x Abu Dhabi, UAEWednesday 24 January 2018

Shuaa jobs on the line as losses rise sharply

Shuaa Capital's troubles grow as the investment bank reports its fourth consecutive annual loss and announces another round of layoffs.

Shuaa Capital capped its fourth consecutive year of losses with another round of layoffs. Andrew Parsons / Bloomberg News
Shuaa Capital capped its fourth consecutive year of losses with another round of layoffs. Andrew Parsons / Bloomberg News

Shuaa Capital capped its fourth consecutive year of losses with another round of layoffs and little sign of a turnaround in its fortunes, as the investment banking group withdrew from retail brokerage operations around the Middle East.

The Dubai bank's loss for the full year was Dh293.8 million (US$79.9m), widening 31 per cent from the previous year.

The bank's losses for the fourth quarter totalled Dh111.8m, a decrease of 40 per cent compared with the same period a year earlier.

Prolonged and costly disputes during the past four years, including spats with Dubai's regulator and one of the emirate's government-related holding companies, have left Shuaa reeling in a market that has proved turbulent for investment banks.

As losses continued to accumulate, the bank announced that it would reduce its workforce to 130 to cut costs, after two rounds of layoffs last year.

"Shuaa will be making a further headcount reduction of 55 employees, primarily from retail brokerage, in the first half of 2012," the bank said.

The layoffs would result in the bank's total number of staff being cut to less than half its number at the start of Shuaa's "rightsizing" drive.

Shuaa's share price rose 13.4 per cent in trading yesterday to 76.9 fils after the release of earnings, which beat estimates. Despite a recent surge, the bank's stocks remain 91.1 per cent lower than their pre-crisis peak of Dh8.64 per share.

The bank said that Dh129.9m of its full-year losses were "directly attributable to the restructuring of brokerage operations". Both the brokerage and investment banking arms reported losses.

Shuaa announced last year that it would wind down its retail brokerage to focus on institutional investors and family offices, resulting in the closure of brokerage operations in Jordan and Egypt and a significantly reduced presence in Riyadh and Abu Dhabi.

Shuaa's run of losses began in 2008, when it was hit by the onset of the global crisis and several costly legal disputes in the space of a few months.

Shuaa's accumulated losses more than doubled during the year to Dh530.3m by the end of December, as the bank's new management attempted to reveal the full extent of the damage from Dubai's financial crisis.

The bank maintained a cash position of Dh340.2m at the end of the year, although this has dwindled 14.3 per cent since last year.

A sharp plunge in trading activity on the UAE's stock exchanges led to significant difficulties for Shuaa's brokerage business lines, said Khalid Howladar, a senior credit officer at Moody's Investors Service.

"The fact is that Shuaa's business model has really suffered in the face of declining capital markets activity and as brokerages have disappeared from the UAE, necessitating a change in strategy," he said.

Shuaa was rated as "investment grade" by Moody's as recently as March 2009, but a string of write-offs and management changes have brought multiple hits to the bank's credit rating.

The ratings agency downgraded Shuaa from "Ba2" to "Ba3" in December and placed the investment bank on watch for a further possible downgrade.

Moody's cited Shuaa's losses, continued write-downs, difficulties in its operating environment and management instability in its report.

The bank embarked on a significant management reshuffle last year, appointing as chairman Sheikh Maktoum Hasher Al Maktoum, a member of Dubai's ruling family. In October, the bank hired Michael Philipp, formerly an executive at Credit Suisse, as its chief executive.

Mr Philipp replaced Sameer Al Ansari, who had been hired as chief executive in August 2009.

The bank was fined $950,000 by the Dubai Financial Services Authority in 2008 after alleged market manipulation.

The next year, the bank lost a legal dispute with Dubai Banking Group, which led to the arm of Dubai Holding taking a 48.4 per cent stake in Shuaa.

Abu Dhabi Islamic Bank, which also reported earnings yesterday after markets closed, generated a full-year profit of Dh1.1bn, a 12.8 per cent increase on the previous year. The bank announced a cash dividend of 24.42 fils per share.