JEDDAH: Many Saudi and Gulf investors suffered heavy losses after some American and Gulf banks used their funds to buy risky mortgage bonds just before the subprime mortgage crisis erupted in the US.
“At least 35 Saudi investors are facing semi-bankruptcy as a result of purchasing US mortgage bonds,” Al-Riyadh Arabic daily said quoting business sources.
However, the paper said it was not yet clear how much would be the total losses caused by the US economic crisis to Gulf banks. It also said that some Gulf banks had played the role of intermediaries for US banks and companies to sell high-risk mortgage bonds to Gulf investors in lieu of attractive commissions.
Saudi Arabian Monetary Agency (SAMA), the Kingdom’s central bank, is silent about the losses suffered by commercial banks in the country, the paper said.
Fadl Saad Al-Bouainain, a Saudi economist, said many Gulf banks and investment companies had reached deals to purchase risky US bonds at the expense of their Saudi and other Gulf clients to realize their vested interests. He emphasized the important role being played by SAMA to protect local banks without being affected by regional and international crises.
Abdul Aziz Al-Owaishek, an economist, wondered why the US crisis had greater effect on Saudi and other Gulf capital markets than American markets, especially their economies have made substantial growth.
“The Saudi stock market lost 30 percent of its value in 2008 while Dow Jones lost only 22 percent,” he pointed out.
Ihsan Buhulaiga, a member of the Shoura Council, said the Saudi stock market has already been hit by the global crisis, adding that the Saudi banks are currently suffering from a lack of liquidity. “Gulf economies are liable to foreign influence,” Buhulaiga said, adding that government investments abroad and banks were the worst affected. We’ll know the extend of losses with the passage of time.”
He expected a fall in oil demand as a result of global economic recession.
No Gulf countries have announced their link with US mortgage crisis, said Saud Al-Jelaidan, another economist.
“I believe that most financial assets of Saudi banks are situated in local markets. There will be some shortages in liquidity as a result of SAMA measures to tackle inflation,” he said.
Meanwhile, economists predicted that the Saudi stock market index would decline further as a result of the effect of global economic crisis. They said the Eid Al-Fitr holidays had saved stock dealers from major losses.