(March 20): Credit Suisse Group AG’s Middle Eastern shareholders, which together own about a fifth of the Swiss bank, are among some of the biggest losers in the turmoil that culminated in UBS Group AG agreeing to acquire the troubled lender at a steep discount.
Saudi National Bank, the Swiss lender’s top shareholder, has seen the value of its investment plummet by about US$1 billion (RM4.49 billion) in a matter of months. Credit Suisse’s long-term backer, the Qatar Investment Authority (QIA), has seen the value of its 6.8% holding crash after upping its stake as recently as January.
The 9.9% stake held by Saudi Arabia’s largest lender is now valued at about 304 million francs (US$329 million or RM1.47 billion) following the UBS offer, according to Bloomberg calculations. Saudi National Bank, which is 37% owned by the Public Investment Fund, invested 1.4 billion francs in Credit Suisse late last year. Shares in the Saudi lender have slumped by about a third over that period — wiping more than US$25 billion off its market value.
Deep-pocketed Middle Eastern investors have been backing European banks such as Credit Suisse for many years, with varying degrees of success. Citigroup Inc and Barclays plc both tapped Abu Dhabi-based funds during the 2008 financial crisis, which both ended in acrimonious court cases.
“Gulf Cooperation Council investors, including sovereign wealth funds, have had a distinctly checkered record investing in banks overseas,” said Tarek Fadlallah, the head of Nomura Holdings Inc’s asset management arm in the Middle East.
Although Middle Eastern investors have pared back their stakes in difficult times, they’ve also stuck by Credit Suisse. The QIA made its investment during the last financial crisis, and had in the past owned its AT1 bonds that have now been written to zero — though it’s unclear if the fund still held that debt.
The Qatar fund’s participation in Credit Suisse’s approximately US$2 billion convertible notes issuance in April 2021 helped shore up its balance sheet after the Archegos Capital Management LP blow-up. In January, the QIA became Credit Suisse’s second-largest shareholder, when it boosted its stake to 6.87% from about 5.6%.
That month, the bank’s long-time largest shareholder Harris Associates, which once held a stake of about 10%, reported a holding of below 3%. Credit Suisse also counts Saudi conglomerate Olayan Group among one of its biggest shareholders, with a 3.27% stake.
As last week’s crisis came to a head, it’s unclear if the Swiss government consulted with major backers, before the UBS deal was unveiled following hasty weekend discussions.
Marc Nassim, a partner and the managing director of Dubai-based Awad Capital, described UBS’ agreement as a “take it or leave it deal” for shareholders.
“There is always a government somewhere willing to intervene to protect their national interest and wipe out all shareholders,” he said. “So, the ultimate counterparts of bank shareholders are the governments, be it in the US, Europe or other geographies.”
The historic, government-brokered deal was quickly pulled together to contain a crisis of confidence that was spreading across global financial markets, and to halt a massive rout in its stock and bonds.
The slump intensified when Saudi National Bank chairman Ammar Al Khudairy told Bloomberg TV “absolutely not”, when asked whether the lender would be open to further investments in Credit Suisse if there was another call for additional liquidity. That helped spark a slump in the Swiss bank’s shares.
In a statement on Monday (March 20), Saudi National Bank said changes in the valuation of its investment in Credit Suisse “have no impact” on growth plans and its 2023 guidance. The bank’s total assets exceed 945 billion riyals (US$251 billion or RM1.13 trillion), it added.
Following the UBS transaction, the risk of an additional capital call from Credit Suisse — and Saudi National Bank obliging — has reduced significantly, Citigroup analyst Rahul Bajaj wrote in a note. “While this doesn’t rule out Saudi National Bank pursuing other transactions, we would hope that given the experience with Credit Suisse, there would be greater caution,” he said.