CITIBANK MOVES REGIONAL OFFICE FROM BAHRAIN TO

C O N F I D E N T I A L SECTION 01 OF 02 MANAMA 001084

SIPDIS

SIPDIS

E.O. 12958: DECL: 06/18/2016
TAGS: ETRD BA ECTRD REGION
SUBJECT: CITIBANK MOVES REGIONAL OFFICE FROM BAHRAIN TO
DUBAI

MANAMA 00001084 001.2 OF 002


Classified By: Ambassador William T. Monroe. Reason: 1.4 (B)(D)


1. (C) Summary. Citibank earlier this month transferred its
regional headquarters from Bahrain to Dubai. Although the
move received little attention here, Citibank Middle East
Managing Director Mohammed Al-Shroogi, a prominent Bahraini
and Shura Council member, told the Ambassador that the move
reflects a shift in the regional financial landscape as
neighboring GCC countries open their doors to, and actively
solicit, foreign banks. This development highlights the
challenges facing Bahrain as it tries to compete with its
wealthier neighbors, and underscores how important the FTA is
for Bahrain and its economic future. End summary.


2. (U) Citibank on June 1 appointed Mohammed Al-Shroogi as
its corporate and investment banking head for the Middle
East, based in Dubai, as well as its chief country officer
for the UAE. Al-Shroogi, a Bahraini citizen, had until then
served as Managing Director for the Middle East out of
Citibank's office in Bahrain, where he was also chief country
officer.


3. (C) Al-Shroogi has moved to Dubai, but during a brief
visit back to Bahrain on June 15 the Ambassador called on him
to get his take on the reasons for the shift in the regional
headquarters, and the implications for Bahrain as a regional
financial center. Al-Shroogi said that as a Bahraini citizen
it was tough for him to make the move, but wearing his
Citibank hat he felt there was no choice. Especially on the
investment banking side, he said, Dubai is now the place to
be in the region. Eight leading investment banks have
recently established major presences there. He compared
Dubai's situation to that of London in Europe. London is
more expensive and perhaps less ideal a locale than other
European cities, but if you are a banker in Europe, London is
where you want to be. Dubai is now much more expensive than
Bahrain, living conditions are not as pleasant anymore, and
good office space is harder and harder to find, but if you
want to attract top banking talent, you have to be in Dubai.


4. (SBU) In addition, he continued, the financial environment
is changing in the individual GCC countries. When Bahrain
established itself as a financial center in the 1970s,
foreign banks were not welcomed in countries like Kuwait,
Qatar, and Saudi Arabia. Bankers set themselves up in
Bahrain, and serviced the region from there. Now, the
situation is changing. Citibank was offered a full-banking
license in Kuwait last summer, and recently commenced
operations there. It will soon set up in Qatar (former
Citigroup CEO Sandy Weill is expected to come for the grand
opening),and hopes to get into the Saudi market. Its office
in Bahrain was gradually being reduced to a local office for
the Bahrain market.


5. (C) Al-Shroogi (protect) said that he personally delivered
the unhappy news of the move to Dubai to Crown Prince Shaikh
Salman, who has been given stewardship over Bahrain's
economic reform efforts. The Crown Prince was not happy.
Al-Shroogi explained to the Crown Prince that in New York
City Citibank has its corporate headquarters in pricey
Manhattan, but keeps its backroom banking operations in
Queens, where it is cheaper and where many employees work.
He envisioned a similar situation developing in the Gulf,
where Citibank will have its regional headquarters in Dubai,
but move/keep many of its backroom banking operations in
Bahrain, which is cheaper. He said that in the short-term he
did not envision a draw-down of employees in Bahrain, an
important consideration for Bahrain. Not surprisingly, he
noted, the Crown Prince did not particularly like the analogy
of Bahrain as the "Queens of the Gulf."


6. (SBU) Al-Shroogi stated that Bahrain, in addition to
cheaper housing and office space, has another advantage over
Dubai: a more developed local (that is, Bahraini) workforce
in the financial sector. Expansion in Dubai will be hampered
by local requirements to hire a certain percentage of local
citizens. It is difficult to find qualified Emiratis. So it
is possible, he said, that Citibank may shift some positions
from Dubai to Bahrain even as it moves its regional
headquarters in the other direction.


7. (SBU) With Bahrain losing some of its luster as a regional

MANAMA 00001084 002.2 OF 002


hub for conventional and investment banking, Al-Shroogi
stated, Islamic banking will play an increasingly important
role for the Bahraini economy. In this area, he did not see
Bahrain's position slipping. He fully expected Bahrain to
remain the regional center for Islamic banking.


8. (C) More broadly, Al-Shroogi worried that the Bahrain
economy could follow the path that Gulf Air has taken
recently, slowly losing some of its regional position as
wealthier neighbors try to develop their own industries where
Bahrain has traditionally been strong. Gulf Air has lost two
of its four original owners (Qatar and Abu Dhabi) as those
countries build their own airlines. Alba will face increased
competition as Oman and others build their own aluminum
factories. Dubai and Qatar are fast building up their own
financial sectors. Bahrain is trying to develop its tourism
sector, but investors will be scared away and go elsewhere in
the Gulf if Islamic parliamentarians continue to appear
threatening to the industry.


9. (C) Al-Shroogi said that there will be great pressure on
the Crown Prince to produce. "Everyone says that the economy
is in the hands of the son," he said, meaning that the King
has focused on political reform while turning economic issues
over to the Crown Prince. "Young Bahrainis look up the Crown
Prince," he added, "but he has to produce." The Economic
Development Board, which falls under the CP's purview, must
move quickly.


10. (C) Comment: The move of Citibank's regional office to
Dubai received surprisingly little notice here, but it is
certainly a blow to a country which has long taken pride in
its role as a regional financial center, and where one of the
signature office building projects now under construction is
called the "Bahrain Financial Harbor." This move highlights
the challenges facing the Bahraini government as it tries to
compete with its wealthier neighbors, especially Qatar and
the UAE, who are ready to spend to build infrastructure and
attract business. It also underscores the importance of the
FTA as a way to help Bahrain compete and attract investment.
Although the FTA is still weeks away from implementation,
there are a few signs that it may in fact help bring interest
in investment to Bahrain. In recent weeks, we have learned
of an American automotive parts manufacturer that wants to
build a plant in Bahrain, using aluminum from Alba, to make
auto parts for the U.S. market. And Microsoft is looking at
establishing a regional office in Bahrain that could bring
some 25-30 executive-level employees to Bahrain. Both
companies have cited the FTA as an important factor in their
decision-making.

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