* EFG had agreed JV with QInvest in May 2012
* Deal failed to receive nod from Egypt regulator
* EFG says will cut costs and sell non-core assets
* EFG co-CEOs under trial in Egypt on corruption charges
(Rewrites throughout, adds details from EFG statement)
By Shaimaa Fayed and Dinesh Nair
CAIRO/DUBAI, May 1 EFG Hermes, one of
the largest investment banks in the Middle East, plans to cut
costs, sell non-core assets, and return cash to shareholders
after a planned tie-up with Qatar's QInvest failed on Wednesday.
EFG had agreed the deal in May last year to spin-off part of
its assets to create an investment bank with operations spanning
the Middle East, Africa and Turkey. QInvest would have pumped in
$250 million for a 60 percent stake.
On Wednesday, the two parties said in a joint statement that
the deal had been terminated due to lack of regulatory approval
from Egypt and that they would continue to operate as
independent entities going forward.
In a separate statement to the Egypt bourse EFG said it will
seek to reduce its "expenditure structure" by 35 percent to 500
million Egyptian pounds ($72.11 million) in 2014 from 780
million pounds for 2013.
It also plans to sell non-core assets and will distribute
cash proceeds to shareholders, it said.
Shareholders were promised a one-off dividend of 4 Egyptian
pounds per share after the deal had closed.
"In aggregate terms, everyone was waiting for the deal, so
this could have negative implications on the market," said
Egypt-based economist Mona Mansour.
The combination would have given EFG much-needed capital to
bolster its business, which was hard hit by political turmoil in
the country. QInvest would have gained access to the expertise
and reach of the region's most prestigious investment bank.
"A failed deal is not going to bode well for EFG as they
could have benefited from the Qatari cash injection," a banking
source familiar with the deal said.
"With senior management executives under scrutiny by the
government, there is a big question mark over future leadership
of the firm. It's unfortunate."
EFG said in its statement that Karim Awad will continue in
his role as head of investment banking and appointed him to the
The deal was seen as politically sensitive in Egypt because
both of EFG's co-chief executives, Hassan Heikal and Yasser El
Mallawany, are on trial, along with the two sons of ousted
President Hosni Mubarak, over allegations of illegal share
dealings in relation to a 2007 transaction.
EFG had said last month the deal would lapse on May 3
without long-awaited approval from Egyptian regulators. It had
received approval from a number of countries for the deal, which
included spinning off EFG's brokerage, research, asset
management, investment banking and infrastructure businesses.
Qatar is Egypt's main political and financial backer in the
Gulf and has pledged $5 billion to Cairo in loans and grants to
help keep the most populous Arab country afloat. QInvest is
majority-owned by Qatar Islamic Bank.
EFG'S business has been hard hit by political events in the
country. Its share price is down 27 percent in the last year.
The bank reported a fourth-quarter net loss of 21 million
Egyptian pounds ($3 million) in April, compared with a profit of
31 million Egyptian pounds for the year-ago quarter.
For QInvest, the banking source said it had the finance to
put the failed deal behind it and build a franchise by hiring
talented people, a process already begun.
QInvest hired ex-Credit Suisse banker Michael
Katounas to run its investment banking division in April. The
firm is headed by Tamim Hamad Al-Kawari, previously the head of
Goldman Sachs in Qatar. [ID: nL5N0CT07Q]
Goldman Sachs was advising QInvest and J.P. Morgan Chase was
($1 = 6.9343 Egyptian pounds)
(Editing by David Holmes and Elaine Hardcastle)