Moody's puts HSBC under review

Moody's has put HSBC Middle East under review for a possible downgrade, based on a weakening UAE economy and worries over the bank's parent company. "The parent company's negative outlook... in tandem with increasing concerns about the UAE and the fact that 70 per cent of their activities are in the UAE was enough to put them under review," said John Tofarides, an analyst at Moody's. He also said the "potential of rising delinquencies in the next 12 to 18 months was significantly enhanced". On March 9, Moody's changed the outlook for HSBC Holdings, the global parent company, to negative from stable, and downgraded HSBC Bank, the group's European operations. In a similar decision on Tuesday, Standard & Poors put the long-term counterparty rating of four UAE banks on "credit watch" with negative implications. The banks are Mashreqbank, Emirates Bank International, National Bank of Dubai and Dubai Islamic Bank. Regional banks have suffered from a shortage of liquidity following the outflow of money last autumn. This has left many banks hesitant to lend as their loan-to-credit ratios far exceed the required rate of 100. In addition, there are growing worries that customers may default on loans and mortgages. The fall of property prices and widespread job losses have made matters worse. Funds are still hard to find, which further aggravates an already slowing economy, the latest Central Bank data show. The assets of 24 national banks and 28 foreign units fell 1 per cent to Dh1.48 trillion (US$402.94 billion) at the end of January from December. Until then, they had increased monthly. Two weeks ago, Youssef Nasr, the chief executive of HSBC's regional operations, said he expected bad loans "to continue to go up". At the time, HSBC Middle East also said it had seen a "notable deterioration of credit quality" last year paired with a "material increase in loan impairment charges". Total non-performing loans in the region rose to $321 million from $274m a year earlier, as the bank raised its impairment charges to $378m. uharnischfeger@thenational.ae

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.”

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Try out the test yourself

Q1 Suppose you had $100 in a savings account and the interest rate was 2 per cent per year. After five years, how much do you think you would have in the account if you left the money to grow?
a) More than $102
b) Exactly $102
c) Less than $102
d) Do not know
e) Refuse to answer

Q2 Imagine that the interest rate on your savings account was 1 per cent per year and inflation was 2 per cent per year. After one year, how much would you be able to buy with the money in this account?
a) More than today
b) Exactly the same as today
c) Less than today
d) Do not know
e) Refuse to answer

Q4 Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”
a) True
b) False
d) Do not know
e) Refuse to answer

The “Big Three” financial literacy questions were created by Professors Annamaria Lusardi of the George Washington School of Business and Olivia Mitchell, of the Wharton School of the University of Pennsylvania.

Answers: Q1 More than $102 (compound interest). Q2 Less than today (inflation). Q3 False (diversification).

COMPANY PROFILE

Name: HyperSpace

Started: 2020

Founders: Alexander Heller, Rama Allen and Desi Gonzalez

Based: Dubai, UAE

Sector: Entertainment

Number of staff: 210

Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners

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Stars: Jaideep Ahlawat, Ishwak Singh, Lc Sekhose, Merenla Imsong

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Guide to intelligent investing

Investing success often hinges on discipline and perspective. As markets fluctuate, remember these guiding principles:

Stay invested: Time in the market, not timing the market, is critical to long-term gains.
Rational thinking: Breathe and avoid emotional decision-making; let logic and planning guide your actions.
Strategic patience: Understand why you’re investing and allow time for your strategies to unfold.

The Land between Two Rivers: Writing in an Age of Refugees
Tom Sleigh, Graywolf Press

Cryopreservation: A timeline

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