by one notch to Ba3 from Ba2 and placed them on review for further downgrade. The Non-Prime short term ratings are affirmed, Moody’s said in a statement.

Moody's decision to downgrade Shuaa's ratings and place them on review for downgrade reflects the investment bank's sustained and negative profitability, continued investment write downs, management instability and an increasingly difficult operating environment in their core sectors. While Moody's notes the strong capital and liquidity positions of the institution, as well as the appointment of new and seasoned

management to help restructure this business to profitability, it is expected the rating will be re-positioned to reflect a new business model

and the associated risk profile on conclusion of this review.

Shuaa has reported losses for four consecutive years with the reported net loss for the nine-month period ending September 2011 at AED182

million and a cost to income ratio for the same period of 581 percent. The shareholder's equity has also reduced 42 percent (from AED2.2 billion in 2008 to AED1.3 billion as of Q3, 2011). These ongoing losses can be primarily attributed to reduced revenues from all business lines, multiple write downs on their investment book coupled with a very high cost base, although this is being tackled with the recent announced redundancy program that should materially reduce operating costs once complete during the course of 2012.

“We expect the profitability to remain negative or weak for the near future as the business is being restructured to focus on profitable and

sustainable franchises that will take time to build. We expect the commercial finance subsidiary to continue contributing the core of

Shuaa's stable operating income going forward,” Moody’s said.

On the asset management business, after some prior outflows, amounts under management have shown positive growth and have increased from AED650 million to AED950 million as of Q3, 2011. Nonetheless building a sizable and sustainable franchise

will be difficult given strong competition in the sector and weak regional and global investment environment.

Shuaa's liquid assets comprise 40 percent of total assets and shareholder's equity to total assets is around 77 percent as of September 2011 and, as such Moody's notes that these strong liquidity and capitalization metrics of Shuaa are positive factors for consideration during the review process.

As more details of the new operating model, expected performance and ownership structure of Shuaa are disclosed, the rating will be

re-positioned at a level more commensurate with the credit risk profile of the new institution, Moody’s said.

Established in 1979, Shuaa is one of the oldest and leading investment banking institutions in the Gulf region.