Gulf banks go for wider regional role

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Simeon Kerr, FT Syndication Service
DUBAI: A recent spate of cross-border deals is deepening the consolidation of financial services in the oil-rich Gulf as banks seek to build themselves into regional champions to fend off increasing competition from international players.
Government moves to diversify by taking stakes in international institutions are well established, with Dubai government investments in HSBC, Deutsche Bank and Standard Chartered.
Now amid a continuing procession of major investment banking operations into Dubai International Financial Centre - most recently Merrill Lynch and Calyon - the Dubai government especially is snapping up regional assets as part of a broader plan to further the role of financial services within the economy in a bid to sustain the emirate's double-digit growth rates.
The latest round of consolidation comes as the race emerges to grow larger banks to compete more effectively for lucrative Gulf deals. "In investment banking, size really does matter," says Joe Kawkabani, head of asset management with Dubai-based Algebra Capital.
WTO and free trade agreements provisions could also prise open retail and commercial sectors to foreign competition, persuading regional banks to build capacity in a bid to ward off competition, analysts say.
Listed financial services firms are competitively priced owing to last year's stock market crash and the continuing reluctance for retail investors to get back into the markets.
Dubai Bank, controlled by government-owned Dubai Group, plans to take a 32 per cent stake in Shuaa Capital, a regional investment banking pioneer.
Abu Dhabi Investment Authority last month took an 8.0 per cent stake in Shuaa's main competitor, EFG-Hermes. Abraaj Capital, a Dubai-based private equity house, last year took a 25 per cent stake in the Cairo-based firm, which is expanding across the Gulf.
Dubai Group is also building up what its chairman says will be the region's largest investment bank, Dubai Capital Group. Last week it took a controlling 60 per cent of Bahrain's Taib Bank, which has operations in Kazakhstan, India and Turkey.
The National Bank of Dubai is also developing investment banking, asset management and private equity arms, as the emirate's oldest local bank seeks to expand across the Middle East and South Asia.
NBD Investment Bank chief executive Shahzad Shahbaz said the firm has over the past year brought together one of the region's largest teams - around 150 people - backed up by the financial clout of its parent.
The trend towards consolidation goes beyond Dubai. Abu Dhabi is looking at regional investment banking through the creation of a new investment vehicle, the Abu Dhabi Investment Council, and its subsidiary, Abu Dhabi Investment Company, which is relaunching itself as an investment bank. National Bank of Kuwait is also seeking to extend its investment banking and private equity offerings across the Gulf.