Citibank Splits from Saudi American Bank – SAMBA

Monday, September 15 was not a good day for the Saudi Arabian stock market (Tadawul -TASI) the Arab world’s leading and most vibrant bourse. Tadawul All-Shares Index took a seven percent dive, ostensibly on rumors that a fire that broke out in the late morning in Riyadh’s main Al Hair prison was caused by arson and the death toll was rising fast above the 87 officially admitted by the Saudi authorities.


(Separate article in this issue deals with the causes of this horrendous blaze and its targeting of Al Qaeda inmates.)


Since the deadly suicide bombing attacks on May 12 against foreigners’ compounds, the general climate in the Saudi capital has been edgy. Monday’s setback was rare for a capital market whose capitalization has shot up by 60 percent in two years and overtaken Kuwait and Bahrain, mainly due to low interest rates and the absence of any important investment opportunities in the Gulf region.


However, on Monday, Saudi bank shares declined by three percent and those of large enterprises, such as the Saudi electrical company, plummeted by an average of five percent.


DEBKA-Net-Weekly’s Gulf sources report that, since the lion’s share of Saudi capital market stocks is held by ruling and business families, Riyadh was well-placed for the rapid scramble necessary to reverse the dip. On the next day of trading, large swathes of shares were snapped up directly or through middlemen. Nonetheless, the market went nowhere, ending the day only 0.3 percent higher.


According to our sources, the TASI’s slide was heavily greased by the news that spread as fast as the prison fire that Citigroup Inc. would be withdrawing from its partnership with the Saudi American Bank (SAMBA) on October 31, rolling up its operations in the kingdom and bringing its expatriate employes home. Managing Director Mike de Graffenried will be handing over to his local deputy Eisa al Eisa.


Citibank established its first branch in Saudi Arabia back in 1955. The SAMBA partnership, which now has 62 branches, was set up in the mid-1970s when Saudi authorities compelled foreign banks to sell majority equity interests to Saudi nationals. By June 2003, SAMBA was the second largest bank in the kingdom in terms of assets ($21bn).


Citibank’s decision to quit the oil kingdom is one of the most striking symptoms of the widening rift afflicting US-Saudi relations ever since 15 of the 19 suicide hijackers who carried out the September 11, 2001 attacks on New York and Washington were found to be Saudi nationals.


Even though Saudi Arabia backed the US-led war on Iraq, the once solid military and security ties are unraveling.


On August 28, the last uniformed US serviceman departed the sprawling Prince Sultan air base in Al Kharj, 80 km (50 miles) south of Riyadh. All the American troops supposedly headed out of the kingdom for Qatar, home of the US military’s central command. Left behind were detachments of plainclothes security advisers employed by American security companies such as MPRI and Vinnel. They have been training Saudi units and providing military services for special operations, effectively shouldering the former missions of crack commandos.


But DEBKA-Net-Weekly‘s intelligence sources believe some US special forces units remain in Saudi Arabia under cover. US commando units are also reportedly fighting Al Qaeda bands in the Assir and Najran provinces of southwest Saudi Arabia on the Yemeni frontier. They are not based in the kingdom but carry out in-and-out sorties across the border from Yemen or else they are helicoptered in from the decks of US warships cruising in the Red Sea and moored at the Djibouti naval base.


DEBKA-Net-Weekly’s sources in the region are not surprised to see US banking and financial interests trooping out of Saudi Arabia on the heels of the American military – for two reasons:


A. Washington alleges Saudi funding reaches Iraq guerrillas


Arguments between Washington and Riyadh are getting ever more heated over whether or not Saudis in authority and religious figures continue to fund Muslim fundamentalist terror groups such as Al Qaeda and Hamas. The row sounds as though it centers on the Palestinian Hamas, but DEBKA-Net-Weekly’s counter-terrorism sources report what the Bush administration is most disturbed about is Al Qaeda. To make sure the Saudis understand the gravity of the problem, US officials showed aides of Saudi Arabia’s de facto ruler, crown prince Abdullah, a secret haul of documents and evidence taken by American special forces from Saudi infiltrators captured in the Syrian-Iraq frontier region near the Iraqi city of Anah on the Tigris, between the Syria border town of Abu Kamal and Al Hadithah in Iraq.


(See separate article in this issue on US operations against Arab tribes on the Syrian-Iraqi border).


The information captured there dovetailed closely with the evidence found on Saudis US forces picked up on another continent, in Georgia’s lawless Pankisi Gorge on the Chechen border. The two movements exposed an elaborate network of couriers carrying wads of cash to bankroll Al Qaeda terrorist activities in the two regions. The money is carried in reinforced metal cases with a sophisticated locking code. Unable to crack the combination, US troops have been blowing up the mobile safes with the money inside.


What has most incensed the Bush administration is the discovery of Saudi funds relayed to guerrilla forces fighting American forces in Iraq. Washington does not trust Riyadh’s denials of connections between these transfers and any part of Saudi military intelligence, the royal exchequer or private monetary sources.


Given this distrust, the Saudis are not averse to Citibank’s divorce from a top banking partnership and the removal of US staff. American bank officers will no longer have the chance of prying into Saudi cash withdrawals and transfers or listening in on rumors from their Saudi colleagues about funds flowing to Iraq’s guerrillas.


Ironically, US financial circles are just as content to create a distance from this finance-cum-terror imbroglio.


In any case, there is a sense that relations between the two capitals have deteriorated to the point that joint banking ventures and other partnered enterprises have nowhere much left to go. The reverse of a calming effect was generated by the arrival in Riyadh on Wednesday, September 17 of US treasury secretary John Snow demanding to know why Saudi funds were still streaming to al Qaeda.
Snow is due to attend the International Monetary Fund conference in Dubai next week. Just before flying to Riyadh, he had heard about a flip-flop performed by the Jordanian government and its central bank. On Monday, as the Riyadh stock exchange headed south, Jordan’s central bank announced a freeze on the accounts of Hamas leaders including the group’s co-founder Sheikh Ahmed Yassin. The Central Bank statement in Amman released no other names of Hamas account-holders in Jordanian banks, but DEBKA-Net-Weekly’s counter-terrorism sources reveal that they include Hamas leaders-in-exile Khaled Meshal and Moussa Marzook. Both are normally based in Damascus but have lately been spending time in Cairo and Qatar. Others affected by the freeze are Osama Hamdan, Hamas’ top commander in Lebanon and its liaison there with Hizballah and Al Qaeda, and the group’s senior operations officer, Imad al-Alami.


According to our sources in Washington and Amman, the central bank announcement was initiated by the royal court to make sure King Abdullah II had a good visit this week with President George. W. Bush.


However, on the day of the Central Bank’s announcement, Hamas lashed back, accusing Jordan of becoming the first Arab state to “bow to American dictates”. The Saudis were also outraged. Officials close to crown prince Abdullah, describing Jordan’s move as hostile, accused their neighbor of providing Snow with a lever for turning the heat on Riyadh to take similar steps against terror funding.
The fur flew in a flurry of cables with demands from the Crown Prince’s bureau in Riyadh to the royal party which had flown into Washington to retract the edict against Hamas bank accounts without delay. The Saudis were angry enough to threaten Jordan with economic sanctions, including the closure of parts of their common border – across which the Hashemite Kingdom derives an important portion of its foreign revenue.


Twenty-four hours after issuing the edict, the Jordanian monarch climbed down and revoked it.


His information minister Nabil Sharif was directed to announce on Wednesday, September 17 that the central bank had acted “unilaterally” without the knowledge of the government. That night, Washington urged Jordan to think again and restore the freeze.


B. Muslim money in flight from US


The Citibank group’s exit from the oil kingdom throws into focus another kind of upheaval: US and Saudi banking find themselves increasingly in a conflict of interests and pulled in opposite directions. Indeed, more and more Muslim governments and investors are removing themselves from American banks.


At the annual meeting of the Organization of Islamic Conferences (OIC) in Almaty, Kazakhstan, earlier this month, it transpired that Arab and Muslim business interests were moving billions of dollars out of their accounts in the United States to Muslim-managed institutions. They said they were uncomfortable in the “hostile atmosphere” that developed in the wake of the 9/11 attacks and suffered losses in the subsequent US and international economic slowdown. In all, Muslim investors claimed to have lost about $400 billion in the last two years.


At the same time, DEBKA-Net-Weekly’s sources in the Gulf report the Saudis are putting a good face on the situation. Official sources in Riyadh deny any crisis exists. US financial institutions are liquidating their Saudi partnerships, they say, in order to return to the kingdom as independents after Saudi Arabia’s membership of the World Trade Organization (WTO) is approved at year’s end. Under WTO regulations, Riyadh will no longer be allowed to force foreign investors to take Saudi partners and award them majority shares. American firms are then expected to line up for permits to operate independent businesses in the kingdom under US management.


Financial traders in bank stocks told DEBKA-Net-Weekly they do not think the breakdown of the Citibank-SAMBA partnership is all that significant in financial terms. In their opinion, it signified a possible further pullback of Saudi money out of the sight of US anti-terror inspectors. They stressed that the dissolution will not directly affect the relationship of Prince Alwaleed Bin Abdulaziz with Citigroup Inc. He holds 5.2 percent of the company, which has an overall market capitalization of $228.4 billion.


Again, Saudi Arabia has failed to comprehend fully the devastating effect Al Qaeda’s activities – and its support of them – is having on daily life in the country, with the blaze at Riyadh’s main prison a case in point.

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