Loss-hit Shuaa to push credit finance arm into Saudi

Dubai-based investment bank Shuaa Capital is expanding its profitable credit finance business, Gulf Finance Corp (GFC), into Saudi Arabia and may offer a stake in the unit to new investors, is chief executive said.

"It is the only business that makes money," CEO Michael Philipp said in an interview on Tuesday. "We are starting Saudi immediately. The investment will come from outside shareholders. I can bring brand new money at the Abu Dhabi and Saudi level. It is probably hundreds of millions of dollars," Philipp said.

The company, which helped float ports operator DP World several years ago, is setting up a sharia-compliant credit or lending business in Saudi Arabia based on the UAE model and plans to build an overall lending platform in the Gulf region, Philipp said.

Gulf Finance, which offers credit and financing for small and medium-sized enterprises in commercial and consumer markets contributed a net profit of 10.6 million dirhams ($2.9 million) in the third quarter last year, compared with 6.5 million dirhams in the third quarter of 2010.

Shuaa named former Credit Suisse banker Philipp as its new chief executive in October, replacing Sameer Al Ansari. Philipp is shifting the bank's focus away from retail brokerage to institutional clients and SME credit financing.

Shuaa Capital doesn't expect major investment writedowns in the fourth quarter of 2011 and later in 2012, its chairman said.

"We were prudent to take writedowns in Q3, so there will be no overhangs in 2012," said Sheikh Maktoum bin Hasher Al Maktoum.

"There could be some minor writedowns in Q4, but they're negligible," he said, adding that the company expected no writedowns outside the retail brokerage business.

Shuaa swung to a third-quarter net loss of AED156m ($43m) as slumping global markets hit volumes and forced the investment bank into provisions and asset revaluations.

One of the Arab world's largest investment banks and once a symbol of the sector's potential in the region, Shuaa was hit by the 2008 global financial downturn, with asset impairments erasing profits. Its stock has fallen 63 percent in the last year.

Shuaa's chairman ruled out any plans to increase the capital of the company or delist shares from the Dubai financial market.

"We are overcapitalised. We have $350m of cash. What do you need more capital for?" he said.

"There are no plans to delist. It's not even on the table. We have nothing to hide."

Shuaa, which fired close to 60 employees by the end of December, plans to lay off another 70, mostly related to the retail brokerage business, bringing it down to around 100, excluding 80 employees at its GFC unit, Philipp said.

"We should go down 130 people and hire 25-30 client-facing people at a later stage," he said, adding that the company would retain an institutional brokerage service.

"Our worst performing business is the retail brokerage business. We have to get rid of it," Philipp said.

Shuaa Capital had said last month that the entire cost-cutting programme, which will take weeks to complete, will have a "significant" positive impact on profits.

"The decision has been made; there's no thinking about it," Philipp said.