Beirut SE  

Current year high: 886.37       Current year low: 882.02

>  Review period:  Closed August 26 at 886.37 points     Period Change: -3%

Investors found little time for Beirut stocks in a tumultuous month for international equity markets and amid escalating events in Syria. Trade volumes were unusually low even by Ramadan standards and proved as uninspiring as this summer’s tourist numbers. The affirmation of Lebanon’s credit rating by Moody’s with a stable outlook meant little to Solidere investors who were bitten by a 19 percent decline in property sales in the first half of 2011. Shares of the real estate developer plummeted 6.8 percent to a 2-year low of $15.85, while banks came in slightly ahead of the market.

Amman SE  

Current year high: 2,477.99                Current year low: 2,03.71

>  Review period:  Closed August 25 at 2,028.1 points     Period Change: -2.6%

Amman stocks watched from the sidelines as neighboring equity markets spiraled downwards in August. Although the index retreated during the first week, it has since been on strong footing, backed by renewed political stability as the government pushes forward its promised reforms. A troubling increase in the budget deficit during the first six months was partly mitigated by a new agreement with Iraq to increase oil imports. Meanwhile, Royal Jordanian reported heavy losses in the first half due to regional turmoil, sending the stock down 19.5 percent through August 25.

Abu Dhabi Exchange  

Current year high: 2,833.09                Current year low: 2,491.65

>  Review period:  Closed August 25 at 2,590.49 points     Period Change: -1.1%

The rebound of ADX stocks stumbled on the downgrade by S&P of the US credit rating in early August. The emirate’s banks had reported strong second-quarter earnings when energy and real estate stocks were struck by rising fears of a new global recession. Dana Gas and Aldar fell 11.3 percent and 4.8 percent, respectively, during our review period while National Bank of Abu Dhabi was slightly better off at -0.5 percent. Abu Dhabi plans to face fresh global economic uncertainty with new blood after a shake-up of leading company managers, including at Aldar.

Dubai FM  

Current year high: 1,781.92                Current year low: 1,352.24

>  Review period:  Closed August 25 at 1,465.01 points     Period Change: -3.5%

The region’s international hub was synching more with global equity malaise than listening to positive domestic indicators. Skepticism spread to major stocks, dragging Emaar Properties down 3.5 percent despite the group reporting a 20% increase in hospitality revenues in the second quarter. Similarly, Emirates NBD slipped 7 percent during our review period, although Fitch removed the ratings of the bank from negative watch, citing Dubai government support. Thin trading also showed how equities took second stage to gold trading, in addition to the typical Ramadan calm.

Kuwait SE  

Current year high: 7,129.30                Current year low: 5,764.30

>  Review period:  Closed August 25 at 5,785.6 points     Period Change: -4.1%

Kuwait’s exchange continued to nose dive in August, hitting a dangerous seven-year low in the benchmark index. Kuwait closed August trading almost 63 percent below the KSE’s June 2008 historic high tide mark. Latest corporate results were just as discouraging, with Agility reporting a 57 percent decline in net income in the second quarter with less government business, sending the stock down 10.2 percent during our review period.

Saudi Arabia SE  

Current year high: 6,788.42                Current year low: 5,323.27

>  Review period:  Closed August 24 at 5,979.3 points     Period Change: -6.5%

Domestic market sentiment took a direct hit from rising fears of a global recession. Stocks tumbled following the downgrade of US debt, which represents a major chunk of the kingdom’s portfolio. Petrochemical stocks slid 11% during the month as the Tadawul’s powerful stock SABIC dropped 10.5% among Ramadan trading volumes. A recent report by Global Finance Magazine said that Saudi Arabia hosts five of the 10 safest banks in the Middle East.

Muscat SM  

Current year high: 7,027.32                Current year low: 5,426.56

>  Review period:  Closed August 25 at 5,584.67 points     Period Change: -3.8%

Muscat securities investors were flooded by a flurry of corporate and regulatory announcements during a supposedly quiet month, with the Capital Market Authority introducing margin trading to boost the exchange’s activity. But the Renaissance Services conglomerate announced a disappointing 71 percent drop in first-half profits and revealed fraudulent activities at its Topaz unit, pushing the stock into a 24.3 percent fall during our review period. Other investors struck gold in Omantel’s 7.1 percent gain following the announcement of strong revenues in the second quarter.

Bahrain Bourse  

Current year high: 1,475.10                Current year low: 1,259.80

>  Review period:  Closed August 25 at 1,260.95 points     Period Change: -2.4%

Ever declining Bahraini stocks were dominated by negative sentiment echoing Europe and the US. A steady market decline since late February’s civil unrest has cost stocks nearly 12 percent so far in 2011 and the trend appears unwavering. The country heads for elections in September to replace resigned opposition politicians, adding another layer of uncertainty to already murky global and domestic waters. Banking stocks faced rising investor uncertainty, falling 3.15 percent during the month through August 25, with Ahli United Bank leading the decline by 4.2 percent.

Qatar SE  

Current year high: 9,242.63                Current year low: 7,195.88

>  Review period:  Closed August 25 at 8,171.48 points     Period Change: -2.8%

Industries Qatar, the country’s second largest stock, called back investors from their Ramadan escape, after adjusting its profit goals upwards for 2011 and putting on hold a steel expansion project. Traders rushed to book their profits, especially amid mounting global economic concerns, driving the stock down 12.2 percent through August 25. Outside the petrochemicals arena, sectors continued to show some strength, with banks adding 0.5% during the period, led by Qatar Islamic Bank, which rose 1.5% after its credit rating was affirmed by Fitch.

Tunis SE  

Current year high: 5,681.39                Current year low: 4,058.53

>  Review period:  Closed August 25 at 4,476.94 points     Period Change: +1.3%

While global investors were getting burnt in international equity markets, Tunisian investors have put on a nice summer tan. The Tunindex led Middle East exchanges under coverage for the third consecutive month, signaling a steady return of domestic and foreign investors to a reinvigorated market. The country introduced a new press code and launched a successful electoral role registration process, sending positive shockwaves to the country’s tourism industry. Several stocks registered strong gains, including market heavyweight, Poulina Group, which rose 4.7 percent through August 25.

Casablanca SE  

Current year high: 13,397.47              Current year low: 10,784.67

>  Review period:  Closed August 25 at 11,277.3 points     Period Change: +0.7%

Casablanca stocks were on the offensive in August as the country took delivery of the first batch of F-16 jets from the US. The market index performed near the top of MENA exchanges, buoyed by banking stocks which rose 1.6 percent during our review period. Despite minor dismay over several electoral law items, the announcement of parliamentary elections in November rejuvenated investor sentiment. Positive news

also included tourist numbers, rising 6 percent during the first half of the year.

Egypt SE  

Current year high: 7,210.00                Current year low: 4,478.00

>  Review period:  Closed August 25 at 4,676.05 points     Period Change: -7.1%

Fresh financial support from Saudi Arabia and the World Bank to post-Mubarak Egypt took the backseat to rising tensions between the country and Israel following a military incident in the Sinai desert. Stocks had originally tumbled along with global equities, but the rebound in the second half of the month was limited by fears of escalation on the northeastern border. Losses at market heavyweight Telecom Egypt were limited to 3.9 percent despite reporting an 11 percent drop in net profits in the second quarter.

BLOM Stock Index (BSI)

Weighted effective yield of eurobonds

Equity update

The slump in global equity markets, along with the new issue of $1.2 billion of Lebanese Sovereign debt on July 28, steered investor interest towards the Lebanese Eurobond market. Hence, the BLOM Stock Index (BSI) hovered between a lower level of 1,301 points and an upper level of 1,343 points between July 15 and August 12, 2011, before closing near its lowest level of 1,305 points. During the aforementioned period, the BSI shed 1.1 percent, further lowering its year-to-date performance to a negative 11.5 percent. As for the activity on the Beirut Stock Exchange (BSE), it improved over the same period, as the daily average volume per month reached 153,424 shares, valued at $1.74 million, compared to 120,568 shares worth $1.56 million over the preceding four weeks between June 17 and July 15.

On a comparative scale, the BSI managed to outperform the S&P Pan Arab Composite LargeMidCap Index and the Morgan Stanley Emerging Index (MSCI), which were largely affected by concerns of a double-dip recession in the United States and continuing fears over a potential downgrade of French debt following S&P’s downgrade of the US Sovereign. The former lost 15 percent to settle at 107, while the latter fell 12.8 percent to 989.

With respect to the real estate sector, it dominated the four-week period of trades on the BSE, accounting for around 62.5 percent of the total value traded. Solidere stocks Class A and B rallied during the first week, adding 6.6 percent each, breaching its resistance level of $17, before reversing the trend throughout the next three weeks. Nevertheless, Solidere A and B managed to end the four-week period on a positive note, closing at $16.7 each on August 12.

On the other hand, despite the robust first-half financial results, most traded banking stocks ended on a negative note. BLOM stocks, GDR and listed, lost 1.5 percent and 5.08 percent, respectively, to close at $8.55 and $8.03. With respect to Audi Bank, its GDR and listed stocks fell as well by a respective 2.2 percent and 1.3 percent to settle at $7.19 and $6.88. Bank of Beirut followed suit as its listed stock declined 0.52 percent to $19, and its preferred Class E stock decreased 0.58 percent to $25.60. BEMO stock also ended in the red at $2.74, 0.72 percent lower than its previous close on July 15. As for Byblos Bank, its common stock fell 4.6 percent to $1.66, while its preferred stocks 2008 and 2009 rose 0.4 percent and 0.5 percent, respectively, to align at $100.5.

In the industrial sector, cement manufacturer, Holcim, saw its stock surge by 3% to 16.49, while Ciment Blancs B fell 3.3% to $2.97, its lowest level since mid-June.

Eurobond bulletin

The Eurobond market maintained its upward trend between July 15 and August 12, as investors’ appetites were lifted by the successful issuance (four times oversubscribed) of a $1.2 billion double tranche bond that was lead managed by BLOMINVEST Bank and Citigroup. Hence, the BLOM Bond Index (BBI) added 0.38 percent to settle at 110.9. Accordingly, the portfolio-weighted yield fell by 9 basis points (bps) to 4.91 percent, while the spread against the US benchmark yield widened 37bps to 411bps as investor demand for US Treasury Bonds increased following the plunge in global equity markets. Lebanon’s credit default swap (CDS) for 5 years increased to 361-391 bps, compared to 340-367 bps on July 15. In regional markets, Dubai and Saudi Arabia CDS were quoted at 350-365 bps and 105-111 bps, respectively.

With the global economic recovery from the 2008 financial crisis stalled, wealth managers and high net worth individuals are wary of yet another credit crunch — and they would rather not make the same mistakes twice. Executive recently sat down with local and global players in the private banking industry to discuss the worldwide shift in wealth management industry dynamics and the changes in the client-private banker relationship post-2008, the unique challenges that relationship managers face in the Middle East and North Africa region, as well as the assessment and management of clients’ risk appetites in the region as a younger, more diversified generation of investors has emerged.

1 What mistakes did wealth managers, private bankers and clients make prior to the financial crisis in 2008? What lessons have they learned, if any?

Jean Riachi, chairman at FFA Private Bank: The [last] three years… were only the outcome of a decade of poor financial market performances. Unfortunately, for everybody the last decade was a lost decade due to many reasons. First, valuations in the market were very high, and second, there was no growth engine in the major economies to boost earnings enough to justify the level of capital gains and growth in the prices of stocks in global markets that we witnessed in the 1990s and in the 1980s. And still, in everybody’s mind, a good performance is a double-digit performance, and private bankers have struggled to achieve such performances sometimes by taking excessive risk, and very often by taking risks that were not obvious. So in a way it is the people’s expectations of high returns on their portfolios that have pushed banks, private banks and investment bankers to try to be creative in terms of their product offerings. And this, of course, ended up with a disaster in 2008. Today I wouldn’t say that everybody has learned the lessons.

Georges Abboud, head of private banking at BlomInvest Bank: The main lesson was on transparency on the kinds of instruments that customers were buying. People did not understand where they were putting their money. After 2008 they wanted to know exactly where they were investing. So we have to go into detail about every fund we want to invest into, each structured product — you need to know the underlying assets that are behind the product and this takes a lot of time to explain to the clients. They want to know everything. 

Reto Bartel, senior representative at UBS AG Representative Office Beirut: The recent financial crisis shook proponents of the classical investment approach out of their comfort zone. Investors perhaps believed they were in control, but in reality they were at the mercy of the markets. Credit markets failed to function and equity investors saw portfolio values decline to an extent previously deemed impossible. What went wrong? Was it just the market or did investors not fully appreciate the downside of their investment strategy? We think it was probably a mixture of both.

Raed el-Khoury, managing partner at Cedrus Invest Bank: I don’t think they learned a lot. [As for] lessons, mainly they have to really look into the risk. What are they selling to their clients? What are the embedded risks in every product? The profile of the bankers at that time before the crisis was focused on selling products. They didn’t look at the context of the client as a whole. There was wrong selling in many instances in the sense that bankers did not explain to the client the risks embedded in the product.

Selim Chami, director of investment banking group at BSEC: The bankers don’t care about learning; they want to make money. If a client comes and says I have this subprime securitization transaction I’m working on, and I have this much tranching, and I’m Goldman Sachs or Lehman Brothers and I have 100 transactions queued in line, and I need you to give me a rating as soon as possible, they will negotiate the fees and the ratings and they will push for something that they’re expecting. Unconsciously, a manager at a rating agency has all this reasoning. They go to higher management and say there are some things that are not looking too good, and there’s something that they didn’t really look into, for example the impact of the economic outlook, but they consider themselves to have done their job. You have a mass of people thinking like this. They start thinking about fees and budgets and that half-a-million-dollar bonus at the end of the year.

2 How has the client-private banker relationship changed after 2008, if at all?

Reto Bartel, senior representative at UBS AG Representative Office Beirut: The last decades witnessed the development of new economic theories on investor behavior which UBS uses in order to enlighten clients about the “do’s” and “don’ts” of investing. The behavioral view appeals to private investors since it captures familiar patterns of behavior we experience when dealing with real-life investment decisions. We also note that our clients have become more sophisticated, on average, not least due to the rapid increase of available information on economic developments and financial markets, as well as views and recommendations on market developments. An increasing number of clients like to talk about specific topics or are looking for a sparring partner willing to challenge their own investment theses.

Heiner Weber, head of Geneva branch at Falcon Private Bank: If the private banker has learnt his lessons from the past financial crisis, and the client has not, the dialogue would be very difficult and the results would not be as good. So private banking is really a teamwork between client and banker.

Nael Raad, managing director at Al Ahli Investment Group: In these types of markets you have to be much more transparent and much closer to your clients, monitoring their investments and attending to their needs. But you have to be closer in these volatile markets because trust is very important, especially nowadays, especially after the 2008 crash. It became more about the relationship. The client wants to know about the banker and the banker nowadays wants to tell him more about the product and tell him more about the risks involved. It’s a mutual thing.

3 Many of those in the wealth management industry are talking of a shift from universal big banks to smaller investment boutiques and family offices. To what extent is that statement true?

Daniel Diemers, principal at Booz and Company: Overall, the Gulf region is an attractive market for private bankers, and the region’s quick recovery from the financial crisis — especially compared to some Western markets — increases its allure. Not surprisingly, we expect competition to heat up over the next few years as local and regional players upgrade offerings and the global players — the incumbent private banking powerhouses — reassert themselves to defend and pursue market share. Banks need to find the right strategic positioning and stake their claim quickly. In this highly competitive environment, smaller banks will surely find their niche, as they have in the past. But we don’t see any major shift in the fundamental economics of the wealth management business model that would favor smaller players over the bigger ones.

Jean Riachi, chairman at FFA Private Bank: I believe that when you are smaller, you can take better care of your clients. I understand that most of the private banks, the global ones, have problems in terms of their profitability and they’re trying to cut their cost. I can tell you that we are not doing this because we will sacrifice part of our profitability to invest in people. But maybe this is a stand that you can have when you are a small private bank. But for sure the industry in general needs some kind of reengineering, and expectations should be lowered at the level of the banks’ profitability, at the level of the clients and the profits and the performances of the portfolios.

Georges Abboud, head of private banking at BlomInvest Bank: It is true that a lot of family offices opened after 2008 and even before. There are lots of reasons; one of them is regulations. They are so tough that the bankers cannot do whatever they used to do before. When you have your own family offices it is easier to go around some of the regulations. The drawback is that when you have a small firm — an investment company — the bank has to make money to live, to make profits, so you have to invest a lot of your clients’ money, which creates a conflict of interest there. 

4 Private bankers in the Middle East have many critics. Some say they still lack the expertise and talent that is needed to do proper wealth management. What is your take on such criticism?

Jean Riachi, chairman at FFA Private Bank: I would say that it’s a question of organizational structure. For example, in our bank, a private banker takes care only of the relationship with the client, but he’s backed by a team of asset managers, capital market specialists and real estate specialists, which means that he never manages an account on his own. Actually, he’s never allowed to manage an account. And when people come and want to give us a discretionary portfolio to be managed, the private banker will not be involved in managing it at all. Now, when it is an account managed on an advisory basis, private bankers are not the ones who decide what kind of strategies or products they are going to push. And here there are two things that are important in my view in the organizational structure: first, you have to be independent, which means that you need to not have products that you need to push; and second, of course, everybody here is pushed to explain to the clients and convince them that diversification is very important.

Raed el-Khoury, managing partner at Cedrus Invest Bank: Private bankers used to be relationship managers rather than investment advisors [and] product sellers. They would get ideas from the banks they work with and then they would go and sell them blindly to the clients. Bankers need to be investment advisors to their clients. And clients are asking [for] more and more of that, and they’re differentiating between private bankers. Our approach is, we need to introduce more — and I’m not saying that it’s not there — to the Lebanese market the concept of wealth management, whereby we would look at the profile of the client, the whole spectrum of what is needed from our clients and investors. Our private bankers would be knowledgeable bankers, not just people who go socializing and sell products. They would be able to look at the risk profile of the client, detect the risks involved in each product they would be selling, and have their opinion in what they want and do not want to propose to their clients, because, after all, this is the added value of the bankers.

5 How much would you intervene to manage a client’s risk appetite, especially when it is in excess?

Georges Abboud, head of private banking at BlomInvest Bank: You have to differentiate between the very sophisticated client who has been trading for a long time and has made money and lost money and gone through it for the past 20 years. He knows the cycles; you cannot stop him. But some people, they hear something on the news about how some companies’ shares are at their lowest level ever and they come and ask to put $500,000 into it and also ask for a loan of another $500,000 to invest in it. I’m not doing my job if I don’t stop this massacre.

Nada Safa, executive manager at Audi Saradar Private Bank: You have people as part of their portfolio, who like to speculate on currencies all day long. As a private banker you have to know how to calm the game. This is a speculator at the end of the day but you don’t want him to cross the line because he will lose money. It’s your job to be a therapist at the same time and understand his profile. This takes maturity and experience. And with time bankers know how to choose their clients. Some private bankers don’t want to deal with speculative accounts, they want big wealthy customers, dormant clients. You have exotic private bankers who have different portfolios, different client profiles. This is tough but if you have enough experience you can follow that. But at the end of the day it is your job to temper, to keep your client balanced.

Stephen Evans, head of Standard Chartered Private Bank for Europe, Middle East Africa and the Americas: I have to tell you that one of the most important qualities of a private banker is the ability to stand up and say no to a client, [to tell them] ‘I don’t think this is right for you’. And interestingly, in my experience, clients who have experienced that speak very highly of the banker, because they respect him. This is a testament to a good banker.

6 What factors play into a client’s propensity to take risk?

Georges Abboud, head of private banking at BlomInvest Bank: It is very important to think first about preserving your capital. And then you look at the needs of the client. If you have someone retired, he is not working anymore. He can’t afford to lose anything. So you will look for something in which he cannot lose. If someone has a stream of income and has money to play with then you can take some risk into equities or hedge funds.

Khalid Zeidan, head of MedSecurities Investment: The Lebanese love that [risky trading] because it moves quickly and it is very highly leveraged so he picks up the phone and he brags to his friend, “I bought this and I sold that and I made $3,000, $5,000 and $10,000, and I did that yesterday”, and then in one night he loses $100,000. He goes back to his wife and says “sorry honey, you’re not going to get that car.”

Nada Safa, executive manager at Audi Saradar Private Bank: The females I manage don’t like to take risk. You would be surprised to know there are many women in the market who manage their own wealth, especially in Saudi Arabia. They are very smart, they know what they want and they have their own wealth to manage. There is a whole niche market for this in the region and it is growing. There are more women working in private banking because… in the region women feel more comfortable building this relationship with another woman. But they don’t like risk and they are good investors. They go into funds, real estate and especially gold.

Mohammed al-Hamidi, managing director at AM Financials: Usually, the second generation will spend the money, not make the money. So definitely the second generation, usually when they come from high net worth families, they are more educated. What I know is that usually a younger person would take more risk, especially when the older person made the money. So that’s why some second generation high net worth individuals will take the money and make multiples of it and some will lose it.

Heiner Weber, head of Geneva branch at Falcon Private Bank: Many of the sons went through financial studies so they are all aware of the latest academic news on investment and they often have a more academic approach to investment. That’s for sure. Second, they are often more active because young people’s time horizons are shorter and they are extremely well connected via the Internet.

Nael Raad, managing director at Al Ahli Investment Group: The younger generation is looking more into investments: they’re more educated. They want to know exactly what it’s all about; they have the background, the education. I find that the older generation worked more on the gut feeling but the younger generation is more methodical, definitely. But at the same time it’s not all one stereotype.

Raed el-Khoury, managing partner at Cedrus Invest Bank: It’s normal to involve the heirs in the investment process, especially as they will be in charge of the future wealth. It can be more dynamic because of the younger spirit. So we see it as an opportunity to become more dynamic in the investment decision-making process. But here comes our role to really stress our conservative approach. Definitely, they’re knowledgeable, exposed, educated and open-minded but at the same time they lack maturity. And this, they will acquire and they’re definitely on the right track but they need help, they need guidance. Somebody that understands their concerns, their parents’ concerns, and can bridge the gap.

Regulating the markets

Having been put on the backburner for the past five years, a draft law to regulate capital markets and insider trading was finally approved by Lebanon’s parliament early last month. Lebanese investors and brokers had urged previous governments to pass the law, a move which would allow for more transparency and activity on the Beirut Stock Exchange, according to Lebanese bankers. The law stipulates that an independent commission, dubbed “The National Council for Financial Markets in Lebanon”, headed by Central Bank Governor Riad Salameh, overlook and regulate both Lebanese market trading activities and participants. According to BDL, the regulatory agency will consist of seven members, five of which will be private entities, and will be an independent watchdog both in policies and functions, similar to the United States Securities and Exchange Commission. As of Executive going to print, the government had not set a timeframe for the implementation of the capital market law.

Kafalat demand shrinks

Loans extended to small and medium-sized companies under the guarantee of Kafalat Corporation dropped year-on-year 7.5 percent through July 2011, totaling $93.3 million for the first seven months of the year, down from $100.9 million during the same period a year earlier, according to figures released by the country’s state-sponsored credit guarantee scheme. The aggregate number of loan guarantees by Kafalat up until July 2011 reached 691, an 18.9 percent annual decrease from 852 a year earlier, indicating an enduring unfavorable business sentiment in the country due to domestic and regional instability. The average value per guarantee reached $134,992 for the same period, increasing by 14 percent from the previous year’s average of $118,413. The industry sector took the bulk of extended guarantees for the first seven months of 2011, constituting 41 percent of the total, followed closely by agriculture at 38.2 percent, tourism at 17.8 percent, specialized technologies at 1.7 percent and handicrafts at 1.3 percent.

Plastic pressure in Syria

Visa and MasterCard have blocked all credit cards issued by Syrian banks, in compliance with US sanctions imposed on the Syrian regime in the face of violence against protestors across the country. News of the ban first broke when Syrian visitors to the United Arab Emirates were sent SMS messages informing them that their credit cards were no longer valid. In response to an executive order issued on August 18 by the United States Treasury department prohibiting “the exportation, re-exportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any services to Syria,” MasterCard started blocking all transactions originating in Syria and all MasterCard transactions on accounts issued in the country. Visa also announced the suspension of its payment card activity in Syria under the recent US sanctions, stating it is “required by law to comply with the US Department of the Treasury financial sanctions against Syria.” Meanwhile, Adib Mayala, governor of the central bank of Syria, announced that Syria stopped dealing with the US dollar and switched to the euro, a decision made effective as of August 23.

Banks feel the stress

Lebanon was one of 28 countries whose banking sector fell under the “low strength” category of the Fitch Ratings’ Banking System Indicator (BSI), the agency’s annual risk assessment survey that includes 86 banking systems in advanced and emerging economies. Excluding potential support from shareholders and governments, the BSI measures banking systems’ intrinsic strength and quality, along with their systemic weakness. On a scale of “A” to “E”, from high to low quality, Lebanon came under the “D” category. Lebanon was also among eight banking systems that the ratings agency judged to have a high level of potential vulnerability, according to Fitch’s Macro-Prudential Indicator (MPI), which tries to determine the build-up of stress in banking systems. Lebanon was the only country to witness a decline in its MPI classification.

A trio of tech kick-starts

Lebanese business incubator Berytech announced a $1.05 million investment in three technology startup companies at a conference in early August, raising the number of its equity participations to eight since May 2009. Headed by young entrepreneur Hind Hobeika, “ButterflEye”, a company that has engineered swimming goggles that measure swimmers’ heart rates in real time via infrared technology, was the first to receive $100,000 of funding. Berytech also poured $600,000 into “Yalla play”, an online gaming platform founded by young businessmen Mahmoud Hajo and Karim Saddik, whose notoriety comes from the three-dimensional card game tarneeb.com. Berytech’s third investment went into “Wext”, a provider of a multi-platform web-texting software offering an instant messaging service adaptable to all mobile phones and all types of Internet connections. The Beirut-based seed capital fund Berytech has some $6 million under management, offering financing and consultancy services to young entrepreneurs in the technology field.

DP World profits surge

DP World, a Dubai World subsidiary, reported a 298 percent increase in first-half profits to $741 million [AED2.72 billion], buoyed by strong volume growth and a one-time gain from the partial disposal of its Australian terminals. The ports operator brought in $460 million [AED1.69 billion] from the monetization of 75 percent of DP World’s Australia terminals through a strategic partnership with Citi Infrastructure Investors. The world’s third largest ports operator rode a wave of global economic recovery during the first part of the year, supported by growth in newly-penetrated emerging markets of Latin America and Africa. As a result, gross volumes grew 11 percent year-on-year driving up revenues 3 percent to $1.5 billion [AED5.5 billion].  DP World also increased its cash and bank balances by 63.5 percent to $4.1 billion [AED15.1 billion], most likely in preparation for settling $3 billion [AED11 billion] of debt which will mature in October 2012.

Tourists flashing more cash

Total tourist spending in Lebanon increased 13 percent for the first seven months of 2011, relative to the same period of the previous year, according to figures released by Global Blue, the VAT refund operator for international shoppers. The majority of spenders in Lebanon were Arabs, making up 56 percent of total tourist spending in the country. By country of origin, nationals from Saudi Arabia accounted for 21 percent of overall tourist expenditures in Lebanon, followed by United Arab Emirates tourists at 11 percent, Kuwaiti nationals at 10 percent, Syrian visitors at 8 percent and Egyptian travelers at 6 percent. Fashion and clothing captured around 70 percent of total tourist shopping, watches 10 percent, and perfumes and cosmetics 5 percent. Beirut shops attracted 84 percent of total visitor spending in Lebanon, while the Metn, Keserwan and Baabda areas took away 12 percent, 2 percent and 1 percent of total spending, respectively.

Capital Trust buys into First National Bank

A Capital Trust Group private equity fund, the Euromena II, has acquired a 7 percent stake in Lebanese First National Bank, a deal valued at some $20.5 million. The stake is equivalent to 930,000 shares of the bank, making the FNB share price around $22. Press releases by both parties said that the transaction was aimed primarily at boosting FNB’s already accelerating growth, as the bank recorded balance sheet and customer deposits in March 2011 of $2.55 billion and $2.1 billion, respectively, while loans and advances amounted to $681.2 million for the same period. The Euromena II fund was launched back in June 2008 by Capital Trust Group with an initial capital ranging between $200 million and $250 million, and was the third generation fund — Menavest and Euromena I funds being the first two — for the global investment group aimed at investing in high growth companies in the Middle East and North Africa region, while excluding real estate and infrastructure projects. The Euromena I fund, which was set up in 2006 with $63 million in capital, had acquired a stake in Intercontinental Bank of Lebanon in January 2008, contributing to the bank’s $20 million capital increase at the time.