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Investment banks in MENA region suffering from shortage of talent – HSBC exec


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Investment banks in MENA region suffering from shortage of talent – HSBC exec

➤ Competition is ramping up among and between domestic and international investment banks in the Middle East and North Africa.

➤ Having a full-service offering key to winning mandates.

➤ Junior staff tough to find and missing out on vital experience due to COVID-19.

Nabil Lahham is HSBC Holdings PLC's head of advisory and investment banking coverage in the Middle East, North Africa and Turkey, and has worked in the region since the early 2000s. Lahham's previous jobs include managing director roles at Nomura Holdings Inc. and Lehman Brothers. He was also executive director of M&A and head of Middle East asset management at Morgan Stanley. Prior to joining HSBC, he was a partner at Perella Weinberg Partners LP in the United Arab Emirates.

Lahham spoke to S&P Global Market Intelligence about the investment banking landscape in the MENA region, including heightening competition between domestic and international players, doing multibillion dollar deals over Zoom and the difficulties of attracting and developing staff. The following is an edited transcript of the conversation.

S&P Global Market Intelligence: How fierce is competition among and between international and regional banks for investment banking business in the MENA region and how is this competition affecting M&A fees?

Nabil Lahham: The height of the market was really 2007, when aggregate MENA investment banking fees were around $1 billion. Since then, fees have been in decline due to increased competition.

That competition is very targeted on the larger deals, with an even more dramatic shift from 2012 onwards. The number of M&A deals has fallen sharply from 2012 onwards, although the aggregate deal value has remained steady — there are fewer acquisitions but these are, on average, larger than before.

Most M&A deals are for less than $250 million. Typically, as public data shows, around 50 regional deals annually are above this benchmark, of which about 15-20 exceed $1 billion.

You have to think about how you can deliver broader solutions to your clients. Do you have financing, hedging, all the other services you can bring to bear and ensure that the fee pot remains competitive?

We're probably in a bull cycle right now, with a lot of work in investment banking. Debt financing will probably increase further because there's a huge need and appetite for loans and debt capital markets. Equity capital markets haven't been as active in the region since the euphoria of 2005-7 and fees are very low compared to the U.S. and Europe. The maturing of the capital markets has nonetheless allowed greater diversification away from bilateral loans.

Are the larger banks getting stronger and taking more market share?

HSBC advised [Washington, D.C.-based institutional investor] EIG on its recent $12.5 billion pipeline deal with Saudi Aramco. We did that deal entirely on Zoom. The efficiency of doing things in a one-stop shop approach is a very compelling proposition.

Clients also want to be able to manage the mandate in as holistic a manner as possible. Before, they may have had more latitude in dealing with the boutique firms for the M&A piece and separately the financing firm for the financing. Now, try to get meetings on Zoom for the first time with a client: if you're an unknown, it's difficult.

The firms that have strong relationships, deep historical ties and provide a full-service offering are incredibly efficient. They can optimize what has become a quite fractured industry if you don't have the full solution.

HSBC was also involved in Oman's sale of a 49% stake in the state-owned electricity transmission company to China for an undisclosed fee. Had we not had a full-blown existing team on the ground in Oman, we wouldn't have been able to get that deal closed as efficiently as we did, because none of us could travel. Having a presence across the region here has been hugely beneficial.

What other major challenges are investment banks operating in the region facing?

Talent is very hard to come by. For the past five years, international banks operating in MENA have been redeploying assets and people to different geographies. A lot of people have also left the industry.

We're an apprenticeship business. We need to bring in people to learn the business. It's almost like being in the movie industry: you do one movie and move to the next one. It's a project-based approach and every deal is unique. The learning curves are extremely steep. So, if you lose nearly two years, like we have done due to the pandemic, it's almost like four years in any other industry.

Junior staff haven't been sitting next to each other, haven't been working together on projects, haven't been in the field or in front of clients. If you're in a larger organization, you get more access and visibility and deal flow, so the talent aspect is another reason why the larger players are getting stronger.

State-owned funds and local banks are also competing for the same staff as international banks. Local banks are getting sophisticated in the kind of products and solutions they provide. They understand how to price the risk and have more appetite for risk. There are more mergers happening among local banks. They're getting bigger and can take on more than before.

What industries will drive demand for investment banking activity and how is this changing versus the past few years?

Over the past eight to 10 years, about 60% of HSBC's MENA investment banking business has been related to the utility, hydrocarbon, petrochemical, healthcare and financial services industries. I see that proportion being maintained. There's a lot of infrastructure monetization still to happen. Every state-owned company is deciding what's core and noncore in their portfolios. There will be a lot of creative deals.

Infrastructure funds have become so significant in size they're looking for opportunities worldwide. The Gulf is an interesting place for them to bring their technology, expertise and ideas.