International firms are cutting investment bankers, hiring corporate bankers in the GCC
Investment banking fees increased in the Middle East last year, but the size of the teams on the ground shrunk in most international firms. Cuts have continued into 2013, but bankers and headhunters alike are talking up corporate banking as an area of expansion as global firms retreat from investment banking in the region.
Morgan Stanley is the latest investment bank to cut headcount in Dubai, with around 10 employees likely to be laid off in the Middle East as part of a global redundancy plan that will see 1,600 jobs lost.
A number of banks – including Nomura, Deutsche Bank, Credit Suisse – also cut jobs in the Middle East last year. In the past, investment banks suffered anaemic revenues in the region in the hope that fees would pick up in the long term and subsidised this lack of income by money earned in top financial centres like London or New Year. What’s more, because of its oil and large sovereign wealth funds, it was considered an important region to build a significant presence. Now, banks are rethinking this strategy.
“2012 was a difficult year for investment banking and many international institutions readjusted their business model to reflect this,” says Simon Penney, CEO of Royal Bank of Scotland for the Middle East and Africa. “Jobs have been lost and I believe that most banks will continue to trim this year. There will be some upskilling – top talent being targeted by certain institutions – which means jobs will be lost and created in parallel.”
Last year, investment banking fees in the Middle East increased by 19% on 2011, according to new figures from Thomson Reuters. M&A fees rose to $157.9m, a 23% uptick, while debt capital markets fees surged 26% to $93.8m and equity revenues totalled $99.5m – or a 23% year-on-year increase.
This still pales in comparison to 2008, however, when revenues in the Middle East reached a total of $848m. Penney says there’s no real “tipping point” when investment banks start earning enough money to justify starting to build their teams again, but “sooner or later volumes reach a point when you realise you no longer have enough people”.
The investment banking landscape is changing, however, with local institutions grabbing more market share. QInvest, the Qatari investment bank, was second in the M&A league tables for 2012, while regional banks – Saudi Fransi Capital, Qatar National Bank, Sambacapital and Gulf Baader Capital Markets – took the top four places in equity capital markets, with Deutsche Bank and UBS the only global banks to make it into the top ten.
“There’s simply not enough capital markets and M&A activity in the Middle East for international banks to justify maintaining a significant presence in the region,” says Shane Phillips, managing director of regional headhunters Shane Phillips Consultants. “Most firms have cut back, and I wouldn’t be surprised to see more lay offs this year.”
“There will be some upgrades, and possibly replacement hiring after the fall out from what will undoubtedly be poor bonuses this year, but very few banks are talking about significant recruitment plans this year,” adds Mark Swan, managing director, MENA at Principal Search.
The rise of corporate banking
While global banks have cut back in investment banking, corporate banking is being touted as an area of expansion. Barclays, for instance, has said that it has plans to hire at all levels within its corporate banking operation in the UAE, J.P. Morgan has been recruiting in the region, Bank of China has just set up a Middle East subsidiary in Dubai to focus on trade and project finance and both Citi and Standard Chartered were hiring for their transaction services functions in 2012.
Revenues from syndicated loans, which straddle corporate and investment banking, were $184.9m last year – or 34% of the total regional fee pool – and this was again dominated by local institutions. National Commercial Bank topped the league table, according to Thomson Reuters, with Saudi British Bank, QInvest and Emirates NBD all making the top five. Just HSBC and Citi succeeded in breaking into the top ten.
“Pure play investment banks will continue to struggle in the Middle East, and there will be a greater focus on commercial banking this year,” says RBS’s Penney. “Cash management, trade finance and the more core working capital products will be more important and banks will increase their resources accordingly.”
Phillips says that there’s a growing sense of excitement around the corporate banking space, with local and international banks alike talking up expansion to capitalise on increased trade flow into the Middle East and anticipation that banks will start lending more.
“If all of the international investment banks pulled out of the Middle East, GDP would still increase here,” he says. “Corporate banking teams dwarf investment banking in the region, and the vast majority of banks we talk to are talking about hiring. Corporate bankers are well-paid, but they’re not as expensive as investment bankers.”
A head of corporate banking in the UAE can expect up to AED70k ($19k) a month, or $228k a year according to a salary guide from recruiters the Charterhouse Partnership. Relationship managers, meanwhile, are paid an average of AED24k ($6.5k) a month, or $78k annually.
