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Monday, 16 March 2009

Dubai's Mashreq to convert state deposits to capital


Dubai-based Mashreq said on Monday it would convert federal government deposits into regulatory capital after similar moves by several UAE banks seeking to improve asset quality as the financial crisis bites.

Banks in the second-largest Arab economy, where former boomtown Dubai is facing a real estate price correction, are looking to shore up their stockpile of capital as loan defaults mount and they take provisions for more bad loans to come.

Banks across the oil-producing Gulf have written down the value of investments and taken provisions against an expected rise in bad loans after the region's economic boom came to an end late last year as oil prices collapsed.

UAE's RAK Bank to convert gov't deposit to capital

RAK Bank will seek shareholder approval to convert emergency federal deposits made last year to stave off the financial crisis into regulatory capital, the bank said in a statement on Monday.

RAK Bank, or The National Bank of Ras Al Khaimah, will seek approval for the move at an extraordinary shareholder meeting on April 8, according to the statement posted on the bourse website.

Other banks pursuing similar moves are top lenders the National Bank of Abu Dhabi and Emirates NBD.

OPEC Cuts: Will They or Won’t They? A Postmortem (Registration required)

Note: I have appended an update to this piece following the OPEC meeting March 15 to assess the near term implications of OPEC's decision not to cut production.

OPEC, the group of oil producing countries that together account for about 40% of global petroleum production decided not to maintain its past production cuts which aim to strip 4.2mbd in oil production from September 2008 levels. This decision was largely expected for reasons I outline below, including the fact that although compliance with past cuts is high, it is far from 100% and very unevenly distributed. OPEC believes that its cuts have succeeded in stabilizing the market but it is balancing weak demand and an uncertain economic outlook against its own revenue needs and concerns about contraction of the sector. Furthermore OPEC's decision to maintain its past production targets, may be part of what Saudi Arabia brings to the G20 negotiating table in a few weeks.

As to the price outlook, the demand outlook should continue to keep prices weaker than in recent years, but compliance with previous cuts is at least slowing the buildup of excess supply. Should OPEC actually remove the agreed supply from the market - and non-OPEC members reduce supply slightly too on lower prices, supply cuts will eventually stop the rise in crude stocks. A significant demand and price rise are likely dependent on a turnaround in economic trajectory, which does not yet seem to be in sight. Should the global recession really be as deep and protracted as we fear, the drop in demand might offset the supply erosion, keeping prices weak. By all accounts OPEC members are worried about demand, and they should be. The outlook for the global economy suggests that demand for oil and oil products will continue to fall, particularly in the OECD, but also in most emerging economies – and the pace of demand growth slowed sharply even in countries like China that accounted for much of the demand growth in recent years. 2009 is likely to mark sharp demand reductions for crude oil - and that suggests oil prices may continue to be weak despite production cuts.

AIG discloses counterparties (4 page PDF)

Deutsche ETF offers hedge exposure

Deutsche Bank has launched an exchange traded fund based on a hedge fund index.

The index tracks the performance of Deutsche Bank’s own managed accounts platform, which currently has about 40 funds on it.

Index providers improve fee terms

Increasing competition in the index business means providers are offering more attractive terms to customers.

Where previously an asset manager looking for a customised index would pay an upfront fee for developing the index, a management fee for maintaining it and possibly also an ad valorem fee reflecting the assets attracted by a product based on the index, things have changed.

China ‘lost billions’ on investments

China has lost tens of billions of dollars of its forex reserves through a poorly timed diversification into global equities just before world markets collapsed last year. The State Administration of Foreign Exchange, the opaque manager of nearly $2,000bn of reserves, made huge bets on global stocks early in 2007 and continued at least until July 2008, by which point SAFE had moved well over 15% of China’s reserves into riskier assets.

JPMorgan takes top fund slot

JPMorgan was the top-selling mutual fund group in the US in the past year, with investors sending it $140bn in new money. However, excluding money market funds, JPMorgan recorded outflows of $1.3bn from its mutual funds in the 12 months to end-February, according to fund tracker Morningstar.END

Private sector calls for crisis rescue package

The Gulf private sector urged regional countries yesterday to launch a comprehensive economic rescue package in response to the global financial crisis, which, it said, has severely hit the oil-rich region.

Although the six Gulf Cooperation Council (GCC) nations, which control over 45 per cent of the world's proven oil wealth, have taken some measures to support banks and other sectors, they still need to adopt a more comprehensive economic and financial stimulant programme, the Federation of the GCC Chambers of Commerce and Industry said.

In a study obtained by Emirates Business, the Dammam-based group said the global financial turmoil had hit the GCC in many ways as it sharply depressed oil prices, stifled capital inflow, curbed demand for industrial and construction products, and hampered growth in 2009.

BBK eyes acquisitions in the Gulf

Bahraini lender Bank of Bahrain and Kuwait (BBK) will pursue acquisition opportunities in Bahrain and the Gulf after a planned merger with Islamic rival Shamil Bank was put on hold, its chief executive said yesterday.

"We will continue to look into opportunities, if something comes across our way, we will pursue it very aggressively," Chief Executive Abdulkarim Bucheery said.

Bahrain-based Islamic lender Ithmaar said last week it put on hold the planned merger of its fully-owned unit Shamil Bank and BBK, in which it owns 25 per cent, due to market uncertainty.

Give Dubai its due diligence


Since the publication of his two books, United Arab Emirates: A Study in Survival, in 2005; and Dubai: the Vulnerability of Success, during the summer of 2008, Dr Christopher Davidson of the reputable Durham University, has taken on the mantle of an authority on the impact of the global economic downturn on Dubai and the UAE.

Dr Davidson is widely quoted in most references to the UAE in the news media and his timely book on Dubai has become an instant success. It is almost a best-seller of sorts and is probably ready for a second print in less than a year.

What makes Dr Davidson appealing to the media is his strongly critical view and bleak assessment of the Dubai model.

Abu Dhabi not buying Dubai companies, says Khalifa

President His Highness Shaikh Khalifa Bin Zayed Al Nahyan, has denied rumours that the Abu Dhabi government is seeking to acquire companies owned by the Dubai government and said there are misinterpretations about the relations between the emirates.

On rumours that the Abu Dhabi government is seeking to acquire many companies owned by the Dubai government, Shaikh Khalifa said there are wrong interpretations about the nature of relations between emirates of the Federation.

Shaikh Khalifa was speaking in an interview with the new Abu Dhabi-based business daily , Alrroya, which publishes its first issue on Monday.

Budget carrier Jazeera Airways posts 94% profits rise

Jazeera Airways rebounded from a second-quarter loss to post a 94 per cent gain in net profits last year.

The budget airline, based in Dubai and Kuwait, has announced a 4.4 million Kuwaiti dinar (Dh54.6m) profit.

Jazeera said it gained through not hedging fuel contracts, allowing it to buy cheaper fuel on the spot markets in the second half of the year as oil prices fell.

A Fannie Mae for the UAE?

Should the country create its own Fannie Mae to improve liquidity and get home buyers back into the market?

This question has been generating a lot of buzz in the past few weeks, as property executives and mortgage professionals struggle with the impact of the global financial crisis on the UAE.

“Something needs to be done,” says Nicholas Maclean, the regional director of the property consultancy CB Richard Ellis.

Bribes for developers were not illegal, claim lawyers

Lawyers for seven former property executives accused of taking bribes and illegal commissions claimed yesterday that there was nothing in UAE law that prohibited what their clients had done.

Four former employees of Sama Dubai, the property arm of the government-owned Dubai Holding, and one former employee of Damac, one of the UAE’s largest private property developers, appeared before the Criminal Court of First Instance to plead not guilty to taking illegal commissions from the sale and resale of land owned by the Government.

Judge Fahmi Mounir granted a defence application for an adjournment but all five men were denied bail. The hearing will resume on Sunday.

Kuwait expat workforce in first fall since 1990 invasion

The expatriate workforce of the oil-rich emirate of Kuwait decreased last year for the first time since the Iraqi invasion of 1990, official figures showed on Sunday.

The number of foreign workers dropped to 1.75 million at the end of 2008 from 1.77 million a year earlier, a decline of 0.85 percent, as the global economic slowdown and a sharp fall in world crude prices bit, the figures showed.

Overall employment, including Kuwaiti citizens, also posted its first fall since 1990, inching down 0.19 percent to 2.088 million.

Kuwait to scrap new refinery project: PM

Kuwait will scrap a 15-billion dollar project to build a new oil refinery after an independent watchdog said the project was not feasible, the prime minister said in comments published Sunday.

"The government is committed to the Audit Bureau report, and the council of ministers will officially halt the project at its next meeting," which takes place on Monday, Sheikh Nasser Mohammad al-Ahmad al-Sabah told Al-Watan daily.

Kuwait in May awarded contracts to build the 630,000-barrels per day refinery to four South Korean companies and a Japanese firm and later signed letters of intent with them.

Police plea on cheque fraud as Dubai jails fill

Dubai's police chief called yesterday for an easing of regulations on cheque fraud as the emirate's jails fill with people guilty of bouncing cheques, which are still widely used across the Gulf.

Lieutenant General Dhahi Khalfan al-Tamim's call came as the financial crisis plunges rising numbers of residents into unsustainable debt after a lending rampage by "irresponsible" banks.

"We warned them, but banks lent too easily and too broadly," he said on the sidelines of a conference at Dubai police college. "Banks said it wasn't our business . . . but we knew in the end it would come back to us."

Wary Opec decides against deeper cuts

Opec decided on Sunday against more supply cuts, signalling that it would delay its goal of boosting oil prices to $75 a barrel at least until next year.

The decision marks a significant shift in the policy of the oil cartel, which supplies about 40 per cent of the world’s oil and had given the impression that it wanted to push up prices as quickly as possible.

But it now seems Opec fears that more radical action to achieve the $75 target could harm the fragile world economy.

UAE green firm Masdar cautious on 2009 investments

Abu Dhabi's state-owned green energy firm Masdar said on Sunday it would pursue a cautious investment policy this year because of the financial downturn, focussing on current projects.

Masdar, also known as Abu Dhabi Future Energy Co, said last year it plans to spend $15 billion in the first phase of an initiative including solar, wind and hydrogen power projects in the United Arab Emirates and abroad.

It is also building a carbon-neutral city in Abu Dhabi, which will include the largest solar power plant in the region with solar panels supplied by First Solar Inc (FSLR.O).

UAE President: We are capable of addressing the crisis impacts on UAE

President His Highness Sheikh Khalifa bin Zayed Al Nahyan stressed that impacts of the current global financial crisis on the national economy of the United Arab Emirates (UAE) have been misunderstood and exaggerated.

He Sheikh Khalifa expressed his confidence in the ability of the UAE's national financial and economic institutions to address the requirements of the solution so as to safeguard the UAE's regional and international economic and investment status and reputation.

Sheikh Khalifa made his remarks in an interview with the new Abu Dhabi-based Alrroya business daily newspaper. The interview will be simultaneously published in the print version of first issue of the daily as well as on its website (www.alrroya.com) on Monday, March 16th.

UAE stock brokerage houses in trouble? (Blog)

An article (17NOV2008) from alaswaq.net (Arabic) points out that weaker trading volumes and the reduced number of trades threaten the survival of most UAE brokerage houses, which have already lost big chunks of capital because of wrong market bets on rising share values.

The article quotes Mr. Murtada Al Dandashi, CEO of Al Ramz Securities, as saying he expects 70 brokerage companies to exit the market after having lost 80% of their paid-up capital that they had used to speculate on the UAE stock markets and to secure bank credit lines to purchase even more shares. The recent plunge in the UAE stock markets since September has wiped out the value of brokers’ leveraged positions.

Dandashi expected the biggest 20 brokerage houses to survive intact. He expected another 20 brokers to go through a consolidation phase as they looked to strengthen balance sheets, solve liquidity problems, and to abide by the financial requirements set by ESCA.