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 
 
¶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