Business | Banking
Middle East 'set to emerge stronger from credit crunch'
The banking crisis will cause a credit crunch that will drive global recession for as long as two years, by which time the Middle East will be well positioned to emerge in a very strong position, said Ivan Pictet, the senior partner of Pictet, Europe's largest private bank.
- By Francis Matthew, Editor at Large
- Published: 00:01 November 12, 2008
- Ivan Pictet, senior managing partner of Pictet, feels credit crisis will slow recovery to as long as 18 months to 2 years.
- Image Credit: Gulf News Archives
Dubai The banking crisis will cause a credit crunch that will drive global recession for as long as two years, by which time the Middle East will be well positioned to emerge in a very strong position, said Ivan Pictet, the senior partner of Pictet, Europe's largest private bank.
After 18 months to two years, the Middle East will feel a rebound as oil prices start to go back up.
"There has been very little investment in oil production facilities, so any rebound will be reflected in the oil price very quickly," said Ivan Pictet, who predicted that oil prices would return to their high levels, bringing renewed high revenue streams to the Gulf countries.
Pictet is the largest private bank in Switzerland. It is 200 years old and has $325 billion (Dh1.19 trillion) in assets under its management and has no lendings at all. It is managed by seven partners who own the bank and share unlimited liability for the bank's assets.
The private partnership structure means the bank does not trade on its own account and has no toxic assets. "We are able to move fast, unlike the big banking institutions which have governance problems," said Ivan Pictet, who is in the seventh generation of his family to help run the bank.
"The global problem started with the real estate bubble, which led into the interbank crisis which peaked in October. The banking system is not yet working as it should, but at least the governments have accepted that they have a responsibility for the situation, even in China and Russia which were among the last to do so," said Ivan Pictet.
"We now have to deal with the distortions in the markets since many banks have moved under government control and the others have government guarantees. These situations may allow careless banking," he commented, hoping that the governments will make clear their plans to get back out of the banking business.
Lack of refinancing
"After the real estate bubble and interbank crisis, the problems then moved into a third stage in the wider economy, where non-banking companies do not have the same support that the banks have received. Companies are finding it difficult to refinance themselves and banks are reluctant to lend," he said.
As proof of what is happening, Ivan Pictet pointed at the huge spreads on corporate bonds, running at 400 to 540 basis points, much higher than banking bonds.
"This credit crisis in the real economy will slow recovery to as long as 18 months to 2 years, even if the recession is not as deep as it might have been if governments had not acted with the volume of funds that they have put into the system.
"If the authorities react to these succeeding crises by regulation, they may create a fourth stage if they are tempted to slip into protectionism," said Ivan Pictet, pointing at the dangers of excessive regulation, combined with high government ownership of the banking sector.
Ivan Pictet was backed up by Jacques de Saussure, managing partner of Pictet, who argued for better global regulation, saying: "It is difficult to create a single world regulator, but we do need coordinated global regulation. The central banks are doing this already and the work done by the Federal Reserve, ECB, Bank of England and Swiss National Bank are all examples of this."
Ivan Pictet waved the flag for Switzerland, speaking as chairman of the Swiss Banking Association.
"The basic banking business in Switzerland is sound and very resilient, and of the 370 banks in the country, there is very little investment banking, although some of the bigger banks got caught by badly structured products and toxic assets. Asset management and trade finance are the main businesses of our banks," Ivan Pictet said.
Dubai presence
Pictet has had a representative office in Dubai for a few years and hopes to open a branch in the Dubai International Financial Centre (DIFC) soon. The bank covers the GCC, India and parts of Asia from Dubai, aiming both at wealthy private clients, who comprise the bank's traditional market, and institutional clients, which make up about 50 per cent of its business - including wealth funds, state entities and corporations.
De Saussure pointed out that the bank has had clients from the UAE and the Gulf since the 1970s, both private and institutional, as part of what he described as "very important relationships".
Pictet's private clients (with $100 million or more) want a global service covering all their needs, whereas the wealth funds give highly tailored mandates to the bank, wanting specific services which the bank's expertise in wealth management is well placed to provide.
Francesco Genovese, Pictet's head of institutional business development in the Middle East, said Pictet has attracted billions of assets from institutions in the Gulf and expects to attract billions more. These institutions include wealth funds, central banks and other state entities.
Pictet has an active Family Office which offers advice to families on how to handle wealth succession, dealing with global patrimonial problems for client families who need to develop structures to handle succession, while also ensuring the best management for their companies.
Last week the bank organised a conference in Cairo for 60 wealthy Arab families and invited 30 German families to join them to discuss long-term succession, family governance and managing wealth and the sorts of options that are open to families and their businesses.
Ivan Pictet said: "It was interesting for Arab families, many of which have been in business for only two or three generations, to meet German families who have been managing their succession issues for centuries."
Pictet has a bias to sustainability, and the bank's funds have been active in this area for some decades. Ivan Pictet explained: "We have a $4 billion water fund, the largest in the world, which invests in water technology, and ways to bring clean water to where it is needed." Among its 90 funds it has many others focused on sustainable industries, like biotechnology and clean energy.
The bank itself is committed to a carbon disclosure agreement and its new headquarters in Geneva has 60 per cent less carbon emissions than similar buildings in the city. Its staff also follow strict sustainable guidelines. For example, they are not allowed to fly to neighbouring Zurich and are encouraged to use other modes of public transport instead.
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