Big banking institutions like Deutsche Bank, Credit Suisse and Japan’s Nomura Holdings are cutting investment banking jobs in the Middle East as the promise of emerging markets is overshadowed by a need to slash costs and a dearth of deal activity, a Reuters report said Wednesday.
While many financial institutions have cut junior level jobs in their investment banking teams for the region in recent weeks, the latest round includes directors and, in Nomura’s case, the head of its investment banking operations in Dubai.
“You will see the investment banking space in the Middle East shrink further in the next couple of years. There is a lot of bankers chasing similar deals in a market which is hardly growing,” said a senior Dubai-based banker with a global bank, declining to be named as he was not authorised to speak to media.
The recent cuts follow similar moves earlier this year by Bank of America and Rothschild.
In a reversal of fortunes, the retrenchment comes after years of rapid expansion when foreign lenders built full-fledged investment banking teams, mainly in Dubai’s flagship financial centre, lured by the prospect of petrodollars being lavished on overseas investments by regional sovereign wealth funds and state-backed firms.
“Many global investment banks opened shop in the Middle East during the pre-Lehman area as they were encouraged by the strong market trading volumes and appetising deal flow,” said Timucin Engin, associate director for financial services at Standard & Poor’s credit rating agency in Dubai, referring to the collapse of Lehman Brothers in September 2008.
“However, since Lehman, the trading volumes shrank significantly in most of the regional markets, and the same holds true for the investment banking deals.”
According to Thomson Reuters data, Middle East investment banking fees were $234.8 million in the first half of 2012, up 5% from a year ago but far below the nearly $1 billion in fees earned by banks during the boom years of 2005 and 2006.
The fee pool has to be shared by as many as 20 global banks which hired or relocated senior bankers to attract business in the region.
Banks have relocated some of their top bankers home or to regions where prospects are better. Other bankers are pulling the plug themselves, in order to set up shop on their own or move to more attractive financial centres.
Rothschild moved its Middle East investment banking head Herve Sawko to Paris in May, replacing him with Chris Hawley, a mergers and acquisitions banker. Paul Reynolds, managing director for debt and equity advisory services and a key figure during Dubai’s 2009 debt restructuring, is also leaving the region for the boutique bank’s northern Europe operations.
Standard Chartered’s regional head of client coverage, David Law, relocated to Johannesburg as regional head of corporate finance in Africa.
Bankers are hopeful that deal activity will increase in coming years as political stability gradually returns to the Middle East after the Arab Spring, and when the euro zone debt crisis eventually shows signs of being resolved.
But the US and European bankers competing for future deals may be flying in from outside the region, not operating from Dubai or other Middle Eastern centres.