Investment banks realise the folly of over-firing in this emerging market

Investment banks in the Middle East have been operating with a skeleton crew after a prolonged slump in fees, combined with cost-cutting initiatives globally, has made it difficult to justify maintaining a large team in the region. Jobs have been cut, while senior bankers have fled bulge bracket firms to work for regional banks. Now, however, they’re realising that they may have been a little hasty.

For the first time in four years, investment banking fees in the Middle East are starting to look healthy. They’re up 22% for the first nine months of 2013 on last year to $535.9m, according to Thomson Reuters. M&A revenues jumped by 37% to $150.2m and debt capital markets fees surged by 75% to $112.7m. Only the traditionally anaemic equity capital markets fees fell, by 42% to $54.2m.

"Every bank in the region scaled back their advisory businesses in the Middle East over the last 12 month, particularly in M&A, but now could be a good time to invest in people. Fees are improving and there's at least some talent on the market," says Ziad Awad, a former Goldman Sachs and Bank of America Merrill Lynch managing director who now runs consultancy Boardroom Metrics in Dubai. "There's huge opportunity in the region ­ particularly in capital markets ­ but the large banks don¹t want to get involved with advisory deals of less than $200-300m, which is where much of the action is."

Sitting atop the DCM league tables once again is HSBC. Few would argue that the bank has been sheltered from the crisis; it’s been shedding staff in M&A, the back office and its private banking function as well as making changes to the top of its investment banking team in the Middle East. However, Georges Elhedery, head of markets and capital financing, MENA said that the bank has “long prioritised emerging market investment banking and positioned our very best people in these growth markets”.

Other banks could take note, but it seems unlikely that they're going to indulge in too much hiring, believes Awad. “The region has always been one for deal origination for most banks, and the execution is completed back in London, so there’s never going to be a huge surge in investment banker hiring in the Middle East,” he says.

However, after a frozen job market for much of 2013, there has been a change of heart in recent weeks, believes Barbara van Meir, managing director of headhunters Vogel & Noor, says: “The banks wouldn’t admit that they’ve over-fired, but the fact is that region teams are a little strained. Most firms are talking about hiring again, and some – largely smaller tier three international firms – are actively hiring. This is currently at the junior end, however.”

More recently, however, it’s been the local players, notably QInvest, First Gulf Bank and the National Bank of Abu Dhabi who have been building their wholesale teams, and poaching from the international players to do so. Simon Penney joined FGB from Royal Bank of Scotland as head of wholesale banking earlier this year, and QInvest hired Michael Katounas from Credit Suisse to lead its investment banking function.

Investment banks in the Gulf are realising that they need to work harder to retain their employees. In the 2013 eFinancialCareers bonus expectations survey, bankers in the Middle East were the most optimistic of securing a rise in compensation this year, with 61% expecting an uplift, primarily because of personal performance.