Fall in trade claims two more Dubai brokerages

Brokerages have suffered from depressed trading volumes since the global financial crisis struck in 2008. Jaime Puebla / The National

Two brokerages based in Dubai have suspended operations, continuing a trend of closures during which 45 houses shut their doors last year.

Brokerages have suffered from depressed trading volumes since the global financial crisis struck in 2008, exacerbated by a decline in property values and a flight of capital spurred by the Arab Spring last year.

Tabadul for Shares and Bonds, the brokerage arm of a Lebanese lender, which also has an office in Abu Dhabi, said it would halt its operations on the back of a year of slower trading, a shortage of capital and more than Dh114 million (US$31m) owed from its clients.

Essham Securities, another brokerage in the emirate, requested a temporary suspension, the Securities and Commodities Authority (SCA), the UAE market regulator, said yesterday.

"The brokerage is closing because of market conditions," said Imad Assio, the general manager at Tabadul.

Tabadul has asked the SCA for a six-month suspension, during which it will decide whether to continue if trading volumes recover.

In the case of Essham, the SCA said the company "did not finish all the SCA requirement for approval" to renew its licence this year.

The number of financial services companies operating in the UAE has dropped from 103 at the beginning of last year to 55 now as volumes have declined by 90 per cent from their peak in 2007. The value of equities traded by UAE brokerages declined 45 per cent to Dh57 billion last year, compared with the previous year.

Taib Securities, the local brokerage arm of Bahrain's Taib Bank, closed its UAE operations last month.

Foreign investment banks have also restructured their operations in the UAE to cope with falling volumes.

Germany's Deutsche Bank recently moved its head of equity capital markets back to London from Dubai. Nomura, based in Tokyo, closed its Dubai equity research unit and the UK's HSBC has shut its retail brokerage unit in the Emirates.

Tabadul, which opened for business in 2007, was ranked 50th by value traded last month, according to trading reports by the Dubai Financial Market.

The brokerage recorded accumulated losses of Dh11m for the nine months that ended on September 30 last year, according to financial statements posted on the SCA website. Tabadul recorded losses of Dh8m in the same period for 2010. It reported losses surpassed 50 per cent of share capital.

Mr Assio said there was no connection between the decision to suspend broking operations in the UAE and an accusation last month by US authorities that Tabadul's parent company, Lebanese Canadian Bank (LCB), was financing Hizbollah activities by channelling money from Lebanon through the sale of used cars in west Africa.

The case is still in court. LCB owns LCB Investment Holding, which holds a 49 per cent stake in Tabadul. The remaining 51 per cent is held by Farooq Mahmoud Mohammed Arjmand.

Brokers said the company had a small operation in the UAE and suffered from weak volumes last year. LCB and LCB Investment Holding placed Dh103.7m at Tabadul as collateral for trade receivables by the brokerage's clients worth Dh114.8m, according to its financial statement.

"It was a small company. They had very selective clients," said Mohamed Hamdy, a former stockbroker. "They never had advertisements and it never seemed they tried to increase their customer base."

LCB was forced to merge with the Lebanon subsidiary of Société Générale in February last year when the US Treasury department banned the lender from dealing in dollars after it was labelled a "primary money-laundering concern".

US law classified Hizbollah as a terrorist organisation in 1997.

The SCA developed guidelines in November to encourage cash-strapped brokerages to merge amid depressed market conditions.

Independent or family-run brokerages, however, have not been enticed to merge with independent companies. Many that have approached brokerage arms of local banks as potential lifelines instead.

The UAE is under review for an upgrade to "emerging market" status in June by the index compiler MSCI. It is currently classified as a "frontier market".