Fees earned on Middle Eastern debt capital market transactions doubled in the first half of this year, offering a welcome boost for investment banks that have seen regional business dry up.
Bankers pulled in fees of almost $55m in the first six months, as the total volume of debt capital market transactions rose 51 per cent compared with the same period last year, reaching $6.9bn, according to data from Thomson Reuters. Germany’s Deutsche Bank topped the debt capital market fees league table, earning 10 per cent of the pot.
With mergers and initial public offerings thin on the ground, international investment banks active in the region have tried to reshape their businesses to make the most of what deals remain. Debt capital markets transactions, typically bond issuances, are known for earning relatively low fees but issuance has remained buoyant, allowing for a steady trickle of ancillary business.
“It keeps things rolling and ticking over,” said one Dubai-based debt capital markets banker. “Fees have decreased over the past two or three years but the volume [of debt sales] makes up for fees declining.”
As the credit crisis has eased, companies and some sovereigns in the Gulf have had to return to the debt markets to meet their refinancing requirements over the coming years. Despite volatility because of the eurozone crisis, the appetite for Gulf debt from local banks and Asian lenders has kept the region’s bond markets open to issuers.
On Wednesday, Qatar was said to have attracted $24bn of bids for a $4bn sovereign debt sale closing this week, in one of the largest ever issuances of sharia-compliant sovereign debt.
But while bond issuance, and in particularly Islamic bonds, has been a popular choice, syndicated lending has slumped. In the Middle East this type of lending dropped 98 per cent in the first half, the slowest such period in more than 10 years.
Fees from syndicated loan deals have shifted firmly to local banks. Saudi Arabian banks took the lion’s share of fees for such loans in the region, taking six places among the top 10 fee earners. Last year the rankings were still dominated by international banks.
But in a telling signal of how the investment banking landscape has changed in the Middle East, fees for mergers and acquisitions were down 19 per cent in the first half to $74m compared with a year ago.
HSBC topped the merger and acquisition fee league table. The bank’s approach of offering balance sheet and other services to gain merger and activity business has paid off as it shot up the league tables.
While some aspects of Middle Eastern investment banking are lifting the banks, other areas are a drag on the global business, forcing job cuts and the shrinking of operations in the region.
Total investment banking fees totalled only $234.8m in the first six months of 2012, an increase of 5 per cent, according to the data.
While representing a marginal increase, that total was seen as discouraging for the local offices of investment banks needing to justify their regional headcount as pressure increases to scale back.
“Is there enough cake today to feed everyone?” asks one senior Gulf banker. ”Probably not.”