Source: www.breakingviews.com is Europe's leading financial commentary service

With Islamic banking business growing faster than more conventional financial services, competition to provide new products is heating up.

An embarrassing and potentially damaging controversy is emerging in Islamic equity funds. Because of the way the vast majority have been handled by mainstream brokers, many may not be as Shariah-compliant as investing customers would expect.

In the wake of September 11, the US authorities targeted informal financial networks serving people in the Islamic world for particularly severe treatment. One of these was called Barakkat, a cash-transmission network that linked expatriate Somalis living in the US with their impoverished home country. Barakkat was closed down less than a month after the outrage, causing enormous stress to the large expatriate Somali community in the US and their families in Somalia.

After a weak 2001, most Arab banks enjoyed little pick-up in their fortunes in 2002. However, early results in 2003 suggest that the tide may be turning.

Debt capital markets is one area of European banking that is hiring rather than firing. But most of the new jobs are at banks still building a presence, and it is only skilled, experienced staff that they are after at modest cost.

Barbados

The emerging-market bond bubble may be close to bursting as the US economy shows signs of picking up and bondholders digest a recent rise in yields. It means investors will have to dig harder for opportunities in the CEE region.

Royal Bank of Scotland is beefing up debt headcount aggressively. In its fixed-income division, RBS Financial Markets, staffing was up 25% last year. This year it aims to accelerate that growth. If it is to fulfil its ambitions to grow from a strong sterling and loan house to a broader business in euros and dollars, it has no choice but to recruit fast.

The murder of prime minister Zoran Djindjic and the ousting of central bank governor Mladjan Dinkic hurt Serbia's free-market reforms. Now the government's hopes lie in privatization.

Emerging markets are back. That's the conclusion of the latest quarterly debt survey by Emta, formerly the Emerging Markets Traders Association. In the second quarter of 2003, total emerging-market debt trading passed $1 trillion for the first time in five years.

THE CEO OF a leading investment bank recently offered Euromoney a telling judgement on the state of the sector. "There is now more talent outside the industry than inside it," he noted, reflecting on the exodus from the big banks of some of their brightest and most successful people.

Saudi Arabia is making progress in restructuring its economy, but keeping up to speed a move away from dependence on oil itself rests on high oil prices and low interest rates.

Banking talent is always newsworthy, especially when it is unearthed in a dimly lit bar and involves Elvis renditions. The bar, in London's Canary Wharf, is a haunt of Gareth Jones, a salesman at BNY Securities. The event was the inaugural public gig of The Dealers.

Bangladesh

Source: www.breakingviews.com is Europe's leading financial commentary service

David Mulford, chairman of CSFB International and long-term friend of the banks, is set to follow such luminaries as JK Galbraith by becoming US ambassador to India. If his past is anything to go by, expect India to do a billion-dollar debt swap within months.

Latin America's poor economic performance in the past decade has overturned analysts' judgements that getting rid of the region's dictatorships and introducing free-market reforms would clear the path to sustainable economic growth.

Ibrahim bin Abdulaziz Al-Assaf, Saudi Arabia's minister of finance and national economy since 1996, has steered the economy through a difficult period. He has played a leading role in the modernization, diversification and liberalization of the Saudi economy and managed its finances prudently in a period in which oil prices have swung between $10 and $30 a barrel. Al-Assaf, a 54-year old economist who has served as the country's executive director at the World Bank for six years and as vice-governor of the Saudi Arabian Monetary Agency (Sama) and wins Euromoney's finance minister of the year award for 2003, spoke to Nigel Dudley in his office in Riyadh.

Banks reported strong results for the first half of the year, so it seems odd that senior executives at US banks are so concerned about stagnant revenues. It has been an issue for two years, but there were ways of getting around it. First came cost-cutting. Then revenue from the consumer sector held up, with sustained buying and remortgaging of houses, and spending on credit. Third was what banks call yield-curve plays and the rest of us proprietary trading.

A cabinet reshuffle should revive Saudi Arabia's economic reforms, with a new capital market law pending.

After falling out with the US over access to Iraq, Turkey is regaining favour with the west as its economy revives. Its long-term goal is EU membership, but how far away does that target remain?

Advisers: UBS (Cordiant); Goldman Sachs (WPP)

What are the defining traits that good investment bankers share? Energy, creativity, entrepreneurship, willingness and ability to take risk, the strength of intelligence to form independent views of the world and the courage to back them: all traits that tend to be driven out of people when they become institutionalized within large organizations under cynical leaders. Everyone toiling at the coalface in a large bank should take lessons from the stories that follow of those who have quit to set up on their own. There's never been a better time to do it.

The bulk of corporate earnings results for the second quarter of 2003 from S&P500 companies are now in and equity bulls are claiming that they justify the sharp equity rally since mid-March. I'm not convinced. More companies beat analysts' expectations, but then estimates had been revised down sharply.

There can be a hefty difference between perception and reality on debt markets pay these days. One headhunter recalls: "A senior banker called me when I was on a ski lift at Christmas. He said he was going to get only $1 million in the current bonus cycle. He wanted to know whether he had been hard done by as he thought he was worth $2 million. I got a researcher to check what someone in his position and with his job title would usually earn right now. I called him back and said 'you're worth $600,000, so you're doing well'."

Investors in the US need to decide which numbers to believe. Typically, statistics such as unemployment or capacity utilization are on average revised up or down by 30% within 12 months.

Raghuram Rajan, the new IMF chief economist, talks to Euromoney's Julian Evans about controlling special interests, IMF reform, and the difficulties of instituting market democracy in Iraq.

Strong growth and enhanced political stability appear to have broken down the barriers to foreign investment in Russia. But since much of what flows is disguised in various ways, it's hard to state precise figures.

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Emerging markets offer US funds significantly safer investment opportunities than some G7 countries, according to new research from risk analysis firm RiskMetrics.

Turkish banks' dependence on earnings from treasury bills has put them in the same ramshackle boat as the government and rendered them apathetic towards innovation and consolidation.

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MONGOLIA IS A country of extremes. Landlocked between its two former colonial rulers in a landmass some three times the size of France live just 2.6 million people. A dwindling, ageing one-third of the population ekes out an increasingly precarious living as nomadic herdsmen on Mongolia's vast steppe facing up to the world's widest extremes of temperature.

Bond investors finally appear to be getting the message that exposure to commodities can be a useful hedge in a portfolio. And if they have invested in the right commodities, they could find themselves in an excellent position to profit from any forthcoming US interest rate rise.

In the July issue of Euromoney, an editing error led us to state incorrectly that Alfa Bank is a subsidiary of Austrian firm RZB. It is not. We would like to make it clear that Alfa Bank is Russian-owned and not a subsidiary of any foreign firm.

Politicians in the US and Japan are blaming the low value of the Chinese renminbi for all manner of economic ills in their countries and pressing for its revaluation upwards. Yet many of their own manufacturers are benefiting greatly from the low manufacturing costs in China. Speculators will win if the renminbi rises.

Although logistics suggest that regional companies should play a major part in reconstructing Iraq, hopes of big gains have had to be scaled down. In some areas, such as telecoms, the odds look to have been stacked against Arab firms.

The transport system now rivals the weather as a topic of conversation among disgruntled Britons. So there was considerable interest in investor appetite when National Air Traffic Services (Nats), which runs air traffic control services in UK airspace, followed another transport-sector debutant, Network Rail, which maintains the UK rail infrastructure, to the bond markets this summer.

"When we launched our Vice Fund, one SRI [socially responsible investing] group said they would pray for us," says Dan Ahrens, co-manager of Mutuals.com's Vice Fund.

Bankers are grateful for the bouyancy of the debt capital markets. But they are not letting the rush of business impede their efforts to broaden the range of products they offer clients and cut out unfruitful relationship banking.

A new capital markets law, continued privatization and an eventual opening up to foreign investors should boost Saudi Arabia's equity market.

The pan-European asset management industry spends more than $9 billion every year managing and distributing product information, according to research by independent consulting firm SPB Marketing. Software company Activiti has created a product that it believes can help large fund managers to cut costs by up to $5 million by increasing the efficiency of the flow of information between firms and consultants and within the asset management firm itself.

When Allianz announced its first-half results in August, it fuelled both sides of the argument about Dresdner Kleinwort Wasserstein's future.

After two years' frantic activity and expenditure banks are still struggling to understand, let alone control, terrorist financing. Governments have failed to support the financial community with resources, skills and systems. The implications for global security are alarming.

Fixed-asset investment in China is growing faster than demand, creating overcapacity that may never be drained no matter how fast exports grow. A new burden of potential non-performing loans could be accreting as a result.

Ghana has stolen a march on its rivals in the world of peacekeeping operations. The ministry of defence drew down in August the first instalment of a $55 million loan from Barclays that will enable it to upgrade its military equipment and secure higher-margin reimbursement from the UN for a stint in the Democratic Republic of Congo.

Five years after Russia defaulted on its sovereign debt, burning foreign investors, the government is poised to return to international capital markets next year with $2.76 billion of Eurobond issues. Thanks to the country's revival, investors are salivating at the prospect of fresh Russian paper.

There's not a lot new about the fact that German corporates need to think about reassessing their funding mix, but a new survey by Siemens Financial Services suggests that their best ideas about how to go about this are not good enough.

Russia's richest businessmen have set themselves a new objective - the acquisition of foreign enterprises for pleasure, profit and expertise.

Significant new oil finds and the completion of several large liquefied natural gas projects will shortly give Egypt's hard-currency earnings a much needed boost. However, continued fiscal and regulatory reform is needed if Cairo is to succeed in creating sustainable and broadly based economic growth.

Issuer: Islamic Development Bank

The Kremlin is in two minds about Gazprom. It's a monolithic tool of Russian geopolitics but there are also plans to make it part of a more diversified, liberalized energy industry.

With inflation falling in Brazil, the days when banks could grow fat on government paper are almost over. New business lines, consolidation and retrenchment are high on the agenda and there are persistent rumours that Citibank will beef up its presence in Latin America's biggest economy.

A bull run in the Indian stock market is usually cut short by a scam, and then a collapse. Yet, this time the market regulator seemed determined to check market abuse even as the Bombay Stock Exchange Sensex index climbed close to the 4000 mark.

Junk mail drives most westerners mad. But if a Russian gets a personally addressed letter on his birthday offering a tempting gift at half price he might be so pleased he will include a thank-you note with his order.

When Banco Comercial Português paid just over $3 million to buy a bankrupt bank from the Turkish government two years ago, it was snapping up probably its biggest bargain ever without knowing it.

The start of the political season in Russia has capped the wild upswing in the country's equity market but not brought share prices crashing to the ground. Predictions of quiet growth based on a growing equity culture still seem apt.

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