Christopher Laing, a managing director at Deutsche Bank AG in London, moved with his wife and twin boys to Dubai this month, joining a rush to the only region in the world where fees earned by securities firms are growing.
“It’s bigger than it has ever been,” said Laing, 39, co- head of equity capital markets for central and eastern Europe, West Asia and Africa, referring to the number of public offerings on the horizon. “I’m lucky it was my choice to move.”
Laing joins scores of rival bankers, including Lehman Brothers Holdings Inc’s Makram Azar, Citigroup Inc’s Alberto Verme and Morgan Stanley’s David Law, who have left London in recent months in search of deals. The attraction: an oil-rich patch that may have $5 trillion in sovereign wealth funds by 2015, according to International Financial Services London.
Fees earned by securities firms in West Asia rose 5 per cent to $612 million in the first half of the year, the only part of the world to show growth, according to New York-based research firm Freeman & Co. While it accounts for less than 2 per cent of global investment banking fees, the region accounts for twice as big a share of the pie as it did a year ago.
Among the larger deals in the last 12 months are the $4.96 billion initial shares sale of DP World Ltd, the Dubai-owned ports operator, and about $18 billion of investments by Persian Gulf states sovereign funds and companies in foreign banks, including Citigroup and Merrill Lynch & Co, according to Bloomberg data.
“The Gulf is being flooded with trillions in petrodollars,” said Marcus Noland, a senior fellow at the Washington-based Peterson Institute for International Economics and a consultant to the World Bank. “Dubai has emerged as the location of choice for foreign bankers.”
Higher Bonuses: Bankers relocating to Dubai, which is in the United Arab Emirates, can look forward to tax-free salaries and higher bonuses — as much as 25 per cent more than those in Europe and the U.S., says Jon Duckfield, head of the Dubai office of recruitment firm Options Group.
“Those fortunate to be working there in any financial discipline will probably enjoy a better bonus than their European counterparts in 2009,” said Shaun Springer, chief executive officer of Napier Scott Executive Search Ltd in London.
Deutsche Bank, Citigroup, UBS AG and Morgan Stanley have doubled the number of bankers based in West Asia to more than 400 this year, according to data compiled by Bloomberg. That growth is in contrast to London and New York, where banks have announced more than 100,000 job cuts in the past year, investment banking revenue shows no sign of rebounding and the pace of takeovers has sunk to a three-year low.
Oasis or Mirage: Scott Moeller, a professor at City University’s Cass Business School in London and a former banker at Morgan Stanley and Deutsche Bank, says the lure of West Asia may be just a mirage. He says the Gulf states are “over-banked” and the rush of bankers to the region can’t be sustained.
“Whenever there is a crisis, people flee to commodities,” Moeller said of the region’s oil wealth. “Banks have the ability to ship people rapidly, but it’s a reaction to a short- term issue, not a fundamental shift.”
Political instability also threatens to disrupt foreign investment and deal flow in the region.
“If Iran were to grow more belligerent or expansionist,” said Noland of the Peterson Institute, “it could undermine confidence in the small Gulf emirates.”
M&A Slump: Still, bankers in Europe are confronting a slump in mergers and acquistions after last year’s record. Companies have announced $999.3 billion of deals in Europe this year, down about a third from last year, according to data compiled by Bloomberg. New York bankers are facing an even steeper drop: M&A in the US slumped 40 per cent this year.
From that perspective, a 5 per cent increase in fees looks like an oasis.
“Most of the players are pumping huge funds into the banking sector in the hope of netting huge profits,” said Samir Pradhan, a senior researcher at the Dubai-based Gulf Research Centre. “Political instability is not at all an issue in the near to medium term.”
In July, Zurich-based UBS received conditional permission to set up operations in Saudi Arabia and tapped Mohamed Sammakia to become chief executive officer in Riyadh. It is also planning to operate branches in Qatar and has set up an infrastructure joint venture with Abu Dhabi.
“We are not putting our toe in the water just to test the temperature,” said Peter Burnett, chief executive of UBS’s investment bank in West Asia and Africa.
Goldman vs Citigroup: Goldman Sachs Group Inc beat out Citigroup this year to become the top-ranked adviser on mergers and acquisitions for Gulf states, according to data compiled by Bloomberg.
