Worrying signs that international investment banks are retreating from the Middle East
Crédit Agricole's decision to move its MENA M&A team from Dubai to Paris is indicative of an increasing reluctance of international investment banks to maintain a significant presence in the region.
Last week, the French bank revealed that it was closing its regional M&A division - a move that would affect five or six people - and taking it back to its Paris office.
International investment banks are in the eye of a global storm currently, meaning that revenues this year are expected to be badly hit. This, combined with fees in the Middle East remaining in the doldrums, means that firms are increasingly unwilling to maintain significant regional teams.
"People are leaving international investment banks and not being replaced," says Barbara van Meir, managing director, head of MENA practice at headhunters Pemberton Partners. "There's simply little appetite to recruit for the regional teams."
Investment banks' Middle East teams are typically small - usually single or early double figures -but recent events suggest they're still not sheltered from redundancy. Cuts to the research teams at Credit Suisse, Deutsche Bank, Nomura and UBS, for example, don't exactly signal a vote of confidence in the prospects for regional capital markets.
Until around five years' ago, most international banks used the 'suitcase banker' model; maintaining a licensed satellite office, but flying in bankers based elsewhere in the world to work on and pitch for deals. With deal activity expected to pick up in the region, some senior executives were transferred to the Middle East in 2007 to cultivate relationships with local companies, and teams were built in anticipation of a flurry of new revenues.
However, this never happened, and fees in the region have been steadily declining since the global financial crisis hit in late 2008, and this year is particularly bad. So far in 2011, just $185m has been generated in investment banking fees, according to figures from Dealogic, compared to $279m at this point in 2010.
"Region investment banking teams of international firms were never sustainable," says one regional headhunter. "Many built up a bulky presence with the expectation that business would increase, and supported expensive teams by revenues generated elsewhere. It's now becoming apparent how misguided this was."
Compensation for investment bankers in the Middle East is largely on a par with Western markets, suggest headhunters. A head of investment banking in Dubai is likely to be on a package of $1-1.5m, they suggest, so replacements are hard to justify in the current climate.
Crédit Agricole lost its head of investment banking for MENA, Albert Momdjian, who joined UBS in a senior wealth management role in June, and Firas Chakra - formerly head of its Saudi operation - who returned to London in February 2010.
Credit Suisse has also recently relocated two senior investment bankers, Edwin Van Der Voort and George Pavey to New York and Hong Kong, respectively.
Despite all the gloom, the majority of Crédit Agricole's M&A team have opted to lose their jobs and remain in Dubai, rather than relocate to Paris. This suggests they're at least optimistic of being able to find work elsewhere in the region.
UPDATE ON THIS STORY: Four investment bankers from Credit Agricole's MENA operation - Kanhaiya Rathi, Kawtar Benkhraba, Pravin Chelluri and Rami Barazi - have been hired by UBS in Dubai. The will be working for the Swiss bank's corporate advisory group, reporting to Albert Momdjian, according to reports on Bloomberg.
