EFG-Hermes Holding Company

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Contents

[edit] Background and Global Strategy

EFG, also known as the Egyptian Financial Group, became the first investment banking firm in Egypt when it was established 1980. The company created and analyzed privatization plans for the Egyptian government for several years. In 1993 The Egyptian Financial Group made a move into brokerage. The company brought many investment strategies that were common to the west to Egypt, for example The Egyptian Financial Group established the equity index in all of Egypt. In 1994 Egyptian Financial Group entered into asset management. Fueled by organic growth the company soon reached the point that further growth was not possible without a wide network of local and international clients. This led to a merger in 1994 with Hermes a financial institution, which had significant international experience (Arab Decision, 2003).

The mission of EFG-Hermes is “to become the leading investment Bank in Middle East as measured by profits ad revenue quality, ranking as one of the 10 most profitable institutions in the region” To achieve its mission EFG-Hermes has created a strategic plan. Which focuses the management resources of the company towards key regional markets. While at the same time expanding into poorer performing markets through the use of partnerships and strategic alliances. It is probable that EFG-Hermes will not enter into markets that are not predominately Muslim until the company had a substantial footing in the Arab World (EFG-Hermes).

In 2006 EFG-Hermes began offering an online trading service. The EFG-Hermes on line trading service is the first platform specifically designed for Arab markets and Arab investors. According to EFG-Hermes head of brokerage in the United Arab Emirates “ investors require a large amount of flexibility and online services enable customers to broker deals at any time from any location. A freedom that is invaluable to successful investment strategies” EFG-Hermes trading platform should help the corporation expand in northern Africa, where opening traditional branch offices is difficult due to government regulation or security fears.

[edit] Doing Business in the Region

EFG-Hermes global strategy relies heavily on expanding in the Middle East. Therefore the company has made it a priority to enter into the major financial hubs of the Middle East, namely Egypt, the United Arab Emirates and Saudi Arabia (Ameinfo, 2006). The market in Saudi Arabia is the largest in the region. In early 2006 EFG-Hermes was granted a financial license in Saudi Arabia, which allows the company to trade on the Saudi stock market and perform typical investment banking activities. EFG-Hermes has already managed to find two large merger and acquisition candidates in Saudi Arabia and is planning on expanding aggressively on the company's investment banking side. Brokerage activity in Saudi Arabia is scheduled to begin in the fourth quarter of 2006 (EFG-Hermes).

In order to support regional expansion EFG-Hermes has undergone a substantial restructuring. The restructuring of the organization focuses on providing the company with strong and effective management in the three major financial hubs. The operation in Saudi Arabia is being head by EFG-Hermes CFO Ramsay Zaki. Zaki's main focus to build and oversee the establishment of the company's structure in Saudi Arabia. In the United Arab Emirates EFG-Hermes Co-chairman and CEO is taking direct control of local operations. Support functions for EFG-Hermes will be based out of Egypt and will be lead by Shayne Elliot, the chief Operating Officer (EFG-Hermes).

The call center concept was introduced by EFG-Hermes brokerage division and is currently available in Egypt and United Arab Emirates and will soon be available in Saudi Arabia. It is expected that the use of call centers will increase EFG-Hermes market share by facilitating access to retail investors, The Egyptian call center was brought on line during the third quarter of 2006 and was accompanied by an intense marketing campaign. The initial reaction to the call center concept has been positive although the majority of call center activity consists of corporate accounts; plans are underway to make the service more attractive to retail investors. Retail investors comprise more than 70% of daily trading volume, thus making retail investor acquisition key to gaining market share in the region (EFG-Hermes).

During the third quarter of 2006 EFG-Hermes entered into a strategic alliance with Abraaj Capital. Abraaj Capital is an investment firm located primarily in the Middle East, which specializes in private equity investments. Abraaj Capital offered EFG-Hermes 500 million dollars (us) in exchange for a twenty five percent equity stake in EFG-Hermes (Moussa, 2006). EFG-Hermes accepted the offer and is using the capital to help regional expansion. This deal was also significant for shareholders of EFG-Hermes, as the free float of EFG-Hermes stock was reduced significantly (Abraaj Capital).

EFG-Hermes owns a 20% stake in Lebanon's Bank Audi. The 2006 war in Lebanon did affect Bank Audi's revenue, although not to the extent that one would think. According to Bank Audi only eight out of 78 operational branches were closed due to the war. War in Lebanon normally leads to high amounts of currency conversion, as investors fear the impact of war on the currency. In 2006 currency conversion and money transfers abroad were containable, resulting in better than expected earnings. Bank Audi's first half results revealed that profits had risen 91%. Bank Audi is also making preparations for entry in to the Saudi Arabian market (Bank Audi).

[edit] Doing Business in Jordan

EFG-Hermes has established a 15 million dollar venture capital fund. The fund is focused primarily on information technology (American University). EFG-Hermes strategy of focusing on Jordanian IT companies is in line with Jordan's own development goals. In an effort to spur economic development King Abdullah created Jordan's Reach Initiative. The Reach Initiative focuses on creating a well developed, export oriented IT sector (Atlas Investment Group). It is projected that Jordan's IT sector will grow at approximately 15%-20% per year (EFG-Hermes).

EFG-Hermes does not operate on Jordan's Amman Stock Exchange and has no published plans of expanding into Jordan. It can be expected that EFG-Hermes will eventually move into Jordan but this not likely until growth slows in Saudi Arabia and the United Arab Emirates. EFG-Hermes has positioned itself for steady long-term growth in Jordan when the firm eventually enters Jordan as a brokerage house it should have no significant problems due to EFG-Hermes name recognition in Jordan and EFG-Hermes experience operating in the Arab world (EFG-Hermes).

[edit] References