The lifting of oil and financial sanctions on Iran added one percent to the world economy - for the financial services industry, this represents a potential revenue pool of US$25 billion per annum.
This opportunity is particularly attractive for foreign financial institutions, especially as they contend with difficult conditions and overregulation in their home markets. While there are political and regulatory risks to contend with, returns are appealing. The opportunities we have uncovered will be of particular interest to firms based or already operating in the Middle East and North Africa, who have experience in the markets there. Additionally, there are potential opportunities for European and Asian firms with limited or no presence in the US. Lingering US sanctions more or less shut out anyone operating there.
Opimas has identified a revenue opportunity of approximately US$3.5 billion in capital markets, out of the total US$25 billion revenues in financial services.
Figure 1: Iranian Capital Markets Total Revenues
Source: Annual and quarterly reports, World Federation of Exchanges, company disclosures, Opimas Capital Markets Benchmarking Database
Three segments offer the best profit opportunities, particularly in partnership with a local player who knows the political and regulatory risks:
- Hedging. Today most companies and investors are not habitually hedging their positions or securitising assets. As Iran rejoins the world economy, it badly needs to educate businesses and investors about the risks of going unhedged in volatile markets, and the benefits of securitization of assets. Opimas believes there is an opportunity for established exchanges, brokers, and buy-side firms – if they have experience selling and bringing products to new markets – to educate directors and executives about hedging, in partnership with local players.
- Investment Banking. Institutional investors and corporates are underserved in everything from investing abroad to international mergers and acquisitions. There is also demand for firms that provide trade finance and IPOs/privatization. Experienced investment banks can offer a number of services that local players cannot, although a foreign company would have to partner with a local player to navigate the capital markets from both a political and regulatory perspective.
- Derivatives. There is a well-defined opportunity for commodity, currency, and equities derivatives. Infrastructure providers and exchanges have a window of opportunity to team up with local exchanges in strategic partnerships to develop technology, a catalogue of products, and a rulebook of the derivatives market, and to educate local market participants. Opimas believes that derivatives will gain significant traction in Iran as long as investors understand the instruments, underlying assets and risk hedging strategies