Thursday 19 March 2009

Gulf investment banks must adapt or die

Investment banking firms in the Middle East need to adapt, speedily, to the realities of the new world emerging from the economic crisis. Their business models, which are built on leverage, proprietary trading, and investing equity capital and borrowed money in illiquid assets, are not sustainable. They will not be able to generate the same high returns on equity as before.

To survive, they need to become either niche players in their respective markets, concentrating on brokerage, intermediation and advisory services, or they should merge. Better still, they should be acquired by commercial banks. Those who resist change will be forced to shut down or become irrelevant.

The traditional sources of revenue for the region’s investment banks have been declining. Primary capital markets are virtually closed. With the exception of Atheeb in Saudi Arabia and the opening of the Damascus stock exchange, there has barely been an initial public offering, corporate bond or sukuk issued in the region since the third quarter of last year. Mergers and acquisitions are scarce, assets under management have shrunk in value, trading volumes and brokerage fees are way below previous levels, while mark-to-market losses on illiquid investments have risen.

No comments:

Post a Comment