Wall Street Is Heading to Saudi Arabia as US Oil Spat Simmers

(Bloomberg) --

An escalating dispute over an OPEC+ decision to cut oil production risks causing lasting damage to political relations between the US and Saudi Arabia. Wall Street seems unfazed. 

JPMorgan Chase & Co. CEO Jamie Dimon and Goldman Sachs Group Inc.’s David Solomon are among US finance chiefs preparing to attend Riyadh’s glittering investment summit this week, a showcase for Saudi Crown Prince Mohammed Bin Salman. Meanwhile, the White House is escalating a war of words, with Joe Biden threatening “consequences” for the kingdom for its role in slashing crude output despite US objections.

The Future Investment Initiative, which seeks to attract billions of dollars to the kingdom, is once again being overshadowed by external events. US-Saudi relations are at their worst than since the assassination of government critic Jamal Khashoggi in October 2018, the last time finance industry leaders shunned the annual jamboree, sometimes dubbed ‘Davos in the Desert’.

This should be Prince Mohammed’s time to shine. High oil prices and production volumes mean Saudi Arabia’s economy is the fastest growing in the Group of 20. He is sitting on his first budget surplus since coming to power, allowing him to channel billions of dollars into stock markets and assets globally, and plan some of some of the world’s most ambitious construction projects. In a slowing global economy, all of this makes the kingdom an irresistible draw for financial executives.

“The savvy of Wall Street know their history well and know the difference between the short-term and political versus the long-term and strategic,” said Talal Malik, CEO at Saudi consultancy Alpha1Strategy. “With this kind of liquidity, it makes sense for US investment firms to ramp up their attendance.” 

Despite talk of possible no-shows, there are few signs US executives are pulling out. 

Even as White House officials accuse Saudi Arabia of helping to fund Russia’s war in Ukraine and inflating fuel prices for Americans, members of the previous US administration are packing for Riyadh. Former Treasury Secretary Steve Mnuchin and former senior White House adviser Jared Kushner are both scheduled to take part. They’ve clinched billions of dollars from the kingdom’s sovereign wealth fund that’s chaired by MBS -- as Saudi Arabia’s de-facto ruler is known.

Blackstone Inc. CEO Steve Schwarzman and Moelis & Co. founder Ken Moelis -- who were both close to Donald Trump and have managed Saudi money and advised its government on deals -- are listed as attendees. Bridgewater Associates founder Ray Dalio is also set to attend, rubbing shoulders with Saudi officials including energy minister Prince Abdulaziz bin Salman and Public Investment Fund Governor Yasir Al Rumayyan, as well as top regional executives such as Mubadala Investment Co.’s Khaldoon al Mubarak.

From Europe, HSBC Holdings Plc CEO Noel Quinn and Societe Generale SA chief Frederic Oudea are listed as delegates, as well as Standard Chartered Plc CEO Bill Winters even though he’s skipping next month’s COP27 summit in Egypt. The Saudi event will also have its biggest Chinese delegation with over 80 chief executives from the country.

Organizers are seeing “more and more appetite from the US private sector to attend,” according to Richard Attias, CEO of FII Institute. The event “has zero political agenda” and “it’s a coincidence” that the US-Saudi tension is happening at the same time, he said.

For bankers flying in, this week’s event could be more significant than previous years as the world’s biggest companies fight to attract capital in a darkening macroeconomic environment. With high inflation, rising interest rates, a global energy crisis and tightening credit markets keeping many investors on the sidelines, influential state funds -- like Saudi Arabia’s -- are more important than ever. 

Before the current spat with the White House, the PIF -- as the Saudi fund is known -- had been increasing its exposure to the US. It’s expanding its team in New York to manage a roughly $40 billion portfolio of US equities, including stakes in BlackRock Inc., JPMorgan, and Uber Technologies. Elsewhere, the fund boosted its stake in Aston Martin Lagonda Global Holdings Plc in July, giving it a 17% stake in the British carmaker. 

“Our commercial ties are a significant, win-win component of the bilateral relationship,” said Steve Lutes, vice president for Middle East affairs at the US Chamber of Commerce. “American businesses across a wide range of sectors are growing and finding success in Saudi Arabia, so it’s important for the commercial relationship to be insulated from any spillover stemming from Washington and Riyadh’s political disagreements.”

JPMorgan Expansion

For JPMorgan’s Dimon, this year’s FII will be his first after he and other senior western executives bailed on the conference in 2018 following the disappearance of Khashoggi, a dissident Saudi journalist. Dimon later said pulling out “achieved nothing.”

The US bank is expanding in Saudi Arabia with plans to boost its 100-strong team in the kingdom with 20 new hires by the end of the year -- more than doubling the size it was in 2016, according to Bader Alamoudi, JPMorgan’s senior country officer.

“There’s still a lot of interest from local companies to list and from foreign investors looking to get exposure to the Saudi market,” Alamoudi said. “Competition has definitely increased but we’ve been here for the long term and will continue to invest to serve our clients and bring new products and offerings to Saudi Arabia.”

Other US financial firms are expanding as the Saudi government increases pressure on international firms to shift their Middle East hubs to the kingdom. Franklin Templeton is said to be planning to set up there and CEO Jenny Johnson -- who will also be at the FII -- has earmarked the kingdom as a major expansion market for the asset manager.

Foreign Investment

For its part, Saudi Arabia hopes the FII will put Riyadh on the map as a global destination for deals, while also improving domestic investment, which has been limited. Although foreign direct investment has increased every year since the event started in 2017 to its highest level in more than a decade last year, it’s mostly being channeled into oil assets instead of backing ambitious new projects.

But some deals are getting done. In 2017, the PIF and Blackstone agreed that the Saudi wealth fund would contribute up to half of a $40 billion US infrastructure fund set up by the asset manager. The kingdom also announced the launch of Neom, a $500 billion new city intended to attract new industries.

With the Crown Prince’s ambitious plans for the PIF to become even more influential with $1 trillion of assets by 2025, there’s a lot more to do. 

“There is still a gap between the leadership’s plans for FII to be a hub for attracting FDI and the reality that most US and European interest is focused on capital outflows,” said Ayham Kamel, head of Middle East and North Africa at political risk consultant Eurasia Group. 

“Global financial executives have begun to see some opportunities in the modernization plans, so there is some shift in perspective. However, this year much like many previous ones, they’ll probably leave with valuable business wins.”

--With assistance from and .

(Updates with US Chamber of Commerce comment in 13th paragraph.)

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