Flight of Saudi Funds From US Raises Concern
James Politi and Julie Earle
Financial Times (UK)
Wednesday, 21 August 2002
Moves by Saudi investors to shift tens of billions of dollars out of the US have added to market concerns that global fund managers are becoming increasingly disenchanted with the US, analysts said on Wednesday.
Economists and bond strategists were on Wednesday considering the impact of Saudi disinvestment on the dollar and US Treasury prices, following an FT report that as much $200bn of Saudi money may have left the US in the last few months amid deteriorating bilateral relations.
"Watch for Middle Eastern asset switches out of US dollars into the euro," UBS Warburg's London-based fixed-income team advised in its daily note. "If a trickle becomes a flood, it could force the spread [of US Treasuries to German bonds] wider in double-quick time."
David Brown, chief European economist at Bear Stearns, said if Saudi holdings in the US were cut drastically and in a very short time, "there could be an influence on the dollar".
Most banks, however, emphasised the relatively low level of Saudi holdings of US assets, between $400bn and $600bn according to one estimate, or equivalent to less than 1 per cent of total outstanding US assets.
But Mr Brown said the question was "whether any Saudi disinvestment is isolated, or part of a global move to reduce US exposure". The latest figures on inflows to the US suggest a broader move away from American investments.
By May this year, the 12-month rolling sum of net foreign buying of US assets was down 14 per cent to $450bn, from a peak above $500bn late last year, according to UBS Warburg.
Medlej al-Medlej, executive director of the US Saudia Arabia Business Council in Washington, whose members include big oil companies like Exxon Mobil as well as banks, said: "We are hearing that the US is no longer the best place for Saudis to send their money. There is a growing impression that the US is no longer a safe haven for investment and we agree there must be some investors who are pulling out of the US."
Mr al-Medlej said there was a perception that since the September 11 terrorist attacks, the US was no longer a safe haven. "I honestly don't believe that the money moving from the US has anything to do with politics, but with security, in terms of the trillion-dollar lawsuits filed against Saudis after September 11 [by victims' relatives]." Mr al-Medlej said there was "a huge amount" of Saudi money in the US, mainly in equities and property. "We hear as much as $600bn to $800bn, and I don't think a large portion of that is leaving."
But not everyone agreed there had been multibillion outflows of Saudi money. Peter Scaturro, chief executive officer of Citigroup private bank, said his company's relationship with Saudi investors had not changed. "We are not seeing any real change in clients in the Middle East. We are in constant dialogue with them."
Report from Financial Times]
Saudis withdraw billions of dollars from US
Tuesday, 20 August 2002
Disgruntled Saudis have pulled tens of billions of dollars out of the US, signalling a deep alienation from America.
One analyst said the total funds withdrawn by individual investors amount to $200bn. Other bankers put the figure nearer to $100bn.
The US-Saudi alliance was put under severe strain after September 11, when 15 of the aeroplanes' 19 hijackers were Saudi nationals.
Accusations that Saudi Arabia's austere brand of Islam breeds terrorism and its charities finance Osama bin Laden's al-Qaeda network have been perceived in the kingdom as attacks on Saudi society and its religion.
An analyst from the Rand Corporation said at a Pentagon briefing this month that Saudi Arabia was the "kernel of evil", exacerbating concerns among the country's elite that they have become demonised in the US and their money is no longer safe there.
As part of the fight against terrorism, the US and Saudi authorities have been monitoring the accounts of dozens of Saudi companies and individuals, a move that alarmed Saudi merchants. Youssef Ibrahim, a senior fellow at the Council on Foreign Relations working on a project re-examining US-Saudi relations, said Saudis had withdrawn at least $200bn from the US in recent months. He said the move has been driven by hawkish US commentators' calls for the freezing of Saudi assets.
The trend, he added, can be expected to accelerate with last week's trillion-dollar lawsuit by relative of the victims of September 11. The lawsuit accuses several Saudi institutions and charities and three members of the royal family, including the defence minister, of financing terrorism.
Details of Saudi investments in the US are sketchy but financial analysts believe they range between $400bn and $600bn. The funds are invested in private equity, the stock and bond markets and real estate. The figures include investments by members of the royal family.
Investors are not thought to be closing down their US accounts. Instead they are moving money into European accounts. Bankers in London said the largest established Saudi investors did not yet seem to be following the trend.
One said: "I'm sceptical about a mass exodus. But there was a lot of Saudi money with American banks that was not diversified, now they [the Saudis] are spreading their wings. Perhaps 30 per cent to 50 per cent of the money that was with US banks is seeking diversification."
The Saudi money shifts may have contributed to the recent downward pressure on the dollar.
"People no longer have any confidence in the US economy or in US foreign policy," said Bishr Bakheet, a financial consultant in Riyadh.
"And if the latest lawsuit is not thrown out in court, it will mean no more Saudi money in the US."