Financial Services

'Controversial new rules for hedge fund and private equity fund managers operating in Europe are moving forward after winning the backing of European Union finance ministers' as per the Financial Times. There are still significant differences in the two sets of draft regulations, but meetings are expected to take place with the intention of resolving the issues before August 2010.

The two drafts of the directive agree on the following salient points:

· All managers of alternative investment pools including private equity will have to seek government authorization and ensure regular disclosure to investors and regulators.

· Larger funds will face regulatory oversight of their total borrowing.

· Fund managers will face restrictions on how they can be paid.

· There will be new protection for investors, including heightened responsibilities for depository banks that serve as custodians for fund assets.

Key issues still to be settled are:

· The conditions under which funds and managers based outside the EU can market to professional investors within the EU

· Whether EU-based professional investors will be able to invest in funds based outside the bloc which do not comply with the new rules

· Which fund managers get a so-called 'passport' to market their products anywhere within the EU provided they meet the standards to be agreed

· Whether remuneration rules will be guidelines or more detailed constraints; also whether there will be an exemption for private equity 'carried interest'

· The extent to which key decisions are left to be resolved unilaterally by the Commission after the directive has passed

The proposal backed by the EU finance ministers would allow national authorities to retain a say over 'third countries' i.e. the funds and managers based outside the EU. This would restrict the rights of such funds/managers to market their products in the EU. The debates that follow will close the gap and finalize the new rules applicable to alternative assets.

With GCC's hedge fund and private equity industry still in its infancy, the exact implication of such rules for this region cannot be predicted. However, tighter regulations and more transparency will certainly sit well with GCC investors.

Source: Financial Times

The shock claim that Goldman Sachs orchestrated a $1 billion fraud against investors is causing ripples in the financial services community around the world. Frankly, I’m not so sure what the fuss is all about. The alleged fraud pales in comparison to the wider role investment banks have played in perpetrating the largest fraud in the history of the world and represents only a small piece of the overall jigsaw.

The interesting part is that Goldman is said to be in “shock” that the SEC would dare attempt to hold them accountable for their actions. We now see that Goldman is preparing to defend these allegations “vigorously” so as to uphold their “reputation”. To the outside world it would seem they, and the entire investment banking community, has completely lost touch with reality.

The fact is these banks have played a central role in virtually bankrupting the United States/ Europe and almost bankrupting themselves. Almost as soon as they got bailed out by the taxpayer they paid out bonuses at taxpayers’ expense. Then realizing the world was astonished by their reckless behavior they defended such action by lecturing everyone about the brilliance and intelligence of investment bankers. Simply delusional!

It’s highly unlikely that the SEC can make these allegations stick, but it’s also unlikely that the same investment banks can scale new heights in future. I suspect we will see new firms emerge, mainly from developing markets, who will partner with the old guard and create the next economic bubble.

JEDDAH: The National Commercial Bank's (NCB) net income for Q1, 2010 reached SR1.41 billion, an increase of 35.1 percent over Q1, 2009.

The Oman Economic Review has recently published a report on the Omani Banking Sector1. The report ranks the 5 biggest banks based on three parameters: growth, profitability and sustainability. The largest bank in the country, Bank Muscat, came out clearly at the top, followed by Oman Arab Bank and Bank Dhofar. The small but aggressive National Bank of Oman comes in at #4, while the list is rounded up by Oman International Bank at #5.
 
The Omani banking sector witnessed solid growth during the boom years 2004-2007. But what had made the sector different is its performance in the face of recession. None of the banks have so far opted for any part of the $2 billion bailout fund set aside by the CBO late last year. Total assets in 2008 grew by 33% and profitability grew by over 10% while all but one, Bank Sohar, reported positive numbers for the first quarter of 2009 as well.
 
A major cause of this stellar performance has been the role played by the Central Bank of Oman.  Historically, the CBO has been very proactive in policymaking and regulation. Indeed, Oman was rated the 6th best regulated credit market3 in the world by The Fraser Institute in 2007. It can be argued that the small size of the sector makes it easier to manage, but that alone does not explain the situation. The actual reasons include extensive reporting requirements, a close working relationship between the CBO and domestic banks and a conservative monetary policy. The sector should return to growth in the next few years.
 
Sources: 1-Omani Banking Sector, 2-Oman joins bailout bandwagon, 3-Credit Market Rating