Persian Gulf Lures Banks,
But Market Is Tough Play

By MOHAMMED SERGIE July 24, 2008

Dubai Western investment banks are rushing to the oil-rich Persian Gulf, seeking shelter from the global financial storm. But business, even in this haven, is disappointing.

International investment banks pulled in just $366 million in revenue from the region in the first half, according to Dealogic.

That’s despite a booming market for initial public offerings of stock, and it is sharply lower than the $631 million they raked in during the first half of 2007. (The figures exclude revenue from Saudi Arabian stock markets, where data are hard to track.)

A big reason for the shortfall: Banks are struggling to compete with local, entrenched players for mandates. Meanwhile, fees are shrinking amid brisk competition, bankers and analysts say.

Amid today’s high oil prices, the Gulf is enjoying a spending-and-investment binge, in contrast to the weak prospects in the U.S. and Europe. International banks are beefing up staff in the region and parachuting in top brass. Citigroup Inc. said earlier this year it would move its co-head of investment banking from London to Dubai. Last month, Merrill Lynch & Co. appointed Fares Noujaim, former vice chairman at Bear Stearns, as head of its Middle East business.

So far this year, there have been 43 IPOs across the Middle East, raising $12.5 billion, according to Middle East business-information service But international players have been largely shut out, supplanted by local firms or joint ventures between European banks long active in the region.

Saudi Arabia’s Samba Financial Group dominated as the lead manager for some $5.27 billion in offerings this year. Distant runners-up include Crédit Agricole Group’s Saudi joint venture, two local affiliates of HSBC Holdings PLC and Egypt’s EFG-Hermes. That is in contrast to last year, when Deutsche Bank AG and Merrill Lynch came in third and fourth in league tables. 

So why the big rush for Arab money, after all, US politicians just voted through a massive rescue package for the US real estate sector and President Bush has dropped his opposition and now says that he will sign it into law. Happy real estate bubble days are here again, no?  Below, today’s Journal on the socialist “a free home for all” solution. Now on to the Senate for more pork.


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