Bloomberg News

HSBC to Halt U.A.E. Retail Brokerage as Volumes, Stocks Sink

October 17, 2011

(Updates with Kuwait in second paragraph, volumes in seventh.)

Oct. 17 (Bloomberg) -- HSBC Holdings Plc, Europe’s biggest bank, will stop offering brokerage services to retail investors in the United Arab Emirates and focus on institutional clients after local trading volumes and stocks plummeted.

“Given the market today, the limited volumes, the risk and volatility for retail clients, we decided to primarily focus on the institutional side of the business,” Georges Elhedery, Middle East and North Africa Head of Global Markets, said in an interview yesterday. “The investment required to make ourselves visible in the retail space versus the opportunity that the retail market offers us doesn’t make a lot of sense today.” The bank will also stop offering retail banking services in Kuwait, it said today.

Some brokerages have chosen to suspend licenses or cut costs after political unrest in the Middle East and debt restructurings reduced Dubai trading volumes to a six-year low. Rasmala Holdings Ltd., which has a research venture with Royal Bank of Scotland Group PLC, stopped retail brokerage in May. Shuaa Capital PSC, the investment bank controlled by Dubai’s ruler, plans to focus on institutional and high net-worth clients, its new chief executive officer said last week.

Al Futtaim HC Securities LLC, a Dubai-based brokerage, is discussing a possible suspension of its trading license with owners, a person involved in the talks said Oct. 13.

Global Strategy

HSBC in 2007 became the first international bank to receive approval to trade stocks in the U.A.E. The bank decided earlier this month, after consulting with the Securities & Commodities Authority, the U.A.E market regulator, that its HSBC Middle East Securities LLC unit will only cater to institutional clients, Elhedery said.

Retail operations in Kuwait will stop at the end of the year as part of a strategic review of operations, HSBC said. The London-based bank is cutting jobs and closing offices around the world to reduce costs by as much as $3.5 billion over the next two years as it tackles wage inflation in faster-growing economies and prepares for stricter capital rules. It plans to eliminate 30,000 positions globally.

Dubai’s benchmark index has slumped 84 percent from a record in 2005 to 1,366.22 at the close today and the volume of shares traded in the Persian Gulf business hub has dropped to a daily average of about 109 million this year from 161 million in the year-earlier period and 476 million in 2009.

Client Defaults

“Sources of revenue have been deteriorating since 2009, with a sharp drop in trading volume, losses in investment portfolios and clients defaulting on liabilities,” said Nabil Farhat, a partner at Abu Dhabi-based Al Fajer Securities. “The current volume may be enough for seven brokers to break even.”

The number of “active and functioning” brokerages in the U.A.E. has dropped 40 percent since the end of 2008 to 59, according to the regulator’s website. HSBC Middle East Securities was ranked 30th by value traded in September, according to the Dubai Financial Market PJSC’s website.

“There are too many brokers around,” Elhedery said. “The consolidation or business exit by some of these smaller brokers is inevitable.”

HSBC is helping its retail clients find alternative brokers and the process should be completed by year-end, Elhedery said. HSBC Middle East Securities employs seven people and there shouldn’t be any job cuts, he said.

MSCI Upgrade

The brokerage’s first-half loss narrowed to 4.7 million dirhams ($1.3 million) from 6.6 million dirhams in the year- earlier period. It posted losses of 13.4 million dirhams and 14.2 million dirhams in 2010 and 2009, respectively.

“We expect that the restructuring proposal will allow us to break even, and with a market pickup, start making money,” Elhedery said. “Volumes are low, but significant market developments, such as the hoped-for MSCI, are likely to see these pick up and we need to be ready.”

MSCI Inc., whose stock indexes are tracked by investors with about $3 trillion in assets, in June delayed its decision on whether to raise the U.A.E. to emerging market status until December.

--Editors: Claudia Maedler, James Kraus

To contact the reporters on this story: Stefania Bianchi in Dubai at sbianchi10@bloomberg.net; Zahra Hankir in Dubai at zhankir@bloomberg.net

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net; Claudia Maedler at cmaedler@bloomberg.net


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