Credit crisis fallout spreads to Middle East

[Dave]

By William Lyons
January 27, 2008

THE Middle East is bracing itself for a raft of sub-prime losses as leading experts predict that banks in the region have higher exposure than previously thought.
Gulf Arab officials, including central bankers, have repeatedly said the region's banks were largely shielded from the crisis triggered by defaults on sub-prime mortgages, or home loans for people with a poor credit history.

But reports emanating from the Middle East Economic Digest suggest that a number of banks in the United Arab Emirates and Bahrain will announce losses when they report fourth-quarter earnings.

The revelation comes amid one of the most turbulent periods for global stocks in recent history. In many markets, falls have been the worst since 9/11 as nervous traders feared the US would fall into recession.

On Monday, £77bn was wiped off the stock market, followed by a drastic 0.75% interest rate cut in the US on Tuesday before Société Générale, the French investment bank, revealed a £3.7bn fraud by a rogue derivatives trader.

But fears that the Middle East could be the next region to announce exposure to bad debt and rumours that Fortis, Belgium's biggest financial services company, also faces writedowns of nearly £1bn from mortgage-backed securities will fuel greater uncertainty in the short term.

One unnamed senior Bahraini banker said: "I am sure there will be writedowns from Middle East banks. Even we do not really know what our exposure is. I know there are some regional banks who thought all their investments were safe but are now discovering the underlying asset is sub-prime."

It is understood that banks in the United Arab Emirates and Bahrain, the Middle East's two biggest financial centres, will be the worst affected.

"We saw some of these funds underwritten by major wholesale banks in the region, particularly in the UAE and Bahrain," said another Qatar-based banker.

Many of the Middle East's largest lenders have missed analysts' fourth-quarter profit forecasts, although none have attributed that to the sub-prime crisis. Most have yet to release detailed financial statements.

Fransi, Samba Financial Group, Al-Rajhi Bank and SABB all blamed weak earnings on declines in stock market-related income.

In December, UAE Central Bank Governor Sultan Nasser al-Suweidi said that "marginal" exposure to US sub-prime mortgages and the credit crisis would not have a "significant impact" on profits.

To avert further falls, the US Federal Reserve has suggested it may cut interest rates again this week if it sees further deterioration.

Speaking at the World Economic Forum in Davos, Angel Gurría, Secretary General of the Organisation for Economic Co-operation and Development, said that US Federal Reserve chief Ben Bernanke may follow last week's emergency rate cut with another cut when he chairs his policymaking meeting on Tuesday.

Credit crisis fallout spreads to Middle East - Scotsman.com Business

[E120fly]

Dave,

Getting mixed messages in the Middle East --

Persian Gulf Shares Gain, Led by Etisalat, Dubai Islamic Bank

By Zainab Fattah
January 27, 2008

Jan. 27 (Bloomberg) -- Persian Gulf shares rose, led by Emirates Telecommunications Corp. and Dubai Islamic Bank PJSC, on speculation companies will report higher earnings this week. PetroRabigh soared after its initial public offering.

Emirates Telecommunications, known as Etisalat, announces results Jan. 29. Dubai Islamic Bank, the biggest bank in the country complying with Islamic banking rules, also may report earnings this week, according to Bloomberg data. Companies in the Persian Gulf are benefiting from oil prices above $90 a barrel.

``Investors expect annual earnings of Etisalat and Dubai Islamic to be quite robust, something in the region of 30 and 50 percent growth respectively,'' Mohamed Dwaikat, a senior broker at Abu Dhabi-based Al-Fajer Securities, said in a phone interview today. ``On top of that, Etisalat is quite cheap at the moment.''

The Abu Dhabi Securities Market Index added 2.2 percent to close at 4,683.21, bringing the three-day advance to 8.9 percent. The Dubai Financial Market General Index increased 1.2 percent, while Saudi Arabia's Tadawul All Share Index climbed 3.8 percent.

Etisalat, the U.A.E.'s largest phone company, jumped 5.2 percent to 24.5 dirhams. The stock trades at 18 times estimated earnings, according to data compiled by Bloomberg. That compares with an average of 19 for members of Abu Dhabi's benchmark. Etisalat shares have risen 6.3 percent this year.

Dubai Islamic Bank added 1.4 percent to 10.95 dirhams.

The Gulf Cooperation Council states, which together pump a fifth of the world's oil, are earning more than $1.3 billion a day with crude above $90 a barrel. Economies in the gulf will expand at a faster rate in 2008 than last year, EFG-Hermes Holding SAE said in a report.

Economic Growth

The U.A.E.'s real gross domestic product expanded by 8.9 percent in 2006. Saudi Arabia's economy grew at 4.3 percent. The six GCC countries are the U.A.E., Saudi Arabia, Kuwait, Qatar, Oman and Bahrain. Crude oil for March delivery rose 1.5 percent to $90.71 a barrel in New York Mercantile Exchange trading on Jan. 25.

PetroRabigh, the chemicals and refining complex being built by Saudi Aramco and Sumitomo Chemical Co., more than doubled to 52.25 riyals in the first day of trading after its 4.6 billion- riyal IPO. The shares were sold at 21 riyals.

``The massive demand on the shares shows the investors' hunger for a piece of Aramco,'' Shadi Zubeidi, head of investment banking advisory at Saudi Swiss Securities, said in a phone interview from Riyadh today. ``Aramco combines growth with confidence for many investors who see the shares as an opportunity to diversify their portfolios.''

First Sale

The sale of a 25 percent stake in PetroRabigh to the public is the first unit to be sold by Saudi Aramco, the world's largest oil company by output.

Saudi Chemical Co. advanced 3.3 percent to 31 riyals. The Saudi distributor of drugs made by AstraZeneca Plc and GlaxoSmithKline Plc bought 20 percent of Philadelphia-based ExploTrack Inc., which makes systems for tracking and securing explosives.

The Kuwait Stock Exchange Index rose 0.6 percent, climbing for a third day. Gulf Insurance Company KSC rallied 5.6 percent to 950 fils. The Kuwaiti insurer's full-year net income surged to 37.6 million dinars from 8.3 million in 2006, according to a statement posted on the Web site of the Kuwaiti bourse.

All seven of the benchmarks in Persian Gulf markets tracked by Bloomberg News advanced today. Qatar's Doha Securities Market Index added 0.8 percent, while Oman's Muscat Securities Market 30 Index gained 1.7 percent. The Bahrain All Share Index increased 0.2 percent.

Source: Bloomberg