On the 14th September, Insider reported on Deutsche Bank’s lagging Islamic business, noting that a number of the bank’s Islamic structuring team in Dubai had left for UBS. It has now been confirmed that Hussein Hassan, the former head of Islamic finance and structuring in the Middle East and North Africa global markets at Deutsche Bank, has joined UBS as the managing director, global head of Islamic finance and head of MENA securities structuring; nurturing anticipation that the bank could be eyeing a renewed commitment to its Shariah compliant services.
With Deutsche Bank’s loss clearly becoming UBS’s gain, even as the Swiss banking giant reels from a US$2.3 billion loss as a result of an unauthorized trading incident and amid a realignment of its overall operations, could this be an opportune time for UBS to strengthen its Islamic business?
Islamic banking revival?
Hussein, who was appointed to UBS the week of the 12th September, headed Deutsche Bank’s Islamic division for two years. Prior to that, he was the head of Islamic structuring for the German bank. A Kenyan of Yemeni origin, he studied Shariah law in Yemen and holds a doctorate of philosophy in law from University of Oxford. He has also taught law at Oxford (Mansfield College) and was a fellow in Islamic law at the Oxford Centre for Islamic Studies.
The move could breathe new life into UBS’s Islamic business, which has been relatively quiet in the past few years. It has not closed a Sukuk deal since 2009 when it acted as bookrunner, along with a slew of other banks, for a US$1.93 billion Sukuk issuance for the government of Dubai, according to data from Dealogic.
Prior to that, it was bookrunner with HSBC and Maybank Investment Bank for a US$300 million Sukuk transaction for MBB Sukuk in Malaysia, undertaken in 2007. The only other Islamic bond offering in which UBS was involved was the bank’s first, comprising a US$350 million issuance by Sarawak Corporate Sukuk, also Malaysian.
With the bank’s new Islamic hires clearly showing that it remains committed to its Islamic banking platform, could it also signal that the bank is preparing to renew its presence in the Islamic investment banking space?
Shariah’s opportunity to shine
UBS rogue trading troubles, which have so far been capped by the departure of group CEO Oswald Grübel, who resigned on the 24th September in a bid to assume responsibility for the incident, come on the heels of a new strategy unveiled during the group’s second quarter 2011 results announcement in July.
The refreshed plans include a target to eliminate up to CHF2 billion (US$2.2 billion)-worth of expenditure in the next two to three years, while remaining committed to investing in growth areas; and are aimed at adapting to the current difficult operating environment, which saw the group recording a net profit of just CHF1 billion (US$1.1 billion) in the second quarter of 2011 compared to twice as much a year earlier and CHF1.81 billion (US$2 billion) in the first quarter.
The banking group is also in the midst of shrinking its investment banking business in response to slower client activity and the financial industry’s new landscape following the recent global meltdown.
UBS maintains that the new strategy remains intact despite its current woes. In a statement announcing Grübel’s departure and the appointment of Sergio Ermotti as interim group CEO, it said that: “The board of directors has asked the group executive board to accelerate the implementation of the investment bank’s client-centric strategy, concentrating on advisory, capital markets and client flow and solutions businesses. This strategy is consistent with the industry’s changing capital requirements and will lead to a reduction in complexity.”
This was reiterated by Kaspar Villiger, the chairman of UBS, who noted that in the future, its investment bank will be less complex, carry less risk and use less capital to produce reliable returns and contribute more optimally to the group’s overall objectives.
It doesn’t take much to see that a more active Islamic banking arm would fit in well with UBS’s attempts to rebalance its overall business. However, it cannot be denied that the group has more pressing matters at hand and the shaping of more focused objectives for its Shariah compliant business will likely take a backseat to its current crisis. Nonetheless, this seems to be as good a time as any to build up its Islamic business and could present an ideal solution for UBS’s search for new and less risky growth opportunities.
Industry veteran
UBS was one of the first western banks to offer a complete range of Islamic banking services, from asset management to investment banking. In 2002 it established Noriba Bank, its dedicated Islamic banking arm, in Bahrain, at a time when the Islamic businesses of other western banks were shutting down, rescaling or being offered within a niche.
In 2006, Noriba was fully integrated into UBS’s overall operations to take advantage of the banking group’s global wealth management and business banking, global asset management and investment banking capabilities.
“Experience has shown that the business opportunities for Noriba are concentrated mainly in the creation and distribution of Shariah compliant products. Clients have sought to receive these products from UBS itself rather than from the separately branded unit. For this reason, as well as the fact that UBS can better meet these client needs via its integrated business model, the integration of Noriba into its single brand makes business sense,” said UBS in a statement when announcing the move.
With a formidable balance sheet comprising CHF1.24 billion (US$1.4 billion) of total assets as at the 30th June 2011, UBS is well positioned to take on sizeable Islamic investment banking deals.
However, with the banking group now roiled by its unauthorized trading woes, its long-standing Islamic banking operations may again slip down its list of priorities amid the disarray, although a renewed focus on its Shariah compliant business could provide the breath of fresh air the Swiss giant needs to revive its slowing business. — EB