LONDON - Goldman Sachs is getting a bit of a kicking in the Gulf. Abu Dhabi’s sovereign wealth fund, Mubadala, said last week it won’t hire the Wall Street firm beyond current contractual commitments. The $225 billion investment fund, a regional behemoth, blamed ongoing litigation over the Malaysian 1MDB scandal that left it on the hook for billions of dollars in losses. Yet the cold shoulder could prove manageable.
Goldman’s public de-friending isn’t great branding for the bank run by David Solomon. Abu Dhabi is the richest and most powerful emirate in the United Arab Emirates, and a strong ally of uber-rich Saudi Arabia. The opprobrium of one of its two huge funds could complicate future advisory mandates with other big clients like Abu Dhabi Investment Authority (ADIA) and Abu Dhabi National Oil Company. Even public-sector clients in neighbouring Dubai could think twice about hiring Goldman. In the last three years, UAE on average provided three-fifths of Goldman’s investment bank fee revenues in the Middle East and North Africa, Refinitiv data shows.
Yet Mubadala’s spurn might not pan out disastrously longer term. Private-sector clients in Dubai are still free to hire Goldman. And while a spate of privatisations in Saudi Arabia is slow to get going – most obviously energy giant Saudi Aramco’s IPO – the bank is already advising Riyadh’s Public Investment Fund and several other Saudi companies. Qatar may also be a source of increased deal flow.
A better reason for Solomon to remain sanguine may be the way U.S. banks routinely weather seemingly relationship-ending storms. JPMorgan boss Jamie Dimon snubbed Saudi’s Future Investment Initiative in October following the murder of Washington Post columnist Jamal Khashoggi by Saudi agents. Yet the New York bank is advising Aramco on a mega debt sale. Meanwhile, ADIA – Abu Dhabi’s other big sovereign wealth fund – provides a live example of an ability to move on.
A decade ago, ADIA had just handed over $7.5 billion to help recapitalise crisis-hit Citigroup. When Citi required further bailouts and the fund lost its shirt, both sides became embroiled in a legal battle. Yet despite a lean year in 2014, Citi has topped Dealogic’s UAE fees league table in two out of the last three years. This sort of capacity to look beyond individual spats implies Goldman’s time in the doghouse might be similarly time-limited.
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- Abu Dhabi state investor Mubadala said on March 14 it had suspended new business dealings with Goldman Sachs following the filing of a lawsuit by its subsidiary in November to recover losses suffered through dealings with Malaysian state fund 1MDB.
- “We have suspended any activities with Goldman Sachs pending outcome of the litigation,” Brian Lott, spokesman of Mubadala Investment Co, said in response to questions from Reuters.
- “The only exceptions are engagements signed prior to the litigation, which will continue as per contractual terms,” he said.
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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
(Editing by Rob Cox and Bob Cervi) ((email@example.com; Reuters Messaging: firstname.lastname@example.org))