x Abu Dhabi, UAETuesday 23 January 2018

Egypt's EFG-Hermes braces for hit

The ousting of president Hosni Mubarak will hit the results of Egypt's largest investment bank EFG-Hermes.

The Egyptian investment bank EFG-Hermes said the recent uprising will affect its results. AFP PHOTO/JOSEPH EID
The Egyptian investment bank EFG-Hermes said the recent uprising will affect its results. AFP PHOTO/JOSEPH EID

CAIRO // EFG-Hermes, Egypt's largest investment bank, will be hit hard by the effects of the uprising that ousted the president Hosni Mubarak but it hopes to avoid an annual loss, a top executive says.

Yasser el Mallawany, one of the company's three chief executives, said EFG-Hermes's top brass were touring the region to reassure major clients that they would be able to handle the sharp drop in business in the past month.

"We have, of course, prepared for the worst-case scenario," Mr el Mallawany said. "Even then, we will not lose money … on a consolidated basis."

That scenario is a long contraction in investment banking in Egypt, he said. About half of the company's revenue comes from helping companies to issue securities, trade and acquire other businesses.

"Investment banking is more or less stagnant now, which means we will get hit in Egypt," Mr el Mallawany said.

EFG-Hermes is putting all of its efforts into growing its commercial banking business, especially in the Levant region where it recently finalised the acquisition of a 65 per cent stake in the bank Credit Libanais, based in Beirut, for US$542 million (Dh1.99bn).

"Before, we had broken down the business 50-50 between investment banking and commercial banking," Mr el Mallawany said, adding that commercial banking would now have to rise to about 75 per cent to make up for lost business related to Egypt.

The situation at EFG-Hermes could indirectly affect Dubai Holding, the conglomerate that is restructuring billions of dollars of debt and considering asset sales in the aftermath of the global financial crisis. It owns 18.5 per cent of EFG-Hermes after selling part of its stake in 2009.

Jaap Meijer, the head of the banking research team at Alembic HC Securities in Dubai, said EFG-Hermes was "very rich in capital" but under significant pressure from the disruption of the financial markets.

"They will survive this crisis for sure," Mr Meijer said. "But if they are quite negative on investment banking themselves, then I think they will end up burning their cash position this year."

The company may also have to cut staff and salaries, he said.

Mr el Mallawany dismissed the idea the company would be investigated for connections to the former Egyptian regime.

"This is an institution governed by corporate governance," he said. "Any transactions have been approved and scrutinised by the regulators. We are a company that abides very much by the book."

EFG-Hermes played a major role in the privatisation of Egyptian state assets over the past few years, a policy instituted by Mr Mubarak's government.

His son, Gamal, has owned 18 per cent of EFG-Hermes Private Equity since 1997. That fund has $919m under management.

Mr el Mallawany is a member of the policies high committee of the National Democratic Party, the political group connected to Mr Mubarak, and said his role was to "give ideas regarding the technical issues of finance".

"I've never been a political animal," he said. "We are just focusing now on taking measures for our firm."