Arabian Gulf Business Insight - SNB plans growth despite Credit Suisse losses

Saudi National Bank has said its growth strategy will not be impacted by the UBS takeover of beleaguered rival Credit Suisse, despite analysts predicting “heavy losses” for Gulf backers.

SNB is joined by Qatar Investment Authority and Saudi Arabian conglomerate Olayan Group, who all have varying levels of interest in the 167-year-old Swiss bank.

Rohit Sunil, investment banking analyst at Yukon Capital Services in Dubai, told AGBI: “You’re looking at heavy losses for both the Saudi and Qatari backers.”

Experts have forecast as much as a $1 billion loss for SNB, Credit Suisse’s largest shareholder, following the reported $3.23 billion takeover deal by larger rival UBS, which was announced by Swiss authorities on Sunday as part of a wider state-backed rescue plan.

UBS will assume up to $5.4 billion in losses in the deal backed by a massive Swiss guarantee, expected to close by the end of 2023.

SNB, which is 37 percent owned by Saudi’s public investment fund (PIF), had acquired almost a 10 percent stake in the troubled Swiss bank last year for SR5.5 billion ($1.46 billion).

By the peak of Credit Suisse’s problems last week that investment had lost more than 500 million francs, according to a Bloomberg report.

“Changes in the valuation of SNB’s investment in Credit Suisse have no impact on SNB’s growth plans and forward looking 2023 guidance,” SNB said in a bourse filing on Monday morning.

The filing pointed out that SNB’s investment in Credit Suisse constituted less than 0.5 percent of the bank’s total assets and around 1.7 percent of its investment portfolio.

SNB’s total assets exceed SAR945 billion and Monday’s statement said it “continues to enjoy healthy capitalisation and liquidity”.

UBS chair Colm Kelleher said during a press conference that it will wind down Credit Suisse’s investment bank, which has thousands of employees worldwide. UBS said it expected annual cost savings of some $7 billion by 2027.

The Swiss central bank said Sunday’s deal includes 100 billion Swiss francs ($108 billion) in liquidity assistance for UBS and Credit Suisse.

Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, equivalent to 0.76 Swiss francs per share for a total consideration of 3 billion francs, UBS said.

The QIA, the Gulf state’s sovereign wealth fund, which boasts an asset base of over $460 billion, increased its stake in Credit Suisse to just under 7 percent in January, becoming the Swiss bank’s second largest shareholder behind SNB.

QIA bought 139.03 million shares in the Swiss lender, bringing its ownership to 6.87 percent. Saudi Arabia’s Olayan Group owns a stake of about 3 percent, Eikon data shows.

Vijay Valecha, chief investment officer at Century Financial, said: “While this event will exert near-term pressure on QIA, it has a strong liquidity position and has recently launched a market-making initiative to boost liquidity at the Qatar Stock Exchange.

“This will help licensed market makers to access some of QIA’s stock inventory and incentives programmes. In the long run, it will be able to withstand any losses arising from this event.”

Under the deal with UBS, some Credit Suisse bondholders are major losers. The Swiss regulator decided that Credit Suisse bonds with a notional value of $17 billion will be valued at zero.

Most stock markets in the Gulf fell in early trade on Monday, tracking global peers and oil prices dragged down by concern risks in the global banking sector may cause a recession and cut fuel demand.

In Abu Dhabi, the benchmark stock index dropped 1.4 percent; Dubai’s benchmark stock index was down 0.5 percent in early trade; and the Qatari Stock index fell 0.3 percent, with losses in most sectors, led by industry and finance.

Saudi Arabia’s benchmark stock index fell 0.5 percent, undermined by losses in finance, materials and energy sectors.

The world’s largest Islamic bank by assets, Al Rajhi Bank, lost 0.6 percent and the kingdom’s largest commercial bank, Saudi National Bank, dropped 1.8 percent.