Investors shed $7 billion off Credit Suisse Saudi backer over stake deal

Investors have wiped about $7 billion off Saudi National Bank’s market value amid growing concern over the lender’s plans to purchase a stake in Credit Suisse Group AG.
 

The Saudi lender, which is 37% owned by the kingdom’s sovereign wealth fund, is set to become one of the Swiss bank’s biggest investors after announcing its first major international acquisition a week ago. It’s poised to own a stake of 9.9% if it participates in Credit Suisse’s rights offering, after agreeing to buy shares for about 1.17 billion Swiss francs ($1.16 billion).

Credit Suisse plans to raise 4 billion francs through a rights offering and selling shares to investors including SNB. The overhaul is an urgent attempt to restore credibility at the bank after a succession of big losses and management chaos shattered its status as one of Europe’s most prestigious lenders.

“Realization of any synergies from this transaction to be easier said than done,” Citigroup Inc. analyst Rahul Bajaj wrote in a note last week, downgrading SNB to neutral. “We do not expect investors to bake in any major upside for SNB in the near-term from this transaction.”

As SNB’s international exposure grows, Bajaj said investors might question its valuation premium to peers, which has so far been justified due to its exposure to Saudi government initiatives to diversify the economy. The lender trades at 11.8 times forward earnings, higher than the MSCI EM Banks Index’s price-to-earnings ratio of 7.3.

Separately, the Financial Times reported that Qatar Investment Authority plans to increase its stake in Credit Suisse, citing unidentified people with knowledge of the talks. It will join Saudi National Bank in Credit Suisse’s planned share placement, and the deal could result in up to a quarter of Credit Suisse stock being owned by Middle Eastern investors, the FT said.

Shares in SNB rose 1.2% by 12:48 p.m. in Riyadh on Thursday.

For Edmond Christou, an analyst at Bloomberg Intelligence, the Credit Suisse stake purchase isn’t just about the returns. “A tie-up may allow SNB to develop its product capabilities in areas such as private and investment banking,” he wrote in a note on Thursday.

Saudi National Bank “likes” Credit Suisse’s new leadership and their resolve to execute on its turnaround plan, though any additional equity for the moment is “out of the question,” Chairman Ammar Al Khudairy said in an interview with Bloomberg TV earlier this week.