When Credit Suisse asked its board member Michael Klein to find capital to help its painful restructuring push, the former Citibank executive with ties in the Middle East ended up in a series of meetings with a powerful Saudi bank little known outside the Gulf.
Klein, who is also taking over Credit Suisse’s spun-off investment bank, walked away with a $1.5 billion (CHF1.4 billion) cheque.
As recessions deepen in the west, some are looking at the investment by the Saudi National Bank as a harbinger of more outlays to come, as oil-rich states echo bailouts during the financial crisis more than 10 years ago.
But a month after the deal with Credit Suisse was announced, the chair of the SNB — whose biggest shareholder is the sovereign Public Investment Fund, controlled by Crown Prince Mohammed bin Salman — remains nonplussed by the attention.
“The amount of press coverage it received is due to a number of reasons, including . . . people saying ‘Oh are they moving into Europe?’,” Ammar Alkhudairy said in an interview with the Financial Times. But “we write cheques of that size frequently, I can assure you. This is just another cheque of that size.”
Sound investment
Alkhudairy said the purchase of 9.9% of Credit Suisse might have been large in terms of the Swiss bank but it amounted to about 2.2% of SNB’s investment portfolio of $68.7 billion, or just above three months of earnings. It was, he added, barely worth a press release.
“We looked at the downside, we believe it is limited,” he said. “It’s a 160-year-old brand, so how far below 30 cents on the dollar on book is it going to go?”
A larger investment into the 166-year-old bank “would have stretched the management’s operational capabilities and would have diverted focus from their bread and butter — which is the Saudi market”, said Shabbir Malik, lead analyst who covers Saudi banks for EFG Hermes.
Formed in 2021 from a merger between Saudi Samba Financial Group and the National Commercial Bank, SNB now commands about 30% of the overall banking market in the country. It is the country’s largest bank with $256 billion in assets.
State institutions own a majority of SNB shares and Prince Mohammed, the chair of the PIF and the kingdom’s day-to-day ruler, is considered the driving force behind most big decisions.
Global footprint
SNB, which has 492 branches and employs 4,500 people, already leads the market in investment banking and brokerage and asset management, and wants to focus on retail and wholesale while increasing its return on equity by 2 to 3%.
The bank has controlling stakes in two foreign banks, one in Turkey and one in Pakistan, and branches and representative offices elsewhere in Asia.
The move into Credit Suisse reflects a new assertiveness sweeping the oil-rich kingdom, alongside a top-down government economic reform plan that is shaking up the country’s private sector.
Alkhudairy has previously called the investment a “manifestation of the new Saudi Arabia” but that did not, he said, mean his bank was targeting more acquisitions in Europe. Instead, it wants to grow across the Middle East.
“Guys, you’re missing the point. More than 95% of what we are focused on is how to continue to grow our dominant position in Saudi Arabia,” said the SNB chair.
Active investor
Prince Mohammed, the driver of the economic reform plan, wants to create national champions and boost the kingdom’s profile.
The PIF has been among the region’s most active investors, gobbling up majority stakes in companies and even Newcastle United football team in the UK.
And speculation persists that Saudi money might eventually be needed to backstop Klein’s newly spun-off Credit Suisse investment bank — which is on the hunt for billions in funding — even if people familiar with the matter say nothing is at present being discussed.
But the G20 country and Opec leader also wants to set itself up as a regional economic power and business hub dotted with megaprojects, challenging the United Arab Emirates’ position as the region’s trade, tourism and transport hub.
Investments, particularly by the PIF, have ranged from electric vehicles to gaming platforms and concert distributors.
Alkhudairy argues that Credit Suisse’s experience in private wealth management can help the kingdom’s banks catch up with their European and North American competitors.
SNB was looking to hold the Credit Suisse stake for a couple of years, and perhaps longer, depending on market conditions, said Alkhudairy.
Tumbling share price
Credit Suisse shares have continued to tumble and have fallen more than 65% this year.
SNB invested the majority of its $1.5 billion commitment as part of a CHF1.8 billion ($1.9bn) share placement alongside other investors, including the Qatar Investment Authority, as the Financial Times has reported.
Those investors bought at CHF3.82 a share when it traded at CHF4.07. Since then, the share price has collapsed by a quarter to CHF3.08. SNB also took part in the Credit Suisse rights issue that concluded last week, buying additional stock at the pre-agreed price of CHF2.52.
However, the SNB chair is not concerned. “When was the last time the system allowed for such a venerable global brand to simply keel over?” he said. “That’s what it’s going to take for us to lose significant money.”
Additional reporting by Owen Walker and Andrew England
Copyright The Financial Times Limited 2022
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