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Headline: Regional awards – Middle East Source: Euromoney Date: July 2001 Author: Julian Marshall Best bank: Gulf International Bank Best debt house: Morgan Stanley Best equity house: UBS Warburg Best M&A house: Salomon Smith Barney Best at transaction services: Citigroup Best at risk management and treasury: Citigroup This year Gulf International Bank reclaims the best bank award from its closest rival, National Bank of Kuwait. Again these two contested closely but GIB takes the award.
These include investment banking, where it is adding to its product range following its acquisition of Saudi International Bank two years ago. GIB has also been developing its project finance franchise. GIB’s earnings in 2000 regained momentum, following an 18% decline in 1999 related to merger costs. This is one area where it cannot afford to rest on its laurels. Set in an international context, return on equity is on the low side. “Overall earnings are still fairly lacklustre,” says an analyst. GIB is making moves to improve this aspect of its business. It is looking to offload its ownership in Gulf Investment Corporation back to the six Gulf Cooperation Council states, putting it on a clearer path as far as strategy goes. “There were always some management conflicts – though maybe that’s too strong a word – but there was certainly a little bit of friction,” explains an analyst. GIB concentrates on wholesale banking across the GCC. The SIB acquisition is expected to help its development in Saudi Arabia – it is the first non-Saudi bank to be allowed to open a branch there. Among global competitors, Citigroup remains the outstanding player, though Standard Chartered Bank, following its acquisition of Grindlays, and HSBC are increasing their presence in the region. “Citibank is still a very strong, institution, definitely the strongest international presence in the region,” says one analyst. Morgan Stanley lands the best debt house award. It is hopeful that new sovereigns are going to follow the lead of Lebanon and Qatar by coming to the capital markets in search of funding. Egypt is set to make its debut issue shortly. Jameel Akhrass, London-based head of the Middle East group for Morgan Stanley, expects activity to pick up in the coming year. “This region has never had a tremendous amount of issuance but the Lebanese will continue to be the biggest issuer going forward,” he says. “We will see countries like Morocco coming to market, perhaps this year.” He also hopes to see activity in Saudi Arabia soon, along with Kuwait and Oman. “There will be a lot of funding required for projects in the region so capital markets will be a source for some of these going forward,” says Akhrass. Alongside Morgan Stanley’s work in Lebanon, where it led three deals in the year, it was also lead to the state of Qatar’s $1.4 billion issue, the first 30-year bond to come out of the Gulf and, at the time, the largest investment-grade emerging-markets issue. Investors across Europe and the US, as well as in the Middle East snapped up the deal, generating $2.5 billion of demand. “It was an enormous size of deal, for a second deal from a sovereign, and there was the 30-year maturity, which is very unusual, but the demand and the interest in a credit with a strong diversification play is really very strong,” says Iain Hardie, managing director in Morgan Stanley’s debt capital markets group. The main obstacle to capital markets activity taking off in the region is the fact that banks still lend at highly competitive rates. High oil prices have created substantial liquidity in the Gulf states and banks are putting a lot of money into projects and corporates and extending maturity. As long as this remains the case capital market activity will not take off. However, Akhrass says the breadth and scope of projects being planned for the region, running into many billions of dollars, will lead people to head for the capital markets eventually once there is no longer enough bank liquidity. “Demand from international investors for issuers out of this region is still exceeding supply,” says Hardie. “That has been the case over the last 12 months and it’s set to continue because there’s a lot of interest in these credits, particularly on a diversification play and because a lot of them are well rated.” Morgan Stanley has been developing its business by building relationships in the Middle East for over 30 years. This helped it to secure the Qatari deal. “We’ve been calling on the ministry of finance in Qatar for many years,” says Akhrass. “It involved many pitches on numerous fronts and you have to talk to people for a good four or five years in order to gain trust and develop relationships that allow you do to these transactions.” Israel still dominates the region’s equity activity, though there was a significant deal in Egypt involving Orascom Telecom led by pre-eminent Egyptian securities house EFG-Hermes. In Morocco, there was also Managem’s Dh585 million ($56.4 million) deal. Standing out in the region was UBS Warburg, which enjoyed another successful year, thanks mainly to its work in Israel, where it is the only foreign bank to hold a seat on the Tel Aviv stock exchange. John Ferreira, responsible for the European emerging markets equity product for UBS Warburg, is cautiously optimistic about the region’s prospects. “If you look at the individual equity markets in many of these countries they are extremely thin,” he says. However, with Egypt, Jordan and Morocco being promoted to MSCI’s Emerging Market Free index, albeit with a low weight, in May, they are starting to move in the right direction. Aside from its Tel Aviv operations, UBS Warburg is broadening its coverage, looking at the banks and telecoms sectors across the region, with particular interest being paid to Egypt. “Egypt has the most promise,” says Fereira. “Demographically it is quite attractive and the stock exchange is making the right moves, although they’ve had some short-term issues. There is some long-term potential there.” Salomon Smith Barney scoops the M&A/corporate finance award this time around. Again, most business centred on Israel. However, there was also a deal in Jordan involving the $60 million takeover of Royal Jordanian, Jordan’s duty-free operations, by Aldeasa of Spain. Shehzad Naqvi, head of Salomon’s Middle East operations, says the firm has been making moves in the region for the past 10 years, a commitment that is paying off. “We’re the only western institution with a dedicated Islamic bank, which is becoming a very important element,” he says. Naqvi adds that building relationships means that the bank can put together transactions very quickly. He says the Jordanian deal, while not large in global terms, was a good example of how the region is changing. “There is a lot of consolidation in the Middle East,” he says. “And as the markets are opening up, they are liberalizing.” As a result, foreign investors are finding conditions easier. “There are opportunities in consolidation, privatization and in intermediating foreign investment,” says Naqvi.
CitiDirect, the internet banking platform, has been followed by CitiConnect, which enables clients to complete financial settlements online at the same time as the financial transaction. Jagdish Rao, head of e-business in the region for Citigroup, says these developments have enabled it to stay ahead of the competition. “CitiConnect provides web-enabled financial services. It empowers a client’s end-to-end solution by providing a stable platform to do financial settlements. It’s a big step forward and transforms how customers can do business.” This level of technical innovation will become increasingly important as the global economic environment becomes tougher. “As a result the pressure to do business even more efficiently will become even acute, because of the need for higher productivity and to drive costs down,” says Rao. “That’s why we are pursuing our internet strategy because we see it as a means to drive down costs and to be able to deliver service faster, cheaper and in a more efficient way to customers who will be less forgiving in a tougher environment.” A big hurdle to Citigroup’s offering its full range of products across the region is the different stages of technical development of countries in the region. Likewise the different countries have wildly fluctuating levels of market regulation. However things are changing. “Markets such as Bahrain and UAE are fairly open and well integrated with the rest of the world. Others are less so,” says Rao. “But I think they are catching up very fast and one of the advantages for those countries which take up the new technology later is that they do jump on to the best platform immediately.” For now, Citigroup is tailoring its product to fit all sizes and requirements. This adds to its workload but Rao accepts it as one of the challenge of being a global brand. “In many cases, despite inadequate infrastructure, the expectation of Citibank from clients would be the same level of service across the region, with similar product features and consistency,” Rao says. “The top-tier corporates’ expectations are at the top level and they expect us to provide the same kind of products, the same features as they would find in the US, or in Poland or India.” Citigroup also wins the award for best bank in risk management and treasury. Ranjan Patwardhan, head of derivatives structuring and origination for Citibank in the region, says it has a strong local franchise in the Middle East. “We have been in the region for many years and we’re particularly well represented in Bahrain where we have a large trading group of about 30 people, traders, transactors and so forth,” he says. “We are major inter-bank participants so we make prices and markets in a whole range of foreign exchange and interest rate products, including G7 and local currencies,” he says. “Together with our partners in Salomon Smith Barney, we provide the full range of credit products, cash and fixed income to derivatives and we’re seeing an increase in activity and interest in credit derivatives in the region as banks face more and more issues with respect to capital.” Patwardhan adds that there has been a significant increase in volume in terms of hedging, particularly in Saudi Arabia where there is a lot of corporate activity. Given the wide diversity of market conditions and infrastructure across the region, Patwardhan says Citibank recognizes the need to be able to operate on different levels and to have specialists on the ground in each country. “We have never been suitcase bankers,” he says. “Countries move at different speeds. Some have developed yield curves, others haven’t. Some have exchange control issues which don’t allow free capital movement. Some banks are relatively sophisticated, with a much bigger understanding or greater need to manage capital.” Patwardhan predicts that there will be increased interest in more sophisticated products. “Banks will become more conscious of the need to manage their balance sheets and they will want to play a much more proactive role,” he says. “They will pay more attention to issues like efficient use of capital.” |
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