Smaller fees and declining market share: why big banks are cutting in the Middle East
At a time when international investment banks are culling their teams in the Middle East, it seems trite to point to an increase in activity as justification for job security.
After all, in the last two months alone, Credit Suisse, Deutsche Bank and Nomura have all laid off senior investment bankers in the region, Goldman Sachs and Morgan Stanley have lost top deal makers in Qatar who seek the security a regional institution can offer and all this follows previous retrenchments by the likes of RBS and UBS.
Ironically, however, this year is shaping up to be one of the best since 2008 in terms of investment banking deal activity. Investment banking fees in the Middle East have reached $402.2m in the first nine months of 2012, according to new Thomson Reuters data, an increase of 23% on last year.
Despite this, activity is slowing down – M&A, equity capital markets (ECM), and debt capital markets all declined year-on-year in the third quarter.
Total M&A activity to September is nearly double that of 2011, at $15.7bn, but the fees being paid are shrinking. Banks earned $103.3m on M&A deals, a 14% decline on the same period last year. This chimes with reports that local corporates in the Middle East are unwilling to pay the large fees demanded by bulge bracket investment banks for advisory work.
Interestingly, in M&A RBS is ruling the roost in terms of deals completed. The bank only offers investment banking services in the Middle East now, and it seems that other smaller specialists – AlixPartners, Rothschild and Houlihan Lokey – have gained market share at the expense of larger rivals.
Local banks dominate ECM activity, particularly Qatar National Bank which has been expanding this year. The bulge bracket banks only have a hold in the DCM sector, but even here market share has declined.
All of this combined explains why the big banks have felt the need to cut headcount.
Here are the Thomson Reuters league tables for deals completed:
