Thursday, Jul 24, 2008

(From THE WALL STREET JOURNAL)

 
   By Mohammed Aly Sergie 

Dubai -- Western investment banks are rushing to the oil-rich Persian Gulf, seeking shelter from the global financial storm. But business, even in this haven, is disappointing.

International investment banks pulled in just $366 million in revenue from the region in the first half, according to Dealogic.

That's despite a booming market for initial public offerings of stock, and it is sharply lower than the $631 million they raked in during the first half of 2007. (The figures exclude revenue from Saudi Arabian stock markets, where data are hard to track.)

A big reason for the shortfall: Banks are struggling to compete with local, entrenched players for mandates. Meanwhile, fees are shrinking amid brisk competition, bankers and analysts say.

Amid today's high oil prices, the Gulf is enjoying a spending-and-investment binge, in contrast to the weak prospects in the U.S. and Europe. International banks are beefing up staff in the region and parachuting in top brass. Citigroup Inc. said earlier this year it would move its co-head of investment banking from London to Dubai. Last month, Merrill Lynch & CoMerrill Lynch & Co. appointed Fares Noujaim, former vice chairman at Bear Stearns, as head of its Middle East business.

So far this year, there have been 43 IPOs across the Middle East, raising $12.5 billion, according to Middle East business-information service Zawya.com. But international players have been largely shut out, supplanted by local firms or joint ventures between European banks long active in the region.

Saudi Arabia's Samba Financial GroupSamba Financial Group dominated as the lead manager for some $5.27 billion in offerings this year. Distant runners-up include Credit Agricole Group's Saudi joint venture, two local affiliates of HSBC HoldingsHSBC Holdings PLC and Egypt's EFG-HermesEFG-Hermes. That is in contrast to last year, when Deutsche BankDeutsche Bank AG and Merrill LynchMerrill Lynch came in third and fourth in league tables.

International banks may be reluctant to compete on pricing too much, ceding mandates to local firms that have been willing to cut fees -- to token sums, in some cases -- to win business. The lower fees are especially acute in Saudi Arabia, bankers and analysts say.

Saudi Arabia was home to the world's second-most-active IPO market in this year's first half, with offerings valued at $6.8 billion, according to Renaissance Capital. That represented about 10% of global IPOs in the period. The U.S. saw $23 billion in IPOs, but that was due largely to the $17.9 billion IPO of Visa Inc. in March.

(END) Dow Jones Newswires

24-07-08 0549GMT