JPMorgan sees Middle East deal flow making up for lower fees

JPMorgan Chase & Co. sees “a lot of opportunities” in the Middle East for banks with the right scale as the region taps bond markets and plans the biggest-ever share sale.

Investment banking fees in the Middle East are lower than in countries like the US, but when you have enough deals “you can still run a very good business” by operating across different segments, said Sjoerd Leenart, the U.S. bank’s global head of corporate banking.

An increasing use of bond markets to plug funding gaps, Saudi Aramco’s planned initial public offering and a rising number of mergers and acquisitions are helping banks boost fee income. That’s helped offset slowing regional economic growth since 2014, when the decline in oil prices forced governments to slash spending.

“The Middle East is transforming like it has never done before,” Leenart said. There are “opportunities for banks to help companies grow, optimize their setups, whether it’s fund-raising in the equity or debt markets or whether it’s through M&A.”

More than a dozen banks in the Middle East have merged or are in talks to combine, including National Commercial Bank, Saudi Arabia’s biggest.

High grade

JPMorgan is one of the global coordinators for Aramco’s planned share sale. It’s also the fourth-biggest arranger of bond sales in the Middle East and North Africa, according to Bloomberg data.

Bond sales from the Middle East and North Africa have climbed 11 per cent this year to $92.7bn amid declining yields. They may surpass the record $101bn hit in 2017.

MENA bond sales will continue to grow because they are very attractive “pricing-wise,” Leenart said. Middle East issuers are the “high-grade part of the developing market” and offer a substantial yield pick-up compared to the zero-rate bonds from Europe and elsewhere, he said.

On the map

JPMorgan’s Middle East business has grown 25 per cent in the last five years and the region’s contribution to the bank’s global business is more than what its revenue would suggest, said Leenart, who is also the regional head of Central and Eastern Europe, Middle East and Africa.

“It’s the relevance of the region, geopolitically and where it is on the map,” Leenart said in an interview with Bloomberg TV on Wednesday. “It’s also the insight it gives us into what is going on in the rest of the world.”