Reuters – JP Morgan has cut its correspondent banking relationship with Emirates NBD, Dubai's largest bank, as part of a global review of its business, sources familiar with the matter said. In a memo to staff last year, the US bank said it would scale back its relationships with foreign banks in order to comply with regulatory pressure to tighten risk controls. As part of this process, the bank has severed relationships in its cash management business in the Middle East, and has not spared Dubai's largest bank by market capitalisation. "JP Morgan is undertaking a global review of its banking relationships both on profitability and on compliance. In the Middle East they have cut many relationships, including with Emirates NBD," a person with knowledge of the matter said. Another Dubai-based banker said he had received similar information. "It is not very surprising given the pressure they've been under from regulators. They are cutting any relationship that holds even a slight bit of risk," he said. JP Morgan does not comment on individual relationships, but a source said: "It is well known we are tightening our controls, especially in the corresponding banking business…and we mentioned it in our Q3 earnings." An Emirates NBD spokesman said the lender did not comment on the relationship between the bank and clearing banks. Correspondent banking, which involves activities such as processing transactions and clearing US dollar payments for foreign banks, has historically been a core part of JP Morgan's business. It emerged in August last year that this business would be scaled back at JP Morgan and the bank would not take on any new clients, particularly in the light of increased regulatory scrutiny in the aftermath of the "London Whale" derivatives trade losses. Following media reports, JP Morgan said in a statement that it was "important for us to pause and assess our business, particularly in select markets, to ensure we are well-positioned to meet our responsibilities for the long term". Bankers working for international banks in the Middle East said they would be surprised if JP Morgan was the only international firm to cut relationships in the region. "I think it is a little unfair to single out JP Morgan on this issue – many of us will need to look at our relationships again and there could be more developments of this nature," said one. One problem facing international banks in the region is some Gulf lenders' relationships with clients in Iran, though there are no suggestions that the relationship with Emirates NBD was terminated for this reason. In February 2012, Dubai-based Noor Islamic Bank (now called Noor Bank) stopped channelling billions of dollars from Iranian oil sales through its accounts after pressure from the United States, Reuters reported. In May last year, the United States blacklisted two Dubai-based trading companies – Al Hilal Exchange and Al Fida International General Trading – accusing them of helping Iran evade financial sanctions.
