its core businesses. [Its] profits over the past year are more accounting-related in nature. We suspect this quarter's results was more of the same.
"Until [it] can start to generate some real income streams, we remain negative on this credit."
Gulf Finance House, which invests in companies and property developments based in the Arabian Gulf, admitted in a stock market announcement the improvements came from non-core cash streams.
The bank reduced total expenses by 17 per cent to $26.8m during the quarter as it cut jobs and employee compensation. Staffing levels have fallen from a peak of 300 before the financial crisis to 55 in the past quarter.
In May, the company reached a restructuring agreement with lenders, delaying payment of $110m of debt. However, analysts point out the company is still facing another looming deadline this month for extending a $100m syndicated debt facility.
Total income increased 70 per cent, from $6.4m in the second quarter of last year, to $19.7m as the bank sold off non-core assets.
In June it announced it was seeking buyers for its stake in QInvest, an investment bank based in Doha.
"The surge in the bank's net profits is a result of the successful restructuring of some of our facilities and the income earned from the management fees," said Hisham Alrayes, the lender's acting chief executive.
"The restructuring was extremely positive for the bank, as it allowed us a greater degree of financial flexibility as we continue to focus on accelerating our business growth with the aim of returning to long-term profitable growth, as well as significantly bolstering our asset liability profile.
"I am extremely confident that, with the continued support of our shareholders, board members and the Central Bank of Bahrain, Gulf Finance House will see continued operational stability in the short term and sustainable profitability in the long term," he added.
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