Dubai M&A Oasis Lures London Bankers With Bigger Desert Bonuses

By Ambereen Choudhury

Aug. 26 (Bloomberg) -- Christopher Laing, a managing director at Deutsche Bank AG in London, moved with his wife and twin boys to Dubai this month, joining a rush to the only region in the world where fees earned by securities firms are growing.

``It's bigger than it has ever been,'' said Laing, 39, co- head of equity capital markets for central and eastern Europe, the Mideast and Africa, referring to the number of public offerings on the horizon. ``I'm lucky it was my choice to move.''

Laing joins scores of rival bankers, including Lehman Brothers Holdings Inc.'s Makram Azar, Citigroup Inc.'s Alberto Verme and Morgan Stanley's David Law, who have left London in recent months in search of deals. The attraction: an oil-rich patch that may have $5 trillion in sovereign wealth funds by 2015, according to International Financial Services London.

Fees earned by securities firms in the Middle East rose 5 percent to $612 million in the first half of the year, the only part of the world to show growth, according to New York-based research firm Freeman & Co. While it accounts for less than 2 percent of global investment banking fees, the region accounts for twice as big a share of the pie as it did a year ago.

Among the larger deals in the last 12 months are the $4.96 billion initial shares sale of DP World Ltd., the Dubai-owned ports operator, and about $18 billion of investments by Persian Gulf states sovereign funds and companies in foreign banks, including Citigroup and Merrill Lynch & Co., according to Bloomberg data.

``The Gulf is being flooded with trillions in petrodollars,'' said Marcus Noland, a senior fellow at the Washington-based Peterson Institute for International Economics and a consultant to the World Bank. ``Dubai has emerged as the location of choice for foreign bankers.''

Higher Bonuses

Bankers relocating to Dubai, which is in the United Arab Emirates, can look forward to tax-free salaries and higher bonuses -- as much as 25 percent more than those in Europe and the U.S., says Jon Duckfield, head of the Dubai office of recruitment firm Options Group.

``Those fortunate to be working there in any financial discipline will probably enjoy a better bonus than their European counterparts in 2009,'' said Shaun Springer, chief executive officer of Napier Scott Executive Search Ltd. in London.

Deutsche Bank, Citigroup, UBS AG and Morgan Stanley have doubled the number of bankers based in the Middle East to more than 400 this year, according to data compiled by Bloomberg. That growth is in contrast to London and New York, where banks have announced more than 100,000 job cuts in the past year, investment banking revenue shows no sign of rebounding and the pace of takeovers has sunk to a three-year low.

Oasis or Mirage

Scott Moeller, a professor at City University's Cass Business School in London and a former banker at Morgan Stanley and Deutsche Bank, says the lure of the Middle East may be just a mirage. He says the Gulf states are ``over-banked'' and the rush of bankers to the region can't be sustained.

``Whenever there is a crisis, people flee to commodities,'' Moeller said of the region's oil wealth. ``Banks have the ability to ship people rapidly, but it's a reaction to a short- term issue, not a fundamental shift.''

Political instability also threatens to disrupt foreign investment and deal flow in the region.

``If Iran were to grow more belligerent or expansionist,'' said Noland of the Peterson Institute, ``it could undermine confidence in the small Gulf emirates.''

M&A Slump

Still, bankers in Europe are confronting a slump in mergers and acquistions after last year's record. Companies have announced $999.3 billion of deals in Europe this year, down about a third from last year, according to data compiled by Bloomberg. New York bankers are facing an even steeper drop: M&A in the U.S. slumped 40 percent this year.

From that perspective, a 5 percent increase in fees looks like an oasis.

``Most of the players are pumping huge funds into the banking sector in the hope of netting huge profits,'' said Samir Pradhan, a senior researcher at the Dubai-based Gulf Research Centre. ``Political instability is not at all an issue in the near to medium term.''

In July, Zurich-based UBS received conditional permission to set up operations in Saudi Arabia and tapped Mohamed Sammakia to become chief executive officer in Riyadh. It is also planning to operate branches in Qatar and has set up an infrastructure joint venture with Abu Dhabi.

``We are not putting our toe in the water just to test the temperature,'' said Peter Burnett, chief executive of UBS's investment bank in the Middle East and Africa.

Goldman vs. Citigroup

Goldman Sachs Group Inc. beat out Citigroup this year to become the top-ranked adviser on mergers and acquisitions for Gulf states, according to data compiled by Bloomberg.

Citigroup, which has been one of the top two dealmakers in the Middle East since 2005, has more than 70 people in investment bankers in the region today, compared with about 40 two years ago. In May it said that Verme, 51, co-head of its investment bank, would move to Dubai from London to further boost the bank's standing in the region. Citigroup's largest shareholder is Saudi Prince Alwaleed bin Talal.

Both Citigroup and Goldman advised on the $2.56 billion purchase in January of a 35 percent stake in the U.A.E.'s Oger Telecom Ltd. by Saudi Telecom Co., the largest Arab phone company.

Morgan Stanley has grown its staff from a handful at the beginning of 2006 to about 70 investment bankers across the Middle East. More than half are based in Dubai. It moved Law, 40, from London to Dubai in February as chairman of investment banking for the Middle East and North Africa after four years as head of the firm's international financial sponsors group.

``Competition is certainly growing,'' Law said.

Lehman's Moves

Lehman, which slipped to fourth place from third last year on merger and advisory work in the Middle East and Africa, according to data compiled by Bloomberg, appointed Azar, 41, global head of sovereign wealth funds in April and moved him to Dubai from London, where he ran the firm's European media investment banking business. It also moved Philip Lynch to Dubai as chief executive for the Middle East and North Africa.

Deals in the pipeline include anticipated bids for U.K. airports controlled by Spain's Grupo Ferrovial SA, which is under an order by antitrust regulators to sell two London airports, including Gatwick. Gatwick alone may fetch about $6.3 billion, according to Exane BNP Paribas analyst Steven Fernandez. Both Dubai and Qatar have previously bid for port, utility and airport assets in the U.K. and across Europe.

Dubai World

``The expectation is that the fee pool will continue to grow, especially on the investment banking side, where more deals are happening,'' said Jameel Akhrass, the Dubai-based vice chairman of Middle East and North Africa at Lehman Brothers.

Dubai World, the government-owned investment group with more than $100 billion of assets, has been flexing its muscles in Russia. It teamed up in June with OAO Roskommunenergo, an energy trader chaired by the son of the Kremlin's top real estate official, in an offer to buy 75 percent of Russia's biggest wholesale power producer for $5.3 billion. The deal is pending.

Last August Dubai agreed to invest $5.1 billion in Kirk Kerkorian's MGM Mirage casino company as part of the emirate's plan to diversify. Credit Suisse Group AG and Deutsche Bank, which traces its roots in the Middle East to its financing of the construction of the Baghdad railway more than a century ago, advised Dubai World on the deal.

All this deal-making has been good news for David Edwards, a real estate agent in Dubai. He says he doesn't expect to have any trouble selling a 7,000-square-foot villa with six bedrooms, a courtyard, a minaret, a swimming pool and sea views for $7.7 million. The villa is on one of 300 man-made islands that form a map of the world off Dubai's coast.

``The growth here is tremendous,'' Edwards said in a telephone interview. ``Demand has definitely gone up.''

To contact the reporter on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net