UAE stock brokers’ profit boosted amid Arabtec turmoil

The trading room floor at Dubai Financial Market. Sarah Dea / The National

The country’s stock brokerages recorded a substantial rise in profit during the second quarter amid market turmoil.

Commission income tripled as panicky investors sold shares in Arabtec after its chief executive, Hasan Ismaik, resigned and hundreds of the company’s staff were laid off, provoking concern over the prospects of the Dubai contracting company.

A review of brokerages’ financial statements posted on the federal market regulator’s website shows that interest income from margin facilities and other forms of leverage surged more than 800 per cent and net income nearly quadrupled.

The brokerages have been turning a profit after several years of losses. They have been lifted by a bull run led by increased investor appetite after the announcement in June last year that the UAE was being upgraded to emerging-markets status. Money poured into local stocks in the run-up to their incorporation into MSCI’s Emerging Markets Index in June of this year. But the excitement was cut short amid the market rout triggered by Arabtec.

Trading commissions, the bread and butter of brokerages, surged from Dh101.5 million in the second quarter of last year to Dh309.2m this year.

Interest income rocketed from Dh1.1m to Dh9.4m in the same period despite losses from the two biggest brokerages by market value.

Al Ramz narrowed losses of Dh67,435 in the quarter compared with Dh144,751 last year. A spokesperson for Al Ramz was unavailable for comment.

Mena Corp registered losses of Dh1.4m on interest income, compared with Dh879,521 last year. The Abu Dhabi brokerage’s chief executive, Fathi Ben Grira, explained that the figure amounted to the cost of funding because Mena Corp does not charge interest.

“Others have been here for 15 years. I arrived to this company three years ago,” Mr Ben Grira said. “I have a different strategy – my business model is brokerage. Besides, I don’t think it’s healthy to charge interest.”

Net profit jumped from Dh56.2m to Dh214.08m.

Asked whether brokers expect stellar figures in the next half of the year, Mr Ben Grira said: “It was not sustainable so I don’t expect it to go as fast as it used to be.”

Some investors had their wealth burnt in the Arabtec saga, but most wait on the sidelines for a new catalyst – an IPO, he says.

“People aren’t getting out of the market. Even if they changed trading activity, their money stayed with us, which is a very good sign,” he said.

Arabtec’s stock has been volatile for several months, fuelled by retail investor speculation as market participants seek to know when, at what price and to whom Hasan Ismaik will sell his 27.9 per cent stake in the company.

Arabtec shares surged 8.1 per cent on Wednesday amid rumours that Mr Ismaik was close to reaching a deal to sell his stake to Aabar Investments, another major investor in the contracting company. But the shares fell 1.6 per cent on Thursday after Mr Ismaik told Bloomberg that he had rejected an offer from Aabar to buy part of his stake for Dh5 a share.

The Securities and Commodities Authority investigated the books of brokerage firms in the second quarter, companies said in July, after Arabtec lost 64.7 per cent of its value from its high in mid-May to June 30. The Dubai Financial Market General Index lost 26 per cent of its value in the same period.

There are 48 brokerages in operation in the UAE today, compared with 110 in 2010. Of the 48, only 24 are licensed by the regulator to provide margin accounts to clients.

Brokerages were hit hard when liquidity dried up during the global financial crisis. The Dubai stock index lost 77 per cent of its value from the start of 2008 through the end of 2011.

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