Is Dubai kissing goodbye to banking?
Big US and European banks are cutting investment banking jobs in the Middle East as the promise of emerging markets is overshadowed by a need to slash costs and a dearth of deal activity
Institutions including Deutsche Bank, Credit Suisse and Japan's Nomura Holdings have all cut jobs in their investment banking teams for the region in recent weeks.
And where previous cuts have seen junior bankers shown the door, the recent round has included directors and, in Nomura's case, the head of its investment banking operations in Dubai.
The recent cuts follow similar moves earlier this year by Bank of America and Rothschild.
The retrenchment comes after years of rapid expansion when foreign lenders built full-fledged investment banking teams, mainly in Dubai's flagship financial center, lured by the prospect of petrodollars being lavished on overseas investments by regional sovereign wealth funds and state-backed firms.
The 2008 global financial crisis put paid to those high hopes, shrinking investor appetite, and the region was hit hard by a slump in oil prices and a real estate market downturn.
Oil prices have now rebounded but since last year's Arab Spring uprisings in the region, some sovereign funds are deploying more of their money at home as governments focus on developing their domestic economies to ease social discontent. Meanwhile, political instability in North Africa has at least temporarily deterred some investors from deal-making there.
Faced with less business in the region, as well as the euro zone debt crisis and stiffer regulation at home, global banks' patience threshold is far below what it was in the boom years.
The age of headquarters in New York or London subsidising investment banking business in the Middle East is over, giving way to a focus on revenue generation and cost reduction.
One exception to the gloom in the Gulf is gas-rich Qatar, which has been aggressively boosting its overseas investments through its sovereign wealth fund and state-linked entities. The tiny Gulf state has spent billions of dollars this year on stakes in high-profile businesses such as miner Xstrata Plc , Royal Dutch Shell and French media group Lagardere.
But Qatar has not been enough to revitalise the regional market. Middle East investment banking fees were $234.8m in the first half of 2012, up 5 percent from a year ago but far below the nearly $1 billion in fees earned by banks during the boom years of 2005 and 2006, Thomson Reuters data shows.
The fee pool has to be shared by as many as 20 global banks which hired or relocated senior bankers to attract business in the region.
An unwillingness by companies and governments to pay big fees for professional advice has made it harder to justify large teams. And the competition to win deal mandates often sees banks undercut on fees, especially if the client is a high-profile Middle Eastern name which can open doors to more deals.
As many as a dozen banks pitched for an advisory role in the proposed state-backed merger of Abu Dhabi's Aldar Properties and Sorouh Real Estate this year in the hope of winning further deals in the wealthy emirate. Abu Dhabi eventually chose four advisors with Goldman Sachs taking a lead role.
Banks have relocated some of their top bankers home or to regions where prospects are better. Other bankers are pulling the plug themselves, in order to set up shop on their own or move to more attractive financial centres.
Rothschild moved its Middle East investment banking head Herve Sawko to Paris in May, replacing him with Chris Hawley, a mergers and acquisitions banker. Paul Reynolds, managing director for debt and equity advisory services and a key figure during Dubai's 2009 debt restructuring, is also leaving the region for the boutique bank's northern Europe operations.
Standard Chartered's regional head of client coverage, David Law, relocated to Johannesburg as regional head of corporate finance in Africa.
In March, HSBC named Andrew Dell as the bank's chief executive officer for South Africa, in addition to his role as head of debt capital markets for central and eastern Europe, the Middle East and Africa. Dell relocated to Johannesburg from Dubai as part of the change.
Some are shifting to other banking sectors where prospects for growth look better. Albert Momdjian, an investment banker who ran Credit Agricole's business in the region, moved to a senior job in Swiss bank UBS's emerging markets wealth management division last year.
Bankers are hopeful that deal activity will increase in coming years as political stability gradually returns to the Middle East after the Arab Spring, and when the euro zone debt crisis eventually shows signs of being resolved.
But the US and European bankers competing for future deals may be flying in from outside the region, not operating from Dubai or other Middle Eastern centres.
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