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Sun 24 Jan 2010 04:00 AM

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No blame game

Deloitte head talks debts, double-digit growth and why accounting firm is betting on black with Dubai.

No blame game
James Quigley is the global CEO of Deloitte Touche Tohmatsu, one of the ‘Big Four’ accounting firms.
No blame game
Deloitte is in charged with restructuring state-linked conglomerate Dubai World’s $26bn debt pile.
No blame game
Quigley (right), with Robert Kimmitt (far left) of Deloitte’s Centre for Cross Border Investment, and Anis Sadek. Managing partner of the Dubai office.

The global CEO of Deloitte Touche Tohmatsu, James Quigley, talks debts, double-digit growth and why the world's largest accounting firm is betting on black with Dubai.

James Quigley presides over a shrinking club. As the global CEO of Deloitte Touche Tohmatsu, one of the ‘Big Four' accounting firms, he each year singles out a handful of branches for notching up double-digit growth. He calls it, he says, his "double-digit club". Always exclusive, these days it is shedding members with speed.

"That club was once a fairly large club, and last year it was a smaller club," he says ruefully. "This year, it will be a smaller club still. We're not recession-proof. During the first six months of our fiscal 2010, it hasn't looked like the first six months of our fiscal 2008.

But," he confides, "The Middle East is still going to have a double-digit year."

Little surprise then, that Quigley's Dubai visit marks the tail end of a whistle-stop tour of the Gulf; a bid to make his prediction a reality. Flanked by Robert Kimmitt, a former US deputy treasury secretary who now fronts Deloitte's Centre for Cross Border Investment, Quigley has pressed the flesh in Saudi Arabia, Kuwait, Qatar and the UAE in a bid to tempt new clients, and bolster old ones.

Deloitte, which has 2,000 staff in fifteen offices across the Middle East, has chosen the Gulf to be one of its five "priority areas", ranked beside other emerging markets such as China and India. All three are gold-class members of the double-digit club, with the Middle East ratcheting up 21 percent growth for the fiscal year ended May 31, 2009.

While this new world order reflects the current economic realities, it's also a sign that Deloitte scents rich pickings in the Gulf's unstable financial landscape. Like cockroaches, professional services firms seem to fare well however harsh the climate. In an upturn, they feast on big-margin businesses such as IPOs, mergers and acquisitions. In a downturn, they take refuge in restructurings and bankruptcies.

"The capital market itself creates opportunity for a professional services firm, like Deloitte, because we assist companies with IPOs, with secondary offerings... [with] acquiring other businesses," Quigley says. "We do have some counter-cyclical lines of business like restructuring...which can offset the contraction occurring in the IPO-related feeds that would typically flow in our direction."

Deloitte has certainly been quick to get involved in the Gulf's most public commercial meltdown, that of the debt-laden Dubai World, parachuting in director Aidan Birkett to advise the firm on its liabilities. Deloitte has been charged with restructuring the state-linked conglomerate, whose interests range from theme parks to superyachts, in a bid to repay its $26bn debt pile. Now, should Dubai World be the first of many corporate dominos to fall in the Gulf, Deloitte is well placed to profit - and the firm is cross-selling vigorously.

"When a massive change is occurring in terms of a restructuring or realignment of the marketplace, that creates opportunity for a professional services firm," Quigley explains.Deloitte plans to double its Middle East headcount to 4,000 "in a short period of time," he adds.

Dubai rattled global markets in November when it asked for a standstill on billions of dollars of debt at its flagship Dubai World.

The news, which saw $23bn wiped off the value of European banks on fears of new losses, led some to speculate the emirate's bubble had burst. Does Deloitte, with its insider's view, now see the Arab emirate as a flash in the pan?

"All the trends, the macro-economic objectives that led to the creation of what we know today in Dubai, are still there," Quigley says firmly. "If in fact the infrastructure is in place here - and I think it is uniquely in place here - if you look not only at your immediate region but all of your neighbours ... then I think you have to be bullish on Dubai with a long view."

With a nod to the emirate‘s sprawling infrastructure plans, he observes: "Railways, runways and roadways lead to job creation."

The firm also predicts growth in Dubai picking up speed as investors, who during the credit crisis remained cautious, inject fresh capital into the markets.

"We're seeing a pickup in investments globally, a lot of cash which has been on the sidelines is coming back in the market place," says Robert Kimmitt, of Deloitte's Centre for Cross Border Investment. "There remains interest in investing into this region, as well as attracting investment from this region."

Quigley is also at pains to deny that Dubai World's debt woes have exposed holes in the emirate's financial regulations - although Deloitte's man on the ground in Dubai will concede that from a PR perspective, if nothing else, it didn't look very good.

"When you watch an economic crisis, or a bubble burst or a correction occur, one of the common conclusions you will always reach is there is plenty of blame to go around," Quigley says comfortably. "You can look at how many players on the stage performed and you can be critical and say - with hindsight -‘It would have been better if we had done this, with what we now know.'

"[But] when I look at the performance of the events in the Gulf, I don't come to the conclusion that regulation has been woefully inadequate and... very ineffective."

It is hard to ignore that Quigley's comments might be flavoured by Deloitte's plan to woo the Gulf's governments, as they start to play a bigger role in the business of business. This is, of course, why the professional services field is a diplomatic minefield: every company, whether public or private, is a potential paymaster, so Deloitte must step cautiously so as not to offend anybody.

As a result, Quigley has developed a measured media manner that, while saying a lot - he devotes six minutes to a Tour de France analogy for the credit crisis - manages to say nothing at all. On the topic of economic diversification in the Gulf, for example, he simply says: "I don't have an opinion."The question of how Deloitte plans to fuel its growth in the Middle East is a sunnier one for its CEO. Globally, the firm has felt the pinch of the financial crash. In October, Deloitte posted a five percent fall in full-year revenue to $26.1bn, a result of the decline in the global deal activity. The firm's audit and tax divisions recorded a drop in revenue, but this was partially offset by the consulting arm, which bucked the trend with a two percent increase in fees to $6.5bn.

(In the wake of the Enron scandal in 2001, Deloitte was the only Big Four accounting firm not to dump its consulting arm in a bid to insulate its bookkeepers from accusations that hefty advisory fees could infect their audits. Turns out, it was a smart move.)

With an eye on the Middle East, Deloitte's has fingered the public sector and Islamic finance as key growth areas for its business, alongside the traditional favourites of oil and gas, telecoms and technology. It paid around $350m last March to acquire the government advisory arm of BearingPoint - a firm with a solid public sector reputation in the Middle East - hot on the heels of expansionary budget announcements by Gulf states.

"The public sector is a very important market for us, and one of the things we have done strategically is acquire the public sector practice at BearingPoint," Quigley says. ‘What we're seeing, as government has become much more active in the business of business, a higher percentage of GDP is being devoted to public sector spend.

"This past year, in growth by industry, one of the strongest growth areas for us was public sector. I expect that to be one of the leading growth areas for us again in the coming year."

Deloitte has also gone further than most Western firms in signalling its interest in Islamic finance. The firm made headlines last year when it signed up a Sharia scholar, Mufti Hassan Kaleem; the first of the Big Four to make such an appointment. An estimated 80 percent of the top 50 Islamic finance banking houses are based in the Middle East. Naturally then, Deloitte has planted its flag in the region, establishing the Islamic Finance Knowledge Centre in Bahrain.

Taking a wider view, Quigley is also bullish on the likelihood of a slow - if not spectacular -global recovery in the next twelve months.

"The economists in Deloitte research...the language they're using is; ‘recovery in 2010 is all but certain,'" he says. "I haven't heard that optimism in earlier forecasts. The way they are briefing me now, is that a recovery in 2010 is all but certain."

Feedback from his tour of the Middle East showed that many in the region share the same view, he adds.

"Most are cautious about 2010, but expecting the recovery to start to gain some momentum in the second half and that 2011 and 2012 might be back towards more historic levels of growth."

2010 marks Quigley's 39th year with Deloitte. Having joined straight out of university, the firm remains the only company name on his resume. When asked in 2006 what was behind his lengthy tenure, Quigley said: "When I started at Deloitte, I promised myself I'd stay until the day I was no longer learning. I'm still here 32 years later." The Middle East looks set to be the next leg in his education.