Monday, June 21, 2010

AT Kearney: Reinventing Investment Banking in the GCC

An interesting report from ATK on the GCC investment banking sector.

The key issues that GCC investment banks face are:
  1. Competition from more established firms - who are opening offices in the region.
  2. Local investment firm's business models which focus heavily on private equity investments.  That in part reflects the state of local capital markets.
  3. A debt capital shortage which constrains the ability to build asset intensive businesses.
To that I'd add:
  1. A reluctance by clients to pay for advisory services unrelated to fund raising.
  2. Relatively modest volumes.  This in part explains the focus on proprietary investments where the gross margins are higher than on capital markets and advisory business. 
  3. Market deficiencies.  An absence of sophisticated institutional investors.  Local equity markets are largely driven by irrational exuberance and pessimism of retail investors.    Constrained free float on many major firms.
  4. In general weaknesses in corporate governance and disclosure.   
  5. Lack of skills and shortcomings in professionalism/ethics.

1 comment:

the real nick said...

WRT your comments 1. and 3.:
In my experience (as occasional client of investment advisory) I'd say that I am loath to pay $20 to 50K if I bloody well know that the memorandum ends up with clients as described in your comment 3, being discussed on a majlis mattress. I'd happily pay fund raisers if I knew that they'd actually tapped the right sources. As is, they are just glorified estate agents.