ADIB’s Bruno Martorano on Gulf investors’ evolving UK property tastes
- Gulf investors are increasingly turning to commercial property in search of higher yields
- “When there are bumps in one place, clients become conservative, but are willing to look at investment opportunities somewhere else.”
Bruno Martorano, head of Abu Dhabi Islamic Bank (ADIB) in the UK, took his first holiday for a while recently, hiking in the Swiss Alps and covering up to 15 kilometers a day.
He described it as “a refresher” following a busy nine months since his appointment as the bank’s UK chief executive. In that time British operations have grown strongly under his command, with a growing number of Saudis joining traditional GCC clients, attracted by investment opportunities in the British property market.
A relaxed and congenial Martorano, interviewed by Arab News in ADIB’s Knightsbridge offices in central London, doubtless finds hiking a good way to clear his head and release the endorphins that make people feel more capable of handling stress.
“Last year it was the Himalayas, the year before that, Bhutan, and hopefully next year it will be Kilimanjaro (in Tanzania),” he said.
Martorano is riding the crest of a wave in the UK as Gulf clients shift their focus away from trophy residential addresses in prime areas of London. Commercial properties in the capital are increasingly in demand, as they are in cities such as Birmingham, Bristol, Manchester, Leeds and Edinburgh, where returns are higher.
The commercial-residential split for ADIB’s property business is now 70-30, compared with 40-60 a year ago.
“Clients continue to be interested in real estate in London, but there is tremendous movement to commercial as investors chase yield rather than safety,” said Martorano.
To put the numbers into perspective, yields in London’s West End are around 4 percent on the residential side. In regional centers, by contrast, commercial properties could offer 5 percent or even 5.5 percent.
The rising familiarity with the UK market among Gulf investors is also a factor behind the shift.
“Many clients have bought enough residential. And they have had a lot of experience investing in the UK, so they feel comfortable to invest in more sophisticated transactions. I think over the next three years the main driver of our business is going to be commercial lending and commercial real-estate financing,” Martorano said.
A private Saudi-based client recently arranged Islamic financing worth $27 million from ADIB to clinch the acquisition of a building called The Hub in Bristol. And business is still growing, says Martorano, with one or two eye-watering deals apparently on the horizon. ADIB UK’s commercial lending pipeline today tops
£200 million ($266 million), with 2018 already looking like a record-breaking year.
While many Britons are still anxious over the UK’s upcoming exit from the EU, there is no sign that GCC buyers are suffering from Brexit blues.
“Our clients are not really exposed to Brexit. Neither is the bank. Clients haven’t raised Brexit as an issue in any of the meetings I have had with them,” Martorano said.
Sterling has fallen, but that means “there is a buying opportunity,” he said.
And while London prices this year have begun to fall for the first time since 2009 — thanks in part to rises in stamp duties and land taxes — Martorano doesn’t subscribe to the view that there could be a further, sharp correction, with areas such as Marylebone already showing signs of recovery.
Italian by birth, Martorano’s mother was half-Lebanese, half- French. He grew up in Beirut, where he went to school. He then moved to Australia and the US, where he built up a banking career. “I went through a couple of Wall Street crashes,” he recalls.
America was followed by spells at French bank BNP in Paris, where he headed up private banking for the Middle East. This was followed by a stint in Hong Kong, after which he joined Mashreq Bank in Dubai as head of wealth management. There was also Arab Bank, where he “jumped” between the UAE, Switzerland and London.
Most recently, he spent five years in Abu Dhabi as head of credit solutions for ADIB, before being tapped to head up the bank’s operations in London.
An internationalist through and through, he is fluent in five languages: Arabic, Italian, French, English and Spanish.
After moving from place to place during a long and distinguished career, does he have a favorite city?
Martorano chuckles at the question, responding with characteristic diplomacy: “Being multilingual and multicultural has allowed me to enjoy each city that I have been in. The key is to try to fit in, and to notice all the small beauties and advantages that each city can offer rather than harking back to a place where you were previously.”
His current role makes Martorano the UK standard-bearer for Abu Dhabi’s largest Sharia-compliant banking institution.
He puts it this way: “We are clearly a Gulf-based bank that is focused on Sharia banking, which for us is Islamic and ethical. Sharia banking is banking as it should be.”
A 2013 study commissioned by ADIB found that in the UK, the proportion of people likely to bank with a financial institution jumped 28 percent after respondents heard about the Islamic banking proposition.
The group’s business has been thriving. In 2017, ADIB at group level chalked up record profits, an 18 percent reduction in provisions for bad or doubtful loans, higher income from fees, and a reduction in the cost of credit.
Such growth comes at a time when GCC banks are still shaking off the effects of the 2014-17 oil price crash. Key balance sheet metrics are looking good: At group level, ADIB reported a full one percentage decline in cost-to-income ratio in 2017.
In the UK, the bank recorded a 20 percent advance in transaction volumes last year compared with 2016. The upward trajectory is expected to continue this year, as the recovery in oil prices is expected to turbocharge confidence throughout the Arabian peninsula.
“We see strong demand among GCC-based clients seeking to diversify their portfolios,” said Martorano.
“Secure, long-term income yields from UK property can form a key part of a balanced portfolio,” he said.
In the interim, global financial monitors are feeling more positive about the GCC banking sector.
Moody’s Investors Service is forecasting credit growth of 5 percent for UAE banks in 2018. Standard & Poor’s said most banks in the GCC, which have been slammed by the impact of sluggish economic growth in recent years, will have turned a corner by the end of the first half of 2018.
There are some headwinds, of course, for the sector as a whole. The cost of risk to banks is set to increase this year due to adoption of new IFRS 9 accounting standards, warned S&P.
But professional services firm Alvarez & Marshall said recently that UAE banks have seen an increase in liquidity, as deposits grow faster than loan advances. It predicted higher loan growth and profitability in 2018 as the local economy improves, non-performing loans decline and higher rates boost net interest margins.
Nevertheless, the world is an uncertain place with trade wars, real wars and rumors of wars unsettling investors from Tokyo to New York.
None of this fazes Martorano, however. “I have been through crises on Wall Street, was around for the Asian meltdown when I was in Hong Kong in 1997, and from my experience when high-net-worth individuals go through uncertain situations, they always seek safety. And traditionally they seek the safety of centers of cities such as London.
“That’s why I am not very concerned with the geopolitical environment, whether it’s in Europe or the GCC. When there are bumps in one place, clients become conservative, but are willing to look at investment opportunities somewhere else.”
Martorano, as you would expect, works long hours, but not too long. Usually, the day starts at 8:30 a.m. and ends at 6:30 p.m., although the day before we spoke he left at 7 p.m.
“The poor doorman was waiting for me to leave, pacing up and down. Yes, long hours are there, but at weekends I am with my family,” he said.
After all, he explained, “you can’t just lock yourself in the office because then you are excluding yourself from the environment you are living in, and that probably doesn’t help anyone.”
Few would disagree with him on that.