RAPAPORT... With two of this city’s biggest capital sources for the diamond industry rumored to be up for sale, the question is being raised as to whether the whole diamond industry is sick. Perhaps, say industry observers, the major shareholders of the two big Antwerp banks understand that and feel they had better get rid of their diamond divisions as quickly as possible.
In an interview with RDR, Pierre De Bosscher, chief executive officer (CEO) of the Antwerp Diamond Bank (ADB), and Victor Van Der Kwast, CEO of the ABN AMRO Diamond Division, discussed the rumors and whether the reported sale tags on both divisions reflect the fact that the diamond business has become less profitable and more dangerous.
“If the Antwerp Diamond Bank is for sale, it has nothing to do with the diamond industry,” said De Bosscher. “Actually, our shareholder, the KBC bank — a 100 percent Belgian bank — got support for a sale from both the federal and the Flemish governments in 2008, when the financial crisis was at its worst. So, KBC had to come up with a new strategy and file it with the European Union (EU), which was approved in spite of a few amendments. Eventually, the new KBC strategy is to offer a full range of banking and insurance services to retail and small and medium enterprises, for home markets and for Eastern and central Europe. Diamond business will no longer be the core business.”
Van Der Kwast rejected the for-sale premise outright. “First of all, ABN AMRO’s International Diamond and Jewelry Group (IDJG) is not for sale,” he told RDR. “You might be confused by the period in which Fortis acquired assets of ABN AMRO Bank — at that time, options for such a sale were explored. The fact is that banks in general nowadays have less access to capital to distribute and might have to make strategic choices, which could result in eliminating some of their smaller asset classes. As diamond industry finance is a niche business, it is less mainstream and might be considered less popular.
“Our business is not more dangerous than before,” continued Van Der Kwast. “In fact, the diamond industry has actually recovered from the economic crisis faster than other industries. There have been some defaults, but when one compares diamonds with other industries, the impact actually was less — the diamond industry has not become more risky.”
Who Would Want to Buy?
In these economic times, those in the industry wonder what kind of investor would even be interested in a diamond banking branch. Another bank? A mining company? A sightholder?
De Bosscher suggested that “a certain number of banks might be interested because they consider diamonds part of their core business — some Indian bankers who want to go worldwide, I would say.”
“We are speaking hypothetically, of course,” Van Der Kwast said, noting that any potential buyer “logically would be another bank, as one needs licenses to operate. However, another party, e.g., a miner, could also invest in a diamond bank if there is support from the bank. Or an investor who has a stake in the banking sector could opt for such a step.”
In the global diamond industry, said Van Der Kwast, “Asia plays an increasingly important role, as a lot of the manufacturing and trading is taking place there and its local jewelry retail market continues to grow, overtaking more traditional economies in importance.”
Mining Company Investors
If a mining company was an interested buyer, wouldn’t that constitute a conflict of interest? When De Beers was an ADB shareholder, it was argued by some clients of ADB that such seemed to be the case, because De Beers had access to “insider” information on diamond purchases, sources and prices.
“De Beers had a 12 percent share in ADB and ended up selling it in 2002,” De Bosscher said. “If you consider their influence on the board, it’s fair to say that there was none really, as the focus of the board is strategy — and not individual clients.”
Losing the Inside Edge
In any discussion of possible changes in diamond division ownership, many in the industry question the role of current banking division management in the discussions leading up to a sale.
“It seems essential for any potential buyers that the local management remain in place at least to a certain extent,” said De Bosscher. “Otherwise, most of the division value would be gone, and the very purpose of the sale would vanish.”
Van Der Kwast admitted that diamonds is such a niche business that it’s important to have knowledge of the industry to be able to explain various industry practices and mechanisms. At the end of the day, each bank is responding to different problems, not all of them caused by the global economic crisis.
The Marketplace
• The entire Antwerp Diamond Mile was closed for its annual three-week August vacation so no business was taking place and there are no industry trends to report.
Article from the Rapaport Magazine - September 2010. To subscribe click here.