Investment banking in the Middle East continued to face challenges in the first half of this year as European and global fears compounded the uncertainties of the Arab Spring.
Regional debt capital markets and mergers and acquisitions (M&A) income were positive sectors in a six-month period during which other forms of investment banking business came under pressure from declining fees and activity.
In particular, traditional syndicated lending to companies virtually dried up in the period, down 98 per cent from last year, while equity capital markets activity was also down.
The region's mixed investment banking picture emerges from the regular Middle East investment banking analysis by Thomson Reuters.
"It's still pretty tough out there," said one leading Dubai banker, speaking on condition of anonymity. "The rest of the world is still in wait-and-see on the region because of the Arab Spring. The euro-zone [debt] crisis has been a drain on all kinds of activity.
"There's some decent life in M&A and debt markets, but even so it's hard to see how some banks can continue to justify the big teams and costs in the region," the banker said.
Aggregate investment banking fees - the statistic that drives profitability at the bonus-oriented banks - rose 5 per cent to US$234.8 million (Dh862.3m) the first half of this year compared with the same period last year.
Fees from M&A represented 25 per cent of the overall fee pool but were 19 per cent down on last year. Fees from syndicated lending and equity capital markets were $61.3m and $59m, respectively.
Fees from activity in debt capital markets (DCM) totalled $54.9m in the first half of this year, more than double last year's first six months.
Deutsche Bank topped the Middle Eastern DCM fee rankings for the first half of this year, earning 10 per cent of the total.
HSBC topped the Middle Eastern M&A fee rankings with $5.3m, while Qatar National Bank and Saudi British Bank topped the equity capital markets and syndicated lending fee league tables, respectively.
Middle Eastern M&A, based on target nations and bids, reached $8.5 billion during this year's second quarter, an increase of 45 per cent on the previous quarter. That made it the strongest quarter since the first three months of 2010.
The strong second quarter took total regional M&A values in the first half to $14.3bn, an increase of 137 per cent over the same period last year, when activity totalled $6bn.
Credit Suisse topped the ranking for "any Middle Eastern Involvement in M&A" ranking during the first six months, with $4.78bn, while HSBC took second place with $4.13bn. HSBC topped the Middle Eastern target M&A ranking, controlling 29 per cent of the market, according to the Thomson Reuters data.
The biggest Middle East-targeted deal so far this year was National Bank of Kuwait's $2.1bn offer for the Kuwait Islamic lender Boubyan Bank last month.
Equity capital markets (ECM) issuance reached $4bn during the second quarter, nearly four times the value reached during the previous three months. Equity capital markets activity so far this year totalled $5bn, down 40 per cent from the first six months of last year.
The top Middle Eastern ECM transaction was a $1.9bn deal from the Qatari telecommunications company Qtel. Bolstered by this deal, telecoms was the most active sector in the Middle East at 44 per cent, followed by the financials sector with 26 per cent.
Middle Eastern debt issuance was $6bn during the second quarter, a 45 per cent decline from the strong first three months of the year, with a total of $10.9bn. It took first-half activity to $16.9bn, up 51 per cent on the same period a year earlier.
Investment-grade corporate debt accounted for 70 per cent of all regional DCM activity so far. Islamic debt issuance reached $14.5bn from 34 issues, an increase of 25 per cent from the same period last year, and the strongest total for the first six months of a year since 2008.
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