Is the ongoing Qatar blockade starting to seriously squeeze the finances of the tiny, but rich (or maybe not so rich any more) Gulf nation?
Overnight, Credit Suisse's largest shareholder, Qatar, announced it has lowered its direct shareholding in the largest Swiss bank to 4.94% through the nation's sovereign wealth fund - the Qatar Investment Authority - marking a rare sale of the Swiss bank’s stock. The QIA previously owned 5.01% in voting rights and is reporting a sale of shares for the first time since 2008. Qatar’s overall holding - including convertible bonds - declined to 15.91% from 17.98% after a rise in the number of outstanding Credit Suisse shares because of its capital increase.
In June, Credit Suisse, which is halfway through a three-year strategy revamp, raised about CHF4.1 billion after tapping shareholders for a second time since CEI Tidjane Thiam took over in mid-2015, Bloomberg reported. The fresh funding would boost its common equity Tier 1 capital to 13.4% of risk-weighted assets, up from 11.7% in the first quarter.
Qatar's sovereign wealth fund has been the Zurich-based bank's biggest shareholder since the financial crisis of 2008-09. Then, the cash-rich emirate helped Credit Suisse avert a state bailout by injecting billions in capital into the bank; now Qatar itself may be on the verge of needing a bailout. The sale has come at a price: the infusion was designed as convertible bonds in Credit Suisse, for which the bank has paid a coupon of between 9 and 9.5%. However, in a harbinger of what's to come, in February Credit Suisse said that Bin Hamad J.J. Al Thani, who represented the Qataris on Credit Suisse’s board of directors, won’t stand for re-election. Saudi Arabian group Olayan is also a major shareholder in Credit Suisse.
As shown below, Qatar boasts one of the world’s largest sovereign wealth funds, with stakes in companies from Glencore to Barclays to Volkswagen (come to think of it, all companies that have one or major major "structural" issues). The small peninsular nation also hosts the regional headquarters for U.S. Central Command, making it a critical outpost for the US military's ongoing involvement in the middle east.
In the nearly ten years since the capital investment, Credit Suisse has made hundreds of millions in annual payments to Qatar. That changed in February of this year when as noted above, Qatar's board representative, Jassim Bin Hamad J.J. Al Thani, left the bank with little explanation and no replacement. However, Qatar did participate in Credit Suisse's CHF4.1 billion capital-raising to full up its depleted cushion of capital.
Now, Qatar has sharply lowered its overall stake in Credit Suisse. The emirate now holds 4.94% of shares and 10.97% in converts, down from 5.0%1 in shares and 12.96% in the securities, or from 17.98% to 15.91% in total.
The sale comes against the backdrop of tensions between the emirate and Saudi Arabia, Egypt, Bahrain, and the United Arab Emirates, which according to some have led to a sharp deterioration in the country's finances. The move has unpleasant consequences for Credit Suisse as well: Abu Dhabi has reportedly boycotted banks in which Qatar is invested. Besides Credit Suisse, those include Germany's Deutsche Bank and London's Barclays Bank, also a crisis beneficiary of Qatar's generosity.