Gulf banks wilt in the heat of the crisis

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.”