The queue seems longer now to the Arabian Gulf. First came Citigroup, the world's largest bank, raising US$7.5 billion (Dh27.5bn) from the Government of Abu Dhabi in an intriguing deal that raised more questions than answers as to the true extent of the troubles besetting the US financial sector.
The Gulf lifeline to Citigroup has come at a price, though, with the US giant offering 11 per cent to the Abu Dhabi Investment Authority (Adia) for a convertible loan stock, which Adia can convert into a 4.5 per cent stake in Citigroup in 2010 and 2011, at a conversion price slightly above the current share price, which is now at a five-year low. The rate paid by Citigroup is a couple of notches above junk bond rates and must be a humiliation for such a prime financial name.
Then came Barclays, raising about $9bn in new capital from assorted Qatari and Asian investors. It seemed a smart move by Barclays, as the current credit crunch has left some financial institutions - such as Halifax Bank of Scotland (HBOS) in the UK - red-faced and unable to complete a rights issue. What Barclays did was to obtain a cheaper form of investment underwriting from the Gulf and Asia.
Is this funding enough? Even after the capital injection, Barclays will still be one of the most thinly capitalised banks in Europe, and yet paying out the same dividends this year as it did in the previous one. This could make the Barclays investment the deal of the decade for Qatari and Asian SWFs, or for those investors being urgently asked to cough up more capital in a year's time.
The troubling thing about white knight rescues such as Adia's is that analysts have led us to believe that, unlike previous banking crises, this time the financial institutions most affected by the subprime implosion were well capitalised and had a large cushion to weather any losses.
It seems that some of the prime US banks are now reaching the bare minimum of their Basel Tier 1 capital requirement of eight per cent levels. Citigroup's Tier 1 capital ratio - a ratio of financial strength - stood at 7.3 per cent in the first quarter of last year, below its target of 7.5 per cent, but the Adia lifeline will take it back above target. This move might stabilise the fall in Citi stock prices, but it is coming at a hefty price and makes some wonder why the American bank could not raise these funds in its backyard at better terms.
So have Citi and some of the other financial giants come out of the woods yet, or will Arab funds be requested to pump in more money? Citigroup's investment business has been one of the most heavily affected. Some analysts estimate that excessive betting on subprime mortgages could still cost the bank up to $15bn in losses and other collateralised debt obligations. It is the structured investment vehicles (SIVs), probably amounting to about $80bn, which are causing the greatest concern, should these be brought on to Citigroup's books like others. HSBC and Citi recently announced yet more SIV losses. The other banks are also doing the same, including the latest casualty, Lehman Brothers.
The recent turmoil in the international financial markets has caused some unease about the health of the financial industry, on whether the worst seems to be over in terms of coming clean on the extent of non-performing loans. At the same time, there is a growing consensus emerging that the financial sector as a whole is in dire need of some sweeping internal reforms. What are the perceived flaws in financial models that have seen one household financial institution after another reel from bad debt provisioning, following the subprime market fiasco?
The indications point to a lack of adequate information about the true extent of credit risk of the underlying financial instruments, an excessive dependence on rating agencies that have seen their own reputation battered, and above all, an inadequate liquidity risk management system - the basic tool of any treasurer worth his salt. While some of these flaws might have been lurking under the surface, it was the speed, force and depth of events, which when combined took them to lethal levels not seen before on the markets.
However, all is not lost. Steps are underway to restore investor confidence, and some corrective measures have already started to be implemented. This is especially so in the area of risk management, the review of off-balance sheet conduits and special purpose vehicles and better ways to value complex structured financial products.
Bankers are warning that there could be more financial dislocation if such corrective measures are not implemented to counter the market's insatiable demand for higher yields, especially in a period of falling interest rates that have led to inadequate spreads and a lack of attention to fundamentals and market risk differentiation.
So the possibility remains that more Arab white knights will be sought to rescue ailing financial institutions. One of the peculiar characteristics of today's global markets is that in some sectors, particularly commodities and other strategic assets, there is abundant cash for asset purchases by some companies, but such acquisitions are blocked on national security or other political arguments. The barriers seem to have come down as far as US financial institutions are concerned, but how long this lasts is only a matter of guesswork, as once again, the spectre of foreign takeovers of "national" symbols will be hard to accept.
As for Gulf saviours, whether they remain passive investors or try to introduce a little bit more financial discipline is another matter. At 11 per cent rates, Adia seems more than happy to remain on the sidelines for the time being, but the situation could change if the extent of potential collateralised debt obligations and structured investment vehicles becomes clearer.
If this happens, then Arab money will be sucked into a bigger and bigger financial black hole, called "Operation Recycle Oil Money".
Dr Mohammed Ramady is a former banker and Visiting Associate Professor, Finance and Economics, King Fahd University of Petroleum and Minerals, Dhahran.
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Takreem Awards winners 2021
Corporate Leadership: Carl Bistany (Lebanon)
Cultural Excellence: Hoor Al Qasimi (UAE)
Environmental Development and Sustainability: Bkerzay (Lebanon)
Environmental Development and Sustainability: Raya Ani (Iraq)
Humanitarian and Civic Services: Women’s Programs Association (Lebanon)
Humanitarian and Civic Services: Osamah Al Thini (Libya)
Excellence in Education: World Innovation Summit for Education (WISE) (Qatar)
Outstanding Arab Woman: Balghis Badri (Sudan)
Scientific and Technological Achievement: Mohamed Slim Alouini (KSA)
Young Entrepreneur: Omar Itani (Lebanon)
Lifetime Achievement: Suad Al Amiry (Palestine)
Maestro
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Volvo ES90 Specs
Engine: Electric single motor (96kW), twin motor (106kW) and twin motor performance (106kW)
Power: 333hp, 449hp, 680hp
Torque: 480Nm, 670Nm, 870Nm
On sale: Later in 2025 or early 2026, depending on region
Price: Exact regional pricing TBA
Sam Smith
Where: du Arena, Abu Dhabi
When: Saturday November 24
Rating: 4/5
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
Generation Start-up: Awok company profile
Started: 2013
Founder: Ulugbek Yuldashev
Sector: e-commerce
Size: 600 plus
Stage: still in talks with VCs
Principal Investors: self-financed by founder
Killing of Qassem Suleimani
The more serious side of specialty coffee
While the taste of beans and freshness of roast is paramount to the specialty coffee scene, so is sustainability and workers’ rights.
The bulk of genuine specialty coffee companies aim to improve on these elements in every stage of production via direct relationships with farmers. For instance, Mokha 1450 on Al Wasl Road strives to work predominantly with women-owned and -operated coffee organisations, including female farmers in the Sabree mountains of Yemen.
Because, as the boutique’s owner, Garfield Kerr, points out: “women represent over 90 per cent of the coffee value chain, but are woefully underrepresented in less than 10 per cent of ownership and management throughout the global coffee industry.”
One of the UAE’s largest suppliers of green (meaning not-yet-roasted) beans, Raw Coffee, is a founding member of the Partnership of Gender Equity, which aims to empower female coffee farmers and harvesters.
Also, globally, many companies have found the perfect way to recycle old coffee grounds: they create the perfect fertile soil in which to grow mushrooms.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Marathon results
Men:
1. Titus Ekiru(KEN) 2:06:13
2. Alphonce Simbu(TAN) 2:07:50
3. Reuben Kipyego(KEN) 2:08:25
4. Abel Kirui(KEN) 2:08:46
5. Felix Kemutai(KEN) 2:10:48
Women:
1. Judith Korir(KEN) 2:22:30
2. Eunice Chumba(BHR) 2:26:01
3. Immaculate Chemutai(UGA) 2:28:30
4. Abebech Bekele(ETH) 2:29:43
5. Aleksandra Morozova(RUS) 2:33:01
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
What can you do?
Document everything immediately; including dates, times, locations and witnesses
Seek professional advice from a legal expert
You can report an incident to HR or an immediate supervisor
You can use the Ministry of Human Resources and Emiratisation’s dedicated hotline
In criminal cases, you can contact the police for additional support
Ticket prices
- Golden circle - Dh995
- Floor Standing - Dh495
- Lower Bowl Platinum - Dh95
- Lower Bowl premium - Dh795
- Lower Bowl Plus - Dh695
- Lower Bowl Standard- Dh595
- Upper Bowl Premium - Dh395
- Upper Bowl standard - Dh295
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Ms Yang's top tips for parents new to the UAE
- Join parent networks
- Look beyond school fees
- Keep an open mind
