Banks Forced Into Qatar-Saudi Feud

Photo: REUTERS FILE/ZUMA PRESS


Bankers have tried to stay neutral in the diplomatic fight between Qatar and its neighbors, Saudi Arabia and the United Arab Emirates. Now, they are being forced to choose sides.

In early April, JPMorgan and HSBC HSBC -0.26% executives informally told Qatar officials that their banks couldn’t work on the emirate’s upcoming bond issuance, according to two people familiar with the matter. The reason: It could jeopardize their relationship with the Saudi Arabian government, which was arranging its own bond sale, the people said.

In turn, Qatar has refused to do business with some bankers and consultants in Dubai, the U.A.E.’s largest city and the region’s financial hub, forcing some Western institutions to do business with Doha through their London offices, bankers say. J.P. Morgan, one of the most active banks in the region, relocated Ghali Laraki, an executive director focusing on Qatari clients, to London, say two people familiar with the matter. Mr. Laraki didn’t respond to a request for comment.

Most of the international banks continue to have operations in Qatar, Saudi Arabia and the United Arab Emirates, but they have tended to move more heavily into one country or the other.

The spillover into financial services adds a new layer of complexity to one of the world’s most perplexing diplomatic feuds.

Saudi Arabia, the United Arab Emirates, Egypt and Bahrain abruptly cut off ties last June with Qatar, accusing their former ally of supporting Islamic extremism, cultivating close ties to Iran and meddling in its neighbors’ affairs. Qatar has denied the allegations and lobbied in Washington and London to keep the West on its side.

Many financiers have found it impossible to stay on the sidelines in a fight that until recently focused on trade in goods, squabbles over airspace and ports, and diplomatic barbs.

At least one financial-services executive and an investment banker in two separate incidents were detained for hours in Abu Dhabi’s airport for having a Qatari visa in their passport, say people who worked with them.

Asked about the incidents, a government spokeswoman said: “This is not in line with our procedures.”

“The financial sector as a whole is being affected,“ said May Nasrallah, a former Morgan Stanley executive in the Middle East who founded and leads Dubai-based advisory firm deNovo Corporate Advisors since 2010.

“The cause may be political, but the resulting day-to-day impact has certainly been economic,” she said.

The U.S. is trying to resolve the broader impasse. Secretary of State Mike Pompeo used his first official foreign trip last weekend to press Saudi Arabia to patch things up with Qatar and focus on deterring Iran.

“They’re gonna figure this out,” Mr. Pompeo told reporters. “I think they would all agree that it’s in everyone’s best interests that the Gulf States all figure out how to be together.”

A spokesman for Qatar’s finance ministry said his country hasn’t shunned international entities that may be based in the U.A.E. “While blockading countries have gone to extremes in their isolation efforts, we continue to welcome their citizens and businesses,” the spokesman said.

U.A.E. officials and Saudi Arabia’s ministry of finance didn’t respond to questions about the effect of the diplomatic rift on financial services.

To be sure, the direct economic impact of the standoff has begun to fade. Qatar had to pump about $40 billion into the domestic economy and banking system to offset the outflow of deposits in the early months of the dispute, but by March, the International Monetary Fund said the economy had begun to stabilize. More broadly, banks in the region face bigger pressures than the Qatar feud, including new technology, regulation and oil prices that haven’t recovered to $100 a barrel.

Still, bankers say the pressure is real to choose between business with oil-rich Saudi Arabia and the U.A.E., which are strong political allies, and Qatar, a tiny emirate with natural-gas resources that make it one of the world’s wealthiest countries.

The most dramatic example was dueling bond offerings by Saudi Arabia and Qatar in early April. The Saudis went ahead with their own bond issuance on April 10 just as the Qataris were drumming up interest in their own bonds, complicating Doha’s plans to raise money from foreign investors.

Banks that help raise sovereign debt fell into two camps.

Deutsche Bank, Barclays and Credit Suisse—which have large Qatari shareholders—helped arrange Doha’s $12 billion bond issuance. HSBC and J.P.Morgan—which are investing heavily in Saudi Arabia—were absent from Qatar’s bond and worked instead on the Saudis’ $11 billion bond.

HSBC and J.P.Morgan helped arrange Qatar’s $9 billion bond sale in 2016, the last time the country tapped international markets before the diplomatic spat with its neighbors began. Both banks have a strong presence in Saudi Arabia where they are involved among other things in the listing preparations of state-owned oil giant Aramco.

Japan’s Mizuho, a relative newcomer to the Middle East, lost out on both after trying to remain neutral in the regional spat, bankers said. A Mizuho spokeswoman said the bank was initially working on Qatar’s transaction but decided to withdraw, without elaborating.

Bankers involved in the bond sales sought to play down the impact of the Qatar rift, saying banks didn’t have the bandwidth to work on two deals in the same week.

Source: www.wsj.com

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