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UBS Embarks on Middle East Expansion

By , Money Morning •

By Jennifer Yousfi
Managing Editor

UBS AG (UBS) yesterday (Tuesday), announced it had obtained a license to operate in Saudi Arabia, joining a growing number of financial firms looking to recoup some of the over $400 billion in global write-downs to date by tapping into the oil-fueled wealth creation occurring in the Middle East.

 "With over 40 years' experience in the region our decision to set up operations in the Kingdom of Saudi Arabia is further evidence of UBS' long-term commitment to the Middle East and marks yet another important milestone for the firm in this very exciting and significant market," Chairman and Chief Executive John Fraser said in a company statement announcing the planned expansion.

UBS expects to have wealth management, asset management, and investment banking services up and running in Saudi Arabia before year-end, a company representative told the AFP.

The largest Swiss bank, UBS also is looking to obtain rights to operate in Qatar Financial Centre, and is in the process of setting up a regional equities research team based in the United Arab Emirates as part of its Middle East expansion.

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"We are making an investment on the progress of the region," said Peter Burnett, chief executive for UBS Investment Bank in the Middle East and North Africa, The Financial Times reported. "They have petrodollars flowing in and are in the process of enormous wealth creation."

UBS joined other financial firms in setting up a Middle East regional office in the Dubai International Financial Centre in early 2007. The firms are looking to capitalize on the estimated $4.3 trillion in oil profits that will flow into the Gulf region over the next four years if oil remains at its current elevated price.

UBS expects to see growth in capital markets business, advisory work and infrastructure projects in the Middle East, regional head Burnett told The FT. UBS has already undertaken a  joint venture with sovereign wealth fund Abu Dhabi Investment Company to manage Middle East-focused infrastructure funds, he added.

UBS Targets Middle East Infrastructure Expansion

UBS is not alone in targeting the wealthy Middle East. The bank currently ranks fifth in the region according to Bloomberg data, with Goldman Sachs Group Inc. (GS) in the top spot. Other rivals already operating in the Middle East include Citigroup Inc. (C), Lehman Bros. Holdings Inc. (LEH), and Deutsche Bank AG (DB).

In 2007, the six nations of the Gulf Cooperation Council - Saudi Arabia, Kuwait, Bahrain, Omar, Qatar and the United Arab Emirates - earned $381 billion from oil exports and that was before oil prices rocketed up to over $145 per barrel before dropping back to its current level of $135 per barrel.

The cumulative earnings of the Gulf States will reach into the trillions if oil remains over $100 for several more years. At the moment, the Middle East literally has more money than it knows what to do with, but the governments are well aware that oil reserves can't last forever.

That's why so many of those "petrodollars" are flowing into infrastructure projects to cement the Middle East's place as a tourist and financial center before the wells run dry.

From Dubai to Kuwait, there's an estimated $2.4 trillion in construction projects either underway or under development in the world's biggest oil patch. And $1.4 trillion of that is earmarked for projects in civil construction. Current spending on residential and commercial construction projects in the Middle East currently outweighs oil, gas, power, petrochemical, and industrial construction projects combined.

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