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Thu 7 Jul 2011 12:49 PM

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Gulf turmoil sparks boom for private bankers in region

UBS, Barclays among banks boosting their wealth management operations to attract Middle Eastern clients

Gulf turmoil sparks boom for private bankers in region
BANKING ON GROWTH Barclays Bank is boosting its wealth management operations to attract Middle Eastern clients (Bloomberg Images)

UBS AG and Royal Bank of Scotland Group are among banks boosting their wealth management operations to attract Middle Eastern clients as the region’s richest seek to protect their cash amid political turmoil.

Former Credit Agricole SA banker Albert Momdjian will join UBS in August to head and expand its wealth unit in emerging markets, while Coutts, the private banking unit of RBS, plans to more than double its team over four years, Middle East managing partner Chris Allen said in May.

Julius Baer Group Ltd last month hired Credit Suisse AG’s Edmond Carton to head its Middle East business and five bankers began work at Barclays Plc in Geneva this month to target Middle East clients.

“In the countries that saw the most turmoil, some private savings have naturally been transferred abroad to international banks and international banking centers,” said Florence Eid, founder and chief executive officer of Arabia Monitor, a London- based research and advisory firm. “Arab private money has always sought safe havens in times of turmoil.”

The regional unrest that has toppled presidents in Egypt and Tunisia and has spread to Syria, Yemen and Saudi Arabia, is prompting wealthy people from the most troubled countries to turn to more stable markets such as the United Arab Emirates.

Deposits held by UAE banks increased 7 percent to AED1,123.5bn ($306bn) during the first five months of the year, surpassing the increase for the whole of the previous year, according to data from the UAE’s central bank.

“Many UAE bankers report an increased level of business with clients from countries most directly affected by the political unrest” such as Egypt, said Sven-Olaf Vathje, partner and managing director of The Boston Consulting Group Middle East. “This is a clear vote of confidence on the stability of the UAE as the region’s leading banking hub.”

Amid the turmoil, some governments, mainly in Western Europe, have frozen the assets of political figures associated with dictatorial regimes.

The European Union, UK and US have frozen the Libyan Investment Authority’s assets to cut off Muammar Qaddafi’s regime from access to funding after its forces killed hundreds of civilians. This has also led to rise in transactions, according to Boston Consulting Group.

“Many clients are concerned about the way offshore centres might react to these developments,” Boston Consulting said in a May report. “Under the mistaken belief that their own assets could be in jeopardy, clients are transferring their wealth to countries that have not taken such action against politically exposed persons.”

Banks also consider the Middle East as a long-term growth market where economic expansion and high oil prices are driving prosperity.

In the past three years, many international private banks such as Zurich-based Clariden Leu AG have moved managers from hubs such as Switzerland to Dubai and other Gulf cities.

The number of high-net-worth individuals in the Middle East rose 10.4 percent to 400,000 last year, while their combined wealth rose 12.5 percent to $1.7 trillion, according to the Capgemini and Merrill Lynch 2011 World Wealth Report.

The rate of growth in the size and wealth of the region’s high-net-worth individual population was higher than any other regions, according to the June 22 report. In 2009, growth in the Middle East’s high-net-worth population lagged all other regions mainly due to the financial crisis in Dubai and a decline in real estate prices.

Officials at Julius Baer and UBS couldn’t immediately be reached for comment while a spokesman Barclays Wealth declined to provide further details.

Domestic banks are also competing for clients as global banking regulators draw up new minimum liquidity rules as part of last year’s Basel III rules that will more than triple the amount of core capital lenders will have to hold.

Wealth management operations are attractive to banks because they require less capital and provide funding for loans and generate stable fees from investment services.

“The increased focus on wealth management by banks in large part reflects a broader global trend towards businesses with lower capital intensity as a result of post-crisis regulatory changes,” said Gabriel Aractingi, managing director of Morgan Stanley Private Wealth Management in Dubai.

UAE-based banks faced a shortage of deposits from the onset of the global financial crisis in September 2008 as foreign investors speculating on a revaluation of the currency pulled out and credit markets froze.

The loan-to-deposits ratio has declined to 93.4 percent in April this year, from 108 percent at the end of 2008. U.A.E.-based banks are also looking at wealth management to lift revenue as income from investment banking declined.

“Many local banks are making a big push into private banking,” Mark Stadler, global market head of HSBC Private Bank in the Middle East and North Africa said in an interview May 30. “They are looking at this as a way to address their asset deposit ratio imbalances and get large deposits.”

Emirates NBD PJSC, the United Arab Emirates’ biggest bank, may hire as many as 300 people for sales and private banking, Jamal Bin Ghalaita, the lender’s deputy chief executive officer said in December.

Abu Dhabi Islamic Bank plans to start an Islamic private bank and wealth management division this year and has hired former HSBC Private Bank regional CEO Stuart Crocker to head its operations, ADIB said in May.

“Until recently, the majority of the lending by banks in the region was driven by ‘named based lending’ so there’s a natural tendency for large family businesses to also turn to local banks for their wealth management needs,” said Graham Hayward, head of Middle East region financial services for PricewaterhouseCoopers LLP in Bahrain. “The barriers to entry for international banks are high, but the opportunities are a lot higher.”

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