Crisis may spawn giant banks in Gulf, says banker

The global financial crisis could force out small investment companies in the Gulf and give birth to giant banks with more diverse services, according to a senior banker in the region.

Henry Azzam, Chief Executive Officer of Dubai-based Deutsche Bank in the Middle East and North Africa, said large investment companies in the six-nation Gulf Co-operation Council (GCC) must also adapt to the new world financial situation and embark on what he termed competitive services.

He said such services could include financial brokerage, investment facilities and other related instruments, adding that these firms can no longer net the same high return they had achieved during the 2002-2008 oil boom.

"Our expectations are that faltering investment companies in the region will opt out of the market and give room to companies with large capital and less indebtedness… we also expect more concentration in demand for less complex financial instruments and basic investment services while the principle of a comprehensive bank will become firmly established," Azzam wrote in the London-based Arabic language daily Al Hayat.

"These banks could cover banking, commercial and investment services… this means large banks in the region could acquire existing investment companies or set up their own investment units…but we should also expect a stricter control and surveillance environment in the region and a tendency by the government to expand their shareholding in local and regional banks and other financial institutions," he said.

According to Azzam, author of many books on GCC economy and other topics, the traditional revenue sources for regional investment companies have largely receded because of the global credit tightness.

"The Gulf primary financial markets have been almost shut as no bonds or sukuk have been issued since the end of the third quarter of last year while only a handful of merger or acquisition operations have taken place… the value of assets managed by those companies and their brokerage fees have also sharply fallen… some investment banks in the region have suffered not only from a decline in revenue, but have also become unable to refinance their debt, forcing some of them to sell part of their assets," Azzam said.

Azzam urged GCC authorities to consider allowing local investment banks that do not have capital adequacy problems to accept deposits and operate as full banks provided they become under complete Central Bank control.

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