Taib Securities, the brokerage arm of Bahrain's Taib Bank, says it will close its UAE operations immediately to cut losses amid depressed market conditions, and shift focus to its home market.
The closure comes as fears continue to mount that many of the country's remaining brokerages will close before the end of the first quarter as trading volumes plummet.
"We are closing the UAE office because volumes are very low," said Khaldoon bin Latif, the general manager at Taib Securities in Bahrain. "From a return on investment perspective, it didn't make any sense," he added.
Many brokerages closed UAE operations last year after the Arab Spring and European debt crisis reduced trading volumes. The value of equities traded by UAE brokerages declined 45 per cent to Dh57 billion (US$15.51bn) last year, compared with the same period a year earlier.
The Abu Dhabi Securities Exchange traded $15 million worth of shares on the first trading day of the year, compared with the $26 million average last year. The Dubai Financial Market was down to $8m, compared with the $34m average last year. Fifty-seven brokerages are still operating in the Emirates, down from 103 at the beginning of last year.
Many foreign investment banks have restructured their operations in the UAE to cope with falling volumes. Germany's Deutsche Bank recently moved its head of equity capital markets back to London from Dubai. Nomura, based in Tokyo, closed its Dubai equity research unit, and the UK's HSBC has shut its retail brokerage unit in the Emirates.
Taib Securities, which opened for business in 2006, was ranked 51st by value traded last month, according to trading reports by the Dubai Financial Market exchange.
The brokerage recorded accumulated losses of Dh25.8m in the latest third quarter financial statements of last year. Taib Securities recorded losses of Dh23.6m and Dh18.5m in the same period for 2010 and 2009, respectively. The auditor's report cited the Abu Dhabi company as a "going concern" after losses surpassed share capital.
Taib Bank has indirect access to 41 markets including the US, Europe, Asia and the wider GCC through third-party brokers. The investment bank has direct market access in Bahrain, where market share is about 30 per cent, Mr bin Latif said. The company will still be able to offer clients access to UAE stocks through third-party brokers, he added.
"Brokerages are going through a very tough time, as revenues come solely from trading commissions which keep sinking further while overheads have remained the same," said Musad Madhi, the operations manager at Al Awael Securities based in Abu Dhabi. "Fees related to the stock exchanges, renewing licences and memberships have to be paid, regardless of whether the company is profitable or not."
Julian Bruce, the director of institutional equity sales at EFG-Hermes, said there was no catalyst to bring foreign investors back to the UAE markets and hence increase trading volumes, as Europe's crisis continued to drag down investor sentiment. "We are in for a quiet few months."
Investor Financial Brokerage, ranked number 56 by value traded, said it was in merger talks with local and foreign banks to "survive".
"We haven't covered our overheads," said Ossama Al Eissa, the general manager at the Abu Dhabi brokerage. "We are living on retained earnings made in 2006 and 2007."