Business | Banking
Keeping an eye on the future
Global banks are coming to the GCC in the hope of tapping new income sources.
- By Lina Saigol, Financial Times
- Published: 23:16 July 18, 2008
"Never give advice in a crowd."
This Arab proverb seems to have passed some of the world's biggest banks by as they rush to set up shop in the Middle East in an effort to capture new income streams.
During the past few weeks Citigroup, Lehman Brothers, UBS and Deutsche Bank have all moved some of their most senior bankers to the Middle East as their traditional sources of revenue in Europe have dried up after the credit crunch.
The question now is whether there are too many bankers in the region chasing too few deals.
The revenues generated from the region so far are minuscule compared to what international banks can make in developed markets such as Europe and the US. During the first six months of the year, Goldman Sachs made just $19 million from investment banking activities in the six-nation GCC, according to Dealogic, the financial data provider. HSBC made $17 million and UBS $13 million during the same period.
Yet companies, governments and private families have welcomed the influx of bankers into the region.
"The international banks may not yet be recording the revenue per banker that they are targeting long-term, but they are making the necessary investments now to be in contention when advisory, merger and acquisition. and capital raising mandates begin to be awarded in greater quantities," says Mounzer Nasr, executive director of Arcapita, the Bahrain-based privately owned investment bank.
"And they are also starting to develop stronger relationships with the large pools of capital that have already been very important to some battered balance sheets," Nasr adds.
Limitation
However, George Makhoul, head of Morgan Stanley's Middle East operations, says international banks will not be able to shift the activity levels from New York and London to the Middle East.
"Trying to replicate Microsoft's bid for Yahoo is not going to happen in the short-term in the GCC," Makhoul says.
"There is some strategic activity among corporates in the region, but the scale of such deals is still very limited. It will still be a while before the size of these companies develops and their actions are considered as real M&A."
To this end, the international banks are primarily focused on helping build a serious capital market in the region - which always needs to be in place before significant M&A activity can take off - offering new equity and equity-linked products to both listed and private companies.
"What we find very valuable is when an international bank is able to cover us globally in a co-ordinated manner and provide a wide range of services, from trust listing in Singapore, to M&A and fund-raising advisory in Europe, to leveraged finance and initial public offerings in the US, all under the umbrella of a strong relationship with senior bank management anchored by our chief executive in Bahrain," Nasr says.
The flow of international institutions and their senior executives into the Gulf provides some evidence that the region is coming of age, but there are also opportunities for the international players to invest in the flow of deals into developed, western markets. Sovereign wealth funds, in particular, are looking for high-quality assets to buy. "The Middle East funds are more active and nimble than many of their western counterparts, able to take advantage of the current dislocation in the market," says Philip Lynch, Lehman Brothers CEO for the Middle East and North Africa.
Opportunities
International bankers are hoping private equity opportunities will start to open up as more family businesses in the region go through generational changes.
Last year, Carlyle Group started raising a $750 million Middle East fund to undertake buy-outs as well as take stakes in local family-owned companies. BNP Paribas, France's largest bank by market value, recently said it would start a $400 million private-equity fund to invest in the Gulf region. "The GCC region is a growth driver and it isn't one particular business that is driving growth,'' Jean-Christophe Durand, head of BNP Paribas's operations in the Gulf countries, said recently in Dubai.
But competition for assets from local players such as Abraaj and Shuaa Capital will be fierce.
A survey by Deloitte published in June suggested that the bulk of private equity investment in the Middle East will be driven by regional players, largely because foreign investors still lack sufficient understanding of local markets and are deterred by what they see as a lack of governance and higher multiples. Rising inflation in the region and uncertainty about exit options are also hampering growth of private equity.
Although most of the Middle East countries have near double-digit inflation, some, such as Qatar and the UAE, have inflation of more than 10 per cent.
Share this article
More from Banking
More from Business
Popular in Business
-
XPRESS
Way to go this DSF
A fun-filled route to guide you to all the happening dos in town
Business Editor's choice
-
Shaikh Mohammad reaffirms UAE unity
Vice-President quashes talk of discord and reassures investors on the strength of Dubai's economy
-
Pizzazz on the palm: A Nikki Bisiker project
Bright, bold and ultra glam are the top notes of this apartment in The Palm Jumeirah's beautiful marina
-
flydubai starts service to Sudanese capital
Dubai's first low cost airline, celebrated its eighth inaugural flight in less than six months
