The financial crisis has hit the sector hard but the banking giants HSBC and Barclays are boosting their presence in the region.
Global banks jostle to tempt the rich in the Arabian Gulf
The global economic slowdown and the shrinking fortunes of rich clients have shaken the wealth management industry to its core since the 2008 financial crisis.
Reflecting the uncertain outlook for the industry across the region and worldwide, Swiss Life International last month became the latest big player to announce it was withdrawing from the Dubai market.
Yet amid the gloom, financial services firms are looking at new opportunities within the GCC. Already HSBC and Barclays, two international banking giants, are bolstering their presence in the region in a bid to manage more cash from wealthy investors.
The National spoke separately to Francesca McDonagh, the Middle East and North Africa head of retail banking and wealth management at HSBC, and Rory Gilbert, the managing director and head of Middle East and North Africa for wealth and investment management at Barclays, about the challenges ahead.
As a bank how are you putting more focus on wealth management in this region?
Ms McDonagh Historically, wealth management has been a relatively small part of our business but that has changed. We have seen a lot of growth in the past 12 months coming from our wealth business. We have invested in our people so we now have over 160 HSBC Premier wealth accredited relationship managers in the region, the majority of whom are in the UAE. We recently launched discretionary management services, whereby a customer with at least $1m who doesn't have the desire, knowledge or time to invest their portfolio actively can give a discretionary mandate to HSBC asset management to manage their portfolio directly.
Mr Gilbert We've reinvigorated, reshaped and rebooted in the way we're approaching Mena [Middle East and North Africa region]. I took over this business 15 months ago and one of the observations I had was that we needed to be a bit more vigorous in the way we bring the whole range of offerings to the region. We're growing at double-digit rates in revenue and asset value terms and will continue to hire as the rate of the business supports taking on more people. We feel very strongly our commitment to the region is best understood by our investment in the region. We're building out a presence in each of the markets we work in and will keep doing that. We have hired a lot of people over the last 12 to 18 months and the challenge now is to understand how we bed them down and help them understand how to maximise the value they bring to their clients.
Who are your clients here?
Ms McDonagh In the UAE, we have quite significant sectors, so we have Emiratis and pan-Arab nationals, a very large base of western expats and a significant segment around non-resident Indians. We will see the western expat base grow through the acquisition of Lloyds Banking Group's business in the UAE. Lloyds' base in the UAE is approximately 7,000 customers who are typically expatriate with mass affluence. They will become an increasingly important part of our business in the Emirates.
Mr Gilbert We deal with a massive range of people, background and skills. We deal with nationals from the region but, as you know, there are very significant businesses and families that have been built by people who aren't from the area over many years. We enjoy working with people whether they're of Indian origin, western European origin or Emirati because it gives us an opportunity to lean about those clients and the grouping they come from. One thing I particularly enjoy about this region is that our clients are very investment savvy.
What sort of interest are you seeing from clients?
Ms McDonagh It varies. We see customers in the Middle East have an appetite for bonds, such as fixed income, government or corporate bonds. The low-interest rate environment and their low risk mean customers have preference for this.
Mr Gilbert What clients are looking for now is yield. In an environment where effectively interest rates are zero, it's very hard for clients to preserve their purchasing power without taking on some incremental risk. We're very keen on high-yield equities and high-yield bonds, and were very early on this call. We think clients need to look into areas they would not always have been comfortable to generate risk to achieve the yields they want.
Have you noticed any interesting investment trends since the global financial crisis in 2008 and the Arab Spring?
Ms McDonagh Some people have found it very hard to react and to know what information to use when they're going through the full cycle of an investment. We see that customers are increasingly looking to get trusted advice about their wealth management needs as opposed to just looking at the next hot product in the market.
There's been regional uncertainty, both politically and economically, but the euro crisis and global economic challenges have resulted in some of our customers in this part of the world looking to emerging markets, and to the Middle East for wealth solutions. Our businesses in more developed markets are a very important part of what HSBC does globally, but we do see the future growth coming increasingly from emerging markets.
Mr Gilbert One of the interesting things after the crisis was that clients who thought they were very tolerant of risk discovered it appearing in places that weren't anticipated. Consequently, they've become very risk-averse across a whole range of things. Our job is difficult as quite often clients prefer to deal with things they think they understand, but they unwittingly expose themselves to a lot more risk. For example, real estate.A lot of people think of real estate as a terrific, tangible investment but you can see that in this region and elsewhere, real estate, particularly when you add leverage, can get you into a situation that's very difficult to manage quite quickly.
The Arab Spring has boosted the UAE's status as a haven for investors in the region. Do you see any evidence of such a trend in wealth management?
Ms McDonagh When there has been political uncertainty in parts of Mena we have seen some customers look to have savings or deposits in the UAE. Typically, when they do that they go to a brand they recognise and trust and among our customer base we do have pan-Arab nationals and GCC nationals who want to have savings, investment or some deposit in the UAE. We also see a lot of people coming here to work, to invest, to educate or to have their family.
Mr Gilbert It's difficult to link cause and affect. But we have been really impressed by the way in which the UAE has flourished in the last few years. I'm aware anecdotally of a large number of people and families that have relocated their businesses because they see the UAE as somewhere that's stable, safe, governed extremely well, has a high level of transparency level. [There is] confidence about the future. To some extent, that sets it apart from other areas in the region, where there hasn't been that stability in the past few years, but it's difficult to draw conclusions that are definitive.