Blame it on the bankers

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Al Ghurair has slammed the bonuses claimed by top bosses at RBS, UBS and AIG, who have come under fire for seeking taxpayer-funded bailouts while pocketing substantial payoffs.

Abdul Aziz Al Ghurair, chief executive of Mashreq, the largest private bank in the UAE, argues that the US and European banks are to blame for their own downfall.

Beleaguered banking executives in the west hoping for some sympathy from their colleagues in the Gulf, need not turn to Abdul Aziz Al Ghurair. The outspoken CEO of Mashreq, the largest private bank in the UAE, is distinctly unimpressed by the culture of rewarding fat cats with hefty cash payouts, while their banks beg for taxpayer-funded government bailouts.

"It is not good," he argues, shaking his head gravely. "A bonus is good as long as it doesn't get out of control, but it should not provide an incentive to managers for short-term gain but long-term pain for the bank.

"Sometimes rapid growth comes at a certain price," Al Ghurair continues. "Unfortunately, most of these institutions run their banks from quarter to quarter and they want to keep the outside world happy by showing growth. The bonuses are made on the growth, and the more you grow, the bigger the bonus. That really has made banks suffer."

And the last few months have been filled with serious suffering in the US and Europe; not that it has stopped the under-fire chiefs of some struggling institutions from collecting record bonuses.

The Royal Bank of Scotland (RBS), the stricken banking giant into which the UK government has sunk some $29.4bn, last year shelled out $3.7bn in bonuses.

UBS, the European bank with the biggest writedowns and losses from the credit crisis, was ordered to reduce bonuses after the Swiss government gave the country's biggest bank a $59.2bn lifeline.

Perhaps most controversially, executives at American International Group (AIG), which has received more than $180bn in taxpayer bailout money in the US, were paid $165m in bonuses, earning an apoplectic rebuke from a White House which found its hands tied by legislative loopholes.

Only now has the West's banking industry been forced into action, slashing bonuses in the wake of losses that could reach $4 trillion from credit-related asset investments and lax lending, according to estimates from the International Monetary Fund last week.

According to Al Ghurair, however, compared to their Western counterparts, UAE banks have for the most part steered clear of exposure to risky assets.

"Generally, the UAE banking system has been smart enough and fortunate enough to not touch any of these toxic assets," the veteran banker insists.

It is a system that the billionaire businessman knows well. Over the last 30 years, Al Ghurair has amassed a $7.8bn fortune through a family business empire that spans everything from real estate to a controlling stake in drinks company Masafi. Mashreq is his passion, however, and his 19-year tenure as CEO has seen the bank grow to hold total assets of $15.2bn at the end of last year.

Yet despite Al Ghurair's confidence in the UAE banking system, Mashreq has not escaped completely from the fallout of the financial crisis. The bank's full year profit for 2008 declined 14 percent on losses from investments, with net income falling to $446m. The firm has since slashed its staff by four percent, or 175 employees, blaming "lower market activity".

Last month, Mashreq was one of the four UAE banks to have its long-term counterparty rating put on ‘credit watch' with negative implications by Standard & Poor's Ratings Services. Emirates Bank International, National Bank of Dubai and Dubai Islamic Bank were also downgraded.

S&P said the action reflected its growing concerns about the impact of the economic downturn on Dubai.

For his part, Al Ghurair contends: "There is a financial crisis across the world, but we are dealing with it. Nothing replaces good, fundamental banking."

Mashreq , in an effort to build on its own fundamentals and expand its business operations, last week signed a partnership agreement with China's national bank card association to allow visitors from the Asian country to use their cards at the firm's network in the UAE.

Under the deal, Mashreq becomes the first national bank in the Middle East to recognise and accept China UnionPay (CUP) cards for cash withdrawals at ATM machines and for purchases by the bank's point of sales terminals.

Al Ghurair sees the relationship as a way of bolstering the bank's links with China, the world's third largest economy. And CUP is an innovator - it opened an overseas branch of its bank in Hong Kong over 30 years ago in the belief the territory would one day pass from under British to Chinese rule.

"All the big banks are shareholders with CUP," he says. "They can open doors to us and we can welcome them to the UAE."

Like its Chinese counterpart, Mashreq is also known for its pioneering bent, dating back to 1991 when it launched the first ATM and credit card in the UAE.

In that same ambitious spirit, and in a further expansion of its international presence, Mashreq launched its Egyptian retail operations earlier this month with 10 branches and a capital outlay of almost $100m. Mashreq Capital, the bank's investment unit, has also announced it will set up an Islamic fund to invest in Sharia-compliant bonds, known as sukuks, which could offer yields of up to 15 percent.

The fund hopes to raise up to $100m over the next 18 months, following comments made by Al Ghurair himself at the height of the financial crisis in January, that the UAE's sovereign wealth fund may get a higher return by investing in local markets rather than investing overseas.

Does he still advise this approach with the Dubai Financial Market General Index down around 75 percent from a year ago?

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READERS' COMMENTS

Reply to Mahsreq bank post
Posted by BA, Dubai, UAE on Monday 27 April 2009 at 15:07 UAE time


Mr. ghurair is putting the blame on International banks and he forgot to see in his own organzisation, what kind of organization is this. A person working on call center or customer sevice in branch they pay them aed 3500... gross salary ... on the other hand mashreq bank profits were 150% higher than before, so this downturn is a very good example for all these CEOs to learn that greed is not a good thign at all. Please look what you have done with people earning less except for giving them debt load. Sufferring has just began.

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