Jean Riachi is the chairman and CEO of FFA Private Bank, Lebanon’s largest investment bank. Riachi sits down with Executive to talk economic outlook, investment opportunities for the bank, and strategies going forward.
What is your opinion of the macroeconomic situation — what’s influencing it and what are the biggest challenges for the country in 2013?
I think 2013 was the year where the regression of Lebanon was revealed and really felt, while probably it started in 2011. It might not be very clear when you look at the macroeconomic figures because they don’t show a big decrease in activity, but we really do feel that, and I’m talking not about recession, but about regression, because the country has entered into a phase of not only much slower growth but also a lot of sluggishness, a lot of bad mood. Now in terms of the banking sector, it has not translated yet into bad figures in terms of loan portfolios…but I think that it will show in the coming years.
In terms of pure investment banking activities, we were very much frustrated by this year because we had a number — not a big one — but a number of merger and acquisition (M&A) deals that were on the right track, where we had started this trend of talking to family businesses — some wanted to restructure, others wanted to sell, others wanted to expand by buying. We had a number of mandates that were going very well, for very interesting deals, that did not go through…We had in numerous cases people sitting together, so the matchmaking was done. Negotiations started on very good grounds, but with time passing you had buyers seeing their figures going down month after month. [They were] worrying about what will happen on the other side, and at the end [you had] both sides deciding to withdraw from doing any deal, because the buyer was worried of doing a deal at the wrong moment at the wrong price, and the sellers were worried about being forced to lower their expectations while everybody says this [situation] is cyclical and things could come back.
So yes, it was a very frustrating year in terms of investment banking/M&A activity. Now we have had a few successful stories in raising capital for companies, but interestingly nothing where the core business was in Lebanon. So [the way] for people like us to survive is to use Beirut as a base but to do deals or invest in markets that are outside markets.
When you say outside markets, is it more industry destinations or more geographic destinations? Let’s say, looking more at Africa, or looking more at Europe, or looking more at certain specific industries where you see growth in the medium-to-long term?
We are not dogmatic. I mean any interesting deal is something we are going to work on. Depends on what business line you’re talking about; we have capital market activities, brokerage, we have asset management activities, and we have real estate and finally we have investment banking activities. Since maybe 2007 there have been no more capital markets. At the time, the breakdown was maybe 30 percent in Lebanon and 70 percent outside Lebanon, I mean dealing on markets outside Lebanon. Today it’s 95 percent outside Lebanon and that started earlier. We cannot say that our brokerage activities were affected. Actually they grew a little bit in 2013. If you look at asset management, as well. All our investments — investments we do for our clients — all the assets we manage for our clients are outside Lebanon.
Looking forward to 2014, when you meet with your board of directors and you want to put together a strategy for 2014, how do these meetings look?
You know, when you are an investment bank and you have your home market, especially when you are a leader in your market, which is our case, this is where you can do best. Now we have to take things as they are and say, ok, we don’t have a local market. Our domestic market is frozen, so let us try to build on what we have to grow our operations.
It’s important to remember that people still have money, I mean, there is a lot of cash in the hands of the Lebanese, and they are looking for investment opportunities. So our role is to try to find, to source, to study, to evaluate, to do due diligence on opportunities, and if they don’t exist in Lebanon, we’ll go and get them outside Lebanon.