x Abu Dhabi, UAEWednesday 26 July 2017

HSBC scales back brokerage

HSBC Middle East Securities, the local brokerage arm of HSBC Holdings, said it will halt trading in shares for retail investors and shift to institutional clients amid sluggish markets and low volumes.

HSBC has been cutting costs and reviving flagging profits by exiting businesses not delivering their cost of capital and refocusing on areas of strength.
HSBC has been cutting costs and reviving flagging profits by exiting businesses not delivering their cost of capital and refocusing on areas of strength.

HSBC Middle East Securities, the local brokerage arm of HSBC Holdings Group, will halt trading in shares for retail investors and instead focus on institutional clients amid sluggish markets and low volumes.

The brokerage trimmed its loss to Dh5.7 million (US$1.5m) for the first half of the fiscal year from Dh6.6m in the same period a year earlier. It posted a loss of Dh13.4m last year and Dh13.2m in 2009.

"The market share was relatively small, and the profitability was not there but aligned with most brokerages in the UAE," said Georges Elhedery, HSBC's head of global markets for the Middle East and North Africa.

"If we wanted to be credible in the retail space, we would have had to invest incredibly in an internet platform. But given the current market, the investment did not make a lot of sense." The decision comes as local markets have slumped, liquidity has dried up and investor confidence has waned.

The Dubai Financial Market General Index has lost more than 80 per cent of its value since 2005, and the Abu Dhabi Securities Exchange General Index has declined almost 60 per cent in the same period.

In May, Stuart Gulliver, the HSBC chief executive, announced a far-reaching plan to cut costs and revive flagging profits by exiting businesses not delivering their cost of capital and refocusing on areas of strength.

"We were looking for efficiency," Mr Elhedery said. "We went into internal due diligence to assess our options and discussed with our business partners, including local, regional and international clients, the local stock exchanges, and after having the blessing from the regulator [the Securities and Commodities Authority], we took the decision."

HSBC is helping its retail clients find alternative brokers, and the process should be completed by the end of the year, Mr Elhedery said.

Separately, HSBC Holdings said it would halt its retail banking operations in Kuwait at the end of the year. "Following a strategic review of our operations and activities in the country, we have taken the decision to focus exclusively on our global banking and markets, commercial banking and private banking businesses," the bank said on its website.

There are 59 brokerages operating in the UAE, down from 110 last year, according to the regulator's website. Some brokerages have decided to suspend trading activities or cut costs after traded value on the local bourses sank to Dh49.2 billion from Dh104.5bn last year and Dh237bn in 2009.

This month, Premier Financial Services, based in Abu Dhabi, said it had received regulator approval to suspend brokerage activities for up to six months. Rasmala Investment Bank ceased offering retail brokerage services in May. Shuaa Capital last week said it planned to focus on institutional and high-net-worth clients.

"The market is dead. It's so depressing," said Wadah Al Taha, the chief investment officer at Al Zarooni Group in Dubai.

"Under this scenario, the current volume is enough for only 20 brokerages to break even." The UAE is under review for an upgrade to emerging-market status in December by the international index compiler MSCI. The country is currently classified as a frontier market.

"How will things evolve? It depends on the market," Mr Elhedery said.

"We are hopeful that the MSCI reclassification and the introduction of stock borrowing and lending will improve current conditions.

"Hopefully, global sentiment will help lift local sentiment, and we want to make sure we are servicing our institutional clients the best we can."

 

halsayegh@thenational.ae