Saudi is far from the last Western bank bagholder
LONDON, March 21 (Reuters Breakingviews) - Saudi Arabia has joined the Western bank bagholder club. Saudi National Bank (1180.SE) (SNB), 37% owned by the kingdom’s $600 billion Public Investment Fund, admitted on Monday that its $1.4 billion swoop for 10% of Credit Suisse (CSGN.S) had gone sour after the latter collapsed into the arms of UBS (UBSG.S). The good news for SNB Chairman Ammar Al Khudairy is that his $1 billion-plus loss is neither the first nor the last time an eastern investor will take a big bath on a U.S. or European financial group.
The SNB’s investment was clearly a goof. The bank only made its play in November, when client money was already flowing out of Credit Suisse. Given the Swiss lender’s ongoing issues one can see why Al Khudairy said last week he wouldn’t be investing any more cash. But such a statement from the bank’s biggest single investor may have made things worse.
Still, the outlay for Saudi Arabia is trifling versus the $45 billion invested in Masayoshi Son’s $100 billion Vision Fund 1, which has faced a tough tech environment and recorded four straight quarters of losses. And it is also dwarfed by the $7.5 billion that the Abu Dhabi Investment Authority pumped into Citi in 2007, only to see the U.S. lender require another bailout in 2008. Then there’s the $10 billion invested by Singapore’s GIC into UBS in 2007, which it eventually retreated from in 2017 at a loss, and the hit Temasek took selling out of Bank of America (BAC.N) in 2009. All told, sovereign wealth funds made $17 billion of net losses on over $56 billion of crisis-era investments, the Sovereign Wealth Fund Institute estimated in 2017.
Given all that, you’d think Gulf and other investors would wise up and stop sinking money into ropey Western financial institutions. One reason why they haven’t and probably won’t is that not all the bets have gone south. Abu Dhabi’s $5 billion jumble of debt and derivative investments in Barclays (BARC.L) in 2008 made a 62% return in not much more than a year, helped by a strategy similar to Warren Buffett’s 2008 swoop on Goldman Sachs (GS.N), where the veteran investor secured a safer berth higher up the capital structure.
A more relevant factor right now is that the likes of Saudi and the United Arab Emirates have huge amounts of capital to deploy. High oil prices mean the pair collectively made over $170 billion in extra net export revenue from oil sales in 2022. That gives headroom for expensive mistakes.
There’s one other reason. The hard political logic behind casino-style bets on rickety banks is that they cement political ties, an important factor for geographically tiny states like Qatar, which holds the biggest individual stake in Barclays. These links arguably become stronger if assets acquired in good faith collapse in value. Arguably one manifestation of that dynamic is that Credit Suisse shareholders led by SNB still got a recovery of 3 billion Swiss francs, while junior bondholders were completely wiped out. Gulf investors’ scope for non-financial returns from their bank bets means they will probably play bagholder again.
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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
Saudi National Bank's growth strategy will be unaffected by the reduced valuation on its investment in Credit Suisse, it said on March 20 after the Swiss bank's takeover deal with domestic rival UBS.
The Saudi lender, the kingdom's largest by assets, acquired almost 9.9% of Credit Suisse for 5.5 billion riyals ($1.46 billion) last November and is the bank’s largest shareholder.
Saudi National Bank bought 307.6 million Credit Suisse shares for 3.82 Swiss francs ($4.11) per share. The UBS offer of 3 billion Swiss francs ($3.23 billion) values Credit Suisse shares at 0.76 francs each, more than 80% lower than the price paid by the Saudi bank.
"Changes in the valuation of SNB's investment in Credit Suisse have no impact on SNB's growth plans and forward-looking 2023 guidance," Saudi National Bank said in a bourse filing on Monday.
Saudi National Bank's statement added that the potential impact to its capital adequacy ratio is about 35 basis points, with no impact on profitability. It said its investment in Credit Suisse formed less than 0.5% of total assets of more than 945 billion riyals as of last December.
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