In the wake of the
revolutionary uprisings in the Middle East and North Africa,
private banking in the region remains on edge. Eman El-shenawi
assesses MENA’s future role as a global private banking hub,
shifting client trends and its ongoing wealth creation
opportunities.
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Volatile,
unstable, revolutionary – three words that strike fear into wealthy
private clients and have sent jitters through private banks with
strong ties to the Middle East and North Africa (MENA) in recent
months.
Egypt, Tunisia and Libya have been
the hotspots for government protest, but the turmoil has had much
wider repercussions spreading as far as Bahrain and Oman. Global
private banks with a regional MENA offering, and fast-starting
local wealth managers are watching closely.
Traditional offshore centres,
including Switzerland, have also been keeping a close eye on
proceedings – eager to protect their hard-fought reputations for
transparency.
Many private banks are asking
themselves what they should do.
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By GlobalDataShould they rapidly re-configure
their MENA strategies or hold their nerve and focus on the
long-term increase in the region’s wealth?
Geo-political analysts at Citi
Private Bank have dubbed the past two months ‘MENA’s Revolutionary
Road’, but as yet no private banks have announced any radical
strategic changes as a result of the recent events.
“In general, we have kept our
growth forecasts the same in most of the major countries we operate
in,” says Emirates NBD chief investment officer Gary Dugan.
The local private bank has full
banking licences in the United Arab Emirates (UAE) and Saudi Arabia
and a representative office in Qatar. These are the bank’s main
hubs to serve MENA high net worth (HNW) clients which have a
minimum net worth of $1m.
“There is a slip in confidence for
certain people. I think they are nervous about where this will all
end,” says Dugan.
“There is the worry that maybe some
of the political change would stall progress in the economy. But if
the whole region was not to fire on all cylinders it would still
rely on those economies that are already quite developed.”
MENA hubs covering
costs
MENA power hubs
such as Saudi Arabia, which has recently provided assurances that
it would compensate for short falls in Libya’s oil losses, have
been the region’s economic shelter for investors.
“I think these governments will
have sufficient revenues to go out and spend money in order to
maybe offset some of the drag the geo-political problems would have
created for the region,” says Dugan.
The general outlook remains
positive despite the revolutionary disruption. Big private banks
operating in MENA are still forecasting the strategic potential of
MENA and the wealth boom associated with the UAE and the Gulf
Cooperation Council (GCC), which includes Saudi Arabia, Kuwait,
UAE, Oman, Qatar and Bahrain.
Tracking MENA
wealth
Back in 2007 Merrill
Lynch/Capgemini’s World Wealth Report forecast Middle East
HNW wealth would hit $2.2 trillion by 2011.
By the time Merrill Lynch conducted
their 2010 research HNW wealth stood at $1.5 trillion, well below
the pre-crisis estimates – although the number of HNW remained
static at about 400,000.
Still, industry experts are
hesitant over disclosing the precise size of the MENA wealth
pool.
Citi Private Bank MENA managing
director Muwaffak Bibi says it is difficult to track figures
because there is no complete transparency.
“You can add to that, that the
client cultural base is very shy of any publicity,” explains
Bibi.
“Forbes in the US probably
captures about 90% of truebnaires because they can go through tax
returns,” adds Bibi, “whereas in MENA, there are tens and hundreds
that do not even want to be close to Forbes or to be
publicly known asbnaires.”
Forbes’ 2011 list featured
a total of 26bnaires with wealth amounting to $108bn from MENA.
Bibi estimates that total individual offshore assets range between
$1.5trn to $2trn.
However, the Citi director adds
that this figure includes mass affluent wealth and is therefore
vague when trying to track HNW or ultra high net worth (UHNW)
wealth.
“A lot of people have offshore
accounts in MENA and so people with a fewm dollars will be included
in that figure too,” says Bibi.
The reluctance of HNW and UHNW
individuals to disclose their wealth extends to private banks and
wealth managers. All the private banks spoken to by PBI
would not provide asset under management figures for their MENA
businesses.
HSBC reported a $15m loss in global
private banking in the Middle East in 2010. But the bulk of private
banks do not split out the performance of their MENA units.
HSBC, Citi, JP Morgan, Julius Baer,
Société Générale and Bank Sarasin all currently have high profiles
in the Middle East, with Lloyds and ABN AMRO building their
presence.
Société Générale and BNP Paribas
have strong links with former French colonies in North Africa.
Emirates NBD is the most prominent GCC Bank with new-comers
including Abu Dhabi Islamic Bank.
Citi Private Bank, however, is not
gearing itself towards that pool and looks towards the upper end of
the wealth scale. It aims to tap what it estimates is $300 to
$400bn belonging to UHNW individuals in the region.
Citi’s minimum net
worth requirement for MENA clients is $25m or more, with minimum
liquid wealth of $5m.
Similarly, JP Morgan’s MENA
operations seek clients with $30m in liquid net worth to invest,
which JP Morgan private bank MENA head Paolo Moscovici says is in
line with its 100% focus on the UHNW segment.
JP Morgan has 10 MENA private
bankers that serve UHNWs in the GCC and the Levant region (Lebanon,
Jordan and Egypt).
Meanwhile, Citi currently has about
30 bankers covering the MENA region, based in Geneva, London, New
York, Dubai and Abu Dhabi, with a focus on the GCC and covering the
Levant.
‘Sophisticated’
clients
Typical MENA wealth
management offerings cover private equity, real estate funds and
Sharia-compliant Islamic products.
Private banking services in the
region include asset management in its broadest sense, with
discretionary and advisory, financial and non-financial asset
management services, brokerage, core banking-type products and
protection products, amongst others.
JP Morgan’s Moscovici says defining
clients using the ‘discretionary vs advisory’ split unfairly groups
clients.
“I think a lot of banks try to put
clients in boxes with, ‘you are a discretionary and you are a
non-discretionary client,’” he says.
“We found that it doesn’t work this
way. Clients would like to be advised and supported on their
investments as a whole.
“For example, it often happens that
a client gives 
JP Morgan a
discretionary investment management mandate to manage part of their
liquid assets, but then in addition wants to intervene directly on
another part.
“On this part they will use JP
Morgan as an adviser, but on a more opportunistic,
non-discretionary basis.”
Deutsche Private Wealth Management
Middle East and Africa managing director Michael Dismorr adds that,
as a general trend, there is a strong demand for advisory asset
management within MENA.
“I think people underestimate the
sophistication of this market and its clients,” Dismorr says.
“Clients like taking their own
decisions and they like to keep control.”
At Emirates NBD, Dugan suggests
clients are more trusting of the discretionary offering because it
is a local bank, whilst the advisory remains strong.
“The advice clients want is around
local asset markets, particularly the bond market, where the
regional yield ranges between 4 and 9%,” says Dugan.
Dugan explains that after the
2008-2009 financial crisis, a number of cautious investors, who had
only previously invested in cash, have moved into bonds.
They have asked the bank to advise
on either single securities to buy or to develop a portfolio for
them.
“Clients tended to do waves of
buying into things that became popular, rather than keeping a
balance of their assets. That is now changing,” Dugan adds.
“We find that our strategic
allocation advice is becoming more crucial in the conversation with
a client.”
Citi’s Bibi is similarly expecting
a more conservative approach to investing to take off.
“We are doing more fixed income or
low risk products than before the crisis,” says Bibi.
“There is no doubt that hedge funds
and alternative investments are coming back to client portfolios,
because during the crisis those were shunned,” he adds.
Banks eye real estate and
global markets
Bibi says real estate
funds, an area of traditional interest, will continue to be popular
for MENA investors.
Despite the financial crisis that
hit Dubai in 2009, which resulted in the UAE losing 19% of its HNWI
population – partly due to the significant fall (48%) in real
estate prices, property related funds remain an important asset
class for the region.
They offer consistent returns
through leasing and rental income, a more readily acceptable
activity for Sharia-compliant boards, and remain attractive due to
the increase in the property prices across the Middle East and
other developed markets.
“Clients see real estate as a hedge
against inflation – it keeps value,” says Bibi.
He adds that Citi’s MENA division
has carried out transactions in the US to capitalise on the decline
in the commercial real estate market 
there during the
past two years.
Bibi also sees a growing appetite
among MENA investors to tap emerging markets.
“MENA investors have always had an
affinity to global investing which started in the 1970s and 1980s,
but more recently had started into local real estate markets and
private equity,” says Bibi.
“I think a ‘back-to-global-markets’
trend will arise. With the prominence of the emerging markets and
the returns over there, be it in Asia or Brazil, I think there will
be increased interest in international markets,” forecasts
Bibi.
Wealthier youth,
entrepreneurs, women
Market opportunities in Saudi
Arabia, Qatar, UAE and Kuwait have grown as private banks witness a
shift in client bases due to increasing entrepreneurial activity
and the growth in the number of younger wealthy individuals.
Dugan says the number of young
people who are getting wealthier and need private banking services
continues to increase substantially.
“There is a generational shift. Now
there is a lot of new wealth being created, whether because wealth
is being passed on or because we have got a lot of entrepreneurs,”
explains Dugan.
Emirates NBD is
planning future developments to tap client shifts. The bank plans
to create an entrepreneur-specific offering in the future and is
now also developing a unit to serve royalty.
Wealthy female private clients are
another client segment Emirates NBD is approaching.
“Women in the region have an
increasing share of wealth – some of the laws have changed
regarding women, particularly when regarding divorce settlements.
[Women] are getting a large share of the wealth,” explains
Dugan.
According to Merrill
Lynch/Capgemini, more than 1,500 private companies are owned and
managed by female entrepreneurs in Saudi Arabia, holding an
estimated $15bn in deposits.
“For Saudi Arabia, statistics show
that women control about a third of private wealth and take
decisions on it. In the past, people did not really target women at
all, assuming they had a subservient role in the wealth industry,”
says Dugan.
The next chapter for
MENA?
The recent
turmoil is not turning private banks off their positive long-term
outlook for the region.
“The Middle East represents an
excellent growth opportunity for wealth management; however it
takes sustainability,” says Citi’s Bibi.
“It is a difficult market. You need
to have the cultural sensitivities, the language sensitivities and
be able to navigate this.”
Such sensitivities are particularly
important in the currently unstable political climate.
Moscovici at JP Morgan says the
geo-political uncertainty clients are facing will rely on banks to
stay reactive.
“You do not turn away from your
friends when they most need you,” he says.
“We do not know what tomorrow will
bring, but we have to remain extremely reactive and close to our
clients and work out whatever changes will take place,” assures
Moscovici.
Analysts at Citi suggest that, in
the long term, the political upheaval occurring at present could
unlock the economic and human potential of the young and dynamic
region while short term impacts remain ambiguous.
For Dugan the path toward
escalating growth is obvious.
“After the geo-political crisis, I
think a very strong region will emerge, continually in favour of
its zero tax benefits,” he says.
“MENA is a private banking global hub; we will see tremendous
growth here.”
See also: Swiss lead seizure of Middle East
dictatorship assets
See also: Private
banking’s ticking bomb
VRL WEALTH REPORTS: Middle Eastern Wealth
Management
