Dubai Deal Drought Prompts Citigroup, Credit Agricole to Pull Bankers Home
Deutsche Bank, Germany’s largest, will relocate Christopher Laing, head of equity capital markets for the Middle East and Africa, back to London after three years in Dubai. Credit Agricole’s corporate and investment banking unit said last month it would shut its mergers advisory team in Dubai. Citigroup Inc. (C) transferred its regional head of equities, Adam Key, back to the U.K. in recent months.
“Dubai never quite fulfilled its promise as a regional banking hub,” said Raj Madha, a banking analyst at Rasmala Investment Bank Ltd., a Dubai-based asset manager. “With limited capital market activity, and little sign of a serious improvement in the near future, it’s not surprising that investment banking costs are being transferred elsewhere.”
Banks are pulling staff from the Gulf Cooperation Council region as a drought of mergers and share sales is compounded by pressure to make savings at home. Fees earned by banks in the Middle East fell 42 percent to $320 million in the first nine months of the year from $551.1 million during the same period in 2010, according to New York-based research firm Freeman & Co. Total fees in 2011 are 71 percent lower than in the first nine months of 2008, when fees peaked at $1.1 billion.
‘Different Mideast Countries’
“We are now more focused on cross-border operations and on deals initiated from different Middle East countries, including Egypt,” Bertrand Hugonet, a spokesman for Paris-based Credit Agricole said in an e-mail. The firm will service merger clients from Paris though “remains, of course, present in Dubai and more globally in Middle East region.”
A spokesman for New York-based Citigroup, the third-biggest U.S. bank by assets, declined to comment, while a Deutsche Bank spokesman confirmed Laing’s relocation.
“Deutsche Bank’s commitment to the Middle East and North Africa region remains unchanged, as well as Christopher Laing’s function,” said Michael Lermer, a Frankfurt-based spokesman. The firm “will continue to maintain a strong presence on the ground.” Both Laing and Key will continue to cover the Middle East region from London.
The sovereign debt crisis in Europe is limiting revenue from trading and curbing mergers and stock offerings in the euro zone, prompting firms to cut jobs and reduce costs. In all, banks have eliminated 137,000 jobs in the past 12 months, according to data compiled by Bloomberg Industries. The Arab Spring has also slowed mergers in the region, and reduced the volume of stocks traded on local exchanges.
‘Banks Always Overshoot’
International banks may be cutting too many people too soon, recruiters said. Increased public spending and oil output will help economies in the Middle East and North Africa expand faster than initially forecast, the World Bank said on Sept. 21 as it raised its 2011 growth estimate for the region to 4.1 percent from 3.6 percent.
“Investment banks always overshoot,” said Florence Eid, founder and chief executive officer of Arabia Monitor, a London- based research and advisory firm. “There were too many bankers here at the height of the boom and the current retraction is also too aggressive. This region is not going to fall off the edge of a cliff and still needs bankers.”
Dubai’s credit risk has dropped over the past two years as debt restructuring deals, bond repayments and profitability at companies boost confidence in the emirate’s economic rebound. The second-biggest of seven sheikhdoms that make up the U.A.E., Dubai is also benefiting from a stable government as political upheaval sweeps other parts of the Middle East.
Credit Agricole will relocate its regional headquarters out of Bahrain following the unrest in the kingdom earlier this year, two bankers familiar with the matter said in August. The French bank will move most of the 75 to 100 Bahrain-based employees into Dubai early next year, one of the bankers said, declining to be identified because the matter is private.
Dubai set up the Dubai International Financial Center, a tax-free business park for financial-services companies, in 2004 to attract global banks, asset managers and insurers to help diversify its economy. Firms such as Goldman Sachs Group Inc. (GS), Citigroup and HSBC Holdings Plc. (HSBA), boosted their presence in the region as rising oil wealth increased demand for financial advice. By July, the DIFC had 11,331 full-time employees and 813 registered companies, according to the business park.
HSBC, Europe’s biggest bank, said this week it will stop offering brokerage services to retail investors in the United Arab Emirates and focus on institutional clients after local trading volumes and stocks plummeted. The bank will also close its consumer operations in Kuwait as part of a strategic review.
Matthew Gribble, Dubai-based managing director of Michael Page International Plc. (MPI), a recruiter that operates in 32 countries, says international banks are retaining a presence in the Gulf region, though still “are scaling down.”
‘Asked to Move’
“We’ve been getting calls from bankers who have been working out here and have been asked to move, but would love to stay for the lifestyle and the benefits they get,” he said.
Bankers working in Dubai enjoy tax-free salaries and higher bonuses than their counterparts in Europe and the U.S., Gribble said. In 2008, many were commanding “seven-figure basic salaries with 100 percent bonuses,” Gribble said. In today’s market bankers coming to the region can expect “more reasonable” packages, he said.
Deutsche Bank’s Laing came to Dubai from London in July 2008, at the height of the banking boom to help build the bank’s regional operation. Under his guidance, the bank last November arranged a share sale for Axiom Ltd., a mobile-phone retailer based in Dubai, in what would have been the United Arab Emirates’ first initial public offering in two years. The company abandoned the project in December, citing market volatility.
‘Inflated in 2007’
The pace of IPOs in the six-member GCC region has halved to $400.5 million this year from $800.7 million in the same period in 2010 and $10.2 billion in 2008, according to data compiled by Bloomberg.
“The levels of activity were certainly inflated in 2007 and 2008,” said Rasmala’s Madha. “I don’t think that level of activity will ever return.”
Bankers are also confronting a slump in mergers and acquisitions. The volume of deals in Persian Gulf states fell 60 percent to $24.9 billion this year from $39.9 billion in the year earlier period, according to Bloomberg data.
Emirates Telecommunications Corp., the U.A.E. operator known as Etisalat, abandoned plans in March to buy a majority stake in Zain, Kuwait’s biggest mobile-phone company in a deal that would have been valued at $12 billion. Six months later, Saudi billionaire Prince Alwaleed Bin Talal’s Kingdom Holding Co. (KINGDOM) and Bahrain Telecom Co. ended talks to buy out Zain’s stake in its Saudi Arabian unit, a deal valued at about $950 million.
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