Tuesday, 6 July 2010
Many investment banks and companies in the Gulf will have to rip up their pre-crisis business model and shift away from the proprietary investments that tripped up scores of high-profile institutions, senior regional bankers and analysts have warned.
The financial crisis has highlighted severe shortcomings in risk management, over-exposure to real estate and a reliance on paper gains on proprietary investments rather than recurring fee-based revenue, with disastrous results for some houses.
“It’s clear that we have seen a significant shift in the fortunes of both Islamic and conventional investment banks in the region,” said Ted Pretty, chief executive of Gulf Finance House, a troubled Bahrain-based Islamic investment bank. “The crisis has highlighted some issues in almost every bank and business model.”
The Dickensian debtors laws of the United Arab Emirates - stipulating jail sentences for defaulters - have long been a matter of controversy in the country, but seems to have won unexpected backing by HSBC, one of the largest international lenders in the region.
In an interview with local magazine Arabian Business, HSBC Middle East’s UAE head Abdulfattah Sharaf, indicated that although the bank always strived to ensure that debtors did not end up in gaol, the harsh debtors laws were an effective deterrent to potential defaulters.
“It has worked for us. People immediately get people to come and bail them out, and get the money in… (historically) it did work. In most cases it did work,” he said in an interview.
Dubai shares increased the most in more than two weeks, leading gains in Gulf Arab markets, on investor speculation that recent declines are overdone given prospects for earnings growth. Crude oil advanced.
Emaar Properties PJSC, the developer of the world’s tallest tower, and Arabtec Holding PJSC jumped the most in more than two weeks. Shuaa Capital PSC rose as it appointed a new head for its brokerage unit. Dubai’s index increased 1.5 percent to 1,494.96, the highest this month. The measure has tumbled 21 percent from this year’s peak on March 28. The Bloomberg GCC 200 Index gained 1.1 percent at 4:04 p.m. in Dubai.
“Investors had very low expectations for second-quarter earnings, so a lot of the downside risk is already priced in,” said Sameh Hassan, director of research at Rasmala Investment Bank Ltd. in Dubai. “If the results are anything slightly better than a total disaster then stocks should go higher.”
Qatar National Bank SAQ, the Persian Gulf country's biggest lender by assets, posted a 36 percent rise in second-quarter profit, beating analysts' forecasts.
Net income for the quarter ended June 30 advanced to 1.44 billion riyals ($395 million), or 3.7 riyals a share, from 1.06 billion riyals, or 2.7 riyals, the bank said in an e-mailed statement today. The average estimate of six analysts was for a profit of 1.31 billion riyals, according to Bloomberg data.
The results reflect the implementation of several business objectives, including international expansion plans and an "effective risk management framework that was vital in avoiding the negative consequences of the international financial crisis," Shareef Al Emadi, Qatar National's group chief executive officer, said in
Yesterday the Kuwait SE price index reached its five year low of 6,328 points, closing lower than the January ’09 levels of 6,380 points. However, the weighted index was much more merciful as it is still above its one year low of 373 points. This is a classic example that shows how our price index is not a good indicator of our economy as most of the large caps didn’t fall as much and did not have the same fate as some of the small caps.
Below is a chart of the price and weighted index.
Dubai's Istithmar on Tuesday sold its 6.9 percent stake in Indian low-cost carrier SpiceJet for $25.3 million, two sources with direct knowledge of the matter said.
The investment arm of Dubai World sold 22.14 million shares to a clutch of investors at an average price of 53.52 rupees per share, said the sources, who declined to be named as they were not authorised to speak to the media.
Data from the Bombay Stock Exchange showed two large block deals were done.
Bank of America Merrill Lynch was the sole arranger of the transaction, the sources said.
On Monday, Istithmar had said in a filing to the Bombay Stock Exchange the company had bought 22.14 million shares in SpiceJet through conversion of foreign currency convertible bonds.
Government-owned funds in the Gulf have made a number of headline-grabbing investments in struggling western institutions during the financial crisis and are now eyeing strategic stakes in BP as it looks to avoid a takeover after the Deepwater Horizon disaster.
The investments have tended to come during rocky periods for the targets, along with a promise from the suitors to invest patiently and not try to take over management or use their stakes for political leverage.
The largest deals have been inked by the Abu Dhabi Investment Authority (ADIA), one of the world’s biggest sovereign wealth funds, the Kuwait Investment Authority (KIA) and Qatar Investment Authority (QIA).
Gulf governments have been urged to follow the EU and introduce stress tests of regional banks’ capacity to withstand financial shocks.
But to ensure the reliability of the results, disclosure and transparency within the public and private sectors would have to improve first, analysts say.
“Stress tests would be welcomed but critical to their success would be having correct systemic inputs to make sure the assumptions going into stress-testing were sensible,” said Raj Madha, a senior banking analyst at Rasmala Investment Bank.
Rating agency Standard & Poor's on Monday upgraded Qatar's sovereign credit rating and state-controlled Qatar Petroleum to 'AA' from 'AA-', citing the gas-rich Gulf Arab state's strong growth prospects.
The outlook on both ratings is stable.
"In our opinion, Qatar's economy is weathering the global downturn well, with deflationary pressures and financial sector problems contained by the economic policy flexibility generated by new gas projects," S&P credit analyst Luc Marchand said in a statement.
David Prosser: BP should hold its nerve and resist begging for funds from the Middle East - Business Comment, Business - The Independent
If it worked for Barclays, then why not for BP? When the bank found itself laid low by the credit crunch and the subsequent regulatory pressure on funding, it turned to the Middle East, rather than the British government, for support, securing injections of capital from Abu Dhabi and Qatar.
Now BP – with its value devastated by the ongoing Gulf oil-spill disaster – is exploring similar options, with new investment possible from a number of Middle Eastern state-backed funds as BP seeks to save itself from opportunistic predators.
For Barclays, the decision to sell a stake to the Middle East looks to have worked out well. That it avoided having to add Her Majesty's Government to its shareholder register enabled the bank to avoid the humiliating strictures to which the State-owned banks have since been subjected in the UK. By contrast, its Middle-Eastern stakeholders have been models of restraint, pursuing the sort of hands-off approach to their investments that managements dream about.
So this is my first post after a month of silence in honor of the rule of law in Dubai.
Marvel Comics is one of the most innovative media companies in the world. I say this not because of the wonderful cast of characters they have come up with over the years though they are indeed wonderful. I don’t say it because of the fact that they have emerged from bankruptcy with a vengeance, finally marrying that great set of characters to the vastly more profitable medium of film though that too was a great innovation. No, I think Marvel deserves an innovation award for it’s invention of the “No-Prize.”
Occasionally there would be “continuity errors” in Marvel Comic books. A continuity error is when there is an inconsistency between several frames such as a character having a blue shirt in one frame and a green one in the next without having changed the shirt. Many comic book readers are a bit pedantic and would write in to Marvel to point out these errors. The staff at Marvel found this kind of annoying so they invented a fictional prize which they would award to people who found these inconsistencies. They called it the “No-Prize” as kind of a joke on the recipients in order to get them to lighten up. It’s just a comic book after all...
Union Properties, Dubai’s third-largest property developer by market value, hopes to finalise the sale of the Ritz-Carlton in the emirate this month as it seeks to raise cash to pay debts and finish projects.
Khalid bin Kalban, the chairman of Union Properties, said the company was “in serious talks” with two investors, one from the UAE and one from Saudi Arabia, and expected to get close to the asking price of Dh1.5 billion (US$408 million).
“We are going back and forth with the price and the conditions of the deal, such as the transfer of ownership,” he said. “But I think we’ll get it for close to the asking price … It’s one of the biggest deals to happen this year.”