British Bankers Ask UK Govt for Help on Saad and AlGosaibi

You've probably seen today's Financial Times.  

Thomas Harris, Chairman of the British Bankers Association Trade Policy Committee, reportedly wrote to the UK Minister for Trade, Lord Davies, urging him to push the Saudi authorities to help foreign banks (read "British banks".  This is the BBA after all)  resolve their problems with both Saad and AHAB.

Frank Kane has more details on the letter in Abu Dhabi's The National.  And he is a bit less gentle.  The FT has more to protect that The National.

Clearly, the leak of this letter is designed to put pressure on the Saudi Government.

First reaction.

It's fairly typical for bankers who have gotten themselves into trouble to seek  to identify those responsible for their predicament.  For some strange reason, they rarely look close to home.  Rather they blame regulators, accountants, the weatherman, and the chap standing on the corner for their misfortune.   Equally, it's typical for them to look for governments, central banks, and regulators to extricate them  - usually justified as needed to protect the good name of the country and future business. We're seeing a bit of the latter in this letter:  a  not so subtle threat that if the authorities fail to "assume responsibility", then future business will suffer.   Not a highly credible threat  as bankers  are known as a group to be congenitally pre-disposed to ADD.

But added to that normal pattern of behavior are a few other complicating factors:

1. The side deal cut to favor local banks.  A Saudi preferential tradition so it seems if the stories about Redec are correct.
2. Lenders' knowledge that the Saudi legal system presents formidable obstacles to redress through the courts, particularly for foreign lenders.  It's remarkable how laser-like the focus is on legal matters after the problem has occurred.  It's not just punters in the equity market who are  often irrationally exuberant.  Many times it's those presumedly sober pin-striped bankers.
   
3. As well, their knowledge that securing full and frank information will be difficult.
4. Both borrowers' apparent attempts to use the above and their financial difficulties to settle their obligations for pennies on the dollar.  
   

Certainly, a difficult situation, particularly when the sums involved are large.  And clearly they are.  The BBA is not writing letters to Lord Davies because the sums are modest.

One wonders (or at least AA does) how many times a person or a banker has to get hit in the head before he or she catches on.

Commercial banking is a fairly simple business.  A key element is understanding the market one is doing business or proposes to do business in - well before one looks at the credit of an individual obligor.  If there are  fundamental problems with the law itself, the enforcement mechanism, business practices, transparency etc,   there is a problem with the market.  If that is the case, one adjusts one's lending strategy - amounts, terms, collateral (offshore of course) - or simply does not lend.