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Credit Suisse: What a 10% Stake by the Saudi National Bank Means

Will the second largest Swiss bank be able to handle its new ambitious investor, a Saudi bank whose market cap is seven times as big? Credit Suisse had better pull off its turnaround – or it could get swallowed.

Myret Zaki
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Since the announcements on 27 October, Credit Suisse seems to be out of its worst troubles. But the bank’s new owners list includes a dominant player: the Saudi National Bank, the biggest commercial bank of Saudi Arabia, will soon own 9,9% of Credit Suisse. If we add this new participation to the existing ones of the Saudi conglomerate Olayan Group (4,9%) and Qatar Investment Authority (5%), it brings the total Gulf participation in Credit Suisse close to 20%.

And according to a report in the «Financial Times», the Qatar Investment Authority (QIA) also plans to increase its share by investing alongside the Saudi National Bank. As a consequence, the combined share of Olayan, QIA and Saudi National Bank could even increase to 25%. That is a first.

The concentration in the hands of Gulf Cooperation Council (GCC) investors raises questions as to how a private Swiss bank that wouldn’t easily let the Swiss government participate in its capital, increasingly opens itself to foreign sovereign entities. One might argue that this is only temporary. But unlike the Singapore government participation in UBS that started in December 2007 at 6,4% to 7%, until it fell below 3% in 2017, the Credit Suisse Gulf participations look to be more permanent.

Delicate restructuring ahead

UBS had obtained massive backing from the Swiss National Bank in late 2008, and regained financial autonomy after the U.S. Federal Reserve stepped in to save the US subprime market, allowing toxic papers to be sold at a value. Credit Suisse, on the other hand, is entering a delicate restructuring phase that will have it undergo a radical transformation. The outcome is uncertain.

Indeed, it has become a tradition for Credit Suisse to raise capital from Gulf investors during tough times. It was in the aftermath of the 2008 crisis that the Swiss bank first opened its capital to the earlier Qatari and Saudi backers. It never asked for any public Swiss help, but it searched for outside funds. In Switzerland, this decision was held in high regard by the general opinion, as Credit Suisse wasn’t putting any taxpayer money at risk. In February 2011, Credit Suisse announced that it «reached an agreement with strategic investors, Qatar Investment Authority and The Olayan Group, to issue an aggregate of 5,9 billion CHF tier 1 buffer capital notes».

Credit Suisse had successfully used its international connections. It had known Olayan Group for quite some time, as the CEO of this entity had been a board member since 1998 (and until 2013). As to the Qatari connection, the chairman of Qatar Islamic Bank had been on the Credit Suisse board since 2010 (and until 2017).

Contrary to the Saudi National Bank, Olayan Group is not a Saudi government entity, though the family-owned conglomerate, while very international, has remained a close partner to Riyadh. At a certain point, in 2016, the Olayan Group had increased its holdings in Credit Suisse to 10,72% (including options), but they quickly returned to the current 4,9%. Participations of these early Gulf investors remained below the 5% threshold. They didn’t scare anyone. They weren’t themselves bankers, and their participation was credibly viewed as purely financial, as they remained very discrete.

Balance of power is stacked against CS

Things have taken another dimension with the arrival of the Saudi National Bank and its almost 10% participation. This is a big, ambitious bank, that knows a lot about Credit Suisse’s activities. In 2021, the Saudi financial institution earned 3,4 billion CHF (12,7 bn Saudi riyals) in net income, which is more than what Credit Suisse brought in annually in the past three years. According to its 2021 annual report, Saudi National Bank is missioned by the Saudi state to transform the economy of Saudi Arabia. It is expected to implement Saudi Arabia’s «Vision 2030», a giant plan to diversify the economy away from the energy sector.

«Saudi National Bank strategy is closely aligned with the Saudi Vision programs», the report goes on, «leveraging its position as the largest institutional and specialized financing entity in Saudi Arabia to support the Kingdom’s landmark deals and mega projects».

Saudi National Bank is more than 37% owned by the Public Investment Fund (the Saudi sovereign wealth fund) and other government entities. Its market cap, calculated in Swiss francs, is 70 billion, which is seven times that of Credit Suisse (although the size of its balance sheet is a third of the Swiss bank’s).

The balance of power isn’t in favor of Credit Suisse at the moment. This new strategic investor comes at a time when the bank remains vulnerable. The announced restructurings are far from being a done deal. The Saudis could end up wanting more than the stake to remain a «purely financial investment» and ask for more in return for injecting money at a probable loss. At UBS, the Singapore fund had to accept a substantial loss when it finally withdrew after ten years. The Saudis might have learnt the Singaporean lesson.

It’s Credit Suisse’s call to defend its independence by successfully managing its turnaround.

Myret Zaki

Myret Zaki started in 1997 as a junior analyst in a Geneva private bank where she learnt the basics of equity research, before joining the daily newspaper «Le Temps» in 2001, where she was in charge of the finance section for 9 years. When the financial crisis broke in 2008, she wrote the investigative book «UBS, am Rande des Abgrunds» (originally published in French as «UBS, les dessous d’un scandale»), for which she received the Schweizer Journalist prize. She joined «Bilan» magazine in 2010 where she became Chief Editor from 2014 to 2019. Between 2010 and 2016, she wrote three other bestselling books, about Swiss banking secrecy, the end of the Dollar reserve status, and the rise of the shadow banking system. She has a Political Science Bachelor from the American University in Cairo and an MBA from the Business School of Lausanne. She is now head of the Communication faculty at the School of Journalism and Media in Lausanne.
Myret Zaki started in 1997 as a junior analyst in a Geneva private bank where she learnt the basics of equity research, before joining the daily newspaper «Le Temps» in 2001, where she was in charge of the finance section for 9 years. When the financial crisis broke in 2008, she wrote the investigative book «UBS, am Rande des Abgrunds» (originally published in French as «UBS, les dessous d’un scandale»), for which she received the Schweizer Journalist prize. She joined «Bilan» magazine in 2010 where she became Chief Editor from 2014 to 2019. Between 2010 and 2016, she wrote three other bestselling books, about Swiss banking secrecy, the end of the Dollar reserve status, and the rise of the shadow banking system. She has a Political Science Bachelor from the American University in Cairo and an MBA from the Business School of Lausanne. She is now head of the Communication faculty at the School of Journalism and Media in Lausanne.