Kingdom Holding’s New Bank Stake Meets a SAMA Clawback

SAMA fined Banque Saudi Fransi on November 23, 2017 over employee incentive payments that broke the bank’s own rules. The Saudi Arabian Monetary Authority shut the programme and told the lender to recover money in court. Kingdom Holding had become the largest shareholder 64 days earlier.

In a Tadawul filing that day, the Riyadh-listed bank said the sums were already in prior financial statements and that it did not expect a material change to those accounts. The pay scheme, the authority table, and the chief executive’s office were the parts that moved.

SAMA’s Addendum Names Governance Failures

The November 23 addendum was a follow-up to an October 11, 2017 notice. On that Wednesday, SAMA said it was watching the board’s work on “deficiencies in the application of sound governance and control policies.” The bank’s board, the same day, said it had received information on “excess powers granted to several employee incentive operations,” which produced “payments which violated the approved policy of the incentive programme.”

SAMA sent inspectors to the bank, reviewed the authority manual, and sat with the board more than once. After an independent examination team filed its report, the regulator said Saudi Fransi had committed violations of sound governance and supervisory policies, specifically on the “program of operations for employee incentives for past years.” It then imposed financial fines. It did not publish a riyal figure for those fines, and the bank did not either.

THE 72 DAYS FROM DEAL TO FINE

1. September 12, 2017: Kingdom Holding announces it will buy 16.2 percent of Banque Saudi Fransi from Credit Agricole Corporate and Investment Bank.
2. September 20, 2017: Kingdom Holding says the purchase is complete and that all regulatory approvals are in hand, making it the largest shareholder.
3. October 11, 2017: The board appoints an independent team on the incentive payments, and SAMA says it will test whether the board’s fixes are adequate and fair.
4. November 14, 2017: The board, in coordination with SAMA and other regulators, ends the services of chief executive and managing director Patrice Couvegnes.
5. November 23, 2017: SAMA publishes the addendum, imposes the fines, and records that the bank is preparing court cases to recover money paid outside the programme or the powers granted.

Banque Saudi Fransi was then among the kingdom’s larger listed lenders, the fifth-largest by assets, with 86 branches at the end of 2016. The incentive file SAMA opened was not a one-week slip. It covered “past years.”

A 5.76 Billion Riyal Stake Changes Hands

Kingdom Holding Company, chaired by Prince Alwaleed bin Talal, struck a 16.2 percent stake at 29.5 riyals a share. The consideration was 5.76 billion riyals ($1.54 billion). Credit Agricole had held 31.1 percent. After the sale it kept 14.9 percent and stayed on as a strategic investor, with room to sell a further 5 percent in off-market blocks.

The 29.5 riyal price sat below a 33 riyal close the day before the September 12 announcement. Kingdom Holding said it would fund the buy with cash and existing bank facilities. Mohamed Fahmy, then the company’s chief financial officer, called the deal the end of a three-year push to lift recurring cash flow and said the bank’s results would feed Kingdom Holding’s numbers after closing.

THE STAKE KINGDOM HOLDING TOOK

Prince Alwaleed, as chairman, tied the purchase to Vision 2030 and the National Transformation Plan. Talal Al Maiman, then Kingdom Holding’s chief executive, said the bank was a core step in rebalancing the portfolio toward income-producing assets. The September close put that portfolio on the hook for whatever SAMA then found in the incentive file.

This transaction is the culmination of management efforts over the past 3 years to increase KHC’s recurring cash flow and profitability. Banque Saudi Fransi’s solid financial performance will have a positive impact on KHC’s financial results upon closing of the transaction

Mohamed Fahmy, Chief Financial Officer, Kingdom Holding Company, September 12, 2017

A 16.2 percent holding is not majority control. It was enough, on the company’s own description, to make Kingdom Holding the largest name on the register just as the central bank moved from watching the board to fining the bank.

The Board Ends Couvegnes’s Tenure

On November 15, 2017, Banque Saudi Fransi told Tadawul that the board, after coordinating with SAMA and other regulators, had ended Couvegnes’s services as managing director and chief executive from November 14. He had been in the post for six years. The filing did not state a reason.

The same notice named Rayan bin Mohammed Fayez, who had been chief executive of Savola Group, as managing director and chief executive from February 18, 2018. Until then, board member Ammar bin Abdul Wahid Al Khudairy, who chaired the audit committee, stepped off that committee and ran the bank as acting managing director. Badr bin Abdullah Al Issa, another board and audit-committee member, took the audit chair on an interim basis.

On November 30, 2017, Credit Agricole’s chairman wrote to ask that Couvegnes also leave the Banque Saudi Fransi board, where he had sat as a non-executive representing the French bank. The board accepted that request the same day. The November 23 SAMA addendum had already listed “appointments of new administrative” among the urgent steps the board had to take. The C-suite change sat inside that instruction, whether or not the bank spelled out a cause.

Who Pays Back the Incentive Money?

SAMA’s addendum did more than levy an unnamed fine. It recorded a package of fixes the board had already been told to put in place, and it noted that the bank was preparing lawsuits against a number of people to recover sums that did not match the programme or the powers granted.

WHAT SAMA TOLD THE BOARD TO DO

• Stop the scheme: The employee incentives programme for past years had to be halted.
• Independent exam: The bank had to hire an outside team and send its report to both SAMA and the board.
• Authority table: The manual of who could approve payments had to be reviewed.
• Structure and posts: The organisational chart had to change, with new administrative appointments.
• Court recovery: Cases were to be filed to reclaim money paid outside the programme or the granted powers.
• Financial fines: SAMA imposed penalties on the bank after reading the reports, with no amount disclosed.

The bank’s own Tadawul statement on November 23 said the independent exam, done under SAMA’s direction, was finished, and that staff had listed which payments matched the programme and which did not. It said it was working with the competent authorities to recover the non-matching sums and would “hold the accountants and beneficiaries accountable.” Any money brought back would be booked as additional profits for prior periods.

In addition, the bank must stop the employee incentives program, reviewing the authority table, amendments to the organizational structure, and appointments of new administrative. It should be noted that the bank is in the process of filing cases with the competent courts on a number of persons to recover amounts paid that are inconsistent with the program or the powers granted.

Saudi Arabian Monetary Authority, addendum statement, November 23, 2017

The people in the dock, on that wording, are not the new 16.2 percent holder. They are the accountants and the beneficiaries of payments that sat outside the approved scheme. Kingdom Holding’s exposure was the franchise it had just paid 5.76 billion riyals to own, now running a clawback through the courts under a regulator that had already rewritten the org chart.

No Material Hit to Published Accounts

Investors looking for a restatement did not get one. The board told the market that every riyal already paid under the employee incentive programme sat in financial statements the bank had previously issued. Because those costs were already on the books, it said it did not expect significant changes to the figures.

WHAT WE KNOW

• The payments: They were booked in earlier periods, so a clawback would show up as extra profit for those years, not as a fresh operating hole.
• The programme: It is closed. SAMA listed the stop order among the urgent board decisions.
• The owner: Kingdom Holding’s 16.2 percent stake was in place before the November 23 addendum.

WHAT IS UNCONFIRMED

• The fine: Neither SAMA nor the bank published a riyal amount for the penalties.
• The clawback: No official figure was given for sums paid outside the programme, or for how many people faced suits.
• The names: The Tadawul filing speaks of accountants and beneficiaries. It does not identify them.

That split is why a “fine” headline undersells the file. An unnamed penalty on a bank that already expensed the bonuses can look small on a profit-and-loss line. A shut scheme, a rewritten authority table, court claims, and a chief executive removed in coordination with the regulator are a different kind of cost, and they landed on a register that had just been redrawn by the Kingdom Holding purchase.

SAMA Writes Clawback Into Bank Pay Rules

The 2017 case sat under older compensation guidance. SAMA’s Rules on Compensation Practices went out in circular 26194/BCS/12580 on May 3, 2010. More than five years after the Saudi Fransi addendum, the central bank replaced that circular with a fuller pay code.

The Banks Remuneration Rules issued in January 2023 (circular 44049096, dated January 4, 2023) took effect on June 1, 2023. They apply to locally incorporated banks and, with tweaks, to foreign-bank branches. The stated aim is to deal with “the risk of misconduct that may be associated with improper reward practices,” not to set the absolute size of anyone’s bonus.

The board, under those rules, owns the design of the pay system and may not hand that job to senior management. Adjustment is required at least in cases of misconduct that caused significant loss, and in cases of fraud, gross negligence, or a material failure of risk controls, including breaches of internal policy. The rulebook defines malus as a cut to deferred pay before it vests, and it defines clawback of variable pay already vested as a duty to return money already received.

The Board of Directors (the Board) of a bank shall be responsible for the overall design and oversight of the remuneration system that promote prudent risk-taking behaviors and business practices and accordingly shall not delegate this responsibility to senior management.

Saudi Central Bank, Banks Remuneration Rules, January 2023

That is the tool SAMA reached for at Banque Saudi Fransi with court filings in 2017, written later into a code every Saudi bank has to run. Kingdom Holding’s 16.2 percent bought a corporate franchise and, within 64 days of closing, a regulator-led rebuild of how that franchise paid its people.

The November 23 Tadawul notice still reads as the bank wrote it: prior-year bonuses already sat in the accounts, so the statements were not expected to move much. The programme is gone, the suits were meant to bring money back as old-year profit, and the largest shareholder on the register is the one that paid 5.76 billion riyals to be there when SAMA closed the file.

Frequently Asked Questions

When Was Banque Saudi Fransi Founded?

Royal Decree No. M/23 of June 4, 1977 created the bank as a Saudi joint stock company. It began operations on December 11, 1977 by taking over the local branches of Banque de l’Indochine et de Suez, and it was still affiliated with Credit Agricole when Kingdom Holding bought in.

What Stake Did Credit Agricole Keep After the Sale?

Credit Agricole Corporate and Investment Bank kept 14.9 percent and said it would remain a strategic investor. The sale terms left it able to sell a further 5 percent through off-market block trades, with a commitment described at the time to hold at least 9.9 percent for a year after the deal.

When Did Rayan Fayez Take Over as Chief Executive?

The board set February 18, 2018 as the date Rayan bin Mohammed Fayez would become managing director and chief executive. Ammar bin Abdul Wahid Al Khudairy ran the bank as acting managing director from November 14, 2017 until that handover.

Which Older SAMA Pay Circular Did the 2023 Rules Replace?

The 2023 Banks Remuneration Rules supersede the Rules on Compensation Practices issued as circular 26194/BCS/12580 on May 3, 2010. Banks had to bring even existing employment contracts into line with the new text by the June 1, 2023 start date.

Disclaimer: This article is news reporting and analysis of regulatory actions and company filings. It is for information only and is not investment, legal, or financial advice. It does not recommend buying, selling, or holding shares in Banque Saudi Fransi, Kingdom Holding, Credit Agricole, or any other security, and it does not advise on bonus clawbacks, court claims, or employment disputes. Readers should consult a licensed financial adviser, lawyer, or qualified accountant before acting on any figure or status in this piece. Amounts, stakes, and case outcomes reflect the public statements cited here as of the dates on those statements and may have changed since.