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More Than $1 Billion Lost On A Credit Suisse Investment By Saudi National Bank

More Than $1 Billion Lost On A Credit Suisse Investment By Saudi National Bank
Saudi National Bank is suffering significant losses as a result of UBS's forced acquisition of Credit Suisse for $3.2 billion.
The largest shareholder of Credit Suisse, Saudi National Bank, informed the media on Monday that it had suffered an investment loss of about 80%.
The bank with headquarters in Riyadh currently owns 9.9% of Credit Suisse after investing $1.5 billion (1.4 billion Swiss francs) in the 167-year-old Swiss lender in November of last year at a price of 3.82 francs per share.
UBS is paying Credit Suisse shareholders 0.76 francs per share as per the terms of the rescue agreement.
The substantial discount is a result of regulators' efforts to support the global banking system. The search for a rescue comes after a turbulent few weeks that saw the demise of Silicon Valley Bank in the United States, the stock price collapse of First Republic Bank, and significant stock price declines in the global banking sector.
At 9:28 a.m. London time (5:28 a.m. ET), shares of UBS, the biggest bank in Switzerland, were down 10.5%, while the overall banking sector in Europe was down about 4%. Credit Suisse saw a staggering 62% decline.
Saudi National Bank claims that its overall strategy has not changed despite the loss. At 9:30 a.m. London time on Monday, the lender's stock had increased by 0.58%.
“As at December 2022, SNB’s investment in Credit Suisse constituted less than 0.5% of SNB’s total Assets, and c. 1.7% of SNB’s investments portfolio,” Saudi National Bank said in a statement.
It claimed that from a "regulatory capital perspective," there was "nil impact on profitability."
“Changes in the valuation of SNB’s investment in Credit Suisse have no impact on SNB’s growth plans and forward looking 2023 guidance,” it added.
The second-largest shareholder in Credit Suisse, the Qatar Investment Authority, owns a 6.8% stake in the company and also experienced a significant loss. A request for additional information from QIA was not answered.
With years of scandals, multibillion-dollar losses, leadership changes, and a strategy that didn't inspire investor confidence, Credit Suisse's demise was long overdue. Following customer withdrawals of more than 110 billion francs in February, the bank—the second-largest in Switzerland—reported its largest annual loss since the financial crisis of 2008.
The Saudi National Bank, the Qatar Investment Authority, and the Saudi Olayan Group were among the major Gulf banks and sovereign wealth funds that contributed to Credit Suisse's $4 billion funding round in December 2022. Norges Bank Investment Management, Norway's sovereign wealth fund, is another significant shareholder.
Like most shareholders in CS, SNB is likely furious that management allowed the situation to deteriorate to this point.
Some claim that Saudi National Bank is partially to blame for the sudden and abrupt downturn that started last week and caused the bank to sell assets in an emergency situation.
Ammar Al Khudairy, the chairman of the Saudi National Bank, was questioned by Bloomberg on Wednesday about whether the bank would raise its stake in the struggling Swiss lender. Absolutely not, he responded, "for a variety of reasons beyond the most basic one, which is statutory and regulatory."
Despite the fact that the statement was not new—the Saudi bank had already stated in October that it had no plans to increase its holdings beyond the current 9.9%—the comment sparked investor panic and sent Credit Suisse shares plummeting 24% during that session.
“Even though the situation at Credit Suisse was not perfect and investors had a lot of question marks about the future of the bank, SNB didn’t help calm down investors and shot themselves in the foot” with the chairman’s comments, one UAE-based investment banker, who requested not to be named due to professional restrictions, told CNBC.
“As the largest shareholders in the bank, they had the most to lose if the bank goes under, and this is exactly what happened,” the banker said.
The Saudi National Bank chairman made an effort to diffuse the situation the next day, saying that "unfortunately, a lot of people were just looking for excuses" given how the banking industry as a whole has declined.
“It’s panic, a little bit of panic. I believe completely unwarranted, whether it be for Credit Suisse or for the entire market,” Al Khudairy said. His comments ultimately failed to stem the bank’s continued rout.
The chaotic aftermath, which affected the entire banking industry, has shaken market confidence and stoked concerns about a potential new global banking crisis. During a press conference on Sunday, Swiss Finance Minister Karin Keller-Sutter sought to calm the fears of the nation's furious taxpaying public by emphasizing that "this is a commercial solution and not a bailout."
“SNB’s feeling right now is probably like all shareholders in CS — utter anger that management have let the situation get to this point,” Simon Fentham-Fletcher, chief investment officer at Abu Dhabi-based Freedom Asset Management said.
“For years CS lurched from crisis to regulatory fine and changed management as it emerged in a new path. Finally the bank ran out of time,” he said.
"Where the stake is as large as it was here, will probably want to start embedding people so they properly understand what is happening inside their investments," he said, referring to shareholders, particularly large ones like Saudi National Bank.
“This might see a rise in activist shareholders not just wanting a board seat but real eyes and ears,” he added, noting that the last few weeks of market turmoil will undoubtedly put a significant dent in investor desire for risk.
Fentham-Fletcher stated that from a risk perspective, "generally I think that we will see a pullback in all risk appetite as confidence has just taken a severe beating, and this combined with the apparent upending of the capital structure rules will undoubtedly make people pause."

Christopher J. Mitchell

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