Interesting development. Fortis Bank, one of the members of the consortium that bought ABN Amro, now seems reluctant to take the diamond finance division as its share of the spoils!

ABN Amro is the world’s largest single diamond-financing bank and Fortis’ reluctance, therefore, really makes one sit up. What could the matter be? ABN’s diamond finance head Loet Kniphorst has been rather negative about the industry that is the reason for his division’s existence. Addressing the World Federation of Diamond Bourses (WFDB) and International Diamond Manufacturers’ Association (IDMA) meeting in Israel, he seemed to make the case that lending to the diamond industry carried a more than ordinary risk.

Kniphorst noted that while the value of rough diamond production had increased 50% from $8.8- to $13.5 billion and the diamond content in jewellery had grown more than 30% over the years, retail sales had risen only 20% over a 7-year period. And while he thought money was being made in retail, he didn’t seem to think there was much money to be made in diamond manufacturing. Kniphorst has also been urging the development of instruments that would allow non-bank finance to flow into the industry.

Still, the diamond finance division of ABN Amro is making money. Despite all his worries and protestations, Kniphorst oversaw the massive expansion of lending to the industry in India. The bank is making money lending to the diamond industry.

So once again, what could the matter be?