As Europe’s banking system has weakened over the last several months, financial markets have been abuzz with rumours and media reports about possible investments from the Gulf — particularly from cash-rich Qatar, which has been on an international acquisitions spree.
Analysts and bankers said it was possible that Qatar would make relatively small investments, perhaps of several hundred million euros, in European financial firms. Some European media reports last week said Qatar was part of an international consortium discussing a purchase of Dexia’s Luxembourg arm, valued at some 900 million euros ($1.2 billion).
But analysts said Qatar and other Gulf states were unlikely to invest aggressively enough to make much difference to big European financial institutions.
“Not even Qatar’s pockets are deep enough to really throw meaningful capital at the European financial system. They could participate in some of the capital raising that banks are doing, but ultimately, public multilateral support is needed,” said Rachel Ziemba, director at Roubini Global Economics in London.
Other Gulf states may be even more cautious, analysts said. The Abu Dhabi Investment Authority has some $600 billion of assets, but Abu Dhabi was required to bail out Dubai during a property market crash two years ago and if the global economy worsens, it may yet need to provide more support.
And Abu Dhabi has been burned in the past. In 2007 it agreed to a $7.5 billion investment in Citigroup Inc but filed an arbitration claim at the end of 2009 accusing the US bank of misrepresentation, after its stock price plunged. Citigroup said it had not acted improperly.
Saudi Arabia also has a huge financial war chest, but its government embarked this year on a $130 billion spending programme on housing and other projects. With global oil prices approaching levels at which its budget surplus could disappear, it may not want to undertake risky new investments abroad.
The financial market speculation about Qatar’s intentions resembles that over China. Rumours have abounded this year that Beijing will deploy more of its $3.2 trillion in foreign exchange reserves to buy the government debt of Greece and other weak European countries.
But so far, Chinese buying has not prevented a collapse of the bond prices of indebted European states. There is no evidence that China is buying more euro zone bonds than the weighting of the euro in its reserves would indicate, and many of the bonds it does hold are believed to be German and other top-quality credits, not the debt of weak countries.
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