The petrodollar-driven liquidity boom in the Gulf region is drawing global investment banking majors to make Dubai International Financial Centre (DIFC) to set up heir Middle East hub for wholesale banking services.

During the first half of this year alone, more than a dozen international banks announced the opening of their regional hubs within the DIFC.

According to a recent study by the International Institute of Finance (IIF), from 2002-06, the six countries of the GCC earned about $1.5 trillion from oil exports, twice the amount of the preceding five years. While about $1 trillion of that money was spent on imports, the rest - a cumulative current account surplus of $542 billion - went into financial investments within and outside the region.

Opportunities

Investment bankers admit that opportunities are huge in the region, and DIFC is the preferred location from where they want to anchor their services in the region.

"DIFC is a natural location to serve as a strategic hub for our regional business. It offers a unique position as a bridge between the capital markets of Europe and Asia, where we enjoy strong positions," said Albert Momdjian, managing director and head of Middle East and Africa investment banking of Calyon, the corporate and investment banking division of the Crédit Agricole Group, which opened its DIFC office last week.

Lehman Brothers, a leading global investment bank with more than $200 billion assets under its management, officially launched their operation in from DIFC last month. While Goldman Sachs and Morgan Stanley are already operating from DIFC, Citigroup and Merrill Lynch announced their official launch earlier this month.

Most of these international banks are planning to expand their regional reach from their DIFC hub. "The Middle East today clearly has a prominent role in the world economy. Our clients around the world are looking to us to assist them in this important region, while, at the same time within the region, corporations as well as governments and investors are looking for financial solutions that we can deliver," Richard S. Fuld, Jr., chairman and chief executive officer of Lehman Brothers said at the launch of their Middle East office in DIFC last month.



Liquidity
The huge liquidity pool in the region has created opportunities for wealth management, private banking and asset management and financing the massive infrastructure developments in the region. According to estimates by MEED Projects, $1.7 billion worth infrastructure projects are in the pipeline in the region. With huge project financing opportunities on the horizon, a number of global investment bankers are expanding their presence here.

"The DIFC is a phenomenal achievement. The vision of His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, to create a world-class capital market in this country is becoming a reality," said Ahmass Fakahany, Merrill Lynch president and chief operating officer.


Bankers chase new money

The flow of investments stemming from high oil prices has increased cash flows of both public and private sectors. These higher cash flows have resulted in a rapid increase in government spending which has fuelled domestic growth beyond the oil and gas sector that calls for international banking solutions.

According to a recent report by McKinsey, corporate and investment banking represent around 40 per cent of total GCC banking revenues ($11 billion) and are set to grow by 10 to 20 per cent a year over the next decade.

"A growing number of local corporations are going global and demanding that their financial advisers have an extensive geographic presence and internationally competitive skills. Local banks do not always have the experience necessary to offer the sophisticated products and services now demanded by their client base," the study said.