Citigroup withdrawal from Saudi sends out all the wrong signals

Citigroup says its latest move does not impair its commitment to the region – but it is unlikely that its local customers will view the decision in the same light.

On October 31, Citigroup’s longstanding management contract at Riyadh-based Saudi American Bank (Samba) ends. The largest bank in the world is pulling out of an institution that it helped to found in 1980 and which, despite its minority stake, has been highly profitable for it ever since.

Why has Citigroup, with a footprint in over 100 countries, decided to pull out? It has long argued that holding 20% stakes and running other people’s banks is not its style, and its official statement noted: “Citigroup’s shareholding in Samba is not impacted by this transition. Citigroup remains fully committed to its clients in the kingdom and in the region.” On the surface this all sounds reasonable but some bankers, in the light of political developments in the region, see it differently.

Some suggest that Citigroup’s management is nervous about its exposure in the region, especially at a retail level, and is looking closely at all available exits. The repercussions of 9/11 have highlighted several legal issues (particularly in relation to individual customers) that could prove embarrassing or damaging, and executives in New York appear to be succumbing to domestic political pressure.

Also, for unknown reasons, before the US invasion of Iraq earlier this year, Citigroup shifted all its assets booked into Bahrain to the Bahamas. After the initial conflict was over, the assets were shifted back to Bahrain. The only apparent explanation for the move, which upset the Bahraini authorities, was that Citigroup was afraid that the invasion could go wrong and financial assets in Bahrain would be adversely affected – a highly unlikely outcome.

Like the current US administration, which abandoned its long-term alliance with Saudi Arabia following 9/11, Citigroup looks in danger of sending the wrong signals to its customers in the region. Understanding local sensitivities is essential to success in globalisation and Citigroup should know this better than most. Pulling out of the management contract at Samba at this time may seem like an irrelevant detail to the inexperienced; others, however, see it as a significant development with damaging implications for the bank’s commitment to the region.