Citigroups largest individual investor, Prince
Alwaleed bin Talal, has launched a vigorous defense of the firm
and other institutions that are too big to fail,
amid calls for systemically risky banks to be split up.
In an exclusive interview with Emerging Markets,
Alwaleed, chairman of Saudi Arabia-based Kingdom Holding
Company, said he was confident that the US administration and
lawmakers would not seek to break up the nations biggest
This idea of breaking up the big banks is not any
longer on the table. Even if you break up one of the banks into
two or three pieces, that bank is still going to represent
hundreds of millions or billions of dollars, he said.
And any failure of a broken-up bank is still going to
impact the whole system. You need to fix the problem, not a
symptom of the problem.
He said the problem of systemic risk could be eased by
having strong regulation, not to have this laissez-faire
approach whereby the market will fine-tune itself. This has
been proved wrong. The market can not and will not regulate
But he opposed breaking up banks. Who will
decide? Where do you draw the line? Instead Alwaleed
backed calls from US authorities to strengthen regulation,
to go beyond the limits of the requirements of Basle
His comments came as calls grow for the government and
regulators to dissolve too big to fail banks
because of the systemic risk they pose. Former Federal Reserve
chairman Alan Greenspan said that a way should be found
to make no institutions too big to fail. He told a
conference in Washington DC on Friday: Too big to
fail is a major problem.
The Saudi billionaire also called on the US government to
sell its stake in Citigroup as early as this year. The
earlier the US government exits its investments in those
companies, the better, he said, so long as any withdrawal
happens in a way that will not [negatively] impact the
stock price of that company, be it Citigroup, Bank of America
or any other company.
He noted that we need to give confidence back to the
shareholders and investors that these companies are moving
along without government support.
Reducing the governments involvement in Citigroup is a
core objective of the banks senior management in their
bid to return the bank to long term profitability after two
years of losses.
Citigroup has received a total of $45 billion in
capital from the US Treasury as well as a $306 billion
loan-loss guarantee designed to cover 90% of losses on its most
Alwaleed said he expects the bank to return to operating
profitability at the earliest next year. He said the right
long-term capital structure for the bank would depend on
regulatory requirements currently under consideration by US
The intention is to so go beyond the limits of the
requirements of Basle II. They would like to extend the scope
they cannot afford to have another crisis like
Alwaleed upped his stake in the bank from 4% to 5% in
November last year, at the height of the financial crisis. But
the Saudi billionaire took a major hit last year as his
investments in Citigroup and elsewhere plummeted. Citigroup
shares have dropped 34% this year to about $4.52.
Alwaleed said the bank had learned its lessons.
Citigroup has learned a huge lesson [from the financial
crisis]. The worst is behind them right now. He cited the
banks roughly $100 billion in tangible equity
the highest in the industry as well as the
scale of its operations in more than 100 countries, as evidence
that the future is very bright.
But he warned: If banks and regulators did not learn a
lesson from this blunder of the century, then they will never
Kingdom Holding posted a net loss of nearly $8 billion in
2008, one of the largest corporate losses in Saudis
history, but the conglomerate reported last month its
investments for sale had risen by 75% since February. We
are long term investor, so [stock market volatility] does not
really impact us much, he said.