Citi is back in Saudi Arabia, determined to pick up where it left off

Updated 18 March 2018

Citi is back in Saudi Arabia, determined to pick up where it left off

The year 1955 was a big one in the history of First National City Bank of New York.
Already a leading financial institution in the US, Europe and Japan, the bank went on an expansion spree in the Middle East, opening offices in Cairo and Beirut. In December, it started up in Jeddah, the first American bank in the Kingdom.
That office on the Red Sea coast was the beginning of a long and fruitful relationship between Saudi Arabia and what was later to become Citibank.
It was disrupted in 1980 when the Samba financial group was formed with majority Saudi ownership, and interrupted again by a strange 13-year hiatus from 2004 to 2017, but Jim Cowles, Citi’s chief executive for the Middle East business, is confident the bank has picked up where it left off.
“We’ve enjoyed a very productive relationship with the Kingdom of Saudi Arabia for many years. Among many transactions and services provided over the years, we were part of the sovereign syndicated loan in 2016, and of course the very successful inaugural sovereign bond issue and the sukuk offering in 2017,” said the 62-year-old Californian.
Those two transactions — which set new records in the global sovereign debt markets with a $10 billion syndicated loan two years ago and $21.5 billion (in conventional and sukuk bonds) in 2017 — were landmark events for the country’s financial system, helping to bridge the gap in the national exchequer left by the fall in oil prices.
They were also proof that Citi did not necessarily need a formal presence in the Kingdom to do business on behalf of Saudi Arabia. But Citi leadership decided that it was better to be all-in with the country’s banking authorities if it was to fully participate in the business opportunities presented by the Vision 2030 strategy to reduce oil dependency.
Last year, Citi won an investment banking license with the Capital Markets Authority, enabling it to take part in the full range of activities in mergers and acquisitions, initial public offerings, privatizations, and other capital markets business.
“So now we have the CMA license, and held our first board meeting in January. We’re very pleased to be back in the Kingdom with an on-the-ground presence,” Cowles said. He immediately began to put in place the executive team needed to run the revived Citi operation in the Kingdom.
“Getting the CMA license was a real highlight for us in 2017 and of course we hope it’s just the beginning. We’ve already started the hiring process on the ground and appointed two excellent local bankers to run banking and markets, as well as having tasked Carmen Haddad (a top Citi executive with extensive experience in the Middle East) with continuing to build our on-the-ground presence,” Cowles said.
Only one thing is needed to complete Citi’s return to the Saudi banking scene — a full license from the Saudi Arabian Monetary Authority — and that could come sooner rather than later. “In time I hope we look at a SAMA license which would allow us to expand into trade banking and treasury services, and also the cash management business,” he said.
A SAMA license would not be a foregone conclusion. It would, of course, need approval from the Saudi authorities, but also from the department of the US Treasury that oversees foreign involvement by American banks. The requirements for getting these approvals have been tightened up since the global financial crisis.
But Cowles is sure that a SAMA license would bring further business opportunities for Citi and for Saudi Arabia. “We would be able to add Saudi to our global banking network. It would be another significant opportunity to bring those services into the Kingdom,” he said.
Citi’s return to the Kingdom — expected to be marked by a formal ceremony in Riyadh next month — places it firmly in the top tier of international banks advising the Kingdom’s policymakers on the financial and economic aspects of the transformation underway there.
Recent reports suggested that Citi, Goldman Sachs, Morgan Stanley and HSBC had been appointed to arrange the best phase of its global borrowing program, involving the refinancing and extension of the $10 billion loan from two years ago, and a new bond which could rival the record-breaking $17.5 billion issue of 2017.
Cowles declined to comment on that possibility, though it is clear that such an involvement would be very much within the scope of its business capabilities.
“We’re market leaders across our institutional franchise. We are currently top of the league tables in equity capital markets, for example. Our global network is something that only Citi really can offer. We are on the ground in 100 countries around the world and there really isn’t anyone else who has this network. It’s a real advantage to be able to serve our clients’ needs with more products and more markets than anyone else as they grow and transact globally,” he said.
Such global firepower would be invaluable for the Kingdom if it decided to go ahead with the international element to the planned initial public offering (IPO) of Saudi Aramco, which is slated as the biggest IPO in history but about which recent doubts have arisen, at least with regard to the sale of shares on foreign markets, including Citi’s home city of New York.
Cowles, conscious of the delicate state of the Aramco situation ahead of the imminent royal visit to the US, declined to talk about Aramco. But Citi is believed to have been among a group of banks that made presentations to Aramco regarding the possible IPO earlier in the year. Whatever the outcome of the Aramco deliberations, Citi is keen to be involved in the rest of the Vision 2030 program, especially the big privatization program of other state-owned entities, which government officials have said could raise as much as $200 billion in a series of IPOs and trade sales.
Citi is relying on its track record of successful privatization in Pakistan and Greece as evidence of its capability in the potential Saudi sell-off, which would be among the biggest in history. The bank has already been involved in strategic advisory work with the National Center for Privatization, the government body charged with implementing the program.
“We continue to believe in and be supportive of Vision 2030. We think it’s a bold and appropriate plan. It will help to achieve the Saudi ambitions of attracting foreign direct investment, diversifying the economy, providing employment opportunities, especially for young people, and get more women into the workforce,” Cowles said.
One aspect of the Vision 2030 strategy is another sensitive issue for Citi. The anti-corruption drive launched last November included investigation of the affairs of Prince Alwaleed Bin Talal who, in addition to his Kingdom Holding business, is also an investor in many foreign companies including Citi.
His shareholding is believed to be less than 3 percent, but there has been no word yet from either the bank or Alwaleed himself whether it will remain at the current level.
Cowles declined to speak specifically about the shareholder, but gave some views on the wider anti-corruption drive. “What are the considerations foreign investors take into account when they make decisions? They look at the economic opportunities, the position of the country in the global marketplace, and they also take into consideration government policies that are robust in fighting corruption,” he said.
For an American doing business in Saudi Arabia, these are challenging times. Despite a generally benign global economic background, regional security issues are still at the forefront and the wider global picture has seen an increase in levels of political risk. Cowles is relying on Citi’s heritage and global network to see it through successfully.
“It’s a challenging time. The geopolitical situation is, of course, uncertain. But while these global issues are not things we can control, we are focused on taking our execution to the next level by building upon the work we’ve done over many years and continuing to put our clients first. “We’re a 205-year-old institution, and have a long history of serving our clients while managing our risk. We’re well equipped and experienced in adapting our risk profile as the environment changes and we will continue to do so,” he said. “There are also challenges in terms of globalization and equality. The world has to do a better job in terms of distributing the benefits of globalization. But overall we certainly believe globalization is a positive force.”
That cautious view on the geo-political issue is counterbalanced to some degree by the global economy. “When we look around the world from an economic point of view, the environment is very positive. There are very significant growth opportunities in developed markets and emerging markets. In the Middle East, you have to look country by country, but Citi has had record years in the MENA region in 2016 and 2017, and our presence in Saudi will add significantly to our growth prospects,” Cowles said.
Citi will play a role in the royal visit to the US over the folowing weeks, especially at the gathering of chief executive officers from the two countries in New York City planned toward the end of the trip.
“I’m sure it will be a very successful visit. Saudi Arabia is an extremely important strategic market for Citi and many other American multinational companies. I also believe it is important for Americans to learn more about Vision 2030 and understand how it
will transform the country,”
Cowles said.


Easy credit poses tough challenge for Russian economy minister

Updated 7 min 47 sec ago

Easy credit poses tough challenge for Russian economy minister

  • Measures being prepared to help indebted citizens; situation might blow up in 2021

MOSCOW: New machines popping up in Russian shopping centers seem innocuous enough — users insert their passport and receive a small loan in a matter of minutes.

But the devices, which dispense credit in Saint Petersburg malls at a sky-high annual rate of 365 percent, are another sign of a credit boom that has authorities worried.

Russians, who have seen their purchasing power decline in recent years, are borrowing more and more to buy goods or simply to make ends meet.

The level of loans has grown so much in the last 18 months that the economy minister warned it could contribute to another recession.

But it’s a sensitive topic. Limiting credit would deprive households of financing that is sometimes vital, and could hobble already stagnant growth.

The Russian economy was badly hit in 2014 by falling oil prices and Western sanctions over Moscow’s role in Ukraine, and it has yet to fully recover.

“Tightening lending conditions could immediately damage growth,” Natalia Orlova, chief economist at Alfa Bank, told AFP.

“Continuing retail loan growth is currently the main supporting factor,” she noted.

But “the situation could blow up in 2021,” Economy Minister Maxim Oreshkin warned in a recent interview with the Ekho Moskvy radio station.

He said measures were being prepared to help indebted Russians.

According to Oreshkin, consumer credit’s share of household debt increased by 25 percent last year and now represents 1.8 trillion rubles, around $27.5 billion.

For a third of indebted households, he said, credit reimbursement eats up 60 percent of their monthly income, pushing many to take out new loans to repay old ones.

Orlova said other countries in the region, for example in Eastern Europe, had even higher levels of overall consumer debt as a percentage of national output or GDP.

But Russian debt is “not spread equally, it is mainly held by lower income classes,” which are less likely to repay, she said.

The situation has led to friction between the government and the central bank, with ministers like Oreshkin criticizing it for not doing enough to restrict loans.

Meanwhile, economic growth slowed sharply early this year following recoveries in 2017 and 2018, with an increase of just 0.7 percent in the first half of 2019 from the same period a year earlier.

That was far from the 4.0 percent annual target set by President Vladimir Putin — a difficult objective while the country is subject to Western sanctions.

With 19 million people living below the poverty line, Russia is in dire need of development.

“The problem is that people don’t have money,” Andrei Kolesnikov of the Carnegie Center in Moscow wrote recently.

“This is why we can physically feel the trepidation of the financial and economic authorities,” he added. Kolesnikov described the government’s economic policy as something that “essentially boils down to collecting additional cash from the population and spending it on goals indicated by the state.”

At the beginning of his fourth presidential term in 2018, Putin unveiled ambitious “national projects.”

The cost of those projects — which fall into 12 categories that range from health to infrastructure — is estimated at $400 billion by 2024, of which $115 billion is to come from private investment.