DUBAI: For investment banks operating in the Middle East, the wounds inflicted by the global financial crisis have yet to heal. In fact, they are only getting worse. Investment banking league tables, already dominated by foreign players, show fees slumped to $48.8 million in the first three months of the year, less than half of the $116.3 million seen a year earlier, data from Thomson Reuters showed, hurt by the political unrest that engulfed the region. With minimal deal activity, depressed stock markets and appetite for fresh capital at its lowest, the future of most banks remains bleak, and there is a lack of fresh ideas to navigate the downturn. Their survival is now at stake. “The question is, how many of these investment banks can survive a tough period which we are seeing in the region?” said Anthony Mallis, chief executive of Bahrain-based investment bank Securities & Investment Co. (SICO). “Investment banking is a high risk, high return proposition.” The Middle East is home to a number of local and international banks all eyeing a piece of the fee pool which has significantly diminished in the last three years. While international banks have managed to stay afloat due to their large balance sheets and ability to adapt to changing business environment, the local ones, with heavy property exposure and stagnant business models, have been worst hit. With no significant activity seen in the second-quarter either, the trend should remain similar for most of the year. “We expect the subdued activity for investment banks to continue,” said Alexander von Pock, principal at A.T. Kearney in Dubai. “The players have been taking action to reduce costs but that alone won't be enough. They will need to redefine playing fields and identify revenue streams.” Dubai-based Shuaa Capital, once a leading bank in the region who took companies such as the London-listed port operator DP World to market, posted a recent $7.2 million quarterly loss and is cutting 10 percent of its workforce. Egyptian bank EFG Hermes is also slashing bonuses to reduce costs by more than 20 percent. Local banks have failed to innovate in the last few years and have kept waiting for initial public offerings (IPOs) or the property market to recover. In the past, they have also depended solely on private equity transactions for revenue.
