There’s more at stake for big spenders now. At a time when the Gulf states are trying to grow their capital and expand their global influence beyond just oil wealth, how they put their money to work matters. Picking up stakes and trophies is not enough. If sovereign funds with their full coffers want to enter the big leagues, they will have to be majority shareholders and show that they can play strategic games.
During the financial crisis, they came in with big checks and left with small minority stakes. Many investments have not fared so well and have done little to establish their status as savvy investors or rescuers from crippled global financial institutions.
Now, with their new found swagger as the rest of the world faces an energy crisis, Saudi Arabia and the Emirates of Dubai and Abu Dhabi are all competing to become regional financial hubs, attracting talent, large companies and foreign companies. Saudi Arabia’s Public Investment Fund, for example, has not previously shown the same inclination towards financial firms as it has towards technology, infrastructure or industrial players. Whichever state takes a bold stance on the world stage, it could accelerate its path to pole position.
With Michael Klein involved — the former Citigroup Inc. star investment banker who knows Saudi Arabia well — Credit Suisse is an opportunity, and having a 51% stake in its investment banking arm would facilitate that. Playing a key finance role in a global institution, albeit a shadow of itself (thus quite small) but still deeply embedded in the financial system, would bring the influence they desire. These companies need to be able to use their balance sheets to make money, especially now that interest rates are rising. Very few can finance this like the big investors in the Middle East can.
Take the profitable securitized products business, which the Swiss company says should be sold because it requires too much capital and has limited overlap with the core wealth management unit. By 2024, an estimated 400 million Swiss francs ($398 million) in pre-tax profits would make up a large chunk of the 700 million Swiss franc total, analysts said. It is a valuable business worth owning. If companies like Abu Dhabi or Saudi Arabia step in, they can inject more capital, bolster reserves and reduce funding costs, while keeping a lucrative global lender intact.
It could be a win-win. For Credit Suisse Group, a structure like this removes the financial headache of owning the entire investment bank and its risk, while maintaining access for its wealth management and of assets. As well as giving these Gulf funds more control, taking a majority stake will help avoid the follies of their peers in Qatar, who have stepped in to save the Swiss company from some of its botched deals. Also, building deeper financial channels in the region could help the Gulf banking sector evolve. Of course, regulators would also have to be persuaded.
The bonds run deep and have been cultivated over decades. The Qatar Investment Authority and Saudi conglomerate Olayan Group already have stakes in Credit Suisse, having helped it raise more than $6 billion. These companies have reduced their holdings over time, but have also made other bailouts. At the onset of the financial crisis, the entire board, including former CEO Brady Dougan, showed up in Dubai. That year, the Swiss lender announced it was expanding its presence in the Gulf. Over the past decade, it has attempted to bank the growing number of millionaires in the region, deploying capital to its clients through fundraising activities. These relations have also succeeded in circumventing regional geopolitics.
Stepping in with a lot of money can feel like you’re establishing a presence. Doing it smartly is likely to have payoffs. The headquarters of Credit Suisse’s investment bank in Riyadh or Abu Dhabi, perhaps?
More from Bloomberg Opinion:
• Rajeev Misra must do something right: Ren and Trivedi
• Monday Blues Come to the UAE. Will the Saudis follow? : Bobby Ghosh
• In New York, London and Hong Kong? Moving On: Anjani Trivedi
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Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. Previously, she was a reporter for the Wall Street Journal.
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