Dramatic declines in fees and deal activity are revealed today in a analysis of the 2009 performance of the Middle East investment banking industry by Thomson Reuters.
At the height of the 2007 boom, Middle East mergers and acquisitions exceeded US$40 billion. In 2009 they fell to less than US$13 billion. The Middle East equity capital markets, peaking in 2008 at more than US$36 billion, plummeted to only US$6.89 billion in 2009. Overall fees of US$599 million paid to investment bankers and advisers in 2009 almost halved compared with 2008.
“These have undoubtedly been tough times worldwide with the investment banking business feeling the effects,” said Basil Moftah, Managing Director of Thomson Reuters, Middle East and Africa. “As these league tables illustrate, the Middle East investment banking industry saw its fair share of pressure in 2009 and will be looking now for a period of consolidation.”
Moftah was speaking as Thomson Reuters released its fourth quarter 2009 review of the Middle East investment banking industry, which covers the region’s debt and equity capital markets, both conventional and Islamic. The review includes rankings of banks and advisors operating in the Middle East based on deal activity and fees and provides an independent assessment of the market.
Analysis of the Thomson Reuters data for the Middle East as of 31 December 2009 shows that compared with 2008:
• Investment banker and adviser fees at US$599 million - down 46%
• Mergers and acquisitions stood at US$12.7 billion - down 40%
• Equity issues dropped to US$6.89 billion – down 81%
• Loans fell to US$17.1 billion - down 81.5%
• Debt issues rose to US$38.3 billion – up 151%
With the close of 2009, the analysis showed HSBC holding the top spot in Middle Eastern debt and equity capital markets’ fee rankings with US$13.4 million and US$8.1 million respectively. Credit Suisse came first in the mergers and acquisition fee ranking with US$27.3 million and Calyon topped the syndicated loan fee ranking with US$11.3 million.
In mergers and acquisitions with any Middle Eastern involvement, Morgan Stanley topped the rankings, advising on deals worth US$16.3 billion. Rothschild came second with US$15.42 billion. The top Middle Eastern targeted M&A deal for 2009 was an equity carve-out transaction in which the government of Iran planned to divest its 50% interest, plus one share, in Iran Telecommunications to the public for US$7.7 billion.
The top Middle Eastern acquisition of the year at US$9.5 billion was Qatar Investment Authorities’ acquisition of an increased stake in Volkswagen.
In much-reduced equity issuance, the top three spots in terms of deal activity were taken by Riyadh Bank, HSBC and Qatar National Bank respectively. The largest equity issue of the year was the Gulf Bank follow-on deal worth $1.3 billion.
Sovereign, government-related and investment grade corporate issues dominated the Middle East debt capital markets which soared in 2009 to US$38.3 billion and were the one bright spot for investment banker fees, which increased compared with 2008. But in the Islamic sector, debt issuance of 38 issues worth US$14 billion represented a fall of 44% over the previous year.
Top Islamic issuer was Malaysia with 31.2% of activity, with the United Arab Emirates second with 27.2%. Goldman Sachs with five issues worth US$3.55 billion topped the overall Middle East debt rankings, while HSBC headed the Islamic financed bond ranking for the year with nine issues worth US$1.88 billion.
With loan activity falling dramatically by more than 80%, Middle Eastern issuers and borrowers managed to raise a total of only US$17 billion. In the overall Middle East loan ranking, Standard Chartered topped the league with eight deals worth a total of US$1.91 billion.
Al Rajhi Banking and Investment Corporation, Calyon and Banque Saudi Fransi all ranked first in the Islamic loan ranking with US$833.3 million each, due to their work as book runners on the top Islamic loan of 2009 – the Zain Group loan of US$2.5 billion. Islamic financed loan activity reached only US$5.4 billion in 2009, with Bahrain accounting for 46% of issues and the UAE second with 38.5% of activity.
A detailed breakdown of the Middle East investment banking fee rankings showed HSBC rising from third place last year to first place in 2009 for debt capital markets. Samba Financial were second, with Citi third. Credit Suisse jumped from seventh last year to first in M&A fees in 2009. Morgan Stanley came second followed by Goldman Sachs.
Similarly in the equity capital markets’ fee rankings, HSBC rose from third place in 2008 to first in 2009, followed by Riyadh Bank and Citi. In the syndicated loan fee league table, Calyon rose from seventh last year to first in 2009, with Standard Chartered and Mitsubishi UFJ Financial second and third.
Looking ahead, Moftah said: “As we begin a new year, the road may remain bumpy for a while. For a sustainable return to growth we need to see an increase in investment banking activity with a revival in mergers and acquisitions as well as renewed interest in both initial public offerings and bond issues.”
