Kingdom's mixed blessing

By ALEX BRUMMER, CITY EDITOR
Updated:

 

HSBC needs a vote of confidence in its management. Its headlong plunge into sub-prime mortgage lending in the United States, which gobbled up £5.5bn of cash, is one of the biggest mistakes made by a global bank in recent times.

Then, having been let down by poor customers in the US, it scored an own goal by deciding it only wanted wealthy customers, with incomes above £75,000 a year, banking at its branch at Canford Cliffs, Dorset.

All of this has taken its toll on HSBC. The shares and price-earnings ratio have been languishing below that of better performing peers. But rescue appears to be at hand. A Saudi Arabian businessman Maan Abdul Wahed Al-Sanea has revealed that he and associates have built a 3.1% stake worth £3.3bn in the Canary-Wharf-based bank.

It is not surprising that Saudi Arabia is collecting a substantial Western share portfolio. There is only so much infrastructure investment that can be absorbed in the desert kingdom, which after the oil price jump of recent years is overflowing with petro-dollars.

What it does mean is that Saudi Arabia now has key interests in the world's two largest global banks.

The investor Prince Walid Ibn Talal, sometimes described as the Warren Buffett of the Middle East, has a huge stake in Citigroup, thought to be in the order of 16%. Saudi investors shrewdly wait for a lull in the share price to acquire bank stock.

The boost may be welcomed by management and investors but is not universally applauded. The traffic in banking stakes between Western banks and Saudi Arabia has made it only too easy for these relationships to be exploited for political reasons.

Citi found it was best to flog off an interest in the Saudi bank Samba after allegations that it may have funnelled cash to terror groups in the West and Palestine.

Middle East investors may not always be a blessing.

Time out

These are tense moments for John Varley and Barclays.

Having staked so much on a deal with ABN Amro, making considerable concessions on headquarters and regulation, it is finding it hard to complete a deal against the clock of exclusivity.

Indeed, ABN Amro is showing considerably less ardour about its marriage to Barclays now that a trio of rival banks Royal Bank of Scotland, Fortis and Santander have moored their gunboats on Amsterdam's canals.

If putting together a merger deal between Barclays and ABN Amro is so difficult, when there are just two parties involved, imagine the added complications when there are three buyers.

The permutations for ego clashes, dividing the spoils and creating a basket of shares to effect the purchase are endless.

Still if ABN Amro is smart and plays the field well it has a good chance of teasing out a better price for its investors than looked possible even a few weeks ago.

Goldman Sachs believes that the three musketeers could offer 42 Euros per share because of the huge synergies possible.

This would force Barclays to raise its offer from an estimated 35 Euros a share to 38 Euros a share.

There is little doubt that Barclays might be preferable in Holland given that its offer will be less draconian in job cuts and destruction of the existing entity.

The risk must be that Varley and RBS's Sir Fred Goodwin will allow themselves to become involved in an auction, pushing the price to a level where financial prudence will be forgotten.

Then the winners will become losers if value is put at risk.

Media conflict

After the row over his own appointment to media regulator Ofcom, it might have been thought that former Downing Street media guru Ed Richards would have been a little more careful in his choice of a communications chief.

The selection of the affable but formidable Julian Eccles, whose last job was as communications boss at James Murdoch's BSkyB, is certain to raise industry eyebrows.

Sir Richard Branson's Virgin, which is fighting Sky on several fronts, might well cry conflict of interest. After all Ofcom is currently involved in an inquiry into the pay-TV market after the dispute between Sky and Virgin over the cost of carrying the Sky One, news and sports news channels.

Ofcom is also conducting an inquiry into Sky's £940m purchase of a 17.9% stake in ITV in an attempt to thwart Virgin ownership.

No one can dispute Eccles's qualifications for the job having worked for Chris Smith, the former Media and Culture Secretary. But he will not be much of a communicator if he has to rescue himself from Ofcom's high-profile inquiries.

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