Similar story lines, noting that contagion hasn't shaken the region - although the reality is that US positioning on the issue, and its sheer ham-handedness favours the inclination not to place money where some baying American Likoudniki politician might not label you a 'terrorist sympathiser" as they so brilliantly did with the Iraqi prime minister:

The fighting between Hezbollah militants in Lebanon and Israel hasn't killed business confidence in the rest of the Middle East. After an initial shudder when war broke out in July, stock markets have bounced back smartly. The Egyptian market index, for instance, was up a surprising 20% in July. Even more telling is that global financiers continue to view the region as an investment opportunity in the making. In the face of geopolitical turmoil, they're striking deals to buy into Arab banks, building up local staff, and courting local money.

However, this piece of evidence is pure bollocks:

The confidence was in evidence in late July, when Dubai private equity firm Abraaj Capital agreed to put up $500 million for a 25% stake in Cairo-based EFG-Hermes. If shareholders of EFG, one of the top investment banks in the Arab world, approve the capital injection, it will likely accelerate an already fast-paced expansion drive. Earlier this year, EFG bought 25% of Lebanon's Bank Audi for about $500 million, and it also landed a coveted investment banking license in Saudi Arabia.

Abraaj is buying reputation to cover its own dirty tracks. I won't be surprised if this marriage/acquisition ends up like their last one. (Should you need a hint, that would be badly...for the acquired)

Abraaj says EFG-Hermes has the reach and savvy to become a dominant regional player. It also didn't hurt that EFG's stock is down nearly 70% from its January peak. "They needed a sponsor to come in and be a strong, supportive shareholder," says Abraaj CEO Arif M. Naqvi. "It's a role we have played on numerous occasions in the past." EFG co-CEO Hassan Heikal said that the Abraaj transaction "allows us to pursue banking acquisitions [with the goal of becoming] a Citigroup (C) or HSBC (HBC) of the Arab world."

Naqvi, the tongue of a serpent, knows how to spin.

In fact EFG broke its nose on some dumb things Heikal wanted to do, although by most accounts it was an honest misjudgement situation.

Despite hellish conditions in Iraq, Lebanon, and Gaza, both local and international financiers are getting serious about the Middle East as a commercial and investment banking market. With tens of billions of dollars in oil money rolling in each year, fast-growing economies, and increasingly sophisticated corporate and retail customers, there's a need for bigger, more capable banks.

I always enjoy the kind of phrasing like "despite conditions in a place several thousand kilometers away..." but it does reflect the hesitancy of the neophyte entering a market well enough.

Moreover, the banking industry is fragmented along national lines and is not universally well managed, creating an opportunity for consolidators (see BusinessWeek.com, 3/13/06, "The New Middle East Oil Bonanza").

Not universally well-managed.

Well, that's one way to put it. Actually has a delicious flare for the understated.

Or better, the region has plenty of basket case state banks pissing away money, and a range of unsophisticated local institutions, plus some top flight institutions.

These characteristics drew the attention of Ripplewood, the New York private equity firm that made more than $1 billion by turning around Japan's Shinsei Bank. In February, Ripplewood CEO Tim Collins led an investor group that bought about 20% of Cairo-based Commercial International Bank for about $230 million. CIB is "a perfect foundation for a much broader financial services business in the region," Collins says.

Collins and former Citigroup Chief Operating Officer Robert Willumstad are joining CIB's board, and former U.S. Federal Reserve Chairman Paul Volcker will act as a senior adviser. The idea seems to be to use CIB as the cornerstone of a regional powerhouse. Ripplewood "brings great value and support, and together we will really give CIB a facelift," says CIB Chairman Hisham Ezz Al-Arab.

The transaction highlighting the degree to which billions of USD in support, a big population and English speaking smoothies can paper over conditions in Egypt that would otherwise give one serious, serious pause.

The bet there is that the Mubarek regime continues. Not that the Mubarek regime is the best thing in the world for private sector finance - quite the contrary - but for American investors puting in capital, well let's say their risk profile if they're thinking carefully is different than that of other foreign investors. Positively in the short term, not so positively in case of change.

U.S. investment banks are moving into the region, too. Morgan Stanley (MS), Lehman Brothers (LEH), and Goldman Sachs (GS) are all ramping up their activities, joining HSBC and Deutsche Bank (DB), which are already big players there.

"I think this is a great business opportunity," says Georges Makhoul, Morgan Stanley's new Dubai-based president for the Middle East and North Africa. "It is a brand new region finally hitting the maturity levels [to support major investment banks]; it feels just like when we went into China in 1994." Morgan Stanley recently set up an office in Dubai and expects to have 28 professionals in place by fall.

Georges sure has been doing a lot of interviews of late.

Still, that's an interesting comment. "just like when we went into China in 1994."

There's plenty of opportunity. Heikal of EFG estimates that the market for investment banking services in the Arab world, including asset management and stock trading, could be as high as $6 billion annually. He estimates that it is growing at 30% to 40% per year. Certainly, EFG's results have been spectacular. For the first quarter of 2006, year-on-year net income was up fivefold, to $36 million, on revenues of $52 million. Operating margins were 75%.

Heikal attributes EFG's huge revenue gains over the past two years to spectacular growth in brokerage fees on the Cairo and Alexandria stock exchanges, where EFG has a dominant 40% market share, and in Dubai, where EFG has grown rapidly. This year, EFG's earnings could double, as trading volumes remain strong despite geopolitical concerns and turmoil in the Arab stock exchanges.

The Gulf stock bubble boom in short. Rising tides lift all boats.

I would suggest that the book, "Fooled by Randomness" would be a good read.

All of that was attractive to Abraaj. The group is owned by wealthy Gulf investors, its own management, and Deutsche Bank, which works closely with Abraaj in putting together investment funds. "If you buy the story that capital markets in the Arab world will get more sophisticated, then it makes sense to look for a platform for the region," says Mustafa Abdel Wadood, who recently left a post as EFGs' Dubai chief to become head of private equity at Abraaj.

Of course, there are plenty of risks to this optimistic scenario. While the violence in the Levant and Iraq looks containable, it might spread to other parts of the region. Moreover, there are troubling aspects to the Arab financial markets that if not controlled could sabotage their development. Some of the exchanges, which rocketed upwards in 2005 before spectacularly plunging in early 2006, have started to look more like casinos than orderly markets.

Transparency and regulation have been less than satisfactory. The results have produced a roller coaster. The Dubai Financial Market is down 61% this year, and the Saudi Tadawul Index has dropped by 35% as spectacular crashes followed huge runups.

Transparency and regulation have been less than satisfactory...

Yes, agian a nice understatement.

In recent years governments stoked the markets with a wave of privatizations. The idea was to spread wealth to citizens, but these shares, which were often launched at low prices, rose rapidly, leading to a bubble that burst, hurting small investors. Banks contributed to the problem by lending large sums to speculators, inflating both their own earnings and the local indexes. It is far from clear that governments, banks, and speculators are chastened enough to prevent another bubble emerging.

Emphasis added.

Far from clear means, "They're not"

Western bankers are waiting for the Dubai International Financial Exchange, a trading market with Western-style regulation that opened last year, to come into its own (see BusinessWeek.com, 10/3/05, "A Bourse Is Born in Dubai").

They're fools.

First, DIFX only has the appearance of 'western style regulation'; second I don't see it attracting serious liquidity when there are other looser options for those who desire looseness.

The DIFX is off to a slow start with unspectacular trading volumes, but the recent appointment of a new CEO, Per E. Larsson, former chief of Stockholm exchange Wizards OM, could help turn things around, bankers say. The exchange has 13 members including Morgan Stanley, Merrill Lynch (MER), and Citi.

In the meantime, there is plenty of money to be made from asset management and sophisticated lending and hedging transactions, bankers say.

It rather feels like the super-duper ideas for B2B exchanges...