Citi’s Middle East banking business is no joking matter

DUBAI: At around 6 p.m. last Tuesday, Atiq Rehman was racking his brains for a joke.

The CEO of the Middle East and Africa for Citigroup, the giant American banking business, was delivering closing remarks after a one-day summit of media and non-governmental organizations (NGOs) in Dubai. The summit had encompassed virtually every aspect of the business of a global financial business, from trade wars to fintech, but humor had been in short supply.

Rehman never found the appropriate joke, but instead delivered a masterful tour d’horizon of Citi’s growing business in the region. Having been with the bank since he graduated in 1984, mostly in the emerging markets of the Arab and African world, it is a subject he knows better than most.

Saudi Arabia was top of his list of priorities. “It is the biggest economy in the region and you cannot say you’re a global bank unless you service economies like Saudi Arabia,” he said.

Last year, Citi reopened in the Kingdom after a 13-year absence, with a license from the Capital Market Authority, mainly for investment banking business, and could now look to add a full banking license from the Saudi Arabia Monetary Authority, which would allow it to offer other commercial banking services.

Citi never really went away from its corporate clients in the Kingdom during those 13 years, continuing to provide external banking facilities to clients such as SABIC, but the reform program under Vision 2030 dramatically increased the attraction of a physical return to Saudi Arabia. Rehman believes the pace of transformation will continue, against a background of rising oil prices.

“The price of commodities will always fluctuate for a whole range of factors, and I never feel confident about the idea that oil prices will only go one way. Long term, you have to iron out some  of the variations. But Vision 2030 is a grand strategy, and part of the rationale behind it is to even out the effects of oil price variations,” he said.

He thinks different parts of the transformation program may proceed at different speeds. “My feeling is that a lot of very good work has already been done, especially with the changes on the social side. In some ways, many of the harder policy options — in social and cultural things — have already been tackled. You have to give Saudi Arabia a lot of credit for the changes it has achieved here.

“But in the short term on the economic aspects, things may go up and down, slow down and speed up. You have to have the flexibility to adapt to changes. Oil at $80-90 a barrel is helpful for the Saudi economy, but I do not feel that will change the impetus for economic change in the long term. The privatization program is a big thing of course, but it is a pretty straightforward proposition,” he added.

Citi is advising the Saudi authorities on some aspects of privatization, and sees health care, housing, airports, and utilities among the first to be sold off.

But much of Citi’s work in the Kingdom since its return has been on the financial and capital markets business. Most recently, it was among the group of international banks that organized an $11 billion bond sale, following involvement in several of the previous record-setting issues.

“We think it is very important to have in place a proper debt management office and capital markets program. The global investment community expects and appreciates that, and we’ve been instrumental in helping Saudi Arabia achieve the profile it has in international capital markets.

“That kind of profile will help a lot too in the equity markets, which have been very strong in Saudi over the past year. International investors have taken notice of the reforms of Tadawul and CMA, and have supported them,” he added.

Rehman was speaking before Saudi Crown Prince Mohammed bin Salman confirmed in an interview with Bloomberg that the initial public offering (IPO) of Saudi Aramco, the biggest oil company in the world, would go ahead by late 2020 or early 2021, but the Citi boss stressed the need for flexibility in such important corporate events.

“Things in the financial world move around, plans and timings change. Even for the smallest companies, things like IPOs take time. We understand the need to get it right on something as important as Aramco.

“Saudi policymakers can afford to be more expansive in their budgeting with oil where it is now. Government spending continues to play a very important role on economic strategy. But the private sector has seen some very bold decisions lately, and that’s increasingly important,” he added.

He believes there will ways be an important role for governments to play in stimulating regional economies, and cites the actions of the Egyptian government when it headed off a currency crisis as an example of good top-down economic management.

But regardless of the new-found emphasis on Saudi Arabia, the UAE will continue to be the regional hub for Citi’s business, and an increasingly important revenue generator. Rehman believes the Emirates stands to gain significantly from new US tax reforms, which will allow American corporations to elect to pay tax in the jurisdiction where they are based, and this could add to the attraction of the UAE and its free zones, where zero-rated tax applies.

“For big US corporations it would make increasing sense to have the Dubai International Financial Center, or the Jebel Ali Free Zone, as your regional base, because there is no tax payable there,” he said.

Citi is looking to increasingly book its business on loans and other business in the UAE. “We are focused on what we can do within the UAE and very focused on what we can do from the UAE,” he said. “We want to grow our business here and make it into a regional offshore booking center for a lot of our loans,” he said.

The event in Dubai was an opportunity to explain Citi strategy in the Middle East and Africa to a group of regional media representatives, but also to engage the NGOs who are an increasingly important constituency for the American bank, via its autonomous unit, the Citi Foundation.

Issues such as gender equality, climate change and governance have become more controversial in the Trump presidency, but Rehman said Citi would continue to place high priority on corporate social governance (CSR).

“It is already engrained in the company’s business model. Of course, there has to be a commercial objective in everything, but CSR is a crucial factor for us. The firm believes in doing things in a way that helps solve wider problems and issues,” he said.

He reeled off examples of how Citi in the wider region is helping to tackle these issues, from its arrangement with the UN to transport the cash used to pay peace-keeping soldiers in Sudan and the Democratic Republic of Congo, through to its commitment to the dollar-clearing system, which some banks have given up for regulatory reasons.

There is a dark cloud on the regional horizon, in the form of the growing potential for cybercrime. Citi recently hired a former agent from the Federal Bureau of Investigation to head up its cyber capabilities, but Rehman acknowledged it is still an issue.

“Maybe the biggest thing I’m concerned about at the moment is the possibility of cyberattack. It is a real risk and we have not seen the full implications of it,” he said. Maybe that worry is the reason he failed to find the appropriate joke on the night.