After the recent turmoil, it’s possible that the coming year could provide something of an acid test for the lofty ambitions of the Middle Eastern financial sector. Here’s our considered opinion on potential hiring activity in 2010.
2010 could be a good year for:
The huge volume of ‘dry powder’, or non-invested capital, that private equity firms in the GCC have been sitting on just gets bigger – the Gulf Venture Capital Association estimates that of the $20bn raised between 2000-2008, just $9bn has been invested. In 2009, firms have largely been focusing on maximising value within their existing portfolios.
But this could change next year. Abraaj Capital, the region’s largest private equity firm, has said it’s targeting a new round of investments in the first quarter, while Citadel Capital has stated that it expects $1-2bn in new deals in 2010.
Logistics, airports, financial, telecom, healthcare, education and food are all believed to be attractive sectors and research by Gulf Capital suggests private equity firms will be responsible for much of the Middle East M&A activity in 2010.
But will this mean jobs? Bill Allum, managing director at headhunters Execuzen, believes so: “The sector will undoubtedly offer job opportunities in 2010, but you have to put this into context. Two or three years ago, firms were recruiting whole teams of people. This year, I believe hires will be on an individual basis, within key areas of investment focus.”
The unenviable task of restructuring Dubai World’s debt obligations may have fallen at the feet of Deloitte, Rothschild and Moelis, but that’s not to say they’ll have a stranglehold on other such work in the region next year.
The ability of banks to lend in the Middle East has been restricted and many businesses have struggled to maintain their debt obligations. Restructuring activity in the region has been on the rise – even towards the latter part of 2009.
“The senior people I speak to are certain that the first quarter of 2010 will provide a significant amount of restructuring work,” says Peter Greaves, director – head of financial markets at headhunters McArthur Murray. “This presents a good opportunity for people with experience of this sector, particularly within the financial sphere.”
According to the Merrill Lynch Wealth Management Year Ahead 2010 report, globally speaking equities are expected to perform very well in the coming year. Within the Middle East, there’s a growing demand for good quality equity research professionals to enable investors to sort the wheat from the chaff.
Matthew Lewis, managing director of Correlate Search in Dubai, says: “Increased localisation of equity research, combined with a demand for greater transparency in the Middle East is driving demand for talent in this area. We expect this to pick up further in 2010.”
Debt capital markets:
Throughout 2009, debt capital markets provided rich pickings for investment bankers in the Gulf region. In the fourth quarter, revenues generated from DCM deals rose to a six-year high and accounted for nearly half of the investment banking fee pot, according to figures compiled by Dealogic for Financial News.
When we pointed to this comparatively buoyant market earlier in 2009, recruiters told us that most banks were still reluctant to bolster their debt teams. However, if this boom continues into next year, demand will inevitably follow.
And 2010 could be a bad year for:
As at the third quarter of 2009 (the latest figures available), mergers and acquisitions activity in the Gulf region remained depressed. The value of deals fell by 54% on 2008, according to figures from Ernst & Young, while the number of deals announced slipped by 26%.
Sadly, optimism for the coming year is hard to come by. Dr Karim El Soth, chief executive officer of Gulf Capital, says that although the long-term outlook is positive of Middle East M&A activity, it will be 2011 before any recovery starts.
The implications of this are not just that investment banks will be reluctant to bolster their teams (or indeed even roll out more redundancy plans), but that deal makers could also be tempted to leave the region. In Europe, for instance, Morgan Stanley is pointing to a revival in M&A activity in 2010.
Abu Dhabi may have reluctantly taken up the role of knight in shining armour for Dubai World with a $10bn bailout, but this doesn’t necessarily mean a line can be drawn under the matter.
The first possible threat is that Abu Dhabi may begin to realise its ambitions as a financial centre. It’s already in the process of building a financial district just off the city’s coast in Sowwah Island, which is due for completion in 2014. The Times suggests that Dubai-based bankers are being lured by opportunities within Abu Dhabi’s investment funds and the promise of lucrative deals.
Dubai World was also made to sweat for three weeks before its eventual rescue, and the reputational damage inflicted on the emirate over the handling of the incident will undoubtedly dent its ambitions to compete with London, New York and Singapore. For the first quarter at least, expat bankers will think twice before relocating to the Gulf.
Merger related job losses:
The benefits of housing a banking behemoth like Emirates NBD – the result of a 2007 merger between Emirates Bank and NBD – continue to be debated in the region. Nonetheless, some commentators believe further such marriages may be necessary in 2010.
Ethos Consultancy has released its bank benchmarking survey late in 2009, and says that UAE institutions may be forced to consolidate in the coming year.
“I have always said there were too many banks in the country for the number of people,” says Robert Keay, managing director of the firm. “I think there will be more Emirates NBD type mergers ahead without any shadow of a doubt.”
When the financial crisis first emerged, the ethos of Islamic finance was considered the antithesis of risky investment practices of conventional banking. But the industry tentatively valued at $1,000bn globally has its own problems.
Islamic banks have heavy exposure to property, structured finance and, of course, Dubai’s debt pile. Then there’s the ongoing debate about whether certain types of investments comply with Islamic principles.
“We don’t want to come up with a structure, get it approved by the scholars, only to find out that 12 to 18 months down the line the structure isn’t compliant any more. This induces a level of reputational risk that is hard to deflect,” Neil Miller, head of the Islamic finance practice at lawyers Norton Rose told the Financial Times.
Nonetheless, some would put these down to growing pains rather than systematic stumbling blocks, and new opportunities still exist. For instance, Gulf Finance House, the Bahrain-based Islamic institution, has formed a new investment banking division, while Abu Dhabi Islamic Bank last month hired Amir Riad as global head of its corporate finance and investment banking arm.