Focus: Banks in GCC and Europe

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Updated 03 July 2020

Focus: Banks in GCC and Europe

What happened:

Most global stock markets rose through the week amid volatility and the global number of COVID-19 cases passed the 10 million mark.

In America, several southern states had to reverse reopening plans as part of an easing of virus precautionary measures. Anthony Fauci, director of the US National Institute of Allergy and Infectious Diseases, warned that a mutation of the coronavirus could pose a threat, because faster replication might hasten its spread.

 

China’s new security law for Hong Kong came into force on July 1, increasing friction between the Chinese, and the US and Western countries. The issue may have ramifications for trade relations between China, America and beyond.

It marks a new era for Hong Kong, especially as the law supersedes the special administrative region’s Basic Law (constitution) and reneges on the Sino-British Joint Declaration, which stipulated a one country two systems regime for 50 years after the UK’s 1997 handover of the territory to China.

This leaves open the question as to how China will deal with Taiwan going forward and how the US and its allies will react. Taiwan’s economy is critical to the global semiconductor industry.

The development will also have consequences on the status of Hong Kong’s economy. The Asian headquarters of many foreign companies are in Hong Kong. It may also impact on the relative standing of Hong Kong’s stock exchange vis a vis Singapore’s and Shanghai’s.

The June US non-farm payroll numbers were released on Thursday and were better than expected. The economy gained 4.8 million jobs, bringing the June unemployment rate down to 11.1 percent from 13.3 percent in the preceding month.

This was somewhat dampened by the first-time jobless claims which came in at 1.43 million for the week ending June 26. This metric has hovered between 1.4 and 1.5 million per week for the last few weeks – continuously disappointing expectations (the US reports furloughed workers as unemployed, whereas in Europe they are classed as in work).

The US Federal Aviation Administration (FAA) tested Boeing’s 737 Max aircraft for three days this week, which could usher in a return to the skies for the troubled plane.

Boeing is also rumored to be planning to phase out its iconic 747 by 2022. This would mark the end of jumbo jets, as European manufacturer Airbus has already decided to halt production of its A380 wide-bodied equivalent.

With the travel and leisure sectors among the worst-hit by the COVID-19 pandemic, airlines cancelled and postponed orders for new aircraft. Boeing has so far announced 14,000 job cuts and counting. Airbus’ redundancy toll stands at 15,000. Experts estimate that for every job lost with the big plane makers, at least three more will have to go in supply chains.

Background:

This was an important week for banks: In Saudi Arabia, the proposed $15.6 billion merger between National Commercial Bank (NCB), the Kingdom’s biggest, and Samba Financial Group, the fourth-largest lender, made the headlines.

The combined entity would be by far the biggest lender in Saudi Arabia with SR464 billion, before Al-Rajhi bank with a loan portfolio worth SR269 billion.

Among GCC countries, the combined entity would rank just after Abu Dhabi bank with $213 billion in terms of assets. It would have a market share of 30 percent in the Kingdom. With the Saudi Public Investment Fund (PIF) being the largest shareholder of both entities, the merger would give it more weight in the country’s banking sector.

The merger is complementary because NCB’s focus is on retail customers and Samba’s on a corporate clientele. It also makes sense, because Saudi Arabia’s 30 million people are banked by 30 players, which is high in international comparison. The region tends to be overbanked and further bank mergers in the GCC are likely going forward.

The German parliament gave the Bundesbank the green light to continue supporting the European Central Bank’s (ECB) pandemic emergency purchase program.

The move was important in light of the highest court’s verdict earlier this year, declaring the central bank’s participation in the ECB’s 2015 public sector purchase program as potentially illegal. The ruling will give Eurozone banks a boost.

This brings us to US investment management company Bridgewater’s founder and chief investment officer, Ray Dalio, who told Bloomberg that the biggest drivers behind markets was the spending of central banks and their central governments rather than ordinary market participants.

He highlighted that close to zero or negative interest rates skewed the bank attitudes toward borrowing from the central banks. His most salient point was comparing the COVID-19 pandemic to the financial crisis of 2008/2009. Whereas then banks had to be rescued because they were relevant to the system, now it was economy as a whole which was relevant to the system and needed to be saved.

Dalio has a point, however looking at the latest spending by the world’s major central banks, the US Federal Reserve, the Bank of Japan, and the ECB, the use of swap lines by commercial banks has abated somewhat since the COVID-19 global outbreak.

Where we go from here:

The UK will experience “Super Saturday” on July 4 with pubs, restaurants, and hairdressers reopening. The British government instructed people to observe social-distancing rules and warned that it would close down parts of the country if new outbreaks were reported.

The move is important for the hospitality industry, which has had to let go of 500,000 workers and furloughed a further 1 million.

 

— Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources.
Twitter: @MeyerResources


Al Somah double condemns Al Ittihad to another alarming defeat in Saudi Derby

Updated 3 min 37 sec ago

Al Somah double condemns Al Ittihad to another alarming defeat in Saudi Derby

  • A goal in each half by Syrian international Omar Al Somah had just secured a 2-1 win for fierce rivals Al Ahli
  • With only six matches of the Saudi Professional League left, the eight-time league champions are now facing the real danger of relegation

DUBAI: At the final whistle, the haunted faces of Al Ittihad’s players told the whole story.

A goal in each half by Syrian international Omar Al Somah had just secured a 2-1 win for fierce rivals Al Ahli, and the slumped, crestfallen players, not to mention Brazilian coach Fabio Carille, were coming to terms with the enormity of the defeat and its consequences. 

With only six matches of the Saudi Professional League left, the eight-time league champions are now facing the real danger of relegation from the Saudi top flight. Al Ittihad now sit only one place and one point ahead of Al Fateh who currently occupy 14th place, the last of the relegation spots.

Despite several underperforming seasons, relegation for the country’s oldest club would still have been unthinkable at the start of the season, but after their defeat in the Saudi Derby, is now an alarming possibility.

Al Ahli had started the brighter of the two and stopped the home team from playing out from the back. The visitors eventually took the lead after 30 minutes, Al Somah tapping from close range after a shot by Abdulrahman Ghareeb had been saved.

However, Al Ittihad hit back 11 minutes later after some fine work from Fahad Al Muwallad, the ball eventually finding its way to  Romarinho, whose flicked pass was volleyed home brilliantly by Abdulellah Al Malki.

Al Ittihad had the majority of the early possession in the second half, with Al Ahli happy to play a patient, containment game and hit them on the break.

And it was from one of these counter-attacks that Al Ahli settled the match on 64 minutes, Al Somah collecting a long pass from captain Hussein Abdulghani on his chest before finishing in typical deadly fashion. A desperate Al Ittihad could not find a way back.

The 43-year-old Abdulghani said he had missed taking part in this derby over the last 13 years, a period in which he enjoyed a nomadic career at Al Rayyan, Neuchatel Xamax, Al NAssr, Very and Ohod.

“Every player looks forward to playing these games,” he said. “Perhaps today the match lacked a little bit of excitement. You know that the fans of Al Ittihad and Al Ahli usually give these matches a unique flavor. But for reasons we all know that was missing today. On a personal note, I’ve missed these derby matches, and I’m glad today we managed to get the three points.” 

Al Ahli had struggled for results before the enforced break, but have now recorded two wins since the resumption of the SPL under Serbian coach Vladan Milojević, who replaced the departed Christian Gross before the enforced break.

“Earlier in the season, the change of coaches affected the team in several ways,” Abdulghani added. “Maybe not all teams benefitted from the break in a big way. But in the three weeks of training after the break we got accustomed to the coach’s methods better.”

Al Ahli’s captain also had some comforting words for the beaten opponents.

“I always say that in big or derby matches, the technical difference between the two dreams is not the decisive factor,” he said. “Perhaps the extra pressure on Al Ittihad affected them more. No one expected to see Al Ittihad in this situation, they are such a big club with many domestic and international trophies. I’m sure they’ll be back, and I see that Al Ahli and Al Ittihad complement each other, in terms of competing against each other and improving each other.”

Match winner Al Somah was happy for the three points that kept Al Ahli on the tails of Al Nassr. in second place, but missed the presence of the fans.

“It was strange derby, a sad derby,” he said. “But I’m grateful we could make our fans happy. After the break, we didn’t win any of our friendly matches. The team needed a bit more time, and we still have a few players absent as well. Thankfully, today I was able to take advantage of the two chances I got to score.”

Al Somah’s double brings him closer to Abdulrazak Hamdallah of Al Nassr at the top of the goalscorer’s charts, the Moroccan having last season also succeeded the Syrian as the SPL’s leading marksman.

“Of course there is always ambition to be top scorer,” Al Somah said. “But the team is always a priority. To compete with Abdulrazak Hamdallah and Gomis, you must work hard and push yourself, and there are still six matches left. But the most important thing is for the team to keep on winning.”

A clearly dejected Ittihad captain Karirm El Ahmadi lamented the defensive mistakes which had condemned his team to a second straight defeat since the league’s restart.

“The match was like the one against Abha,” he said. “Getting back to 1-1 restores your confidence in yourself, but then the mistakes came at a bad time, you saw the second goal we conceded today, it is similar to the second goal against Al Abha.”

“I really don’t know why the mistakes keep happening,” El Ahmadi added. “It’s not possible to win matches when these mistakes happen, it’s important to focus. A draw today against Al Ahli would have been positive going into the next match against Al Ettifaq.”

In the earlier matches Al Ettifaq had kicked off round 24 of the disrupted SPL season with a 3-2 win over Al Fayha, second-bottom Damac gave themselves a slim hope of escaping the drop with 2-1 home win over Al Faisaly, and fourth-placed Al Wehda and Al Raed in sixth played out a 0-0 draw.