By Gordon Platt, Global Finance Magazine
The global economic slowdown and regional political turmoil are casting a pall over investment banking in the Middle East. As there's no change in sight, bankers in the region may be in for another challenging year.
Overall investment-banking fees in the Middle East declined to $407 million last year, the lowest since 2004, according to Thomson Reuters. Advisory fees on mergers and acquisitions, which were paid primarily to international banks, fell 37% from 2010. Debt capital market fees slumped by 66%.
A number of global investment banks, particularly those based in Europe, have cut staff in the Middle East as a result of the dearth of deals and the need to deleverage to meet regulatory requirements. Crédit Agricole last year shut its M&A advisory unit in Dubai. Lloyds is looking at a range of options for its Lloyds TSB Middle East banking unit. Royal Bank of Scotland sold its UAE retail operations last year to Abu Dhabi Commercial Bank and is considering selling its cash equity and M&A business in the Middle East. Meanwhile, investment bankers are moving into Baghdad in search of new opportunities, although security is a major concern.
TOUGH ENVIRONMENT
Certain markets in the region will be better than others this year, although overall the environment remains tough, says Shahzad Shahbaz, chief executive of QInvest, based in Doha, Qatar. Despite global uncertainties and political developments in the region, the member states of the Gulf Cooperation Council are doing quite well, he says.
"There will be a decent amount of investment banking activity in Qatar, where the economic outlook remains quite good," Shahbaz says. "The main drivers of growth for the Qatari economy are energy, which will remain relatively firm, and infrastructure, which will be the largest sector of investment ahead of the 2022 World Cup [of soccer], to be held in Doha."
QInvest was granted a license last year to commence operations in Saudi Arabia. It also has a representative office in Turkey, where "the pipeline of prospective deals looks interesting," Shahbaz says.
Debt financing will be a major area for investment banking in the region in 2012, particularly for sukuk, he says. There were more than $23 billion of sukuk issued globally last year, the most since the financial crisis hit in 2007-2008. Saudi Arabia is among the most promising Islamic finance markets in terms of assets and liquidity.
"There will not only be regional issuers of sukuk but a lot of issuers from outside of the region, as the European banks deleverage," Shahbaz says. Cross-border mergers and acquisitions could also be active, as companies in the private sector and sovereign wealth funds invest outside of the region, he says.