Political turbulence and economic uncertainty have not stopped new banks from opening their doors in Lebanon. For this month’s special report on the banking sector, Executive spoke to the general managers of four debutante institutions — Cedrus Invest, LiBank, Lucid Investment and Optimum Invest — with an aim to assess their performance, strategies, goals and concerns.
The founders of Cedrus and LiBank described Lebanon as the optimal location for their clients and their operations. “We decided [to set up] in Lebanon because of our Lebanese and Arab client base, the banking sector’s good reputation and conservative regulator, the lighter cost structure relative to London and Geneva and because it is convenient to have a base in Lebanon,” says Raed Khoury, co-general manager of Cedrus.
Lucid Investment and Optimum Invest are not exactly new — they were established nearly ten years ago — but a management overhaul at each encouraged Banque du Liban, Lebanon’s central bank, to upgrade their licenses to match their diversified portfolios of services.
The four banks profiled share a focus on private equity (PE). Whether pursuing opportunities in London, like LiBank and Cedrus; in Ghana, like Optimum Invest; in Lebanon, like Lucid Investment or in the Middle East, these bankers are rolling up their sleeves to find promising companies for their investors’ capital.
The banks are betting on PE opportunities to provide them with an edge in the aggressive world of finance. “Large investment banks are not interested in small [PE] projects in Africa, so there is scope for our size of companies,” says Albert Letayf, chief executive of Optimum Invest.
Corporate strategy, management and financial advice will all feature in the banks’ menus of products. They offer consulting services for business strategy, capital fundraising through equity or debt, financial management and the implementation of corporate governance frameworks.
As offerings vary from one institution to another, the types of clients that the banks target differ, too. Cedrus and Optimum Invest cater to the private banking needs of high net worth individuals in Lebanon and the Middle East. LiBank will look more widely, from the region to Brazil and Asia.
Lucid Investment’s target clientele is Lebanese companies. “Our main focus is on investment banking as there is high demand for this and [corporations] are highly underserved in Lebanon,” says Wael Zein, CEO of Lucid.
While it is still too early to judge their performance after a year or less in operation, one promising sign is that the banks seem to have taken into serious consideration the importance of solid corporate governance standards, such as the establishment of boards of directors that include independent members.
The main concern for these new banks remains the political instability in Lebanon, forcing them to look abroad to hedge themselves. LiBank is considering opening an office in London to cater to its expatriate Lebanese clients. Cedrus, too, has an operational presence in the city, where it is developing a real estate investment opportunity for its clients. Optimum is focusing on private equity deals in Africa, and Lucid Investment aims to develop a roster of clients that includes Middle Eastern corporations headquartered outside Lebanon.“We are managing our business on a day-to-day basis, and that is very difficult for a bank. We have to follow our clients and make sure [that] if they are doubtful about Lebanon and the banking sector, we can render the services they are expecting in connection with Lebanon from outside Lebanon,” says Tony Ghorayeb, chairman of LiBank.
Meet the banks in-depth below
1. Cedrus Invest Bank
Armed with a lucrative address book after 15 years of working at Barclays in Dubai, Raed Khoury and Fadi Osseili returned home to Beirut to set up Cedrus Invest Bank, which began operations in February 2012.
With the majority of their clients from the Middle East, the bankers voted for Beirut to be their base. Besides the fact that it is home, the country’s solid banking sector, conservative regulator and lighter cost structure — compared to heavier cost structures in major financial centers such as London and Geneva — tipped the balance in favor of Lebanon’s capital.
Khoury and Osseili, who together own 8 percent of the bank, invited clients whose wealth they had managed for years to own a stake of the new financial institution. More than 25 shareholders took up the opportunity to invest in the bank — 75 percent from Lebanon and the remainder from Saudi Arabia — and open an account with the new Beirut-based private bank. Cedrus currently has $400 million in assets under management.
With 25 employees, Cedrus Invest is offering wealth management for the affluent with a minimum deposit requirement of $1 million, as well as family office and corporate advisory services for companies with at least $15 million in assets. The wide scope of services brought about $2.4 million of profits last year, the firm’s first year of operation.
With 11 family offices in its roster of clients, this business accounts for 30 percent of the bank’s overall profits. Having focused on the financial wealth of companies last year, the Lebanese bankers have expanded family office services in 2013 by adding corporate governance offerings such as succession planning and board nominations. The bank itself has two independent board members — Ghazi Youssef, an economist and member of parliament, and Assaad Razzouk, a clean energy entrepreneur — on its board of directors.
To stand out among local competition, Cedrus is offering its clients regional private equity (PE) opportunities through direct investments in companies and not through funds. With an average investment of $30 million per company, the bank is currently offering its clients two opportunities in this area: a healthcare company in Saudi Arabia and an industrial company in the United Arab Emirates. It is also considering PE opportunities in Lebanon for smaller sized deals of up to $10 million.
Beyond the region, Cedrus and a Lebanese family office are in final negotiations to acquire a real estate development project in Belgravia, a prime location in London, for $90 million. Cedrus will own 25 percent of the development in London and the Lebanese family, whose name wasn’t disclosed, will own 75.
The aim is to transform the development into serviced apartments with a target internal rate of return north of 18 percent. Cedrus intends to offer this investment opportunity to its clients as soon as it guarantees the loan for the development from credit-wary banks, an exasperating task in a downturn.
Looking ahead, Cedrus anticipates growth across its line of businesses and expects to generate profits of $5 million in three years. The main challenge will be to maintain a steadily positive income, despite the lack of stability in Lebanon and the region. “Our clients are from the region so we would like to see stability; we need the Arabs to come to Lebanon and the Lebanese expatriates to come too,” says Khoury.
2. Levant Invest Bank
What do the Harris School of Public Policy, the Levant Business Union, Brazil and Hong Kong have in common? Levant Invest Bank (LiBank), the newest financial institution to set up
in Lebanon. Having opened its doors in January 2013 in Beirut, LiBank aspires to be the boutique investment bank of choice for the diaspora of the Levant region.
With $30 million of paid-in capital, LiBank plans to become a profitable but low-key advisory investment bank, something akin to the Lazard Bank of the Middle East. Set up by Tony Ghorayeb, who is also the co-chairman of the Dean International Council at the University of Chicago’s Harris School of Public Policy, and his colleague Salim Chaar, the idea for the establishment of this financial institution came out of the Levant Business Union — an association of which Ghorayeb is the secretary general.
Between Ghorayeb and Chaar, their previous experience working in Latin America and in Asia respectively reflects the aims they hold to establish a global clientele. When he worked in Brazil, Ghorayeb developed and maintained solid relationships with the Lebanese diaspora of South America. Chaar was on the other side of the globe, serving as the head of Indosuez in Hong Kong and Singapore for over 12 years.
Ghorayeb’s Latin American connection extends from LiBank’s client base to its shareholder structure. A group of Lebanese Brazilian businessmen including David el-Etter, founder of Nicoboco, one of most successful producers of sportswear in Latin America, and Jamal Fatah, the agent of electronics company Olympus in Brazil, together own 12.5 percent of the bank.
LiBank’s diverse shareholder base also features the Qatari group Al Salam International, which own 15 percent, a Saudi Syrian group with a 10 percent stake, a Syrian Turkish group holding 5 percent ownership and the Lebanese real estate brokers Care Group, owned by Victor Najarian, with a 10 percent stake. Ghorayeb and Chaar own 20 percent of the bank together.
By the end of next year, the founders plan to have $50 million to $100 million of assets under management. Their ultimate objective is to provide their clients with specific projects to invest in. That’s where Ghorayeb’s son Kayssar comes in. With a background in banking in London and management consultancy in Chicago, he is developing the private equity side of the bank and is currently working on several regional deals over $50 million in size.
Their other main area of focus is on services for family offices, and they intend to open a branch in London to cater to this market. LiBank is also geared to offer their clients a palette of corporate governance services, an issue the bank has taken seriously by electing three independent directors to their board: Patrick Zurstrassen, former chief executive of Indosuez, Graham Wisner, a lawyer at American law firm Patton Boggs, and Andre Bandali, the Central Bank-appointed interim chairman of the now liquidated Al Madina Bank.
With 17 employees on board, the founders are hoping to be profitable by the end of this year. In the immediate term, they are researching private equity opportunities on a project-by-project basis to provide their clients with the highest returns. But they are concerned that new regulations — from the increase in capital requirements to the additional scrutiny of banks — may place a costly burden on the nascent bank, especially during a time of regional and domestic uncertainty.
Whether it will develop its platform in Beirut or elsewhere, LiBank aims to become the investment banker for the growing Middle Eastern diaspora.
3. Lucid Investment
After operating for eight years under the name Addima as a corporate finance, strategy and management-consulting firm with offices in Beirut, London and Riyadh, a change in ownership of the firm compelled the company to become a financial institution under the new name Lucid Investment. Becoming the bank of choice for corporate Lebanon is what this newly restructured financial institution aims to accomplish.
The founders of the new financial institution, Samir Taleb, Wael El Zein and Kamel Abdallah together own the vast majority of the firm, which was granted its financial institution license from the central bank in 2011 and kicked off operations in 2012. While the last two founders were also behind Addima, Taleb joined from Optimum Invest where he owned a minority stake. Trained as a civil engineer, Taleb worked in the family business at Dar Al Handassah as well as in investment banking in a private family holding.
The remaining three shareholders joined last year and are of Lebanese origin: Wael Sinioura, a former senior banker at Arab Bank and son of former prime minister Fouad Sinioura, Joseph Raad, former banker at Credit Libanais, and Habib Jaafar, a Nigeria-based businessman.
With an initial paid-in capital of $5 million, the objective of the founders is to increase the capital of Lucid to $20 million by the end of the year by gradually taking on new shareholders and upgrading the license to an investment bank.
The firm’s main focus is advise Lebanese companies and regional firms, from startups to well-established businesses. Its services include assisting companies with their capital needs and advising about potential merger and acquisition targets. Lucid will maintain some of Addima’s prior offerings as well, such as strategy consulting and corporate finance services. Its roster of clients features Lebanese companies such as the food chain Kabab-ji and Internet service provider Terranet.
As the owners of the companies they serve could also happen to be high net-worth individuals, Lucid is catering to their personal wealth management needs. It has set up a capital markets division, but it stresses that private banking is not its area of focus for revenue.
Their core activity remains corporate advisory. And when a company they are advising needs capital, the firm seeks external investors. Currently they are working on two Lebanon-based private equity deals. It has structured a $25 million fund that acquired 70 percent of a Lebanon-based hospitality business with worldwide operations. The second equity deal that the firm is working on is for a Lebanon-based conglomerate valued at around $150 million and looking to raise $25 million.
With 15 employees on board and a 2013 revenue target of $2 million, Lucid Investment aims to be profitable by the end of this year, its second year in operation. For future growth, it is focusing on providing corporate advisory and investment banking services to medium-sized corporations in Lebanon and the region, especially to companies owned by the Lebanese diaspora. “Financing the company with equity means opening your books to someone new, and this was a major issue in the past. Now we are starting to feel that [families and corporations] are more open to having partners with them,” says Wael El Zein, chief executive of Lucid Investment.
4. Optimum Invest
Optimum Invest has been around since 2004, so why does it feature among the new financial houses on the block? Because it was only at the end of last year that it officially became a financial institution, after Banque du Liban, Lebanon’s central bank, upgraded its license. Along with the new status came a new shareholder base, a new management and a new strategy.
The main business of Optimum Invest used to be fixed-income brokerage for banks in Lebanon and the Middle East. With a majority stake owned by Antoine Salame and two Lebanese partners, the financial institution wanted to diversify its services. That’s when Albert Letayf came in. With a background in private banking at Saradar and Banque Libano-Francaise, among others, he bought out one partner — Samir Taleb, who went on to found Lucid Invest — and is now the chief executive of Optimum Invest.
With a paid-in capital of $5 million, Optimum expanded its services and grew its revenues by 20 percent in 2012. Its most prominent achievement was establishing a fixed-income fund that invests in Lebanese Eurobonds in partnership with Beirut-based Arab Reinsurance Company. The fund is entirely seeded by local insurance companies. Launched in January 2012, the Caerus Lebanon Debt Fund has raised $20 million and generated a net return of 6.65 percent in its first year of operation — better than the Blom Bond Index, a tracker of Lebanese Eurobonds, that ended the year down 1.7 percent.
With 17 employees on board, Optimum’s ultimate objective is to offer its clients hand-picked investment opportunities. In partnership with Los Angeles-based real estate investment firm Colony Capital, headed by Lebanese-American businessman Tom Barrack, Optimum set up a $10 million feeder fund that offered an opportunity for its clients to invest in real estate in the United States.
But it’s in Africa where the founders have placed their biggest bets on future growth. Investing part of their own money to align with the interests of their investors, Optimum is eying the world’s second most populous continent for lucrative returns with current projects including a real estate fund and an education fund that aims to establish universities, both in Ghana. “[Ghana] is more politically stable and one of the less corrupt countries in sub-Saharan Africa,” says Letayf. Optimum is also looking to launch a power fund in Africa but would not disclose more.
The company’s offerings include corporate advisory services as well as wealth management services, but it is the asset management arm, with its private equity (PE) offerings, that will be its main focus.
“In Lebanon, we signed the Foreign Account Tax Compliance Act (more commonly known as FATCA) so there is no more banking secrecy with the US. We are in a world where everything that is opaque and muddy will disappear,” says Letayf as he explains his preference for PE opportunities over private banking business.
To comply with the trend towards transparency and accountability, Optimum has set up a board of directors with one independent member: Pierre Gaspard, advisor to the chairman of Saradar Group. There are plans to elect a second independent board member, but a deadline is yet to be set.
As Optimum works to establish itself as a boutique, asset-management investment bank for the Middle East and Europe, it’s toward the world’s poorest continent that the firm is seeking the most lucrative returns to offer to its investors.