Reuters/Bloomberg/Dubai
The consequences of Bahrain’s turbulent spring are mounting.
Credit Agricole Bahrain headquarters which is set to shut down. The French lender’s move is a blow for the one-time regional financial hub of the Arabian Gulf
First, the Formula 1 Grand Prix was cancelled, now Credit Agricole has decided to shift its regional headquarters to Dubai.
The French lender’s move is a blow for the one-time regional financial hub of the Arabian Gulf region. But the Shia led protests earlier this year and subsequent crackdown by Bahrain’s Sunni-ruling minority – with the help of troops from its Arab neighbours – is only one reason why financial institutions are saying bye-bye to Bahrain.
International banks are rushing to cut costs as revenue falls and risk grows. That makes it harder for them to maintain their previous practice of keeping multiple bases in the Middle East – a region that still generates relatively little revenue.
The political instability, combined with a growing presence in Dubai, will have made Credit Agricole’s decision easier.
Moreover, the bank’s 31% stake in thriving Banque Saudi Fransi means it does not have to worry unduly about missing out on business opportunities from Bahrain’s influential neighbour and regional financial heavyweight Saudi Arabia.
For Bahrain, the loss of Credit Agricole’s 60 or so employees is mainly symbolic. Though the financial industry accounts for 25% of the island state’s GDP and provides many jobs for locals, this includes mutual funds and Islamic businesses that are less likely to flee.
And Bahrain can count on getting what financial support it needs from Saudi Arabia.
Even so, the move is a coup for Dubai, which has successfully established itself as the location of choice for international institutions looking for a regional base.
In addition to having unrivalled transport links, a relatively stable political environment, and liberal lifestyle, the recent collapse of the emirate’s property market and glut of new supply has made prime office space affordable again.
A departure by BNP Paribas would be more politically sensitive, because the bank claims to have 320 employees in Bahrain, many of whom are local.
However, BNP Paribas didn’t hesitate to relocate staff to Dubai as a temporary measure when things got rough earlier this year, and it is not clear if the bank has returned its Bahrain operations to pre-unrest staffing levels. The political upheaval could yet provide the necessary excuse for others to follow.
Credit Agricole’s move to Dubai, as reported by International Financing Review (IFR), is expected to take place over the next few months and will affect the around 60 staff the bank has at its Bahrain base.
“We’ve traditionally been in Bahrain but as Dubai grew, we grew too,” a source at the bank told IFR. “Therefore, it makes no sense to have the two [offices] so when the decision to amalgamate them came, events didn’t help Bahrain’s cause.”
In February, protesters in Bahrain took to the streets demanding democratic reforms in the island state’s worst unrest since the 1990s. The government responded by calling in troops and police from surrounding Arab countries, including Saudi Arabia.
“[The political situation has] got some relevance,” another source at the bank told IFR, “but having our Middle Eastern operations under one roof makes sense. We’re not like HSBC or Standard Chartered who have thousands of people here, where it makes sense to have them spread around.”
Credit Agricole, France’s second-biggest bank, led a rout in the Bloomberg Europe Banks and Financial Services Index since the end of June amid concern that some of the region’s lenders may struggle to maintain funding during government-debt crises.
Legg Mason’s bond unit said its US money-market funds won’t buy new debt from French banks to shield themselves from the perceived risk.
“There is a great cloud of uncertainty that’s hanging over the US banks about the full extent of the exposures they have to French and other European banks,” said Andrew Karolyi, a finance professor at Cornell University in Ithaca, New York. “The market is clearly not reacting well to what they’re seeing.”
Credit Agricole gained after French regulators announced a temporary ban on short-selling on August 11, climbing 1.4% to €6.61 by afternoon in Paris.
