Goldman Sachs latest bank to expand in Gulf as balance of power shifts

Global banking giant Goldman Sachs recently announced it will open an office in Abu Dhabi, subject to regulatory approval. Operating from the Abu Dhabi Global Market, the emirate’s international financial center, the office will add to Goldman’s footprint in the Gulf, which is already home to hubs in Dubai, Doha and Riyadh, and will allow the bank to deepen its relationship with clients in the Gulf and the rest of the Middle East.

According to an internal memo seen by Bloomberg, the Abu Dhabi office will focus on asset management, with investment banking services continuing to be serviced out of the Dubai office. It's the most recent example of international financial services firms seeking to expand their presence in the Middle East, a trend that has been accelerating in recent months.

In February, Edmond de Rothschild announced it plans open an advisory office in Dubai. In the same month, Alantra also announced the opening of an office in the emirate, and the Asian Infrastructure Investment Bank declared in April that it plans to open its first overseas office in Abu Dhabi. 

Jai Doshi, a portfolio manager at a prominent family office in the UAE, told Al-Monitor that part of the attraction is that the country “has seen several large initial public offerings over the past year, and this is set to continue. In particular, recent IPOs have included the listing of state-owned companies in various sectors including utilities, energy and logistics.”

“Global banks have recognized the deepening liquidity of capital markets in the region, and this may be a possible contributor for banks setting up shop in the Gulf,” Doshi explained. He added that “free zones” in the UAE, which are economic areas in which expatriates and foreign investors can have full ownership over their companies, are also attractive to financial services firms.

“Several hedge fund managers have shown an increased interest in establishing a presence in the Dubai International Finance Centre, which in turn attracts banks to the region,” Doshi told Al-Monitor, “in order to provide prime brokerage services such as securities lending and capital introductions to these hedge fund clients.”

Akber Khan, senior director of the Asset Management Division at Al Rayan Investment in Doha, believes that financial services firms are aware of these longer-term shifts but also that the Gulf’s strong economic growth since the turn of the century is making the region increasingly important to global markets.

“The region has been growing over the last two decades … things have caught up with them now,” Khan told Al-Monitor. “In the last six years, the GDP of the region has gone up by 50%. The region isn’t waking up; people are waking up to the region.” These numbers speak for themselves and perhaps make it inevitable that international banks will seek to service a greater share of an ever-larger market.

Khan also believes that shorter-term economic trends have emphasized the qualities of the Gulf, especially in a time of international economic volatility. Khan says that many countries around the world are grappling with factors such as “labor unrest, inflation, cost-of-living crises, economies struggling with declining growth and questions of how central banks can provide relief to national economies.”

This contrasts dramatically with the Gulf, he noted. “Inflation is under control; there are budget surpluses; the region is incredibly well-resourced and can fund its plans entirely by itself.” In other words, the Gulf is perceived as something of a safe haven from many of the economic problems the rest of the world is currently facing. It is natural that banks and financial institutions would seek to shift resources and personnel to the region under these circumstances.

Given all of these factors, Doshi believes that “we definitely can expect further expansion in the Gulf, and it looks like the current growth path will be led by the UAE and Saudi Arabia.”

“Saudi Arabia looks interesting for a few reasons, with its Vision 2030 including huge real estate development megaprojects, in an effort to diversify the country’s economy.” These megaprojects along with a more sophisticated and diversified economy will likely attract the attention of financial services firms to Riyadh and other hubs in the Gulf.

Whether the Gulf ever grows enough to challenge the dominance of the traditional financial centers — such as New York, London and Singapore — remains to be seen. However, it is certainly the case that both short- and long-term economic trends are incentivizing multinational banks and financial services firms to expand their operations in the region and that it is a time for optimism regarding the Gulf’s potential as a finance hub.

“This is a stark contrast to the gloom and pessimism we see pretty much everywhere else in the world at the moment,” Khan said.