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Qatar still hasn’t found gold in Credit Suisse

Qatar still hasn’t found gold in Credit Suisse

European banks should learn from the Qatar-Credit Suisse relationship that’s gone sour, says Una Galani.

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October 12, 2011 2:01 by



Qatar’s cosy relationship with Credit Suisse is a source of envy. The Gulf country is actively scouting for assets at a time when M&A is drying up. There could have been some reasons for the relationship to sour: according to Breakingviews calculations, Qatar’s 2008 investment into the bank remains underwater. So far this hasn’t happened. But the lesson could be useful for European banks that may soon tour the Gulf in search of capital.

The bulk of Qatar’s investment was made in October 2008, when Credit Suisse turned to its Middle Eastern investors for emergency capital. Alongside Israel’s Koor Industries and the Saudi Olayan Group, Qatar bought treasury shares amounting to about 6 percent of the bank.

But after the deal, Qatar disclosed that it owned 10 percent of Credit Suisse. The additional 4 percent was probably acquired over the preceding eight-month period at a cost of 2.1 billion Swiss francs, or $2.4 billion, based on the average price during that period.

So by the end of 2008, Qatar had paid roughly 4.1 billion Swiss francs for a 10 percent shareholding in Credit Suisse, amounting to an average price of around 41 Swiss francs per share. Credit Suisse is currently trading at around 27 Swiss francs per share.

But the blow has been softened by Qatar’s investment in the Tier 1 hybrid capital issued by Credit Suisse in October 2008. According to a person familiar with bank, Qatar bought roughly half of the 5.5 billion Swiss francs of the securities then issued. With an average annual interest of around 10.5 percent, Qatar will have already earned almost 870 million Swiss francs on the purchase.

What’s more, by April 2010 Qatar had reduced its stake in Credit Suisse to 6.17 percent. Assuming Qatar sold its shares at the average price during that period of 45 Swiss francs, and accounting for interest earned, and factoring the appreciation of the Swiss franc versus the Qatari Riyal, Qatar’s 6.9 billion Swiss franc bet is still underwater by more than 10 percent. But depending on the exact timing of the share purchases and sales, the losses might amount to almost 30 percent — or turn into a 6 percent paper profit, if Qatar sold at the highest price.

But for the Gulf state, the potential paper loss isn’t such a huge price to pay for a seat on the Credit Suisse board and the expertise to build the foundations of an internal M&A team. Elsewhere the Abu Dhabi Investment Authority is suing Citigroup in relation to its disastrous 2007 investment in the US bank and Singapore’s GIC is sitting on a 50 percent loss on…

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