Khashoggi crisis compounds bankers’ ‘Vision 2030’ fears

COPYING AND DISTRIBUTING ARE PROHIBITED WITHOUT PERMISSION OF THE PUBLISHER: SContreras@Euromoney.com

By:
Olivier Holmey
Published on:

The murder of a Saudi journalist has led to the withdrawal of international financiers from Saudi Arabia’s state-run investment conference, and compounded growing fears over the kingdom’s leadership.

A steady stream of cancellations by high-ranking bankers scheduled to speak at Saudi Arabia’s ‘Future Investment Initiative’ (FII), due to begin tomorrow, is the latest sign of strain between the kingdom and the international banks needed to deliver its ‘Vision 2030’ reform programme.


kashoggi 160x186
Jamal Khashoggi
The banking community’s public turn against Saudi Arabia comes after widespread outrage at the disappearance and since confirmed death of Jamal Khashoggi, a prominent Saudi journalist who wrote critically of the kingdom’s leadership.


Though this crisis represents the biggest blow yet to the kingdom’s financial reform objectives, it is far from the first. It follows months of discreetly mounting concerns among international financiers over Saudi Arabia’s business prospects, as erratic moves by its authorities undermined the Vision’s purported goal of liberalizing the kingdom’s economy and broader society.

As reported in Euromoney’s September issue, a number of bankers have viewed the kingdom’s blockade of neighbour and former ally Qatar, and its decision to sell its assets in Canada because a minister from that country had expressed her support for Saudi human rights activists, as warning signs that business with Saudi Arabia was contingent on the whims of a temperamental regime.

Even before the Khashoggi case, banking sources had told Euromoney that there was less enthusiasm over the FII this year than last. There is a growing weariness with Saudi authorities, which have promised big deals, including an IPO of the state oil company Saudi Aramco, but largely failed to deliver on those plans.

Balancing act

Still, the deals that remain on the table – be they privatisations or large infrastructure projects – continue to be attractive enough to financial institutions that many bankers planned to attend the event.

Speaking after Khashoggi’s disappearance but before main speakers began to withdraw from the FII, one banking source in Dubai told Euromoney that he thought attendance at the conference would be strong.

“If not for their actual desire to be there,” he said, “I actually think that they [international banks] will be there, simply because they want to make sure that they’re at least included in the selection process of some of these huge deals that are coming up in the kingdom in the months and years ahead.”

Only after media scrutiny increased and other, non-bank participants in the summit withdrew, did high-level bankers start to retract from the FII. Many acknowledge that the reputational risk of participating in a government-organised event is too high in the immediate aftermath of Khashoggi’s death.

The Dubai banker’s view sums up the balancing act many banks are now engaged in, as they begin to publicly express their growing disapproval of Saudi Arabia’s actions, while still hoping for a share of the fees to be gained from participating in the kingdom’s reform programme.

For that reason, it is unclear how much of a long-term impact this crisis will have on banks’ business ties with Saudi Arabia.

High-level cancellations

Jamie Dimon, chief executive of JPMorgan, was the first big name in banking to withdraw from the FII on October 14.

Since then, a steady stream of speakers from the banking world have announced that they would no longer attend the event. Among them HSBC’s John Flint, Credit Suisse’s Tidjane Thiam, Standard Chartered’s Bill Winters, Société Générale’s Frédéric Oudéa and BNP Paribas’s Jean Lemierre.

Nor is the executive exodus limited to banking. A swathe of high-level participants have also cancelled their participation in, or sponsorship of, the event, among them David Petraeus, chairman of the KKR Global Institute, Christine Lagarde, head of the IMF, France’s finance minister Bruno Le Maire, and media organisations from the Financial Times to Bloomberg.

In the days that followed Khashoggi’s disappearance, the conference’s organisers updated the FII’s website to reflect the fast-changing list of speakers. They have now taken the entire list down, making it difficult to determine how many participants originally confirmed still intend to be there.

Khashoggi entered the Saudi consulate in Istanbul on October 2 to obtain an administrative document and has not been seen since.

Turkish authorities allege that a group of operatives close to Mohammed bin Salman, the Saudi crown prince and mastermind of the Vision, assassinated Khashoggi in the consulate. Saudi authorities initially said that Khashoggi left the consulate shortly after entering, but on October 19 said that Khashoggi had died in the consulate, after a “fist fight”.

Many of those who have withdrawn from the FII, nicknamed ‘Davos in the desert’ in reference to the World Economic Forum in Davos, said that they would not reverse their decision to avoid the event until Saudi Arabia had provided a credible explanation for Khashoggi’s disappearance. None have yet declared a change of mind since the kingdom’s explanation.

Without the participation of many of the world’s top financiers, the summit loses much of its raison d'être, as it is designed to bring together officials and businesspeople from Saudi Arabia and abroad, in order to forge the kinds of international ties that would advance the programme set out in the reform blueprint.

Uncertain prospects

When asked early last week if the case of the missing journalist would interrupt the development of banking ties between Saudi Arabia and the outside world, one Dubai-based adviser to financial institutions said he was not yet sure whether it was “one of those media things” that would occupy headlines for some time then lessen in impact, or whether it would cause lasting damage to the kingdom.

For now, even some of those closest to Saudi Arabia have taken a step back from the kingdom. The chief executive of US ride-hailing firm Uber, which raised $3.5 billion from Saudi Arabia’s sovereign wealth fund in 2016, has withdrawn from the FII. Likewise, Flint’s cancellation sends a strong signal, as HSBC has operated in Saudi Arabia for decades and has been one of the most enthusiastic cheerleaders of the Vision.

“No one’s going anymore,” a Lebanese banking source tells Euromoney, before clarifying that he means the largest international banks will no longer attend. He says Middle Eastern banks likely will.

The FII is still due to happen, on October 23-25, with lower-ranking western bankers and executives from the Middle East, Russia and Asia expected to attend.