Arqaam Shuts South African Office as Brokers Cut Coverage

(Bloomberg) --

Arqaam Capital Ltd. is closing its South African office, a person familiar with the situation said, as the Dubai-based investment bank joins other brokers paring back operations in the continent's financial-markets hub.

The company, which opened an office in Johannesburg in 2014, said Monday it was ceasing research coverage in South Africa, according to a note to clients seen by Bloomberg. Customers haven't yet been informed that the office, which employs about 17 people, is closing, the person said, declining to be identified because an official notification on that hasn't been sent out.

Profit margins for equity trading companies that offer research have been squeezed in South Africa and other markets by the cost of MIFid II regulations, the growth in passive investing and a fall in trading volumes. It also comes amid an economy that is struggling to expand, with gross domestic product shrinking for a second quarter this year in the three months through September.

The shutdown by Arqaam, which focuses on emerging markets, follows an announcement by Macquarie Group Ltd. in October that it's closing its cash-equities business in South Africa. Deutsche Bank AG's South African unit has made significant job cuts, while Credit Suisse Group AG has also reduced its presence in the country. Citigroup Inc. has been leaving some equity research posts vacant and moving other functions, the Johannesburg-based Business Day newspaper reported last month.

“Its a tough environment,” said Peter Koutromanos, chief executive officer of Johannesburg-based Avior Capital Markets Ltd. The reduction in research coverage “is bad for transparency,” he said. “It's bad for liquidity and price discovery.”

A call to Arqaam's corporate communications office in Dubai, where it's a public holiday Tuesday, wasn't answered. Jaap Meijer, Arqaam's managing director of equity research in Dubai, didn't immediately respond to a request for comment sent by text message.

--With assistance from Sarah Algethami and Paul Richardson.

To contact the reporter on this story: Antony Sguazzin in Johannesburg at asguazzin@bloomberg.net

To contact the editors responsible for this story: John McCorry at jmccorry@bloomberg.net, Vernon Wessels, Karl Maier

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