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28 March 2024

Shuaa posts huge loss in Q3

Published
By Waheed Abbas

Investment bank Shuaa Capital slipped into the red after booking massive provisions and plans a raft of measures including shifting away from retail brokerage and significant headcount reduction to increase revenues amidst adverse market conditions.

The Dubai-based firm posted huge loss of Dh156.2 million in the third-quarter of 2011 compared to Dh0.2m profit for the same period last year.

A press statement sent to Emirates 24l7 showed that its revenues plunged nearly 72.5 per cent to Dh14.2 million in third-quarter as compared to Dh51.8m for the corresponding period last year.

Sheikh Maktoum bin Hasher Al Maktoum, Chairman of Shuaa Capital, said: “It was necessary and prudent to take valuation adjustments and provisions in the third quarter 2011 rather than be subject to risk exposures in 2012. The world of investment banking is going through a structural change… We are in the process of implementing our strategy. Our objective over the next six months is to commence implementation of our strategy and complete 50 per cent of our transformation. We expect to have 100 per cent implemented by the end of the year 2012.”

Shuaa Capital also revalued its non-core assets by Dh83.5 million and took provisions and one-off charges of Dh41.2 million leading to the total loss of Dh181.9 for the first nine months of the year.

Shuaa Capital said it had Dh1.3 billion in total equity and Dh341.2 million in cash against Dh396.5 million liabilities.

Revising its business model to survive market downturn, Shuaa said it would focus on asset management, corporate advisory and institutional brokerage.

Michael Philipp, CEO of Shuaa Capital, said investment bank will realign its asset management, corporate advisory, brokerage and finance businesses in order to better leverage existing infrastructure. “We are already working on streamlining our operating model to significantly lower our cost base and a number of related initiatives, including the repositioning of underperforming businesses.

“The implementation of our new strategy will take time but I expect us to quickly realise the benefits of changing the way we engage and serve our clients. We expect market conditions to remain challenging and we are cautious with regard to the outlook for the quarters ahead.”

Its total assets were Dh1.7 billion at the end of September 2011, including Dh341.2 million in cash, against total liabilities of Dh396.5 million. Total shareholder’s equity stood at Dh1.3 billion.

Non-core assets stood at Dh402.9 million, including Dh137.7 million of investments in third party associates, Dh10.7 million of investment in third party funds, Dh36.0 million in equities, Dh86.6 million in bonds, Dh124.4 million of investments available for sale and Dh7.5 million of investments held to maturity.

The company has written down the value of its investments by Dh83.5 million. This includes a valuation adjustment of Dh58.3 million on third party associates and Dh25.2 million on other investments. Total investments in Shuaa managed funds increased by Dh4.1 million to Dh208.9 million up from Dh204.8 million in the second quarter 2011.

Staff and retail brokerage

Shuaa said it’s initiating second phase of systematic rightsizing to cut costs. This includes a reduction of administrative expenses, the amalgamation and further alignment of departments and a significant headcount reduction, which is primarily related to repositioning the brokerage business and associated operational and administrative expenses.

Shuaa Securities’ retail business has been running at a net loss for the past two years and it said may move out of retail brokerage and focus on serving institutional clients and high net worth individuals.

However, the bank will retain its brokerage licence in the UAE and Saudi Arabia. Selected clients will be transitioned to the institutional desk which will provide a more enhanced service platform. Retail clients will have the option and support from Shuaa Securities to migrate their accounts to other local brokers, the statement said.

As part of the plan to offer a client-centric brokerage proposition, Shuaa Capital will recruit relationship managers to service high-net-worth-individual clients and increase the size of its institutional desk.

Exiting investments

Shuaa said its two funds, Shuaa Partners Fund 1 and Frontier Opportunities Fund 1, are monitoring exit opportunities on the remaining investments and have stopped charging management fees from Q3 2011. These two funds have performed well during their life cycle and have produced strong returns. Today the funds have three remaining investments which will be held until markets recover and can be sold at sensible valuations. Shuaa continues to monitor exit opportunities, but is under no pressure to sell these assets all of which are strong businesses.