DCM bankers in the Middle East would be wise to skill up in Islamic finance….and apply to HSBC

In contrast to other parts of investment banking, debt capital markets (DCM) in the Middle East are booming. Issuance is surging year-on-year and many are talking up a good second half. Yet, recruitment is still dead in the water.

There are a number of logical reasons for this. Firstly, investment banks’ capital markets teams are small in the Middle East, comprising a couple of senior originators and someone with close connections within the governmental institutions. If a deal is sealed, the modelling work is often shipped out to juniors in the EMEA teams in London.

As Klaus Froelich, Morgan Stanley’s co-head of investment banking for MENA, told us: “My job is not to compete with local Middle Eastern banks, but to be part of a global delivery network for the bank.”

Secondly, despite the fact that debt issuance has increased - $26.4bn worth of deals were completed in the first half of 2012, compared with $12.7bn last year, according to Dealogic – revenues haven’t really. The total net revenue for Middle East DCM was $72m in the first half, which is up from $50m for the same period last year, but only a slight increase from the $68m earned in first six months of 2007.

There’s one thing that could drive hiring, however – Islamic finance. Significantly, Islamic bonds – or sukuks – comprised nearly 50% of the total deal volume in the first six months of this year, compared to 20% in 2011, and the number of Shariah-compliant deals has nearly tripled since last year.

The UAE still dominates DCM issuance, with over $9bn worth of deals in the first half, but with $8.8bn, Saudi is the key location for Islamic deals.

For the first time in a long time, banks are talking about increasing their DCM teams, says Mark Swann, director MENA at Principal Search.

“There are rumblings that international investment banks will increase the resources in their DCM teams, but with expertise in the Islamic finance sector,” he says. “Rather than looking to the West, it’s likely that they will have to recruit from the local market.”

So, where should you target your application? HSBC seems like a good bet; it accounted for an astonishing 54.1% of all Islamic debt deals in the region this year. Its nearest competitor was Deutsche Bank with 9.4%.

Here’s a breakdown of the other key players: