NBAD’s push to build out its wholesale banking business in London and Hong Kong will inevitably invoke comparisons to the colourful history of emerging market banks that went overboard on international expansion in the past, only to cut back when things didn’t go their way.
In recent years, the overseas exploits of Russian banks in particular have shown that moving into already matured markets is a challenging and expensive business.
And it’s not just EM banks either – there’s enough evidence post-financial crisis from US, European and Japanese banks suddenly trying to compete with the top tier globally to know that such moves often go in self-defeating cycles.
A large part of this comes from injecting a new culture of ‘big-hitters’ into the staff pool – people are brought in with the express purpose of expanding the business and are quickly out of place if those plans fail to deliver results. Meanwhile, these big name hires act like masters of the universe and expect to be paid accordingly.
But NBAD has – so far – been more realistic in its goals. It is not trying to be all things to all people, but rather to establish a clear framework of tangible goals. Chief executive Alex Thursby wants to build a West-East corridor for NBAD’s global banking operations, retaining its focus in Abu Dhabi but with regional hubs.
As debt origination head Andy Cairns recently put it to GlobalCapital, the objective behind this is for NBAD to become the leading debt finance franchise in its own region, by delivering bond and loan solutions to Middle Eastern borrowers while providing international issuers access to liquid Middle Eastern investors.
Setting up offices in Hong Kong and London is part of its recognition that the bank needs to “dominate regionally to be relevant globally” – the same thought holds in reverse.
And the flipside to the extra expense of an international expansion is that the Middle East is awash with cash. The regional market is, frankly, saturated and overbanked. As such, there is absolutely no local option for banks to expand.
A 100 person office in Canary Wharf may not be required to achieve this expansion. Other regional banks argue that offering international clients a unified team in a single location, rather than splitting the functions of origination, syndication, sales and trading between different offices, gives them an advantage. But splitting roles between offices is a model that has kept the big banks on top and one that offers the opportunity for further expansion.
If other banks are retreating, it may well prove to be exactly the right time to step into the breach. NBAD definitely has deep pockets – deep enough to pull this off. Past failures from other regional players need not haunt its London expansion.