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Identifier
Created
Classification
Origin
09RIYADH160
2009-01-26 14:43:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Riyadh
Cable title:  

CORPORATE PROFITS LOWER, BUT MOST STILL IN THE

Tags:   ECON  EFIN  EINV  ETRD  SA 
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VZCZCXRO5133
PP RUEHDE RUEHDIR
DE RUEHRH #0160/01 0261443
ZNR UUUUU ZZH
P 261443Z JAN 09
FM AMEMBASSY RIYADH
TO RUEHC/SECSTATE WASHDC PRIORITY 9963
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEHJI/AMCONSUL JEDDAH 9993
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
						UNCLAS SECTION 01 OF 02 RIYADH 000160 

SENSITIVE
SIPDIS

DEPT FOR EEB AND NEA/ARP

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD SA
SUBJECT: CORPORATE PROFITS LOWER, BUT MOST STILL IN THE
BLACK

REF: 08 RIYADH 1880

UNCLAS SECTION 01 OF 02 RIYADH 000160

SENSITIVE
SIPDIS

DEPT FOR EEB AND NEA/ARP

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD SA
SUBJECT: CORPORATE PROFITS LOWER, BUT MOST STILL IN THE
BLACK

REF: 08 RIYADH 1880


1. (SBU) Summary: The economic crisis is starting to hit
harder in Saudi Arabia as oil prices remain low, with most
companies reporting lower profits in the 4th quarter of 2008,
and some reporting losses. Banks and holding companies
exposed to bank losses are being hit hardest. Interestingly,
car distributors did well in 2008, but expect little growth
in 2009. SAMA continues to take action to free up credit
with a fifth cut in their key interest rate since early
October. End summary.

Banks profit, but less than 2007
--------------


2. (U) Although Saudi banks were not measurably exposed to
the subprime mortgage crisis, their dependence on access to
international credit for project finance has hurt their
bottom line. Of the 10 largest commercial banks, only Saudi
Hollandi bank has reported an increase in 4th quarter profits
over 2007, and this largely due to lower than normal profits
in late 2007. National Commercial Bank, the country's
largest, reported a 4th quarter loss of $680 million. Two
other banks, Saudi Investment Bank and Bank Aljazirah also
reported losses, and six reported profits lower by an average
of 14 percent.

The global auto industry's one shining light
--------------


3. (SBU) In contrast to their recent performance in the U.S.,
American auto companies Ford and General Motors both had
record years in the Kingdom. GM's two percent increase in
sales in Saudi Arabia during 2008, though not as dramatic as
double-digit increases in Syria, the UAE, or Oman, is still
significantly better than its performance elsewhere in the
world. An executive at a local Ford distributor told Econoff
in a recent meeting that thanks to an increase in
institutional sales to Aramco and the Saudi government, they
expect to report a 65 percent increase in sales in 2008 and a
similar number of sales (no growth) in 2009.

Mixed news from parastatals
--------------


4. (U) Two of Saudi Arabia's parastatals posted dramatically
different 4th quarter results. The Saudi Arabian Basic

Industries Corporation (SABIC) reported net profits of $82.9
million, down 95 percent from the 4th quarter 2007. They
responded by closing some factories, reducing production
elsewhere, and laying off 1,300 employees. On the other
hand, Ma'aden, the SAG's mining company, reported a 195
percent increase in annual profits for 2008, more than half
of which came during the 4th quarter ($30.9 million). An
Emirati paper reported that this dramatic increase was
largely attributable to hedge contracts on gold.

Kingdom Holdings tanks in the 4th quarter
--------------


5. (SBU) Prince Alwaleed bin Talal's investment company,
Kingdom Holdings, while only the ninth largest firm (by
market capitalization) on the Saudi stock exchange, enjoys a
public prominence even greater than its position in the
financial community. Thus to many it came as a shock when
the company reported a $8.26 billion loss in the 4th quarter
of 2008. The company later revised this figure to show a
small overall profit after a "re-categorization of some items
of its income statement." Due to its exposure to Citigroup,
this past quarter is unlikely to be the last in which Talal's
company performs poorly.

SAMA makes another rate cut
--------------


6. (U) The Saudi Arabian Monetary Agency (SAMA) cut their key
lending rate to two percent, down from 5.5 percent in early
October. This cut came on top of the first report (that Post
has seen) suggesting the Saudi economy will actually shrink
in 2009 (EFG-Hermes, a Cairo investment bank, has predicted
the Saudi economy will shrink by 0.9 percent in 2009). A
second gloomy projection followed soon after, with
Saudi-American Bank chief economic Howard Handy predicting
Saudi GDP could contract by up to 1.5 percent in 2009.

Comment

RIYADH 00000160 002 OF 002


--------------


7. (SBU) There are increasing signs of economic turmoil here
in the Kingdom. With three major banks posting losses for
the 4th quarter, and high profile companies such as Kingdom
Holdings suffering dramatic reversals of fortune, it is
growing increasingly difficult for Saudi officials to claim
their economy is sheltered from the effects of the global
economic crisis. Although on occasion we still see such
claims in the media, behind closed doors SAG officials seem
prepared to confront at least a few quarters of significantly
reduced economic growth. They have demonstrated, both
through actions by their central bank and through
infrastructure investments in their 2009 budget, a commitment
to use the surpluses of recent years to smooth any short-term
economic hiccups that may emerge (for more on the Saudi 2009
budget, see reftel). End comment.
RUNDELL