Shuaa Capital, the largest domestic investment bank in the UAE, is to expand its brokerage business as other share dealers fail amid huge declines in trading volumes on the country's exchanges.
The strategy is one element of Shuaa's bid to overcome big losses suffered in 2008 and 2009 as a result of soured investments, disputes with shareholders, fines from regulators and the global financial crisis. Shuaa, based in Dubai, lost Dh948.5 million (US$258.23m) in 2008 and Dh529.8m the following year before returning to almost break-even levels last year.
"Really, 2010 was a year for fixing and rebuilding at Shuaa, whether it's strategy, whether it's rebuilding the management team, whether it's addressing the balance sheet and liquidity issues and so on," Sameer al Ansari, who was appointed chief executive in August 2009 to try to turn around the company, said yesterday.
Shuaa Securities, the company's brokerage arm, fared badly last year as trading volumes on the Dubai Financial Market and Abu Dhabi Securities Exchange fell by about half. But, in addition to selling off stakes in companies acquired during the boom and focusing on stable fee-generating businesses, investing further in the brokerage arm forms a key part of Shuaa's efforts to return to financial health.
The brokerage currently handles almost 5 per cent of stock trades in the UAE, according to Walid Shihabi, the head of Shuaa Securities. The strategy now is to increase that share by both investing in the business and by converting clients of failed brokerages into its own, he said.
"[Last year] was a year in which the UAE market was among the worst-performing in the Gulf and certainly within emerging markets," he said. "But what had even more impact on the brokerage industry was that overall trading volumes declined significantly by over 50 per cent compared to 2009, which was not a particularly memorable year for the industry to start with."
Volumes are of vital importance for brokers because they make money principally from commissions on trades.
But Shuaa does not intend to take over brokerages on the brink of failure to build its market share, Mr Shihabi said, largely because of the legal risks. Aggrieved former clients of extinct brokerages could potentially target Shuaa in court if it bought them.
Instead, he said the strategy was to help failing brokerages wind down by offering existing clients a new home. That way, the company could gain market share without potential legal liability.
"It's our expectation that more companies will exit the market within the space of the next six months, and that Shuaa Capital will be a prime consolidator during that period," Mr Shihabi said.
At present there are 94 registered stockbrokers in the UAE, according to the website of the Securities and Commodities Authority, the Federal Government regulator. Gulf Baader Capital Markets and Makaseb Islamic Financial Services were among the brokerages that ceased operations last year as volumes declined.
Taking advantage of the sea change in the brokerage industry is only one of Shuaa's aims this year. Mr al Ansari said the company would continue to look for buyers of its "heritage portfolio" - assets purchased years ago that played a large role in its losses in 2008 and 2009.
They include a 40 per cent stake in City Engineering, a construction contractor based in Sharjah, and a 46.7 per cent stake in Amwal, a Qatari investment banking and asset management firm.
Shuaa has already pared down the portfolio substantially during Mr al Ansari's regime. It was trimmed from Dh1.6 billion to Dh833m between the third quarter of 2009 and the third quarter of last year, he said.
afitch@thenational.ae