October 15, 2018 / 4:10 PM / 10 months ago

Breakingviews - Wall Street shows Trump the way on Saudi Arabia

JPMorgan Chase Chairman and Chief Executive James Dimon speaks during the Institute of International Finance Annual Meeting in Washington October 10, 2014. REUTERS/Joshua Roberts

LONDON (Reuters Breakingviews) - The Wall Street tail is wagging the Washington dog. In the past, Saudi Arabia’s alleged involvement in the disappearance of journalist Jamal Khashoggi would have met with robust condemnation from the United States government. American banks and companies would then reluctantly pass up the chance to compete for lucrative business. But in the last few days a stream of luminaries headed by JPMorgan CEO Jamie Dimon have turned that dynamic on its head.

The decision by BlackRock chief Larry Fink and his Blackstonecounterpart Steve Schwarzman to join their peers in skipping next week’s “Davos in the Desert” will not have been taken lightly. Western financiers and business leaders have lauded Crown Prince Mohammed bin Salman’s “Vision 2030” modernisation programme. JPMorgan has made $81 million in fees from Saudi Arabia over the last six years, Refinitiv data shows. Besides, the royal family has a long memory. Citi had to wait almost a decade after leaving the kingdom in 2004 to be granted a new banking licence.

Wall Street’s risk-reward judgment makes business as well as moral sense. Bankers are already cooling on a $50 billion to $70 billion international loan to finance Saudi Aramco’s acquisition of a stake in chemicals firm SABIC, IFR reported on Oct. 12. Much of the appeal of funding Aramco’s buyout of the Saudi Public Investment Fund’s stake hinges on the scope to earn lucrative fees when Aramco eventually launches an initial public offering. But the fallout from the Khashoggi affair throws all of this into question.

The U.S government is in a stickier situation. The kingdom is at the centre of President Donald Trump’s Middle East strategy of shackling its perpetual enemy Iran. It is also the only major power able to raise output to cool rising oil prices. If Saudi instead chooses to cut exports, it would be doing so in a market that is tight because of Trump’s sanctions. Riyadh’s relatively healthy economy also affords a buffer if it fancies a confrontation.

Wall Street’s collective action may have shown the U.S. government the way forward, but that doesn’t mean it will follow suit.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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