The Dubai Government has taken control of Dubai Bank and plans to inject cash into the Islamic lender in preparation for a possible merger.
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The takeover was "designed to ensure that Dubai Bank's business continues uninterrupted while options for the bank's future, whether to be run on a stand-alone basis or be potentially merged with another bank in which the Government has ownership, are being assessed", the Dubai Media Office said.
The Government decided to "act swiftly" in taking over the bank to protect the interests of depositors, the office said. The Central Bank and the Ministry of Finance supported the move, it added.
"It shows that banks in general in the UAE are not yet out of the woods," said Tarik el Mejjad, a financial analyst at Nomura in Dubai.
Lenders across the country have grappled for two years with a rise in loan defaults and exposures to large corporate debt restructurings. Despite billions of dirhams poured into the banking system at the onset of the financial crisis by the Central Bank and the Ministry of Finance, provisions for bad loans in the banking system have increased from Dh19.7 billion (US$5.36bn) at the end of 2008 to Dh46.6bn at the end of last March.
Before the takeover, Dubai Bank was 70 per cent owned by Dubai Banking Group, a division of Dubai Holding.
The remaining 30 per cent, valued at Dh172 million, was owned by Emaar Properties, the Dubai developer behind the Burj Khalifa.
The Government did not say how much money it was injecting into Dubai Bank.
The bank is not publicly listed but it disclosed on its website that it lost Dh290.6m in 2009, the most recent year for which financial data are available. The losses were due to about Dh545m of impairment charges on Islamic loans and investments.
"A possible scenario would be a takeover by Emirates NBD," the UAE's largest bank, said Jaap Meijer, a banking analyst at Alembic HC Securities in Dubai.
Injecting fresh funds into Dubai Bank could be a precursor to such a takeover by the government-owned banking giant, which Mr Meijer said "always stressed it would only do an acquisition on commercial terms, which is only possible after a capital injection and proper cleansing of Dubai Bank's loan book, in our view".
Dubai Bank's declining financial performance prompted Fitch Ratings, one of the world's biggest credit ratings agencies, to downgrade its individual rating in March to "D/E".
A "D" rating indicates concerns about a bank's profitability, balance sheet, management and operating environment, according to a description on the agency's website. An "E" rating is applied to a bank "with very serious problems, which either requires or is likely to require external support".
The main worry with Dubai Bank, Fitch said in March, was its large exposure to its parent, Dubai Holding.
Several divisions of Dubai Holding are in discussions to extend repayment of debt, and estimates of the group's total borrowings range as high as $20bn.
Fitch said its downgrade "reflects [Dubai Bank's] weakened financial flexibility, and Fitch's expectations that [2010] results will be negatively affected by its significant exposure to certain Dubai entities that are being restructured. As a result, Fitch believes that DB's financial risk profile could be weakened".
Mahin Dissanayake, a Fitch analyst who covers the bank, declined to comment on the takeover by the Government. The other two major ratings agencies do not cover the bank.
Reports surfaced last year that discussions had begun over a possible merger involving Dubai Bank, Noor Islamic Bank and Amlak Finance, the Islamic home finance company.
Noor is owned by the Government and Dubai Holding, and Emaar owns a large chunk of Amlak. The status of those talks is unclear.
Dubai's government-owned banks are all held by the Investment Corporation of Dubai (ICD), which, unlike Dubai Holding, is considered an integral part of the state.
ICD has significant stakes in or outright ownership of Dubai Islamic Bank, Commercial Bank of Dubai, Noor Islamic Bank and Emirates NBD.
Dubai Bank recently said it would not charge accumulated profits - the Sharia-compliant equivalent of interest - on loans taken out for purchases of property where projects have suffered construction delays.
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5 of the most-popular Airbnb locations in Dubai
Bobby Grudziecki, chief operating officer of Frank Porter, identifies the five most popular areas in Dubai for those looking to make the most out of their properties and the rates owners can secure:
• Dubai Marina
The Marina and Jumeirah Beach Residence are popular locations, says Mr Grudziecki, due to their closeness to the beach, restaurants and hotels.
Frank Porter’s average Airbnb rent:
One bedroom: Dh482 to Dh739
Two bedroom: Dh627 to Dh960
Three bedroom: Dh721 to Dh1,104
• Downtown
Within walking distance of the Dubai Mall, Burj Khalifa and the famous fountains, this location combines business and leisure. “Sure it’s for tourists,” says Mr Grudziecki. “Though Downtown [still caters to business people] because it’s close to Dubai International Financial Centre."
Frank Porter’s average Airbnb rent:
One bedroom: Dh497 to Dh772
Two bedroom: Dh646 to Dh1,003
Three bedroom: Dh743 to Dh1,154
• City Walk
The rising star of the Dubai property market, this area is lined with pristine sidewalks, boutiques and cafes and close to the new entertainment venue Coca Cola Arena. “Downtown and Marina are pretty much the same prices,” Mr Grudziecki says, “but City Walk is higher.”
Frank Porter’s average Airbnb rent:
One bedroom: Dh524 to Dh809
Two bedroom: Dh682 to Dh1,052
Three bedroom: Dh784 to Dh1,210
• Jumeirah Lake Towers
Dubai Marina’s little brother JLT resides on the other side of Sheikh Zayed road but is still close enough to beachside outlets and attractions. The big selling point for Airbnb renters, however, is that “it’s cheaper than Dubai Marina”, Mr Grudziecki says.
Frank Porter’s average Airbnb rent:
One bedroom: Dh422 to Dh629
Two bedroom: Dh549 to Dh818
Three bedroom: Dh631 to Dh941
• Palm Jumeirah
Palm Jumeirah's proximity to luxury resorts is attractive, especially for big families, says Mr Grudziecki, as Airbnb renters can secure competitive rates on one of the world’s most famous tourist destinations.
Frank Porter’s average Airbnb rent:
One bedroom: Dh503 to Dh770
Two bedroom: Dh654 to Dh1,002
Three bedroom: Dh752 to Dh1,152
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Who's who in Yemen conflict
Houthis: Iran-backed rebels who occupy Sanaa and run unrecognised government
Yemeni government: Exiled government in Aden led by eight-member Presidential Leadership Council
Southern Transitional Council: Faction in Yemeni government that seeks autonomy for the south
Habrish 'rebels': Tribal-backed forces feuding with STC over control of oil in government territory
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Price, base: Dh359,200
Engine: 2.9L twin-turbo V6
Transmission: Eight-speed automatic
Power: 450hp at 5,700rpm
Torque: 600Nm at 1,900rpm
Fuel economy, combined: 8.7L / 100km
The Ashes
Results
First Test, Brisbane: Australia won by 10 wickets
Second Test, Adelaide: Australia won by 120 runs
Third Test, Perth: Australia won by an innings and 41 runs
Fourth Test: Melbourne: Drawn
Fifth Test: Australia won by an innings and 123 runs
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If you go
The flights
Emirates and Etihad fly direct to Nairobi, with fares starting from Dh1,695. The resort can be reached from Nairobi via a 35-minute flight from Wilson Airport or Jomo Kenyatta International Airport, or by road, which takes at least three hours.
The rooms
Rooms at Fairmont Mount Kenya range from Dh1,870 per night for a deluxe room to Dh11,000 per night for the William Holden Cottage.
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Some of Darwish's last words
"They see their tomorrows slipping out of their reach. And though it seems to them that everything outside this reality is heaven, yet they do not want to go to that heaven. They stay, because they are afflicted with hope." - Mahmoud Darwish, to attendees of the Palestine Festival of Literature, 2008
His life in brief: Born in a village near Galilee, he lived in exile for most of his life and started writing poetry after high school. He was arrested several times by Israel for what were deemed to be inciteful poems. Most of his work focused on the love and yearning for his homeland, and he was regarded the Palestinian poet of resistance. Over the course of his life, he published more than 30 poetry collections and books of prose, with his work translated into more than 20 languages. Many of his poems were set to music by Arab composers, most significantly Marcel Khalife. Darwish died on August 9, 2008 after undergoing heart surgery in the United States. He was later buried in Ramallah where a shrine was erected in his honour.
The biog
Favourite food: Tabbouleh, greek salad and sushi
Favourite TV show: That 70s Show
Favourite animal: Ferrets, they are smart, sensitive, playful and loving
Favourite holiday destination: Seychelles, my resolution for 2020 is to visit as many spiritual retreats and animal shelters across the world as I can
Name of first pet: Eddy, a Persian cat that showed up at our home
Favourite dog breed: I love them all - if I had to pick Yorkshire terrier for small dogs and St Bernard's for big
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.”
Zayed Sustainability Prize
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Saturday, 10.45pm (UAE)
Watch the match on BeIN Sports
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UAE currency: the story behind the money in your pockets
