MBS’ Credit Suisse stake isn’t just another Gulf Bank bailout

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As Credit Suisse Group AG is revamped, the Saudis have stepped in to help. But the Swiss bank could also end up playing its own rescue role.

The troubled lender, plagued by scandals and losses, strikes deals to raise capital from outside investors and returns to its wealth management roots. The Saudi National Bank, or SNB, majority-owned by the kingdom’s Public Investment Fund and its biggest lender, has pledged $1.5 billion to become a new strategic investor and take a 9. 9% in Credit Suisse, subject to approval by existing shareholders.

With Saudi Arabia’s newfound bluster, the 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 modernization streak and has bigger and bolder plans. As he cleans up, tightens his purse strings and tries to make his grand Vision 2030 economic plan a reality, the banking system and the financial plumbing are increasingly crucial.

Although there is a lot of money in the hands of the wealthiest Saudi citizens, the country remains heavily dependent on foreign wealth managers and banks to deploy capital.

The SNB itself was created earlier this year by the merger of the National Commercial Bank and the Samba Financial Group. The combined entity, which oversees almost a third of the country’s banking assets, is a mix of a large retail bank and a commercial lender. Showing financial strength, SNB Chairman Ammar al-Khudairy said the investment in Credit Suisse was a “manifestation of the new Saudi Arabia”.

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

Credit Suisse’s wealth management returns have only hit 15% in the past two years, according to Morgan Stanley, as its long-running scandals and problems managing the bank have largely hurt its operations. But in the years before the Covid pandemic, its International Wealth division was achieving average returns of almost 30%

Credit Suisse’s wealth management know-how and technology could prove extremely valuable to the Saudi bank – and to MBS’s plans. Cost-cutting technology has become much more important in recent years as declining returns on investment and increasing transparency have put pressure on fees. At the same time, even the most complicated customers increasingly want to use their mobile phone or other digital devices for their finances. SNB could definitely use some help to develop this stuff faster.

The heritage business is also driving growth. The Middle East and Africa has a relatively small market with only about a tenth of North America’s assets. But the Middle East could grow nearly 5% a year over the next five years, which is better than all regions except Asia-Pacific and Latin America, according to estimates from the consulting firm Oliver Wyman.

Saudi Arabia also faces growing local competition in finance. The more financially savvy UAE has brought in banks, global asset managers and talent to create a center of expertise. Dubai and Abu Dhabi are building 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 world’s fastest growing economy this year, hasn’t quite established itself as a savvy financial investor despite the heaps of capital it sits on or invests.

MBS has made great efforts to bring in foreign bankers, investors and lawyers and deepen the country’s financial system. With the move from Credit Suisse, he has more access to a damaged but still sophisticated knowledge base. He also has at his side Michael Klein, the star banker and specialist in the Middle East, who is expected to take the helm of Credit Suisse’s quasi-independent investment bank, CS First Boston.

If the country can make the most of this expertise, Vision 2030 might actually stand a chance.

More from Bloomberg Opinion:

• Credit Suisse’s Gulf suitors must be smarter: Anjani Trivedi

• Credit Suisse buyers stuck with a loss: Paul J. Davies

• Credit Suisse’s journey is more like a quest for the Holy Grail: Paul J. Davies

This column does not necessarily reflect the opinion of the Editorial Board or of 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 at bloomberg.com/opinion

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