In a few days, the Saudi National Bank will become the major shareholder of the Swiss bank. Officially, the lenders are concerned with returns, but their real motives are likely to be more complex. Three possible explanations.
Selfie with the Crown Prince: Mohammed bin Salman in October 2018 at the Future Investment Initiative conference in Riyadh, also known as “Davos of the desert”.
The picture of Crown Prince Mohammed bin Salman on the wall in the background is clearly visible as the head of the Saudi National Bank (SNB) gives an interview to Bloomberg TV. A few days earlier, on October 27, Saudi Arabia’s largest bank announced that it would invest up to CHF 1.5 billion in the crisis-ridden Swiss bank Credit Suisse (CS) and its transformation plans.
“We like the story,” says US-trained banker Ammar al-Khudairy in impeccable English about the deal, which many other potential international financiers have turned down.
What prompted the Saudis to participate in the capital increase, which is considered risky, is also unclear almost a month after the announcement. One thing is certain: On November 23, the existing CS shareholders will decide on the capital increase and thus seal the Saudi National Bank’s entry as a major shareholder.
Assessments by experts on Saudi Arabia, research reports, public statements by those involved and discussions with representatives of the financial center give an idea of the intentions behind the participation in CS.
Explanation approach 1: short-term speculation on price increases
“A perfectly normal business transaction.” This is how the SNB chairman al-Khudairy characterized the stake in CS in subsequent interviews with Bloomberg TV and the broadcaster al-Arabiya.
Al-Khudairy presented the CS deal as a relatively short-term “tactical investment” that represented only a fraction of the assets held by the SNB. There are no guarantees that the investment will pay off. “But we like the new management of the bank, their determination and their conviction to implement the recovery plan.” The single investment with a horizon of three to five years has “very good, no, even excellent return potential,” he told Bloomberg.
A few days later, al-Khudairy spoke of an even shorter investment horizon of two to three years for al-Arabiya. Accordingly, the withdrawal from the CS stake could take place as early as 2024 or 2025. “Until then, we see promising transactions at the bank and potential for sustainable gains and positive returns.”
If one wants to interpret the investment strategy presented by the Saudis, which is geared towards short-term returns, positively from Credit Suisse’s point of view, one can say: The big bank has found a professional and solvent investor who believes that the CS management will carry out its strategic transformation plan in very good terms will lead to success in a short time.
Or as Eckart Woertz, director of the Hamburg Institute for Middle East Studies, puts it: “For a bank in turbulence, a state investor from the Gulf States is a stability factor. It’s not ‘stupid money’, they want a good deal.”
According to their own statements, the Saudis are not aiming for a seat on the board of directors or an even higher stake, because this would entail additional regulatory requirements and less flexibility when selling the shares.
Woertz, who himself worked for a broker in Dubai for a number of years, considers the Saudi stake of 9.9 percent to be high when compared to bank stakes held by state investors from the Middle East. “That would normally indicate a more active influence on the operational business.”
Explanation 2: Know-how transfer for the Saudi, door opener for Credit Suisse
Before Credit Suisse became a problem in the Swiss financial center, it made high profits for many years as a universal bank and built up know-how that the Saudi National Bank can use. As the largest bank in the kingdom, the SNB plays an important role in the modernization of the Saudi economy that the crown prince is aiming for. It won’t work without the support of western banks.
SNB Chairman al-Khudairy made it clear in interviews that they were interested in the know-how of the Swiss. The SNB is hoping for support from Credit Suisse in handling IPOs, in asset management, but also in advising the growing middle class in Saudi Arabia and developing the range of products and services. “Sometime in the next few months we will sit down and see how we can develop joint initiatives to better cover our market,” al-Khudairy said.
It’s still just a matter of mind games: there hasn’t been any ready-made cooperation yet. Credit Suisse’s management team is currently mainly absorbed by the capital increase and its ambitious transformation plans.
It is also unclear to what extent the Saudi SNB can act as a door opener for CS in Saudi Arabia. The bank has been operating in Saudi Arabia since 2005. In 2021, CS opened its own branch in Riyadh to expand business with wealthy and very wealthy clients. Saudi family businesses as well as state and government-related organizations are also among the CS target groups in Saudi Arabia. According to banking circles, fewer than 60 employees are currently working on site.
The new boss of the planned investment bank CS First Boston, Michael Klein, is attested to have the best connections in the kingdom. In 2019, CS was also involved in the IPO of the oil company Aramco.
The major Swiss bank is far from the only global financial institution to be enticed by Saudi Arabia’s oil wealth. In mid-November, the Saudi sovereign wealth fund published pictures showing a beaming Larry Fink, head of Blackrock, the world’s largest investment company, signing a declaration of intent for closer cooperation. Blackrock plans to set up its own team in Riyadh to bring foreign capital to Saudi Arabia and the Middle East for major infrastructure projects.
Explanatory approach 3: foreign policy power strategy
When Western companies accept money from Saudi Arabia, it comes at a price. That’s what Stephan Roll from the Berlin Science and Politics Foundation said in 2019 Research paper entitled “Sovereignty Fund for a Prince” states: “Economic cooperation with the kingdom involving the fund or companies controlled by it have a power-political dimension that must not be ignored.”
Officially, Crown Prince Mohammed bin Salman, also known as MBS, was not involved in the deal with Credit Suisse, but through the Saudi sovereign wealth fund, MBS does control the block of shares in the systemically important Swiss bank acquired by the Saudi National Bank: 37 percent of the Saudi SNB are in control owned by the sovereign wealth fund. Together with the shares of other state institutions, the Saudi state controls more than 50 percent of the SNB shares.
According to researcher Roll, Western governments should ask themselves, as in the case of Russia and China, how to deal with a state investor “who is not primarily profit-oriented, but also represents the foreign policy interests of the government”. Ultimately, the question is whether the Crown Prince buys international support for his political goals by investing in foreign companies.
Roll assumes that bin Salman can de facto alone control the assets of the sovereign wealth fund, which now amount to more than $600 billion. The Public Investment Fund’s portfolio now includes significant shares in Western companies. The palette ranges from Uber to Boeing to Nintendo. And now also Credit Suisse.
Roll believes that the fact that bin Salman wants to use the fund to transform Saudi Arabia into a modern industrial nation is only part of the story. Ultimately, the sovereign wealth fund is above all a personal power vehicle for bin Salman to maintain absolute control over the resources in the kingdom and to bind “groups that are strategically important to power”.
The crown prince is depriving the state of resources and at the same time acting in a highly opaque manner. “The sovereign wealth fund is like an octopus that stands above the economy,” says Roll, recalling 2017 when bin Salman interned members of the Saudi business elite at the Hotel Ritz in Riyadh until they agreed to transfer assets to the state . “The Saudi monarchy was an authoritarian system even before the rise of bin Salman, but at that time power was spread much more broadly across the Saudi ruling family. Now it’s a much more personalized rule.”
What makes it easier for international companies to justify doing business with state-related companies from Saudi Arabia are the socio-political reforms initiated by the crown prince: women are now allowed to drive in the kingdom, the population can move more freely in public spaces, and even cinemas are now allowed.
However, the business and reputation risks associated with the unpredictability of the young autocrat, his thirst for power and the intensified repression of those who think differently remain. CS will also have to live with this once the Saudi National Bank has become a shareholder.