MBS’s Credit Suisse Stake Isn’t Just Another Gulf Bank Rescue


Comment

As Credit Suisse Group AG is overhauled, the Saudis have swooped in to help. But the Swiss bank may end up playing its own rescue role, too.

The troubled lender, beset by scandals and losses, is striking deals to raise capital from outside investors and going back to its wealth-management roots. Saudi National Bank, or SNB, majority-owned by the kingdom’s Public Investment Fund and its largest lender, has committed to $1.5 billion to become a new strategic investor and take a 9.9% stake in Credit Suisse, subject to approval by existing shareholders.

With Saudi Arabia’s newfound swagger, SNB’s move isn’t just another bailout by a deep-pocketed Gulf investor. The country’s de facto leader Crown Prince Mohammed bin Salman, or MBS, is on a modernizing streak and has bigger, bolder plans. As he cleans house, tightens purse strings and tries to make his grand Vision 2030 economic blueprint a reality, the banking system and financial plumbing are increasingly crucial.

While there’s plenty of money in the hands of Saudi’s richest citizens, the country remains heavily reliant on foreign wealth managers and banks to deploy capital.

SNB itself was created earlier this year through the merger of National Commercial Bank and Samba Financial Group. The combined entity, overseeing almost one-third of the country’s banking assets, is a mash-up of a large retail bank and commercial lender. Flexing their financial muscle, SNB Chairman Ammar al-Khudairy has said that the investment in Credit Suisse is a “manifestation of the new Saudi Arabia.”

SNB developing an investment banking operation to raise money overseas for projects at home would be extremely useful in realizing MBS’s vision, which includes the $500 billion high-tech metropolis in the desert called Neom. (Saudi Arabia is working with Lazard Ltd. as it considers how it will pay for Neom, Bloomberg News has reported). But where they ought to focus first is on using local money better and offering it more of a reason to stay. That’s where a stake in Credit Suisse comes in.  

Credit Suisse’s wealth-management returns have reached only 15% in the past couple of years, according to Morgan Stanley, as its long-brewing scandals and problems managing the bank hurt its operations broadly. But in the years before the Covid pandemic, its International Wealth division was hitting average returns of nearly 30%

Credit Suisse’s wealth-management know-how and technology could prove extremely valuable to the Saudi bank – and for MBS’s plans. Technology that saves costs has become much more important in recent years because lower investment returns and growing transparency have put pressure on fees. At the same time, even the most complicated clients increasingly want to use their mobile phones or other digital devices for their finances. SNB could definitely use some help to develop those kinds of things more quickly.

The wealth business also promises growth. The Middle East and Africa has a relatively small market with only about one-tenth of the assets of North America. But the Middle East could grow by nearly 5% annually over the next five years, which is better than all regions apart from Asia Pacific and Latin America, according to estimates by the consultancy Oliver Wyman.

Saudi also faces growing local competition in finance. The financially savvier United Arab Emirates has gone big on drawing in banks, global asset managers and talent to build a center of expertise. Dubai and Abu Dhabi are creating investment bases and showing that they can – potentially – diversify and pivot their economies to be more than just dependent on oil and trade. And, that they know how to use their own money well.

Meanwhile, Saudi Arabia, the fastest-growing economy in the world this year, hasn’t quite gotten itself known as a shrewd financial investor despite the heaps of capital it sits on or invests.

MBS has pushed hard to bring in foreign bankers, investors and lawyers and deepen the country’s financial system. With the Credit Suisse move, he has more access to a damaged but still sophisticated knowledge base. He also has Michael Klein – the star banker and Middle East specialist — who is due to become head of Credit Suisse’s quasi-independent investment bank CS First Boston, on his side.

If the country can get the most out of this expertise, Vision 2030 might actually have a chance.

More From Bloomberg Opinion:

• Credit Suisse’s Gulf Suitors Need to Be Smarter: Anjani Trivedi

• Credit Suisse Buyers Are Stuck With a Loss: Paul J. Davies

• Credit Suisse’s Journey Is More of a Grail Quest: Paul J. Davies

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. Previously, she was a reporter for the Wall Street Journal.

Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.

More stories like this are available on bloomberg.com/opinion



Read More: MBS’s Credit Suisse Stake Isn’t Just Another Gulf Bank Rescue

2022-11-14 07:11:28

Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More