SOURCE: The Boston Consulting Group

September 04, 2007 12:34 ET

Investment Banks Can Capture Growth in the Middle East With Local Offerings, BCG Report Says

NEW YORK, NY--(Marketwire - September 4, 2007) - Global investment banks can find attractive opportunities for growth in the Middle East, but must navigate turbulent waters to build a strong presence, according to The Boston Consulting Group's latest quarterly "Investment Banking and Capital Markets" report.

The report examines growth opportunities in the Gulf Cooperation Council (GCC) countries -- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. Corporate and investment banking revenues in the region exceeded $3 billion in 2006, with the United Arab Emirates and Saudi Arabia accounting for more than 80 percent of the total.

Fixed-income products, including project finance and Islamic finance, are particularly attractive, given the capital requirements of large projects and the strengths of global players. "The debt-structuring skills of global banks are highly valued, especially for large, complex deals," says Achim Schwetlick, coauthor of the report. "In contrast, local banks have been slow to penetrate the bond-issuance market. They face difficulties attracting talent and have a long-standing aversion to debt financing."

The region's growth opportunities are not without their challenges. Despite economic diversification, many countries remain heavily dependent on oil revenue. In addition, local talent pools for investment banks are limited, and regulatory transparency varies by country.

"Investment banks will need to adapt their operating models to suit the region," adds Schwetlick, a partner in BCG's New York office. "They should customize products to meet local needs -- perhaps by developing sharia-compliant offerings -- and establish a local presence to build credibility. Players can serve most GCC countries from the United Arab Emirates, but Qatar and Saudi Arabia are becoming increasingly important."

The report, which provides an overview of industry performance, found that pretax profit margins for leading players declined 2.2 percentage points in the second quarter, while revenues were 4.3 percent lower, as the collapse of the subprime market began to affect the broader market. Sales and trading revenues declined 8.9 percent, but corporate finance and advisory revenues grew by 15.9 percent.

The report's performance index tracks the profits of ten leading investment banks -- Bear Stearns, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Lehman Brothers, Merrill Lynch, Morgan Stanley, and UBS.

To receive a copy of the report or to schedule an interview with one of the authors, please contact Eric Gregoire at +1 617 854 4570 or

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