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TheUAE’sFinancialServicesSector
The UAE’s Financial Services Sector, MBA | 2
Topicsaddressed
» TheUAE’sbankingsector
» Equitymarkets
» Dubai:theGulf ’sfinancialhub?
» Theimpactofthefinancialcrisis:Mergers&Acquisitions
page 2
The UAE’s Financial Services Sector, MBA | 3
The UAE’s Banking Sector (1)
» TheUAEfinancialsystemisdominatedbythebankingsector
» Bankownershipispredominantlyheldbythegovernment,at52%
» Itaccountsfor10%ofnon‐oilGDPandemploys1.5%oftheworkforce
» Accordingtothemostrecentdatathereare52banksoperatingintheUAE,24ofwhicharelocallyincorporated,thelargestbankslocallyaredomestic
» EmiratesNBD remainstheUAE’slargestbankbothintermsof:shareoftotalassetsandequity
UAE ranking by assets (US$ bn)
The UAE’s Financial Services Sector, MBA | 4
The UAE Banking Sector (2)
Bankgrowthinassetstumbledafterthefinancialcrisis.
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The UAE’s Financial Services Sector, MBA | 5
Impact of ‘Financial crisis’
» Theglobalfinancialcrisisof2008‐09sawasharpdeclineinliquidityandanexcessiveincreaseinnon‐performingloans,italsorevealedsomestrengthsandweaknesses:
» Strengths:
» Highshareoftraditionalbankinglimitedlossesfromexposurestostructuredproductsandderivatives
» Banksweresupportedbyhighprofitsandcapitalbuffersintherun‐uptothe2008/09internationalfinancialcrisis
» Weaknesses:
» Highexposuretotherealestateandconstructionsectors(25%oftotalloans,includingmortgages),aswellasequityprices.
» Financingmainlydirectedtolargeprivatebusinessgroupsorgovernmentownedrelatedenterprisesconcentratingcreditrisk
The UAE’s Financial Services Sector, MBA | 6
UAE Equity Markets - Characteristics
TheUAE,acountrywithlessthanonemillionnationalcitizens,hasthreestockmarkets:AbuDhabiSecuritiesExchange– marketcapitalizationapproximately$106.6billion;DubaiFinancialMarket– marketcap.$66.1bn;NASDAQDubai–marketcap.$33.4bn.
» Afterseveralattempts,theUAEmarketswererecentlyupgradedbyMSCIfrom‘frontiermarkets’to‘Emergingmarkets’alongwithQatar(in2013)
» Investorsaremainlyretail,notinstitutional,leadingtomorechurningofstocks.
» Littleforeigninvestment,onlyapproximately3.3%ofstocksareheldbyforeigners.
» Limitednumberoflistedcompanies,reducespotentialfordiversificationofUAEportfolios.
» Concentrationofcompaniesinsectorswhichwerebadlyhitbyfinancialcrisis.
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The UAE’s Financial Services Sector, MBA | 7
The UAE’s Three Equity Markets
ADX (67 listed, e.g.) DFM (65 listed, e.g.) NASDAQ Dubai (10 listed, e.g.)
The UAE’s Financial Services Sector, MBA | 8
Impact of the ‘Financial Crisis’ on Equities
» Changesontheregionalstockmarkets;year‐on‐yeargainsandlosses:
Source: GIH, 2014
Country/Market 2008 2009 2010 2011 2012 2013
Bahrain ‐ 33.5% ‐ 17.9% ‐ 0.6% ‐ 0.2% ‐7.0% 16.9%
Kuwait ‐ 45.4% ‐ 9.8% +20.0% ‐ 10.6% ‐5.0% 5.1%
Oman ‐ 39.8% +17.0% +6.1% ‐ 8.6% 9.6% 22.2%
Qatar ‐ 24.6% +8.9% +17.5% ‐ 4.8% 0.6% 20.7%
SaudiArabia ‐ 56.5% +27.5% +8.2% ‐ 0.9% 10.2% 24.6%
UAE
Total marketcapitalisation $132.0bn $135.9bn $104.8bn $101.6bn $103.2 $172.7
Indexgains(Dubai– DFM) ‐ 72.4% +10.2% ‐ 9.6% ‐ 4.0% 9.8% 96%
Indexgains (AbuDhabi– ADX) ‐ 47.5% +14.8% ‐ 0.9% ‐ 3.5% 10.1% 53.4%
DubaisuffersmostfromthefinancialcrisiscomparedtootherdomesticandRegionalStockmarkets,duetomarketconcentrationsinfinance,realestate,andDubai‘debtcrisis’
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The UAE’s Financial Services Sector, MBA | 9
The Gulf’s Financial Hub?
AbuDhabi – Sowwah SquareonAlMaryah Island(formerlySowwah Island) willbeacounterpointtoDIFC
» Mubadala,thedistrict’sdevelopers,saySowwah willbecomethecity’scentralbusinessdistrict.
» AnalystssayitisanattempttoturntheEmirateintotheMiddleEast’sfinancialhub.
» AbuDhabialsohoststheUAECentralBank,whichregulatesthebankingsector
IntheUAE,Dubai servesasthenation’s‘financialcapital’.
» Buildinguponitshistoryastheregion’scommercialandtradingcentremanydozensofbanksarelocatedinDubai
» BourseDubaihaslargestakesinboththeNewYorkandLondonstockexchanges
Qatar – isarelativenewcomer,nonethelessunlikeeitherBahrainorDubaiithasbyfartheworld’slargest(per/capita)naturalgasreserves.
» Qatar’sgasreservesthe3rd
largestintheworlddoactasamagnateformanyfinancialinstitutions
» Itestablisheditsfinancialcentrein2005,whichoperatestointernationalstandardsandprovidesafirstclasslegalandbusinessinfrastructurefortheentitiesthatoperateoutofit
The UAE’s Financial Services Sector, MBA | 10
Dubai: the Gulf’s Current ‘Financial Hub’ ? (1)
» AccordingtoTheGlobalFinancialCentre’sIndexDubai isrankedthe25th mostimportantfinancialhubglobally,falling2places
» In2014Qatar rose6placestorankaboveDubai
» AbuDhabiwasanewentrantintheGFCI2011andhasmadesignificantprogressinGFCI12,rising10places,in2014itfell3places
» ItwasalsoratedasaGlobalContenderalongwithBeijing,MoscowandShanghai
» Consideredas‘globallyconnected’becauseofglobalawarenessoftheiractivitiesbutnotyetsufficiently‘broad’and‘deep’
» Dubaiwasamongthetencentreslikelytobecomemoresignificant Source: Global Financial Centres, 2014
FinancialCenter
Rank Change
London 1 ‐
NewYork 2 ‐
HongKong 3 ‐
Singapore 4 ‐
Tokyo 5 +1
Zurich 6 ‐1
Boston 7 +1
Geneva 8 ‐1
Frankfurt 9 +1
Seoul 10 ‐1
Qatar 24 +6
Dubai 25 ‐2
Abu Dhabi 42 ‐3
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The UAE’s Financial Services Sector, MBA | 11
Dubai: the Gulf’s Current ‘Financial Hub’ ? (2)
DubaiInternationalFinancialCenter’svision:
“Tobeauniversallyrecognizedhubforinstitutionalfinancialservicesandtheregionalgatewayforinvestment”
TheDIFCisafinancial‘FTZ‘withitsowncivilandcommerciallawsseparatetothelawsofDubai.
» InadditiontotheNASDAQDubaistock‐market,theDIFChoststheworld’slargestmarketfortradablesukuks (Islamicbonds)(e.g.DubaiPort$3.5bn;Nakheel$3.52bn,26arelistedcurrently)
» Recently,GECapital,thefinancearmofGeneralElectric,listeda$500mnsukuk –thefirsttobeissuedbyamajorUScompanyandwaspurchasedbyinvestorsacrosstheMiddleEast,AsiaandindeedEurope.
The UAE’s Financial Services Sector, MBA | 12
The Impact of the Financial Crisis
page 7
The UAE’s Financial Services Sector, MBA | 13
Mergers & Acquisitions (motives)
M&A activityreferstothebuyingandcombiningoftwoormoreseparatecompanies,suchaconsolidationcanaid,finance,orhelpagrowingcompanybecomestrongerandmorecompetitiveinagivensectoroftheeconomy– motivesinclude:
1. Economiesofscale:costsavingscanbemade– onebrand,oneadvertisingcampaign,oneheadofficeetc.
2. Cross‐selling:a bank buyinganotherbankcouldsellitsproductstotheotherbank’scustomersandviceverse;amanufacturercanacquireandsellcomplementaryproducts
3. Synergies:asalargercompanytheycanbargainforbetterpricesforservicesduetoincreasedordersizeandassociatedbulk‐buyingdiscountsetc.
The UAE’s Financial Services Sector, MBA | 14
UAE Mergers & Acquisitions
M&Aaredomesticandinternational
» EmiratesBankandNationalBankofDubaimergedastheglobalfinancialcrisishitin2007,thenin2011theENBDacquiredthetroubledDubaiBank
» UNCTAD’sWorldInvestmentreport2012‐ thenumberofcross‐borderM&Asbyinward‐investingfirmsnumbered20in2010and31in2011.
» TheUAEtopstheMENAregionintermsoftotalM&Adealvalues,comprising29%oftheMENAtotal(worth$445mninQ12012),followedbyQatarandSA.
» Ernst&YoungreportsthetoptwodealsinMENAbyvaluein2012arebothworthUS$2BnandinvolveUAESWF/PEfirmsbuyingglobalassets:MubadalaDevelopment’sacquisitionofBrazil’sGrupoEBXandCenturionInvestmentCompany’sacquisitionofIndia’sUAEExchange&FinancialServices.
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The UAE’s Financial Services Sector, MBA | 15
Mergers & Acquisitions (planned?)
Whyhavethreestockexchangesinacountrywithunderonemillionnationalcitizens,witheachrunningfulloperationsatconsiderablecost?
» ItisaquestionthattheCEOsoftheUAE’sexchangesseemtohavebeenponderingthemselves:
» TheDFMandADXannouncedplanstomergein2010,monthsaftertheDFMandNASDAQDubai revealedthattheyintendedtomerge
» Ifthethreeweretocombine,itwouldundoubtedlybecometheMENAregion’skeybourse…
» Thiswould:‐ attractmorecompaniestolistontheexchange‐ increasethenumberinvestorsandinvestmentopportunities