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Summary: Global banks are gearing up for a fistfight over asset servicing in the Gulf ahead of a much-anticipated flow of capital into the region.

Industry heavyweights say the battle to service regional bank assets is likely to be bloody as Saudi Arabia rolls out a public spending spree and other GCC states are potentially upgraded to emerging status in December.

Many banks saw declines in their custody business in the first of half of 2011 amid unrest in the Middle East. News of the market expansion has spread quickly and the likes of Northern Trust, Bank of New York Mellon (BNY Mellon) and Standard Chartered are all scaling-up their operations. They will also be keen to smash the dominance of HSBC, which has controlled the Middle East market for over a decade and last year reported it held around $40 billion of local assets.

HSBC is the only Western custodian bank to have a foothold, and personnel, in each of the main GCC markets. Most rivals tend to export servicing of Middle Eastern client assets to offshore centres outside the region.

"As public spending picks up, so will trade finance and import and export between countries in the region," said Tarek Elrefai, senior executive office

in Dubai and head of global client management at BNY Mellon. "This will likely have a positive knock-on effect for bond issuance and global deposit receipts, which allow foreign investors to invest and be publicly traded in the Gulf. In other words, each part of our business will be in demand."

BNY Mellon is the world's largest custodian and has five bases in the Middle East - Dubai and Abu Dhabi in the UAE, Beirut, Cairo and Istanbul. For

the moment all client assets it safeguards and services are held with local sub- custodians in the region and processed in BNY Mellon's global centres.

Elrefai said to meet the upcoming spike in demand the bank is planning to buy out a local custodian, although this is unlikely to be completed until 2012. "We see good opportunities in the Gulf region in line with our business model, and are looking at perfect timing, prices and resources to move forward. We expect the local custody market and debt market to develop and we hope to have the capabilities to serve these two markets as they develop domestically," he said.

In May, Standard Chartered launched a new service based in Dubai, to offer its Middle Eastern clients a portal to access global markets. This followed JP Morgan's decision a month before to open a regional hub in Qatar to offer a range of banking services including custody.

Meanwhile, HSBC, which declined to comment for this article, announced that its Saudi Arabian wholesale and investment banking unit, HSBC Saudi Arabia, would merge with SABB Securities,

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Publication:Gulf Business
Geographic Code:70MID
Date:Aug 24, 2011
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