Expatica news

Luxembourg boosts role as Europe’s Islamic finance centre

Qatar’s royal family made a splash in Luxembourg on Monday with deals to buy two banks in a sign of the Gulf state’s desire to make the Grand Duchy an Islamic financial centre in Europe.

Hours after the French and Belgian governments announced the break-up of the Dexia banking group, Luxembourg announced that members of the Qatari monarchy decided to buy the troubled lender’s unit in the country, Dexia BIL.

Moments earlier, the Belgian bank KBC revealed that it was selling its Luxembourg unit, KBL, to the Qatari state investment fund Precision Capital for 1.05 billion euros ($1.41 billion).

Precision Capital is based in Luxembourg, which according to a study by global consultancy Ernst & Young has been attracting Arab firms running investments under Islamic Sharia laws.

The family of Grand Duke Henri has encouraged the development of Islamic finances in Luxembourg, a nation of half a million people.

Luxembourg’s banking secrecy laws turned the European Union state into a financial centre after World War II, attracting investors from around the world.

But outrage over tax havens erupted during the financial crisis in 2008, putting pressure on Luxembourg and other countries with similar banking laws to revamp their systems.

Luxembourg Finance Minister Luc Frieden welcomed Qatar’s acquisitions of Dexia BIL and KBL — deals that have to be approved by competition regulators.

“It is a good thing for the financial market because the two banks are complementary,” said Frieden, who visited Qatar in February.

One of Europe’s largest onshore private banking groups, KBL is affiliated to local banks across nine European nations, including Belgium, France, Germany, Luxembourg, Monaco, the Netherlands, Spain, Switzerland and Britain.

The Indian conglomerate Hinduja Group had sought to buy KBL for 1.35 billion euros but the transaction was called off in March after Luxembourg’s financial regulator blocked the deal.

Frieden said Precision Capital wants to boost the bank by capitalising on links with the Middle East and Asia. Qatar’s prime minister, Sheikh Hamad bin Jassem al-Thani, is one of the fund’s board members.

As of June 30, the bank had assets under management of 47 billion euros and assets under custody of 38.2 billion euros.

Frieden disclosed few details on the Dexia BIL sale. He said it was being acquired by members of the royal family and that Luxembourg would take a minority stake costing 150 million euros.

The Royal Bank of Canada (RBC) will buy the 50 percent share it does not own in a joint venture, RBC Dexia Investor Services.

Dating back to the 19th century, Dexia BIL was offloaded as part of the dismantling of the Franco-Belgian Dexia banking group, which became the first victim of Europe’s sovereign debt crisis.

Dexia BIL, which employs 5,500 people worldwide including 3,000 in Luxembourg, controls one-third of the retail banking market in the duchy.

Belgium is paying 4.0 billion euros to nationalise the Belgian part of Dexia, while France wants to transform the French unit into a new bank focused on local communities.

Boasting that Luxembourg’s taxpayers were spared the need to rescue Dexia BIL, Frieden said his French and Belgian counterparts were “rather jealous” that his country had found a buyer.