It has not been a great fortnight for Saudi National Bank (SNB), having lost more than 80% of the value of its investment in Credit Suisse after the Swiss bank’s forced weekend merger with UBS on March 19.
The experience will no doubt discourage the Jeddah-based lender from rushing into a more M&A-based growth strategy – which may not be a bad thing.
Credit Suisse was sold for just SFr3 billion ($3.3 billion), with shareholders paid 0.76 Swiss francs per share. In November, SNB paid 3.82 Swiss francs per share for a 9.88% investment that totalled $1.5 billion. At the time, SNB viewed it as a good deal, with chairman Ammar Al Khudairy describing it as “a steal”.
He may wish to choose his words more carefully in future. His assertion on Bloomberg TV on March 15 that SNB would “absolutely not” increase its stake in Credit Suisse is widely credited with having lit the touchpaper of the recent crisis. Al Khudairy subsequently announced his resignation on Monday.
Analysts expect SNB to be more cautious about new M&A adventures, although they do not rule out the bank being opportunistic
However, the whole affair – with SNB losing $1.2 billion on its stake – is not a catastrophe for the Saudi bank. After all, SNB posted net income of about $5 billion in 2022. Rating agencies have declared the losses to be neutral on its credit rating, while SNB said the situation had “no impact on [our] growth plans and forward-looking 2023 guidance”. The bank’s strategy has not traditionally relied on M&A.
The bank’s shares are recovering from their recent trough. After hitting a high of SAR79 in April 2022, they then fell steadily throughout the rest of the year, to sit at about SAR50 at year-end. But they dropped suddenly to a more-than-two year low of SAR41.50 on March 16, during the Credit Suisse crisis, before rising after the UBS deal was announced.
On Friday, the shares were trading at about SAR46.50, up 12% from that recent low.
Ever since SNB took its investment alongside the rights issue that Credit Suisse carried out late last year, its shares had been under pressure in part because of worries over whether the bank would need to inject further capital into Credit Suisse. Al Khudairy’s comments put paid to that worry, but created another that dwarfed it.
Opportunities
Unsurprisingly, analysts now expect SNB to be more cautious about new M&A adventures, although they do not rule out the bank being opportunistic. And SNB’s painful experience is not expected to counteract the advantages offered by a strong dollar and high oil prices when it comes to the broader question of GCC banks targeting banks in other regions.
SNB buying the Credit Suisse stake as well as First Abu Dhabi Bank’s (FAB) interest in Standard Chartered – it revealed at the start of 2023 that it had considered a bid for the UK bank, but had dropped the idea – have helped to stoke these ideas.
International M&A could open up huge growth opportunities for Middle East banks. Had FAB gone ahead with its bid for StanChart – something that would have been helped by the considerable valuation difference, with FAB trading at twice book value and StanChart at 0.5x – the Abu Dhabi-based national champion would have instantly expanded its operations considerably.
With the banking sector struggling to shake off fears of a broader crisis, the valuations of potential targets are not likely to rise any time soon. That could present good buying opportunities for Middle East banks. But after SNB’s bruising with Credit Suisse, the question is when – or if – any would be willing to take the risk.