Interpreting Middle East Economic News and Analyzing Market Trends

Archive for March, 2013

Last-minute Cyprus deal approved without vote, offshore finance industry killed in the process

The President of Cyprus reached a last-minute deal with EU technocrats representing the European Union, the European Central Bank and the International Monetary Fund, known as the Troika.  The deal calls for stealing deposits from the wealthiest depositors in the two largest banks.  Depositors at smaller banks are saved for now.  The President’s friends are safe since he instructed them to take their money out of Cyprus last week.  In the end, the Troika gets its two wishes; 1. collect money for its clients (EU banks and investors), 2. kills Cyprus’s offshore financial center.  In the process, Cyprus snubs Russia and Turkey.  Here’s more from Reuters:

   

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Islamic banking assets grow faster than conventional banking assets

Islamic banks, which also suffered during the financial crisis, are back on track and growing faster than their conventional counterparts.  Though still small by global standards, Islamic banking assets topped $1.55 trillion for the first time in 2012.  Here’s more from Arab News:

Islamic banking assets with commercial banks in the GCC* reached $445 billion at the end of 2012, up from $390 billion in 2011, with the outlook for the industry remaining relatively positive in 2013.  This represents a 14 percent year-on-year growth, which is considerably lower than the five-year average of 19 percent.

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Kuwait to cut subsidies, introduce VAT and income tax in the coming years

Kuwait’s Central Bank is forecasting a slowdown in 2013 as it expects a contraction in the oil sector, according to the Kuwait Times.  The Central Bank trimmed its economic growth to 1.9% this year, compared to 6.3% in 2012 and 8.2% in 2011.  The country has had trouble diversifying the economy away from its dependence on the oil sector so any contraction in this sector will have a significant affect on the overall economy.

 

The country has come to realize, however, that it must not only diversify its sources of revenue, it must also cut subsidies and introduce a consumption tax in the near future.  Gulf countries have a generous welfare system, which includes subsidized food, fuel, housing, water and electricity along with free health and education.  None of the countries in the Gulf have been able to introduce a tax system yet, much less reduce the population’s reliance on subsidies.  This is a very sensitive subject, which we have covered in previous post, here and here.

 

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Money-laundering and other poor decisions put breaks on HSBC’s revenue growth, 5,000 more jobs might be cut

The bank, once known as “the world’s local bank,” has spent the past few years trying to find its way through the financial crisis.  What has emerged since then is a bank riddled with scandals, poor decision-making and a management team out of focus.

 

Pre-Financial Crisis

 

Though HSBC’s problems became clear only during the financial crisis, some of the problems were present well before 2008.  Let’s start first with 2003.  This was the year HSBC acquired Household International in the US.  A well-known predatory lender, which had its run-ins with the law for its predatory practices.  HSBC, a global bank by all standards, was merely a New York bank in the US, with a few branches in Miami and Los Angeles.  The pressure was on senior management to make a significant acquisition in the US to enhance its footprint in the market.

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UK triple-A downgrade brings sukuk issuance back in focus

Last month’s downgrade of the UK’s prized tripple-A rating by Moody’s may have had other ramifications.  According to Norton Rose, the downgrade may have brought back the plan to issue sukuk.

 

Five years ago, the UK’s Treasury made headlines as it announced plans to be the first western government to issue sukuk.  The plan had two objectives; first, to diversify the government’s funding base by attracting a new breed of investors, and second, to solidify the UK’s role as the center for Islamic finance.

 

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