There are many major catalysts (take your pick) such as oil price plunge, ongoing wars, bans on trade with neighboring nations, global trade slowdown, massive decline in domestic consumption in the Gulf, mass deportations/departures for millions of foreign expats from across the Gulf region, bans on hiring for several nationalities, terror threats in the region, thousands of businessmen who have run or are in jail and tens of thousands of businesses that have closed, currency declines across Africa, Europe, Russia etc that has created a perfect storm whereby banks are paying a heavy price since they had been the engine of growth for decades.
We had blogged in early Oct 2018 that 19 banks are merging across the Gulf region of 6 GCC countries which is a major negative sign.
Now, we can add 2 more banks just before 2018 comes to an end.
2 Sharjah banks have not merged yet and 1 Qatari bank has also not merged hence the number has dropped by 3 less banks.
Therefore, instead of a total of 21 bank mergers, so far, mergers stand at 17 bank mergers plus 1 bank bailout during 2018.
2 banks being United Arab Bank and Bank of Sharjah in UAE shall not merge for now because UAB has Qatari ownership with whom UAE and Saudi have major friction that keeps escalating every few months.
Two days ago, 2 Saudi banks have announced who are potentially going to merge are the largest banks of Saudi.
One is 64 year old bank which is ranked No 1 in Saudi.
Second one is the No 4 ranked bank in Saudi which is 51% owned by the Saudi Govt.
Most interestingly, the sovereign fund of Saudi Arabia has stakes in almost all these banks.
The decline of these countries and their economies, no matter how they spin it, is terminal.
The biggest sufferers will be new and young people who come looking for work not knowing how awful the conditions in these countries are.
Even locals looking for work will have an impossible time in this scenario when bulk of their clients won't have cash/business, nor will do investing, nor borrow since almost no business is able to generate a decent profit while costs keep rising like mad while billionaire bankruptcies occur on a monthly basis.
On Oct 5, 2018, we had provided details that 19 GCC banks shall "merge".
Thereafter, on Dec 15, 2018, the first ever bail out in a Middle Eastern bank happened in Sharjah, UAE.
Now, on Dec 24, 2018, right before the year ends, 2 of the largest banks of Saudi are going to "merge".
This takes the total of "merged" banks to 18 (including 1 bank bailout) out of a total of 177 Local, Islamic and Foreign banks based in the 6 GCC countries.
Don't be fooled, these are no ordinary mergers.
This is same as what happened in Global Financial Crisis 2008 in USA. when Lehman Bros. collapsed, Bear Stearns was "sold" for 2 bucks, Merrill Lynch, Goldman and Morgan Stanley converted into a "bank" overnight and several small banks failed and many "merged" like JP Morgan with Chase Manhattan Bank (though earlier) and then with Bear Stearns and then JPM "merged" with Washington Mutual in 2008.
Wachovia Bank was "merged" with Wells Fargo in 2008.
Merrill Lynch was "merged "with Bank of America.
National City Bank Ohio "merged" with PNC Financial.
While AIG, Fannie Mae and Freddie Mac were all "bailed out" by the US Govt.
The above comparison is the reason that makes the GCC scenario quite similar to that of US financial crisis of 2008 and that's what makes it worrisome.
What makes matters different for GCC is that they do not have the ability to print unlimited dollars a privilege that only USD, EUR and JPY countries have because they are the Top 3 trading countries and currencies in the world.
On top, GCC countries depend solely on foreign goods (imports) as well as over 50% or more of their population across GCC are that of expats who have no reason or legal manner to stay behind unless they are the 20,000-30,000 multi-millionaires whose population is shrinking rapidly in GCC or those who do not care about earning any incomes being retired and multi-millionaires both.
But for the rest of expats and locals who are more than 50m (99.5%), they need a visa, job performance/survival, business performance/survival to stay else they get ejected by the "system" without any wastage of time.
That is what makes these "mergers" scary because their dependence on imports (trade) and expats (foreigners) is so heavy that if both of them shrink which they are, then these banks simply don't have a leg to stand on since they generate all their incomes from the same expats, trade and businesses and not from Govt deposits (if any are left).
Here is the announcement of the Saudi mega "merger":
During 2016, there was 1 bank merger across GCC that was of NBAD and FGB in Abu Dhabi, UAE that was closed in Apr 2017.
In 2017 mergers were zero since oil started rising giving these countries some breathing space.
As we have seen oil prices tumble in the last 2 months, we remain of the firm view that we shall see the price of oil tumbling below USD 30 for WTI which is now at USD 43 today and was over USD 65 when we initially predicted it.
However, most shockingly, between 1 Aug 2018 to 24 Dec 2018, within a span of less than 5 months, 17 banks merged or shall merge (as per announcements made) across GCC out of which 1 was a bank bailout in Sharjah, UAE.
2 changes happened in the previous announcements.
Instead of a 3 bank merger in Qatar, a 2 bank merger happened.
While in UAE, instead of a 3 bank merger of Invest Bank with United Arab Bank and Bank of Sharjah, a single bank got bailed out since UAB has Qatari shareholding.
It is impossible to predict what will happen at United Arab Bank due to the Qatari shareholding. But whatever may happen, it may not be good.
Just for information, here is a list of total number banks across GCC:
(All data taken from various Central Banks, but there may be a margin of error of 3-5 banks plus/minus because so many are shutting or cancelling their licenses or "merging" or some may be mis-classified).
7 Local Banks, 4 Islamic Banks, 7 foreign Banks = Total 18 banks
29 Local Banks and 16 Foreign Banks = Total 45 banks
12 Local Banks and 16 Foreign Banks = Total 28 banks
21 Local Banks, 6 Islamic Banks and 19 Foreign Banks = Total 46 banks
11 Local Banks and 12 Foreign Banks = Total 23 banks
7 Local Banks, 2 Islamic Banks and 9 Foreign Banks = Total 18 Banks
Total Banks in GCC = 178 (excludes Representative Offices, Exchange Houses etc).
State Bank of India has applied for license cancellation in Saudi Arabia which makes it a total of 177 banks.
Meanwhile, "official" job cuts are literally raining across the Gulf.
The 3 way Abu Dhabi bank merger could result in job cuts exceeding 1,000. Our estimate is well above 1,500 job cuts and could easily exceed 2,000 before 2019 ends.
The 3 way Abu Dhabi bank merger could result in job cuts exceeding 1,000. Our estimate is well above 1,500 job cuts and could easily exceed 2,000 before 2019 ends.
We are aware that United Bank Limited from Pakistan laid off more than 150 bankers in UAE and subsequently even closed their US offices in NY due to some issues from UAE. This was in Aug 2018.
Most of the job cuts are not even announced. We have heard about Emirates Islamic Bank laying off last week but we are not sure.
Standard Chartered Bank in UAE has been firing their employees from all departments every year since at least 2015 and therefore shrinking considerably in their employee and business size in GCC/UAE.
This month they have fired 100 bankers "officially" but expect the number to be higher than what is publicly disclosed since they are not making much money and have fired thousands of employees in the last 3 months from Singapore to Zimbabwe to UAE to India and all these countries are their countries of core strength.
Expect the number of branch closures, employee reduction due to business plunge, banking license withdrawals and bank mergers to be at least double if not more in UAE in 2019.
Credit Suisse Bank and Deutsche Bank are cutting tens of thousands of jobs globally so it is within reason to expect them to cut some jobs in GCC as well.
Bahrain is launching VAT (like Saudi and UAE did in Jan 2018) and we have seen the damage VAT has caused to the Saudi and UAE economies in 2018.
Now, we shall expect the same to occur in Bahrain (which is one of the weakest economies) when Bahrain launches VAT next week in Jan 2019.
The GCC turmoil has hit all 6 countries badly in their nerve center of banking as well as trade that had been their strength since these very Govts were the richest Govts in the world until 2015.
It is terrible and sad to see their banks as well as GCC based foreign banks going down like this.
But as we always say, since 2015, that the worst is yet to come!
Be safe and consider yourself warned.
Hi Manoj,
ReplyDeleteThank you very much for your insights and data. You were right all along and this can never be disputed.
Do you think cash will be king soon? If so, which currency will be the best to have your cash in?
Regards,
S.A.
Hello dear S. A.,
DeleteThank you for visiting and your appreciation and for your question.
We are trying are warn everyone because the future is going to be most ugly in GCC as compared to any other country or continent on the planet.
Cash has been king for almost last 3-4 years. Stock markets are a joke as far as normal investors are concerned. The rise of Dow Jones and Nasdaq in US can be attributed 65% of all their growth just due to 5 stocks.
If you go look at JC Penny it is now at USD 1.00 and Sears has collapsed and almost every week we hear of an oil or fashion retail or toy store bankruptcy in America. They are just lying to us. Unless one plays the market like a day trader, one cannot make money like the decades gone by (due to rising interest rates, rising bankruptcies, weak demand and rising job cuts).
Demand of everything has been destroyed globally and global trade which had peaked in 2014 at USD 19.2 trillion is now at USD 17.2 trillion in 2017 and 2018 could drop again towards USD 16 trillion (thanks to Trump's childish tantrums).
Currency to hold depends on how much you have and where you live or what country you are from and what are your income sources?
Depending on where you live, you should hold some of that currency.
Some has to be Chinese Yuan (because it's the only currency that has risen in the last 5 or 10 or 20 years and is very stable - when compared to any other - , provided you have access to it in Singapore or London etc). You can ask your banks also wherever you live.
One also needs to hold some USD.
Depending on whether you do investing then you need to hold those currencies.
Most currencies will keep declining against USD and we do not know when Saudi will announce the trading/selling of their oil in yuan, which is when we will need to revise our opinions because that will be an earth shattering decision and impact everything everywhere.
If you may clarify your situation a bit, perhaps privately, then I could guide you a bit better. Because personal situation is of critical importance in making such a decision on currencies and investments.
Hope this helps.
Thank you,
Hi Manoj,
ReplyDeleteThank you for your well detailed and useful advice.
I'm going to email you at some point, but I'm not a UHNWI/HNWI. Thank you for your time and educational support.
Regards,
S.A.
Hello dear S.A.
DeleteThanks for your reply.
It does not matter how much money you have. Own savings are precious for everyone and one must create multiple sources of incomes besides safeguarding past savings for the future to one's best abilities.
Willing to help and guide you regardless of the amount.
Please feel free to ask any questions you may have.
All the best and wishing Happy New Year!
Hi Manoj
ReplyDeleteI stumbled across your blog recently and while it offers an interesting take on current events but is extremely negative - I don’t think I’ve read one positive sentence!
You haven’t touched on the fact that there are only 9m people in the UAE (the overwhelming majority do not invest in the country and send paychecks home) however there are 46 banks. My bet is this is far too many banks chasing too few customers and mergers allow better overhead utilization and is simple common sense. The number seems high compared to European countries?
Thanks!
Hi Owen,
DeleteThanks for your comment.
Unfortunately, you haven't read all the posts and needlessly make imaginary comments just because it bursts your cocoon.
Reality will always remain reality and cannot be brushed aside by ad hominem commentary without providing any data.
This blog endeavors to shine light on what is the reality but for people like you it seems to be a bit of an inconvenient truth while for the vast majority their life savings and livelihoods depend on reality.
Billionaires have gone bust and thousands of businessmen have run away and you say that it isn't negative? huh?
How do you spin multiple billionaires going bankrupt in a tiny economy as "positive"?
You are not even told nor is the public aware how many billionaires have run away, how many went bust and how many are in jail, information which we have access to.
Question is, that if there are too many banks then why until a decade and a half ago, UAE was opening new banks viz Noor Bank, Amlak, Tamwheel, Dubai bank, Al Hilal Bank, Dubai First and opened up DIFC where hundreds of banks came and majority burnt themselves to the ground? Plus Ruler owned banks and sovereign funds themselves have collapsed and shut or merged?
Suddenly, after 60 years, Lloyds Bank and ABN AMRO realised that this region was over banked while the population has doubled in a 15 year period and quadrupled over 3 decades? While RBS and Barclays came just before 2007 and have already shut and gone.
If you could use your common sense, shouldn't the banks increase because there is growth in population?
They are all leaving and "merging" because of lack of business, bankruptcy of pretty much any sort of business and having millions of slave wage workers instead of highly paid/high spending workers in the years gone by. The quality is gone, the quantity still remains. Hence, the unsustainability of an entire country based on it's past of high income and high debt.
Just because my realistic ideas do not meet your self-made un-informed opinions does not mean you will go online and make ad hominem attacks without providing one single fact.
I have forecasted this to occur since 2015 and what is your claim to fame?
This blog is not meant for people like you who do not care about other people's money or lives nor do they manage other people's money.
UAE has been built on trade and finance and if trade and finance has collapsed, there is nothing more left here. Tourism kept the game going since the previous collapse of 2009 and now they have run out of powder while trillions in debt hangs on their neck like a sword.
Europe does not deport people or jail people for bankruptcy so comparison of Shariah based autocracies completely dependent on expats whose lives in turn depend on a piece of paper called a visa, to democratic Europe indicates you have no understanding of the history of UAE and Middle East and why what is happening in the Middle East.
Thank you.
Thank you for your educated articles. My question is this - Can the government not see the dire straits the economy will be in if they don't change their policies to encourage more expat investments and spending? Is the government not already doing so by giving fee waivers to businesses, school fee freezes,a more open visa scheme and also by increasing government spending? Trade and finance has had a set-back but isn't the UAE a nation of transient people anyway...so for every businessman who goes bankrupt and leaves, won't a new one come and take his place and start a new business thereby boosting the economy and do u think this set-back in trade and finance (which you rightfully claim is the lifeblood of the UAE economy) is merely a blip and will get back on course again with a little corrective economic action by the government (after all why would they want their economy to go down till all they have left are ghost towns?) and a few more fresh arrivals?
ReplyDeleteHello Erika,
DeleteThank you for your fascinating question.
Believe me, they are trying and trying very hard since the 2009 crisis.
They are ranked No 1 in the world for Govt efficiency which is a very good indicator of how tightly they are running the ship for just about a decade, until then they were not.
https://www.thenational.ae/business/economy/wef-uae-ranks-no1-in-efficiency-of-government-spending-1.716813
It has been my opinion that the crisis began in Jan 2015, and that during 2015 and 2016, these Govts will borrow endlessly (which they did). Then in 2017 and 2018 I had predicted that they will need to stop borrowing but spend their reserves.
Borrowing needed to stop else they will all be downgraded to junk which has now happened to Oman (double downgrade) and Kuwait and Bahrain. This hikes interest costs, brings borrowing down and leads to defaults like in Etihad and major businesses like Saudi Oger and hundreds more.
Now their reserves are over, sovereign funds are shutting or merging and are doing fire sale of their assets globally. Part of the reason most stocks (except 5 stocks in USA that keep the indices rising with 65% weightage from the entire rise of the indices). Same is the reason for decline in real estate prices globally and now also the bonds. Because these M.E. guys are selling and there is no buyer big enough in the world to replace them at the same time. Trade tensions and animosity against China is not helping.
These are not normal times because all asset classes are declining simultaneously worldwide. One of the biggest reason I ascribe to is the sale by these GCC nations.
If you speak to any moving company in UAE they will tell you that number of people leaving is at never before seen levels since 2015. For every 6-10 exits, there is just 1 entry.
The quality of people has deteriorated to terrible levels hence the spending is lowest ever on consumer goods etc. It is a chicken and egg situation, whether poor people coming more first or whether lower spending is bringing lower wage workers. Either way, it is horrible for an economy that depends 90% on expats.
Emiratis at top levels are being asked to work 15-18 hour days. It is not shown anywhere but that is what the Govt is doing. You see Emiratis working in places like RTA, hotels and supermarkets and retail stores etc plus the Govt which is everywhere that was impossible in non Govt sector just a decade ago. This is an achievement and all kudos to them and the Govt.
There are 5 major reasons for this astonishing decline and none of them are in the hands of the Govt which is why there is no end to this collapse.
1. Five civil wars in the region
2. Currency decline of African, Russian, Europe/UK currencies since 2014 circa to astonishing levels of 100% to 200% that has led to all USD based economies to see a significant decline in exports. This is hurting maximum from around the world to Dubai due to it's heavy dependence on trade until a decade ago. Partly due to bans and partly due to currency. But decline to Qatar, Russia, Iran etc is from 100 to zero.
3. Oil price has never in history including in 1972 oil embargo remained down for such a long period at seriously low levels (USD 142 to USD 26) from June 2014 until Trump made it rise from mid 2017 onwards. This decimated the reserves due to pressure on currencies, loss of income and high costs etc.
4. Rise of ISIS and various terror groups in the region plus Yemen war hurting centuries old trade relationships and bringing trade straight to zero.
5. Sanctions and bans on Qatar, Iran, Yemen, Syria, Libya, Lebanon etc.
...2...
DeleteAnother reason is that until 5 years ago, there was only one major shipping port in the entire Middle East Africa, Sri Lanka, India region which was Jebel Ali.
Now China has come and opened and activated 6 new ones - Duqm and Sohar in Oman, Karachi and Gawadar in Pakistan, Sri Lanka and Banderabbas in Iran. This means there is much less business for UAE because it saves shipping costs, plus consumers are located there and all ships are owned by China as well all ports so they will naturally prefer to go to those ports instead of Jebel Ali.
The damage due to all above is limitless and no amount of hope or positivity or policy action can turn this around. If they gave things for free even then Dubai's/UAE's reputation as a tax free nation is tarnished due to VAT and accounting etc which is what pulled everyone here in the years gone by.
One major policy mistake Dubai did was to accept the EXPO 2020. In my view, it was a major policy blunder.
Unbenownst to common folks, after signing EXPO 2020 agreement, it was like signing a death wish.
Because Dubai had to agree to allow taxes, multiple entry visas, sharing of bank info and accounting implementation. This completely killed the only thing that brought people to UAE decades ago for trade. They could have handled this had oil not plunged or the above 5 items did not all occur at the same time creating the worst possible perfect storm.
When you throw China ports, taxes, data sharing on top of the 5 things, there is simply no way, how UAE or Dubai could wiggle out of this. Zero.
If all 5 points are reversed to 2014 levels TONIGHT, then we may see some growth in 6 months.
But since reversal of all 5 is not in the hands of UAE, hence there is no chance of regaining their lost business.
Even if 1 of them is not done, the plan will fail.
On top, Govt has been hiding the reality through media and not allowing news of takeover of bankrupt billionaire assets by themselves to delay/hide the inevitable.
What has therefore happened, that almost all assets in the country are now owned by the Govt from airlines to malls to hotels to ports to banks to real estate to transportation. What this does is that there is no cushion left if one sector is under stress because all are owned by one entity. If one area hurts or goes bust, it impacts the rest. If there were multiple owners, and one went bankrupt, it doesn't hurt as much to other entities.
Due to this delay to accept reality, things have gone even worse and Dubai has had to sell almost all it's assets to Abu Dhabi who now controls all remainder 6 emirates more strongly than ever in history. This is good for unification but bad for business because rules for Iran, Yemen etc come from Abu Dhabi not Dubai. This ends up hurting Dubai which is (was) the only savvy business oriented city state in the entire region.
3....
DeleteIt is most unfortunate but I have spent a quarter century in Dubai and I believe that almost no one can read the economic tea leaves of the region better than me (I am not being boastful but I have been pretty accurate on the economic analysis of the region and Dubai in particular for over a decade now).
I was the one who doubled the money back in 2008 when Nakheel defaulted and Dubai made global headlines and my clients (who can attest) doubled hundreds of thousands of dollars worth within 14 days straight. It was a different world (for Dubai) then.
However, things are very different since 2015 and unfortunately until the Govt accepts that there is a problem we will not see a recovery and that day of acceptance is not here yet.
I believe that after Jan 2019 some very unfortunate things will occur in the region including oil price dropping below USD 30 anytime in the first few months plus major business collapses and some very unreal things that even I don't know/cannot predict what can happen.
But let us hope for the best and I do not wish this upon anyone least of all my favorite city of Dubai.
Sorry, the reply got very lengthy but it deserves a lot of perspective, even though have answered it before.
Thank you for your detailed and educated analysis and response as always.
ReplyDelete