By Chris Wright, Euromoney
Revenues up; costs down; Has autonomy and capital
February’s results announcement gave the first clear view of how QInvest, a Qatar-based investment bank, is shaping up under its revamped leadership.
Ex-Goldman Sachs Qatar country head Tamim Hamad Al-Kawari was named CEO in November 2012; former Credit Suisse director Michael Katounas became deputy CEO and head of investment banking in April 2013. By October, Al-Kawari was ready to announce a new three-pronged strategy for the business: investment banking, principal investment and asset management, all of it with a focus on Islamic finance. The first signs are that it is working well.
The bank reported a 40% increase in revenue at the same time as a 30% fall in costs. "It tells us the strategy we put in place in 2013 is working," Al-Kawari tells Euromoney, adding that volatility has fallen too as exposure to public markets and currencies has been reduced.
The cost reduction reflects an exit from many businesses – what Katounas calls "a reshaping of the cost base". The public markets division, brokerage and private wealth are gone as areas of focus, and a floor of office space with them.
"Last year was a combination of our investment banking franchise and our principal investment franchise," Katounas says, with the asset-management side yet to kick in. "In the long term, the business will probably be one-third, one-third and one-third when it stabilizes, so we expect to see a significant growth in asset management. The first few months of the year showed material inflows there."
Where does it fit?
There are a few interesting things about QInvest, and chief among them is the question of where it fits within the broader ambitions of the state of Qatar itself. QInvest’s largest shareholder is Qatar Islamic Bank, which is state-backed; but it also has more than 900 other shareholders from elsewhere in the Gulf and the rest of the world. It considers itself a private-sector house.
"At the end of the day we are a commercial entity, and our job is to give returns to our shareholders," says Al-Kawari. "We are pretty autonomous in how we work. There isn’t any pressure from the government to do something that doesn’t make sense commercially."
Asked about the Qatar Investment Authority, which is housed in the building next door, he says: "We know them extremely well. But they’re another client, to be honest. A very big client, but another client."
The state link "is commercially useful," Katounas says, in two directions: the firm wins a lot of mandates to work with Qatari institutions when they are raising or investing capital, and it acts as a gateway for foreign institutions seeking Qatari money. But Al-Kawari sees independence from the government as a clear advantage. "One of our strengths is the fact that we are very nimble and can make decisions quite quickly – on top of which we have capital. You won’t find other institutions in the region that have both the capital and the autonomy."
QInvest also stands out for being a pure-play investment bank with a regional mandate, a surprisingly uncommon approach. It falls between several more common strategies.
"You have the international banks, which have, for the last few years, been pulling people out of the region," says Katounas. "Their approach is to focus on the headline three or four transactions in the year, and that works well for them. Then you have the commercial banks that have the capital, but lack the expertise to deliver investment banking. Then there are quite a lot of advisory firms – and some very nice shops led by talented individuals – but often they don’t have the capital."
The strength of the Islamic finance business over the past year has been linked to the growth of the sukuk market.
A good year
"We expect it to be a good year for Islamic finance," says Al-Kawari. The sukuk market "is becoming more standardized and easier to get funding there, and at the same time it’s become more competitive compared with the bond market due to the liquidity in Islamic banks." Also, more and more sovereigns, including European countries such as Luxembourg and the UK, are seeking advice on building Islamic finance markets.
In other business lines, QInvest now looks less like a classic private equity house and more as if it focuses instead on the financing aspects of principal investment, at a slightly lower risk.
"We are finding some interesting opportunities in the $25 million to $50 million ticket size where international banks and regional commercial banks aren’t too keen to play," Al-Kawari says. "It’s a little bit back to the old merchant banking business: we finance companies, help them grow, and hopefully we will be there when they go public."
Asked what he took from Goldman to QInvest, Al-Kawari highlights "the culture that it has: the teamwork, the efficiency, the way we share information, the communication and obviously the hard work."
Is it fair to say that another deal like the bid for EFG-Hermes, which faltered last year on political or regulatory opposition in Egypt, is unlikely?
"Never say never to anything, but that’s not something we foresee," says Al-Kawari. "Our strategy is working and we’re not looking for another EFG-type transaction."