By Jeremy Howell
BBC Middle East Business Report, Bahrain
Gulf International Bank axed jobs at its headoffice
For three decades, Bahrain has been the banking capital of the Middle East. It is home to 150 banks, employing more than 14,000 people.
However, it is also a close-knit, island community of only 740,000 nationals. Depriving a fellow Bahraini citizen of his or her livelihood is widely seen as a form of social betrayal.
So when news broke late last month that Gulf International Bank (GIB) had laid off 59 employees at its head office in Bahrain - almost a fifth of the total working there - it sparked demonstrations by fellow Bahraini bank staff and trade union activists.
'Our future is finished'
"For four years I worked honestly for the bank and I considered it my second home", says Narjis Ahmed al Haddad, a former call centre administrator at Gulf International, who was attending a trade union meeting about the lay-offs a week ago. "But they terminated our jobs in one moment, so of course, you'll be angry".
"I still cannot comprehend that I don't have a job any more," says Mona al Kooheji, who worked as a secretary in the structured finance division.
"We have a lot of things set up for our futures, for our children, which is completely finished."
Bahraini's have demonstrated against GIB cutbacks
The Banking Union - Bahrain is planning a prolonged series of demonstrations about the job losses. It wants to sound the alarm.
Its chairman, Khalil Zainal, says many other banks in Bahrain are planning redundancy rounds of their own. He says he has seen lists of names which they submitted to the Ministry of Labour.
"This is part of future lay-offs throughout the banking sector," he said. "If this action is let pass, it will seriously affect other banks. The reason for our demonstrations is to give a signal to management at the other banks that this action was absolutely unacceptable."
Gulf International is an investment bank jointly owned by the governments of the six Arab states which make up the Gulf Cooperation Council. It invested heavily in complex derivatives and hedge funds overseas.
It made a $396m loss last year and a $757m loss in 2007. It has recently sold of over half its foreign assets to the sovereign wealth funds of its shareholder governments and slimmed down its operations.
"GIB has probably been the most aggressive, the most global, in its level of activities," says the recently-appointed chief executive, Dr. Yahya al-Yahya. "And unfortunately it got caught in this financial crisis, which also led to the unpleasant reality of having to make redundancies."
Trade unions are worried that other banks might also cut back
Bahrain became the banking capital of the Middle East when civil war broke out in Lebanon, the previous centre. The government, seeing an opportunity to create a new economic sector, speedily drew up regulations for offshore banking, and institutions from all over the world set up branches in Bahrain, using it as a base for managing the Gulf's petro-dollar wealth.
Today, financial services generate over a quarter of Bahrain's national income. Banking is considered one of the most secure sectors in which to work in Bahrain.
That is important, because no country in the Gulf is more sensitive to job losses than Bahrain. Up until four years ago, it had an unemployment rate of over 15%. There were frequent protests and riots over the lack of jobs.
Nowadays, the jobless rate is below 4%, helped - to a large extent - by the expansion of the financial services sector, which employs almost 10,000 Bahraini nationals. The question is whether the rate will be pushed up again by mass redundancies throughout the banking sector.
Looking for weaknesses
Are there other banks in Bahrain as financially troubled as Gulf International?
"I don't know", says Robert Ainey, the US-born chief executive of the Bahrain Association of Banks. "But if you look at the results of the biggest banking employers in Bahrain, their results are solid. So it's not a question of having to cut staff expenses to return to profitability. They are profitable."
But Banking Union - Bahrain says there are a number of other banks - particularly stand-alone investment banks - that are in trouble.
Two Saudi-owned, Bahrain-based investment banks - Awal and International Banking Corporation - are both seeking to restructure their debts. Awal has had its credit ratings cut to junk status. International Banking Corporation defaulted on a debt payment last month.
Banking Union - Bahrain may be right to sound the alarm over looming problems in Bahrain's banking sector.
But will demonstrations do anything to help?