Saudi Arabia’s global banking dream has been crushed by the spectacular collapse of a Swiss lender.
At the G20 summit in Nusa Dua, Indonesia, on November 15, 2022, Saudi Crown Prince Mohammed bin Salman takes a seat before lunch. In addition to fighting economic instability at home, the new British prime minister hopes to clarify his foreign policy vision here. The Saudi Crown Prince Was Lured And Then Burned By Credit Suisse.
Bruno Dahr, cigar-smoking head of Credit Suisse’s Middle East business, declared Saudi Arabia a “key growth market” when the company opened its first office there in early 2021.
As a symbol of the deepening ties between the prestigious Swiss lender and the wealthy kingdom, the branch is located at the intersection of King Abdullah and King Fahd Roads in central Riyadh.
However, the relationship turned sour two years later.
After tin-ear comments sent the bank’s shares soaring, a Saudi investor played a key role in its demise.
Consequently, the Saudis have blown away their own investments, fueling domestic discrimination and raising serious doubts about the country’s ability to gain a foothold in global banking.
As Crown Prince Mohammed bin Salman (MBS) has opened the notoriously conservative kingdom to foreign companies and influence Credit Suisse’s presence in Saudi Arabia has deepened.
In 2019, the Swiss bank won a local banking license, enabling it to sell a full range of products and services to the oil-rich nation.
Last year, Michael Klein turned to his Middle Eastern contacts when Credit Suisse tipped him off to a radical restructuring plan.
The former Citibank executive returned to Zurich with a $1.5 billion check signed by Ammar Al Khudairi president of the Saudi National Bank (SNB), much to the joy of the board.
The president of Samba Financial Group, Center, Ammar Al-Khudairy, gestures during the 2020 Budget Forum in Riyadh, Saudi Arabia, Tuesday, Dec. 10, 2019. According to Ziad Daoud Bloomberg’s chief economist in the Middle East, the world’s biggest oil exporter has built its budget on the assumption Brent will average around $65 a barrel next year.
Founded in 2021 following a merger between the National Commercial Bank of Saudi Arabia and the Saudi Samba Financial Group the Saudi National Bank is the largest bank in the Kingdom with over $250 billion in assets.
Al Khudairi, a George Washington University engineering alumnus, saw Klein’s strategy as a chance to position the bank globally.
The Saudi market is the 700-pound gorilla economically in the region and is just getting [Credit Suisse] it would be great to have you on board.
MBS directed the government-backed SNB to inject $1.5bn into the troubled Swiss lender last November, despite the concerns of his financial advisers.
Rich Saudi families have long used Swiss banks as a safe haven. The Crown Prince wanted the investment to serve as an attractive entry point into the global banking industry.
With a stake of around 10 percent, SNB became the bank’s largest shareholder.
When Saudi Arabia worked to diversify its economy away from the oil he praised it as “an expression of the new Saudi Arabia.”
Following the collapse of Silicon Valley Bank (SVB) last month fears of contagion spread to Credit Suisse whose shares had already fallen by over 70% after a series of scandals and missteps?
Al Khudairi was asked if the SNB would think about giving Credit Suisse a capital boost during a conference in Riyadh.
With those statements, Al Khudairi’s tenure at one of the oldest banks in Switzerland came to an end.
A senior investment banker claimed that if the head of the Saudi bank hadn’t said what he did I might not have had the same perspective on the Credit Suisse incident.
The only thing they could say was: ‘We have not received a request for support from Credit Suisse. If one is received, we will consider it on the merits at that time.’ But he didn’t and the rest is history.
A sell-off in Credit Suisse’s shares prompted the Swiss government to intervene, and UBS stepped in to arrange a rescue, which Swiss authorities said was necessary to prevent a wider financial crisis.
As a result of the forced nexus, both the SNB and MBS were embarrassed and angry. After suffering investment losses of $1.2 billion, Al Khudairi was dismissed last week. Qatar’s sovereign wealth fund and the Saudi Olayan family also suffered significant losses.
In addition to the SNB, the debacle has raised questions about Saudi Arabia’s wealthy residents and Swiss banks’ relationship in the future.
Regulators in Switzerland controversially eliminated part of Credit Suisse’s bondholders as a result of UBS’s takeover of the company, while returning funds to equity holders.
During the 2008 financial crisis, AT1s were introduced to ensure that losses would be borne by investors rather than taxpayers. They represent a $275 billion market for European banks.
Shareholders typically take the hit first in a write-down scenario before AT1 bonds.
In contrast, the Swiss authorities reversed this hierarchy with AT1 holders receiving nothing while shareholders received money on the dollar.
One theory is that the choice was made to placate the Saudis and stop them from competing with Swiss lenders for business.
“I’m pretty sure it was political motivation,” said the boss of a London-listed bank.
Apart from doing the Saudis a favor, the officials also wanted to thank longtime domestic investors who supported Credit Suisse for generations.
Axel Lehmann, chairman of the board of directors of Credit Suisse, and Collm Kelleher attend a news conference on Credit Suisse following their offer to take over UBS on March 19, 2023, in Bern, Switzerland.
As Credit Suisse has been there forever, he surmises, “I think they wanted to give money back to equity holders, which would be all of the Swiss citizens who had shared.”
Even before Credit Suisse’s emergency rescue, the returns paid to shareholders paled in comparison to their market value.
Saeed Mohammed Al Ghamdi is now the chairman of the SNB, replacing Al Khudairi.
Al Khudairi “fell victim to giving his honest opinion during such a stressful time for Credit Suisse,” according to Mohammed Ali Yassin, CEO of Al Dhabi Capital.
In hindsight, given the UBS buyout rate of Credit Suisse their response was the correct one: waiting for the crisis to pass.
Shabbir Malik, an analyst at EFG Hermes, believes that the SNB is unlikely to soon compete on a worldwide scale in the investment banking industry.
Several investors were worried about the Credit Suisse deal, mainly because the SNB had made foreign investments when domestic alternatives were more appealing he added.
While MBS examines how the bank made such an expensive error Al Ghamdi’s primary duty, for the time being, will be to restore the SNB’s credibility.
In the meantime, UBS is beginning a significant cost-cutting initiative as it merges its erstwhile greatest competitor.
Al Khudairi’s chances of returning to the top of Saudi finance anytime soon are slim.
The top executive of the London-listed bank adds, “I don’t know what happens when you lose your job at a huge Saudi bank,” in an effort to maintain his position. Do you believe he is interred in the sand? My mental picture is that this didn’t turn out well. He won’t appear to us again.