Investment banking – PE is not enough!
A.T. Kearney study reveals opportunity for regional investment banks to tap long-term growth potential
Dubai (16 June 2010) — The top five GCC investment banks recorded losses in 2009 and challenging times are continuing for the sector. A.T. Kearney, one of the world’s leading management consulting firms in the financial industry, says there is an opportunity for GCC investment banks to revisit their current business models and redesign their long-term strategies, as the GCC’s market for investment banking offers significant long-term potential.
From 2005 to 2007 the GCC investment banking market was strong, averaging 17 percent annual growth in all segments but brokerage. After peaking at USD 5.5 billion in 2007 the GCC investment banking revenues shrank to 4.2 billion in 2009, as the financial services industry around the globe suffered from some of the worst trading conditions in history. Demand for investment banking services declined as liquidity dried up and deal making ground almost to a halt. GCC investment banks, however, were hit not just by temporarily declining demand for investment banking services. Because they typically do not diversify their business portfolios, choosing instead to focus on private-equity and principal investments, these banks suffered substantial losses in the value of their investments. Without a diversified revenue stream, these losses were even more pronounced.
“Despite all the financial gloom and doom, we see strong glimmers of hope for GCC investment banks. While in other parts of the world the financial crisis put leading investment banks out of business and forced others to relinquish their independence, top investment banks in the GCC that seek to overcome their challenges and make the most out of untapped market opportunities will emerge stronger in the years to come,” said Cyril Garbois, Principal, Financial Institutions Group, A.T. Kearney Middle East.
A.T. Kearney believes that despite a large number of players in the region, there is ample room for growth in most segments, as indicated by low penetration compared with more developed markets.
“GCC investment banks should redefine their individual playing fields. In particular, three areas deserve the bulk of the attention: growth potential, capital needs and differentiation potential,” said Dr. Alexander von Pock, Principal, Financial Institutions Group, A.T. Kearney Middle East.
The investment-banking market segments vary significantly in their potential for growth. Private equity, for instance, is already well established in the region, leaving little room for further penetration, according to A.T. Kearney. Other segments, however, notably asset management and capital markets, are still emerging and show great promise. Demand indicators remain strong, including a substantial need for financing the massive infrastructure projects planned or underway in the region, and capital markets will likely play a larger role as the local economies continues to mature.
“Beyond redefining the playing field and long term business strategy, the current business practices of investment banks need to be fine-tuned to improve their prospects. Our experience highlights several areas of great importance to investment banks’ long term competitiveness, such as recruitment of top talent, a rigorous performance culture, strong investment and risk management as well as operating efficiency of front-line and back office functions,” concluded Dr. von Pock.
About A.T. Kearney
A.T. Kearney is a global management consulting firm that uses strategic insight, tailored solutions and a collaborative working style to help clients achieve sustainable results. Since 1926, we have been trusted advisors on CEO-agenda issues to the world’s leading corporations across all major industries. A.T. Kearney’s offices are located in major business centers in 37 countries. From our fast growing Middle East offices in Abu Dhabi, Bahrain, Dubai and Riyadh, A.T. Kearney actively contributes to the operational excellence and profitable growth of the private sector industries and services in the region as well as the agility of governments. For more information, visit www.atkearney.com or follow A.T. Kearney Middle East on Twitter profile: AT_Kearney_ME.
About Our Experts
 Cyril Garbois
Principal
Experienced in the Banking and Insurance industry, with a focus on growth strategy and organization
 Dr. Alexander von Pock
Principal
Experienced in financial services (both conventional and Islamic), with focus on corporate and business strategy, M&A, post-merger-integration, reorganization and operations improvement
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