EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank, said it is cutting costs to cope with a decline in stock markets after popular revolts toppled governments in the region.
“We are adopting a very aggressive cost-reduction plan,” Chief Executive Officer Yasser El-Mallawany said in an interview yesterday in Davos, Switzerland at the World Economic Forum. “We should see a serious impact partially in 2012, but mostly in 2013, on costs,” without hurting the firm’s biggest revenue sources, he said.
Egypt’s EGX 30 Index slumped 49 percent last year after the ouster of President Hosni Mubarak. Third-quarter profit at EFG-Hermes plunged 64 percent to 32 million Egyptian pounds ($5.3 million) as investment-banking income declined. Revenue at the investment bank slumped 38 percent to 150 million pounds and group revenue fell 20 percent to 396 million pounds.
Egyptian stocks may rebound this year after the country elected its first parliament since the uprising, El-Mallawany said. The EGX 30 has gained 21 percent this month and EFG-Hermes has climbed 13 percent.
EFG-Hermes also operates in Saudi Arabia and the United Arab Emirates, the two-biggest Arab economies. EFG acquired 65 percent of Lebanese commercial bank Credit Libanais SAL in 2010 to expand beyond investment banking.
2009 Debt Crisis
The commercial bank contributed 62 percent of EFG-Hermes’s third-quarter revenue as income from brokerage and investment-banking services declined. In Dubai, the Middle East’s business hub that escaped the unrest, the benchmark DFM General Index dropped on Jan. 16 to the lowest since May 2004 as the real-estate and financial industry in the Persian Gulf emirate struggled to recover from a 2009 debt crisis.
EFG-Hermes is “not letting people go,” El-Mallawany said. Instead, executives at the investment bank have taken a “discretionary” pay cut of about 40 percent, he said.
A turnaround for the investment bank and Arab markets can happen once Saudi Arabia, the world’s top oil exporter, opens its stock market to foreign investors, El-Mallawany said. The kingdom’s Capital Market Authority is in talks with international banks to make the nation’s stock exchange accessible to foreign investors early next year, three bankers familiar with the matter said in October.
“This is going to be transformational for Arab markets and EFG as well,” El-Mallawany said. “I am ready. I just need the ignition. I have a sales team, I have offices, I have everything. I just need to press the button.”
The investment bank has a “good pipeline” of mergers and acquisitions in the Middle East and North Africa in industries such as food, petrochemicals and pharmaceuticals, El-Mallawany said. Still, executing deals has become more challenging because the “price gap” between both sides of each transaction is widening, he said.