The Emirates NBD’s private banking business has plotted a very cautious path in 2012 after the loss of its chief investment officer and a string of bad results at group level.
In April, Gary Dugan resigned to join Royal Bank of Scotland unit Coutts in Singapore, after three years in charge at Emirates NBD. Meanwhile, in July the bank reported a 13 per cent decline in second-quarter profits to $176.1 million, its fourth quarterly drop in a row.
The private bank’s chief investment strategist, Mark McFarland, said it’s a time for “strategic expansion” and “wealth preservation”. He has spent a lot of his time managing client’s expectations. “A challenge at the moment is keeping our clients’ feet on the ground. Some come in the door saying they want returns of 15 per cent, so it’s our job to talk them down.”
He said fixed income has become the mainstay for investors, although the bank has seen a rise in demand for real estate and trade finance. “Since the Arab Spring real estate is something you can rationalise; clients prefer assets where prices are more sustainable and they can borrow against.
“On trade finance, generally people are looking for ways to finance their business other than relying on banks. Banks are still reticent to lend, so clients are looking to private pools of finance,” said McFarland.
Like most financial institutions in the region, the bank has been struggling to convince private banking clients to diversify their holdings. The Emirates NBD Group has also had to tackle demons from the past, in particular its exposure to major corporate restructuring in Dubai.
It took a further Dhs370 million provision for Dubai Holding in the second quarter of this year, meaning the bank has now taken provisions against almost a third of its Dh4.6 billion exposure.
Yet, the Eurozone crisis is proving rather more positive for McFarland’s division.
“We are getting interest from European investors – whether it’s third-party entities, money managers or private individuals – about moving money from the Eurozone to the GCC, particularly the UAE.
“There is also some reluctance among Gulf-based private clients to leave their money with Eurozone institutions. Instead, they want a more Middle East flavour to their portfolio.”
However, on the issue of American clients, things might prove a bit trickier. It emerged in January that Emirates NBD was mulling plans to halt services to US private banking investors to avoid falling foul of new rules on tax evasion. This came after HSBC in 2011 said it would discontinue wealth management services to US clients in the Gulf.
The main gripe for private banks is the sensitivity of information they will have to disclose about their US investors.
McFarland said: “Clearly with the overseas tax issues, servicing US clients is becoming more difficult. It may be something for the future if the US continues its clampdown. The cost-benefit of American private banking clients may not be there.
He added: “The US elections in November might change things, if the new president becomes much more stringent and closes more loopholes.”
McFarland is currently serving as Gary Dugan’s interim replacement, bar his predecessor’s operational duties. When a new CIO is found, which is likely later this year, the biggest challenge will be to turn the private banking function from primarily a wealth protector back in to a wealth creator.
Emirates NBD was formed in 2007 by the merger of Dubai’s largest banks, Emirates Bank International and the National Bank of Dubai. It is Dubai’s biggest bank by market value. The bank is active in private banking, retail, corporate and Islamic banking and also has businesses in brokerage, insurance, asset management, card processing and trade finance services.