May 21, 2012 12:39 pm

Falcon flies in to nurture Gulf nest eggs

When travelling from Falcon Private Bank’s Zurich headquarters to its office in Dubai’s Emaar Square, David Pinkerton flies over Alps, seas and deserts. But when he lands, he finds a country with one decidedly Swiss characteristic.

“Whether it’s Egypt or concerns about Iran, people consider the UAE a safe haven, the Switzerland of the Middle East,” the bank’s chief investment officer says.

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That Swiss-style stability, combined with vast regional wealth, is leading to a markedly alpine trend toward private banking. As investment banks trim their Gulf operations in the wake of the global financial crisis, private banks have witnessed growing demand from the region’s super-rich.

They are benefiting from local and global factors that combine to make the region’s wealthy pay closer attention to securing their money. Regional political turmoil is pushing capital toward safe, often offshore, institutions, while high oil prices – HSBC expects record oil revenues for the Gulf producers this year – are bringing more money into the region.

The UAE’s big retail banks have taken notice, with international and domestic lenders moving into the market.

“Many of the local banks said they would start setting up Swiss-style private banking,” says Raj Madha, a regional banking analyst. “They’ve started from the wealth-management end of things and tried to move upscale.”

By 2016 the Middle East will be home to 1,000 new so-called “centa-millionaires” with liquid assets of more than $100m, Citi Private Bank and Knight Frank predicted in their 2012 Wealth Report.

Compared with their global peers, the Middle East’s rich are more likely, on average, to worry about local political instability, and less likely to worry about the global economy, the report said. And unlike the global average, the majority of the Middle East’s rich say their wealth increased last year.

While private bankers have courted the Gulf’s wealthy families for decades, it has only been in recent years that outposts of private banks have been established in the UAE, regulated by its central bank and allowing the bankers to work more closely with local clients.

The shift is most noticeable in the case of Falcon, the Swiss-based bank that was formerly the private bank of global insurance group AIG. Since the acquisition of Falcon by Aabar Investments, the Abu Dhabi government investment company, in late 2008, it has sharpened its focus on the UAE, establishing central bank-regulated representative offices in both Dubai and Abu Dhabi.

The private bank, with $12bn in assets under management globally as of March, extended its assets under management in the Middle East and north Africa by $1bn in 2011, it says. It plans regional growth of 40 per cent this year.

Aabar’s ownership of Falcon “is likely to help it open doors” to the UAE’s wealthy families, Mr Madha says. The bank credits its connections to the local sovereign investment fund for helping it develop its business and brand image among regional clients, who value long-term relationships.

“One of the implicit messages is that we’re strategic and we’re not going anywhere. We’re not just coming into this market and going to disappear in a few years,” says Falcon’s Mr Pinkerton. “This market is critical for the shareholder.”

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