Middle East Oil-Cash Gusher Lures Foreign Investment Banks
LONDON — Awash with dollars from a pumped-up oil market, the Middle East is becoming a priority growth target for investment banks keen to tap into promising takeover and capital-markets earnings streams.
Up for grabs is about $1 billion in annual income from investment- and corporate-banking activities, a figure investment banks expect to grow exponentially during the next few years.
Fueling it is a gusher of petrodollars fed by heavy demand and soaring prices for crude oil and natural gas. Coupled with it is a greater investment savvy from a new breed of entrepreneurs, many armed with Western business degrees.
To be sure, corporate and private banking — which cater to the needs of companies and wealthy individuals — remain profitable businesses in the region, but a new level of financial sophistication is emerging. And this is bringing to the fore capital-markets products, such as debt issuance and initial public offerings, as well as mergers and acquisitions advisory.
From zero IPOs in 2003, this year has seen 13 listings raising $3.05 billion, according to data provider Dealogic. Mideast companies’ acquisitions outside the region have this year hit $25.5 billion, compared with an average of $2.8 billion a year in the past three years. Companies in the United Arab Emirates, Saudi Arabia and Kuwait, in order, are the biggest deal makers.
The bullish financial conditions are inspiring investment banks such as Morgan Stanley, UBS AG, Citigroup Inc. and J.P. Morgan Chase & Co. to revise expansion models.
The logic behind expanding in the region is simple, says Mukhtar Hussain, HSBC Holdings PLC’s head of corporate and investment banking in the Middle East. “A dollar invested in the Middle East is likely to earn HSBC more than anywhere else in the world,” he says.
The push into the Mideast has led to a battle between three regional capitals — Qatar, Bahrain and Dubai — to become the headquarters of choice for expanding banks.
With heavy infrastructure development and an accompanying marketing blitz, Dubai is seen as the front-runner to capture the bulk of the banks’ office-space needs.
Habib al-Mulla, chairman of the Dubai Financial Services Authority, says his team of regulators is processing 26 banking-license applications from financial firms.
Increasingly, banks recognize that serving clients in the Middle East requires a permanent office in the region. Omar Al-Salehi, head of Middle East corporate finance at UBS, says: “With so many more deals, the frequency of travel has increased. There reaches a critical point at which it becomes more effective to just stay in Dubai.”
But Qatar hasn’t given up the fight. It recently hired Dubai’s former top regulator to help promote the Qatar Financial Center. It hopes to persuade Goldman Sachs Group Inc. to open an office, given the huge business the investment bank has done in the gas-rich emirate. Goldman Sachs says it is looking at several options.